Home > Hardware

Computerworld - Advanced Micro Devices Inc. announced this morning that it is splitting off its manufacturing operations into a separate company to cut costs and get an infusion of capital.

Rumors of a spinoff have been swirling in the industry for the past several months. John Lau, a senior semiconductor analyst and managing director at Jefferies & Co., said last month that by splitting off its manufacturing operations, AMD, which has been struggling financially, could receive a cash injection, while getting rid of the massive expense that comes with updating its fabrication plants.

"We are joining with the Advanced Technology Investment Co. to create a brand new company -- one that epitomizes a new global enterprise with talent and resources from around the world," said Dirk Meyer, AMD's president and CEO, in a conference call this morning. "This will result in a financially stronger and more focused AMD."

The new business, which is being temporarily called The Foundry Co., will be co-owned by AMD and ATIC, which is owned by the government of Abu Dhabi in the United Arab Emirates. ATIC will shell out $2.1 billion for the deal -- with $1.4 billion going to the new company and the rest going straight to AMD to buy added shares in The Foundry, according to AMD.

The chip maker also announced that The Foundry will assume about $1.2 billion of AMD's debt.

ATIC will own 55.6% of The Foundry and AMD will own 44.4%. Its board of directors will be equally divided between representatives from AMD and ATIC.

The Mubadala Development Co., also in Abu Dhabi, now is a 8.1% AMD shareholder, but, as part of this deal, will increase its stake to 19.3% of outstanding AMD shares. Mubadala will pay $314 million to AMD for 58 million newly issued AMD shares and warrants for 30 million additional shares.

Although AMD will be The Foundry's first customer, it will build chips for other companies as well.

Doug Grose, senior vice president at AMD, will be the CEO of The Foundry. Grose said in the conference call that ATIC has promised between $3.6 billion and $6 billion over the next five years to fund the expansion of The Foundry's chip-making capacity beyond the facilities initially contributed by AMD. That influx of capital will help the new company proceed with a planned capacity expansion at a fab facility in Dresden, Germany, in 2009.

AMD also announced that The Foundry will begin construction of a new manufacturing plant in Saratoga County, N.Y., creating more than 1,465 jobs there. Grose also noted that once these two projects are complete, they will consider building fab plants in Abu Dhabi.