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AMD Considering Getting Out of Fabrication Business
mytrip writes "2007 has not been kind to AMD, but it's surprising to hear rumours that they might be considering outsourcing chip fabrication. Analysts are predicting that AMD will try to cut costs by moving some fabrication elements out of the company by early next year. 'One Citigroup analyst is predicting a "transformational move" that would result in AMD's lower-end CPUs being manufactured by a third party and possibly selling off part or all of its Dresden, Germany facility. Another report from Goldman Sachs outlines the investment firm's belief that the company will leave manufacturing completely in the hands of third parties.'"
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Alternate correction:
AMD Considerin' Gettin' Out o Fabricatin Biznes, Yo!
but this might actually be a "good thing."
Why? Because the main reason that no one but AMD can curretnly compete is because of the hight cost of the fab's... If third party fabs, capable of producing transistors the size that Intel makes, start springing up around the world we will probably see other design companies come out of the woodwork and start producing innovative and competitive chip designs.
If Via, for example, could produce chips in a 65nm fab in reasonable volumes... they might compete for the laptop market.
It may not be the best move for AMD, but for the buying public it should encourage innovation and competition. Which ultimately benefits everyone.
Sometimes the best solution is to stop wasting time looking for an easy solution.
Lately, IBM and AMD have been the only firms out there capable of keeping up with Intel's process advances, with most of AMD's due in significant part to IBM. This move could well usher in an era of consumer level technology stagnation. We saw what Intel did while AMD was a non-competitor (how many damn generations did they ride the basic pentium pro architecture??) and how badly they react to renewed competition (Yeah, great job on both the 1.13ghz P3 and the whole Netburst architecture). Intel has just in the past year or so bothered to give consumers worthy processors, and now if IBM doesn't decide to take a look at the consumer market and keep Intel on its toes, well, we're fucked.
:'(
Awesome news! Next up, Torvalds indicted on murder charges when a mailing list discussion gets so heated he sticks a pointer straight through a face? Netcraft confirmation of BSD's death? Ron Paul is assassinated as republicrats cheer in the streets?
Being fabless works for lots of companies, for example NVIDIA (disclaimer: I work for the gentle green giant).
There are lots of companies who only do fabrication, just as there are many other fabless semiconductor companies. With process shrinks occuring as quickly as they are today, it makes a lot of sense to let someone else (or several other someone elses) deal with the cost of developing fab facilities capable of the latest and greatest process size.
I currently have no clever signature witicism to add here.
When the Core series were released, things didn't look to good for AMD. When they announced the delay of Barcelona, things started to look really bad. There are a few reasons why AMD may go bankrupt in a few years:
-AMD is behind in the laptop market, which is growing at a staggering pace. -Intel has as extreme cash flow, and therefore more room for mistakes. -The marketing team at Intel has been doing a better job than its counter-part. -Intel is ahead of schedule. In the meantime, AMD is behind. -AMD recently purchased ATI. It is not necessarily a bad move, but it cost them tons of money. To make things worse, ATI is behind schedule and also behind its only competitor, nVidia, which means less money for AMD. -AMD shares are currently falling.
I can only hope that I am wrong but I would definitely not buy AMD shares today.
Full Tilt
You line of logic is spoken like someone who knows nothing of the semiconductor market.
The semiconductor market is one of the most brutal markets in existence. Capital costs are through the roof, demand is unstable and hard to predict, and the margins are razor thin. AMD is doing itself a favor to extract as much of itself out of the market as possible and focus on design. Design and production are as different as night and day. Competency in one speaks little about competency in the other.
What AMD is gaining is mass market production above and beyond what they currently have. Do they have to pay a middleman a cut? Sure, but in return they are getting access to massive foundries that can produce on an industrial scale. The foundry doesn't care what runs through its lines, so long as something is running. The more they run, the cheaper it is. It isn't like they will just run AMD chips. They will run a whole pile of other chips that run on the same equipment. The result is that they can sink the massive capital costs that a modern day semiconductor factory costs and run enough volume to make it profitable. Short of becoming diving into the foundry business and running lines for other companies, AMD has no way of running the massive volume it takes to make justify the horrific capital costs that a cutting edge semiconductor foundry demands.
The semiconductor foundry business is a cut throat world to be in. Massive capital costs, low profit margins, and over capacity makes keeping a foundry running a full time struggle. AMD is doing itself a favor by doing what AMD does best. AMD designs good chips. AMD isn't a semiconductor foundry. The slightly higher costs in paying 'middlemen' is pittance compared to the horrific cost of dropping a multi-billion dollar foundry down every couple of years while at the same time selling and junking your old multi-billion dollar foundries.
