Struggling AMD Spins Off Its Fab Operations

Advanced Micro Devices Inc.'s move to spin off its manufacturing operations generated praise from analysts and questions from Intel Corp. about whether it violates a cross-licensing agreement between the two companies.

Sunnyvale, Calif.-based AMD last week announced it is spinning off its fabrication operations into a new firm, temporarily called The Foundry Co., to cut costs and gain an infusion of capital.

Advanced Technology Investment Co. (ATIC), based in Abu Dhabi, United Arab Emirates, paid $2.1 billion for a majority stake in the new firm. Co-owner AMD will retain a 44.4% stake.

ATIC, wholly owned by the Abu Dhabi government, will spend between $3.6 billion and $6 billion over the next five years to expand the firm's chip-making capacity, said Doug Grose, CEO of The Foundry. Grose had been senior vice president of manufacturing and supply chain management at AMD.

Meanwhile, Intel said it plans to evaluate the terms of the AMD-ATIC agreement to determine how the deal would affect the licensing pact, which, among other things, lets AMD use Intel's x86 processor architecture.

An AMD spokesman said the company structured the spin-off "in a way that takes into account all our licensing agreements to ensure The Foundry will be able to manufacture all of AMD's products."

Despite the potential licensing problem, analysts said the deal could rejuvenate AMD after two years of struggles. "

The industry will be dealing with an AMD that's a good deal more nimble, because they won't be dealing with the same financial burdens or the fab plants," said Dean McCarron, president of Mercury Research in Cave Creek, Ariz.

Early in the decade, AMD had grabbed a solid footing in the market, and analysts cited its success as a reason Intel floundered between 2003 and 2005.

Intel responded in 2006 with a reorganization that curbed AMD's momentum. After that, AMD stumbled further under the weight of its $5.4 billion purchase of ATI Technologies Inc. and its delayed Barcelona chip.

In July, after AMD's seventh straight quarterly loss, Dirk Meyer replaced Hector Ruiz as CEO. Ruiz last week was named chairman of The Foundry.

This version of the story originally appeared in Computerworld's print edition.

Copyright © 2008 IDG Communications, Inc.

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