A daily digest of IT news, curated from blogs, forums and news sites around the web each morning. We highlight the key commentary and demystify the real story.
In Wednesday's IT Blogwatch, Richi Jennings watches AMD "demerge" into separate design and fab companies. Not to mention some educated guesswork...
Sharon Gaudin reports:
Advanced Micro Devices Inc. announced this [Tuesday] 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.
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The new business, which is being temporarily called The Foundry Co., will be co-owned by AMD and ... Advanced Technology Investment Co. [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 ... [which] will assume about $1.2 billion of AMD's debt
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The Foundry will begin construction of a new manufacturing plant in Saratoga County, N.Y., creating more than 1,465 jobs there ... [and] proceed with a planned capacity expansion at a fab facility in Dresden, Germany ... Although AMD will be The Foundry's first customer, it will build chips for other companies as well.
Joel Hruska adds:
AMD intends to split itself into two companies, with one focused on CPU and GPU design and the other on manufacturing. The design side of the company will keep the AMD moniker and brand.
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ATIC ... is wholly owned by the Emirate of Abu Dhabi; the company describes itself as: "focused on making significant investments in the advanced technology sector, both locally and internationally. Its mandate is to generate returns that deliver long?term benefits to the Emirate ..." AMD believes this is the bestpossibly the onlyway to remain even marginally competitive with Intel. Despite the current performance gap between Intel and AMD products, AMD's foundries are still some of the most advanced in the world.
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When Jerry Sanders said "Real men have fabs," the math behind that statement was extraordinarily different than it is today. Given the cost of ramping production at 32nm, 22nm, and 12nm process nodes, spinning off the foundry business and backing it with Arabian oil money makes a good deal of sense, and could significantly help AMD's plans to return to profitability.
Harry McCracken:
Emotionally, the move may be a big deal for AMD, which has spent decades taking on Intel by, essentially, trying to be Intel. But nearly everyone else involved in the designing and building of processors has decided that financially, it makes sense to separate the building partwhich involves massive, massively expensive plantsfrom the designing.
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If it helps the two new companies produce more advanced chips more quickly, its a good thing for consumers ... The golden age of the Intel-AMD wars were back around the turn of the century, when AMD rolled out the excellent original Athlon CPU, giving every PC user a reason to consider an AMD-powered computerand giving Intel a scare that ensured it wouldnt spend the next few years resting on its technological laurels.
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The chip wars matter to most consumers only because theyre a driver of healthy competition.
But Saul Hansell's not so sure:
The point is to separate the high-capital, low-margin manufacturing business from the low-capital, high-margin design business ... This sort of financial engineering makes a lot of sense to consultants and investment bankers. But it often does little for customers and the overall health of the combined companies ... The logic of these deals is like an open marriage: Were going to stay together, but were free to see others at the same time. Unfortunately, it tends to make for unstable relationships.
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Mostly it is the bankers who win from these deals. They remind me of Sylvester McMonkey McBean, the fix-it-up chappie from Dr. Seusss The Sneetches who gets paid to add and subtract stars from the bellies of always-unhappy beach birds ... If it waddles like a sneetch and eats capital like a sneetch, its a sneetch, star or no star.
Stacey Higginbotham sees other downsides:
New York State has promised $1.2 billion in assistance to AMD if it builds its fab in New York. The state does not have an agreement with The Foundry Co. Given the economic uncertainty and the foreign ownership of the new business, that assistance may change.
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Because AMD has a 44.5 percent ownership stake in the fab it has some disincentives to negotiate hard for better wafer pricing. That could hurt AMDs bottom line.
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AMD uses other foundries to make some of its chips. As a majority owner of a competitor, how will other foundries treat AMDs wafers?
Richi Jennings is an independent analyst/adviser/consultant, specializing in blogging, email, and spam. A 22 year, cross-functional IT veteran, he is also an analyst at Ferris Research. You can follow him on Twitter, pretend to be Richi's friend on Facebook, or just use boring old email: blogwatch@richi.co.uk.
