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AMD To Spin Off Fabrication From Design Work
I.M.O.G. was one of many readers to write with the news that "Advanced Micro Devices plans to announce Tuesday that it will split into two companies — one focused on designing microprocessors and the other on the costly business of manufacturing them — in a drastic effort to maintain its position as the only real rival to Intel. 'This is the biggest announcement in our history,' said AMD's chief executive, Dirk Meyer. 'This will make us a financially stronger company, both in the near term and in the long term, as a result of being out from the capital expense burden we have had to bear.'"
Can someone give me some insight into why splitting the company into two is supposed to help AMD?
This is probably being done so that AMD's circuit designers have the flexibility of designing chips for someone else's (like IBM's) superior fabs.
The accountants and the lawyers at AMD at the behest of management, came up with this organization to allow for revenues, costs and subsequent profits to be booked in a much more favorable way. Has anything physically changed? Nope.
But! It's a good thing because it will allow AMD to look better to the numbnutzes on Wall Street and keep the share value for sliding into oblivion. It may also allow for the restructuring of any debt and other capital on the books. I think this reorganization may actually save jobs.
I have to agree with the above comment: this seems like a Three Card Monty or shell game to me as it makes the fab-less part more profitable but consigns the fab itself to possible bankruptcy. Then again, maybe they know that and this way they can, say, sell the fab to a dedicated fab company while telling Wall Street, "Hey, look how profitable we are!" thanks to the insurgence of cash from the sale.
Mike
Maybe they think it will work out as wildly successful as it has for a company like, say, USR/Palm.
IMO, it's time to start short selling them.
Because Design without Fab worked so well for Transmeta?
I see your sarcasm, but it works for ARM and MIPS.
Excellent question! Because you know damn well that AMD is going to take that $6 billion and bury it in a hole in the ground.
$6 billion is a drop in the bucket. Sounds like a lot of money to the guy on the street but on the grand scheme of thing it's too small to make a difference.
As to "helping with our financial bailout" Why would they? Why should they? The mess in the banking industry was created by the banking industry itself. Our government is handling it. If I were a foreign investor I would be looking to grab some bargins.
You have to wonder if this was actually a good long term idea that Intel would be doing it as well. I'm guessing this is more of an accounting trick to help their numbers look better and/or some how lower taxes. I don't own any AMD stock so this doesn't effect me too much... I just hope that they don't go under as Intel does need some one to compete against.
Funny, my company just did the opposite. Our design department was just recently merged with manufacturing. This was done because:
A) Design would rarely factor in the manufacturability of it's designs, driving up costs.
B) Manufacturing had a tendency to sacrifice quality to reduce costs.
This new corporate structure has only been in place for a few months, but so far has worked quite well. Entire product lines have been eliminated (design didn't know manufacturing was still making the old stuff). Entire processes have been eliminated (manufacturing thought they were needed to meet the final spec, but weren't).
Most of these issues could have been resolved with better management and communication, but when design and manufacturing are a single unit, these issues resolve themselves naturally.
One of our competitors trademarked the term "hypothesis". From now on, we will call them "boneheaded ideas".
Government intervention is preventing the invisible hand of capitalism from working.
Do you even lift?
These aren't the 'roids you're looking for.
"two Abu Dhabi investment firms"
Why would they help with the bail out? They aren't in the business of charity, they are making an investment. They're buying in to AMD because apparently they see it as a wise investment. I would assume they aren't giving money to Fanny Mae because they don't see that as a wise investment.
Whale
Because they know a money-toilet when they see one.
Bernake and Paulson have no idea how to take 700 Billion dollars and make it into 701 Billion dollars.
But someone at AMD might be able to take 6 Billion and invest it somehow and pay back a decent return.
If your nation is conquered by another industrialized nation, at least the conquerors will give everyone sweatshop jobs. If your nation is conquered by a gang of multi-level marketers who instead of building factories and growing stuff, announce everyone had better quit wasting their time at jobs and get to black diamond level by winter or you starve, then you are completely fucked.
Stick a fork in AMD, they're done.
A design firm plus a foundry does not equal an integrated semiconductor powerhouse.
Who is left to compete with Intel now? At least we will have Nehalem. Get used to Nehalem, embrace it, love it. Because it's going to be around for a long, long time. At least we have the x86-64 ISA, on-board memory controller, and point-to-point processor communications as an AMD legacy. And thank $DEITY that AMD was able to put a stake through the heart of Itanium.
