AMD cuts chip orders to GlobalFoundries as PC market slumps

IDG News Service - Advanced Micro Devices has cut orders to contract chip manufacturer GlobalFoundries, expecting a "choppy demand environment" in the next few quarters.

The company said Thursday it has amended its wafer-supply agreement to cut its purchase of wafers from GlobalFoundries to about $115 million in the fourth quarter, and to $1.15 billion in fiscal 2013.

AMD had previously contracted to buy $500 million in wafers in the fourth quarter from GlobalFoundries, said company spokesman Drew Prairie.

The amendment to the contract will cost AMD $320 million, with $80 million to be paid in the current quarter, and the balance in April and December next year, the company said. It will lead to a net one-time charge of $165 million in the quarter.

AMD has also committed to purchase wafers from the fab for about $250 million during the first quarter of 2014, with negotiations for the rest of the year to take place in 2013.

Global PC shipments will shrink in 2012 for the first time in 11 years, due to a combination of economic factors and competition from new platforms, including media tablets, according to research firm IHS iSuppli. The PC market in 2012 is expected to contract by 1.2% to 348.7 million units, it said in October.

AMD designs PC, server and graphics processors that are then manufactured by contract firms such as GlobalFoundries. The company aims to diversify beyond the traditional PC market and drive 40 to 50% of its product portfolio to fast-growing and related markets like servers for the cloud market, ultraportable and very low-power devices, and embedded and semi-custom chips.

It saw revenue drop to $1.27 billion in the quarter ended Sept. 29 from $1.69 billion in the third quarter last year, and reported a net loss of $157 million from a net profit of $97 million last year.

The company is facing an increasing threat from the likes of Apple, Samsung, Qualcomm and Nvidia, whose ARM-based chips go into smartphones and tablets. In the x86 market, its gap with Intel widened in the third quarter according to Mercury Research.

AMD said in March it was divesting its stake in GlobalFoundries which would also not remain as AMD's only manufacturer of chips using the 28-nanometer process.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com