It is well known that running a state-of-art foundry efficiently requires ginormous production volumes, so most semiconductor companies go fabless these days. However, if a company like AMD can't afford its own fab, then Intel might have a huge advantage here and we might see less competition in the microprocessor market from now. Just look at Sun's experience. Sun Microsystems had been historically fabless. Their newest SPARC processors were being fabricated primarily by Texas Instruments, and Texas Instruments has pretty much ruined Sun's ability to compete with Intel on CPU speed because it often took TI years to start producing a new Sun chip in significant numbers. I remember how Sun's introduction of UltraSPARC III was the longest and most painful CPU rollout ever. It took them something like three or four years to replace the major UltraSPARC II products.
It looks to me a lot like the article about Microsoft divesting its massive cash reserves a while back. It's "analyst" speculation by people who, by virtue of being in the "analyst" business don't actually understand the industry they're speculating on. This is what they think AMD will do because "that's how it's done." Never mind whether or not AMD thinks it'd be a good idea.
Speculators speculate on money moving, so it's rather unsurprising that they'd suggest that the response {large company} would have to lackluster performance would be to spin off the cost centers and reorganize to maximize the synergy of the core competencies.
Now, it is beneficial to make sure you're only worried about the business you're in. A lot of companies in the 90s for instance had huge in-house IT departments despite IT not being the thing that makes them money. They'd have a lot less headaches if they'd subscribed to an IT service to take care of their needs there, freeing them up to worry about the thing they really sell. You wouldn't worry about that any more than you'd worry about a company purchasing paper instead of milling it themselves.
To my untrained eye, AMD appears to be in the business of selling microprocessors. The manufacture of those isn't an incidental part of the business (the manufacture of the tools to manufacture the chips would be such an outside activity), but a key layer in their vertical integration. Unless their numbers are really small, I can't see why it'd be cost effective to drop that.
Can you be Even More Awesome?!
Don't get too worked up. AMD will be outsourcing bits of production, that's public knowledge. They've contracted with Charter for CPUs, and ATI, which AMD bought in 2006, has always been fabless. So, yes, more outsourcing is in the cards.
Will AMD go completely fabless? I highly doubt it. IMHO, top-end chips pretty much require in-house fabs. That extra 10% of control and 10% of benefit to tweaking a fab to your own specific needs and 10% benefit to setting your own time lines can make the difference between being competitive in the high-end and not. (Yeah, I'm making those numbers up, but you get the idea).
Sure, AMD is having a tough year, but hopefully things will get on track. When they do, having at least one in-house fab is pretty much crucial to being competitive in the top-end... and the top-end counts because the margins are incredible there.
The mid-range chips and lower end stuff can probably be pushed off to a 3rd party... and I think we might see something like that from AMD.
How about if AMD used its debt investments in new fabs in Germany and NY to accept outsourced fabrication for other companies it doesn't suffer from boosting? That would make a lot more sense than getting in debt to sell capital facilities at a loss of both investment and competitive control.
These analysts don't know anything. They just want every business to cut costs and debt while still producing the most revenue, for the most short-term profits, even if trying to do so is a stupid strategy that wrecks the company. When was the last time any published equities analyst was right about some surprising transformation of an industry leader? If they understood business strategy, they'd be running one, or privately advising one on equity development. These are people who can't even hold a job speculating in the market, so they try to make it speculating on the market.
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make install -not war
You misspelled "bidness".
In Repressive Burma, it's not just your connection that dies. slashdot.org/comments.pl?sid=314547&cid=20819199
To own and run ones own fabs, one has a LOT of cash tied up in fabs. That means carrying tremendous debt levels, and given AMD's shaky financials, at a higher interest rate than Intel. This gives Intel a competitive edge, just from the finance side. Selling the fabs would let AMD reduce its debt levels, improve it's balance sheet, and possibly cut costs.
AMD's "tough" years are in part because as a company with its own fabs, it has massive fixed costs (and the interest expenses associated with it), which means that when cyclical demand trends downward, their numbers get destroyed by the high fixed costs. High fixed costs are irrelevant to huge market leaders, but the nimble competitor gets eaten up when things get painful.
OTOH, if one can move capital intensive projects off balance sheet, the company's financial reports improve, which can improve their bond rating and lower their interest costs on other areas.
Right now, AMD must focus on chip design, chip manufacturing, chip marketing, and financial maneuvering. Going fabless would let them focus on designing and selling chips, instead of manufacturing them and managing complicated financial operations to fund everything.
Whether they gain a competitive edge by owning the fabs is another question, and the only people that know that are inside of AMD. Whether the CEO and Board will ask them is another question, but AMD's internal guys know whether they are really good at manufacturing or not.