There won't be much future innovation from Intel without the spur of aggressive competition from AMD.
Cheers!
"The only good windmill is a tilted windmill."
If they are a single company, then, internally, the two groups almost have to use each other or else seem bizarre. I.e., if the designers contracted out fabrication of a model even though their own fabrication division was not fully utilized, that would seem unhealthy. By the same token, if the fabrication division pre-empted production in-house designs for a third-party, that would similarly look bad.
With that view, it would be a tad harder for the fabrication portion of the business to attract design companies, with prospective companies knowing they are putting their manufacturing capabilities in the hands of a company that would be both partner and competitor. The conflict of interest is far from appealing.
Few large corporations under typical circumstances preserve in-house at-scale manufacturing. I.e., most x86 system vendors now at most design the system and then feed to another company for fulfillment, potentially even a company spun off from themselves when they reached a similar conclusion.
As consumers, we don't stand to lose, only to gain. For example, if nVidia has been held back in any quality/performance way by inferior fabrication companies, they may now approach AMD fabrication. Same goes for AMD v. Intel, if another fab company can deliver more aggressive process size/yield improvements, then AMD design can go to that company and produce a valid competitor to Intel.
Or it shows that both halves of the company were completely average nowadays even in only the context of their similar competitors, and still doesn't do well, but that isn't different from today.
XML is like violence. If it doesn't solve the problem, use more.
So the bottom line is that the Abu Dhabi Government is buying AMD?
"The ferrets, they're every where I tell you!"
I thought AMD is required to own at least one fab themselves. At least that's what I thought the deal was with INTEL in order to use the x86 architecture
.
$6 billion spent on a factory in upstate New York is good news for upstate New York.
It takes guts to put that much money into new industrial development during a financial crisis. The money could have been invested in AAA rated bonds from Microsoft.
How better to help with financial bailout than to make a big company stay profitable instead of laying off highly skilled workers?
A hot fab is useless unless you can get product to market, and sell into the markets you need to achieve sales goals. AMD hasn't done this.
While they have very good engineers, they're weak in so many places. An infusion of foreign capital makes no sense if you can't get the basics right.
Yes, Intel, IMHO, used illegal tactics to kill AMD at many turns. AMD needs to recruit the best and brightest and get a regime change in motion to diffuse their preyed-upon attitude. They could lead again, but not with the current regime.
Chopping the company into bits will be a distraction, not a savior.
---- Teach Peace. It's Cheaper Than War.
I don't know what it was, but it also split in two. It was a slow process mind you, took about a week before the split finished.
Then it died in a few months after the split. I think the problem was that I never put the plant into a bigger pot. It split in two and now needed twice as many resources to survive, and that small pot was simply not enough room for its roots.
So imagine my surprise when I read this story and realized that the exact same thing happened to my plant.
I'm god, but it's a bit of a drag really...
R.I.P. AMD and see you latter ATI i remeber when AMD/NVIDA was perfect with the nvidia chipset and the video and amd doing the prossor. now AMD is a company that is almost dead. :(
1) AMD Spins of fabs. ...
2) Intel/VIA/TMSC/IBM buys AMD Fabs.
3) Intel/VIA/TMSC/IBM Fabs charges huge price to manufacture AMD CPU's.
4) AMD CPU Prices skyrocket. Unable to find a cheap reliable FAB, AMD loses price competitive edge.
5) AMD Stock tanks.
6)
7) LOSS.
In Soviet Russia, Trojan exploits YOU!
Once again, another American company selling off to foreign investors.
Another powerhouse US industry falling to the wayside.
Sucks that I foolishly spent many years studying to work in said industry.
At least both presidential candidates are planning to retrain me to sell cars or something.
Lurking in the desert
ATI contracted out their fabrication in the past, correct? Since AMD acquired them, perhaps they now realize this might work for their x86 stuff. Disclaimer: I have absolutely no expertise in this area.
Where did all these unpaid shills in the replies come from, anyway?
AMD started out as a third party fab for Intel's CPUs. Maybe a few years from now this spun off company will move into chip design too, though hopefully by then there'll be enough people using platform-independent OSes that they won't feel compelled to make yet another x86.
...remember Palm?
What Transmeta and AMD have in common is that they produce x86 compatible chips and thus compete directly with Intel.
As Spatial pointed out, NVIDIA is fabless, and NVIDIA also competes with Intel in chipsets and video. If AMD is going fabless, what makes at least the ATI division of AMD any different from NVIDIA?
They got greedy when they were on top, and charged too much for processors which allowed Intel to do to them exactly what they did to Intel(swoop in with cheaper parts).
They've also got some problems with maintaining any presence in the top end of the CPU market. This isn't a huge deal for fabrication as almost no one buys those thousand dollar CPUs anyway, but those thousand dollar CPUs are your next generation main stream CPUs so you've got to have them.
They've also had some issues because they aren't big enough to take what's been happening in the market lately as easily as Intel has. AMD is now worth less than they paid for ATI, they're not alone in being worth a lot less, but it's not as visible for other companies.
Essentially the biggest thing this does is allow AMD the design company to ditch its debts into AMD the fab company. Investors will be much more willing to accept debt in the fab company because at the very least the assets are worth cash and it won't be dependent on whether AMD can come up with something halfway decent design wise. If the design company goes under, they can always just go fab Intel CPUs.
The design company on the other hand, after offloading a whole lot of its debt, is much more likely to stay alive long enough to fix things. They've got to get designs out into the market, they've got to be cheaper, and they've got to be at least almost as good as the Intel parts, but they have to survive long enough to do that.
Realistically, AMD will probably buy the company back if they do survive because having your own fabrication facilities is probably key to being in the top of this market, but in the meanwhile they get to stay alive in a failing economy, a credit crunch, and a time of total lack of vision for the future.
This split, silly as it sounds, may allow them to survive long enough to do this, and at the very least might keep Intel worried enough that they don't go back to the old days for a few more years.
What I was saying...
XML is like violence. If it doesn't solve the problem, use more.
I read that Gordon Moore once explained his "Moore's law" as being economic, not technical. He said that when Intel builds a new plant, each new plant costs about twice as much as the last one. so he said at some point a plant will cost more money then there is on earth so they will have to stop buiding new plants at some point and then Moore's law will end. I think what we are seeing is the front end of this. A few smaller companies are finding they can build new fab plants. Maybe in 20 year even Intel will have to do what AMD is doing and then we will see the end of exponential growth.
The key observation here was by Gordon Moore that growth in the number of transisters is due to growth in capital spending on fab plants, not technology.
Not to troll, but being one of the many people who felt the pain as Hector started spinning more and more BS storms to hide the fact that AMD never came up with a good product after K8 and failed time after time to finally capitalize on their gains, I'm glad AMD is finally going to chop itself up.
Conference call after conference call investors were told everything was okay. AMD did some good things for themselves when they let Intel fly into the sun while they held back on GHz and finally got the performance-per-watt metric to stick and won a lot of respect in the industry.
AMD followed up by flying straight into the sun and insisting that their architecture was fundamentally better and that true-quad-core was the way to go while Intel kept making good chips and lo and behold nobody cared if they were dual-die packages or not. AMD didn't have the production capability to fabricate such a part and committed product-pipeline suicide. They lead investors and wall street to believe they had a chance. Conference call after conference call they told the world it was going to be okay.
In the end, Intel's architectures are superior on the right counts. They've done a great job at getting the most out of their transistors with the shared cache architectures. AMD should have followed step, but either couldn't keep up or didn't allocate the resources right. Either way we ended up with a transistor monster in K10 that was hard to produce, buggy, and didn't offer the performance. Shame on Hector for flogging the dead horse.
"There are some people that if they don't know, you can't tell them." ~ Louis Armstrong
They have been building new access roads like crazy in anticipation of this new fab plant, which they didn't know was coming for sure until today. On the one hand, I'm glad that all the construction wasn't for nothing. And local homeowners are excited that their unsellable homes may soon be in demand. But it is still going to suck big time for the local environment, not to mention how the traffic will make life there miserable. And I have a strong suspicion that all those new corporate tax dollars won't reduce property taxes or the sales tax in Saratoga County by a cent.
This has been tried before, by other ailing IC-making firms, and it didn't help them survive to the present day; why should it be any better a strategy for AMD?
Corporate cost-cutting strategies are idiotic and political. They're temporary band-aids, and not very good ones. Selling material assets at a loss or sending human resources packing in order to make the bottom line APPEAR better is moronic and short-sighted, and it never really helps. Keeping those assets and more effectively utilizing them is the correct route to fixing the bottom line; cutting assets loose is an admission that the company is run by inept strategists or corporate raiders who care about something else other than the long-term success of the company.
You spin off a company, and get on the board. It is usually easy if you were on the board for the parent company. Then you IPO, sell all the stock on the first day and shut down the company. I suspect Intel or IBM will be buying AMD's fab in 18 months to expand their own capacity.
“Common sense is not so common.” — Voltaire
TSMC is a pure foundry. They have a net cap of $54B and generate $9.76B of which $3.63B is net income.
Intel is vertically integrated. It's net cap is $129B and it generates a net income of $7B from $38.3B in revenue.
In terms of net income per dollar of net capitalization or per dollar of revenue, TSMC beats Intel.
So, it's quite possible to be a very profitable semiconductor foundry.
On the flip side, however, it's not necessary so easy to be a world leader in final chip product if you don't control the fabrication process since you're left without an edge. Any other design house has access to the same underlying technology and you need to rely solely on design. Plus, there's more of a lag between technology decisions and when the impact of these decisions are reflected in the design kit so that pushing the technology to its limit based on trust in the design kit and models can become more difficult. I personally think the problem is solvable, however, if the right business relationship is established.
Um. You do realize that Intel had no intention of ever extending x86 arch to 64-bits, right?
And that the plan was to force anyone who needed more that 4GB of address space or eight 32-bit registers to migrate to Itanium?
And that Intel had strong-armed or bluffed all competing RISC vendors (except Sun) into abandoning their 64-bit CPUs based on Intel's plans for an entire Itanium 'ecosystem'?
And that they had the entire IT press eating out of their hands, blathering on about the bright inescapable future of Itanium everywhere for about four straight years?
And that Intel didn't really care about cost, price-performance, power consumption, or other customer-centric innovations whatsoever?
No, Intel had all their plans laid out, and nothing would stand in their way. It was their way (Itanium) or the highway.
And then AMD put the Hammer down. The debut of the Opteron in 2003 was the beginning of the end of Itanium. AMD's intense competitive streak, while not always profitable, certainly altered the entire x86 ecosystem away from 'legacy' status, and sidelined Itanium into a niche player that any smaller manufacturer would have dropped years ago.
So yes, I think the whole IT world owes AMD a huge debt of gratitude for nipping Itanium in the bud. And for creating a vibrant, competitive market that otherwise would have stagnated under the sway of a single monopolistic vendor.
So like I said before, who will keep Intel honest now that AMD has applied King Solomon's solution to itself?
Cheers!
"The only good windmill is a tilted windmill."
So hot on the heels of AMD's "Fusion" ad campaign, they are splitting the company in half?
Looks like AMD got fusion and fission mixed up.
Fusion, fission... both seem appropriate considering the mushroom cloud floating atop AMD's market value crater.
As someone still holding AMD (even after watching the Fusion ad over at The New York Times), I applaud this move. By which I mean, "Things couldn't possibly get any worse!" (/knocks on wood).
With Hector behind this deal, it is no surprise that this was almost exactly what Motorola did years ago. Motorola spun off their manufacturing division into Freescale. Now their design division cannot churn out any performance mainstream chips, and their manufacturing division had to be completely bought out after a major losses in 2007. Let's hope Hector has learned from what happened to Motorola this time around.
You have to make a profit before you can pay taxes... I doubt that AMD is doing this because of taxes. :(
You have to pay taxes whether you make a profit or not, you just don't have to pay income tax if you're not profitable. You still have to pay at least property and payroll taxes.
Falcon
Should there be a Law?
Government intervention is preventing the invisible hand of capitalism from working.
I agree, there shouldn't be a bailout. However because there was one, government should have bailed out those who are being foreclosed on. By giving a fraction of $850 billion to them they could have made their payments to mortgage companies. This would benefit banks too because they would be getting paid.
If the economy wasn't so reliant on banks, I'd let them die a death from a 1000, er 1,000,000 cuts. And to think, Wall Street tanked again after the bailout was approved and signed.
Falcon
Should there be a Law?
Unfortunately the US system is geared towards a two party system.
Actually I don't think the system is geared towards two parties, instead people are geared towards two parties. Many people are upset over both major parties but they won't put the energy into supporting and voting for other parties. Without the energy needed it's become the "least bad" syndrome. I fell for that in 2000, instead of voting for whom I wanted to vote for I specifically voted against Bush.
Falcon
Should there be a Law?