"Real men have fabs."

—Jerry Sanders, former AMD CEO.

Designing microprocessors is like playing Russian roulette. You put a gun to your head, pull the trigger, and find out four years later if you blew your brains out.

—Often attributed to AMD board member and former Digital CEO Robert Palmer.

AMD has kept investors and enthusiasts wondering about its Asset Lite Asset Smart strategy since the company first announced its existence, but has finally seen fit to lift the veil of secrecy and discuss the plan in more detail. 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; AMD is currently referring to the foundry side simply as The Foundry Company. For the purposes of this article, I'll refer to the two companies as AMD Design and AMD Foundry. The basics of the money trail and the asset transfers/investments are laid out below.



The basic structure and financing of the new companies.

AMD not only unloads debt, it picks up an additional $1 billion in cash

The ATIC (Advanced Technology Investment Company) 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 of Abu Dhabi... ATIC seeks to leverage the unique advantages it enjoys as an investor from the Emirate of Abu Dhabi to identify and realize long?term investment opportunities in the highly competitive and capital?intensive advanced technology sector." ATIC will invest $1.4 billion directly into AMD Foundry, and will pay $700 million to AMD for a 55.6 percent stake in the company. This makes AMD a minority owner in its own spin-off, but the structure of the deal invests Sunnyvale with equal voting rights.

Enter Mubadala, stage right. The Arabian company, also owned by Abu Dhabi, will increase its stake in AMD from 8.1 percent to 19.3 percent, and will pay AMD (aka AMD Design) $300 million in exchange for 58 million stock options and 30 million warrants. As for AMD Foundry, AMD intends to transfer people, manufacturing assets, Fab 36 debt, and "some" intellectual property to the company; total capital investment from AMD into AMD Foundry is estimated at $2.1 billion. The newly formed foundry will continue the conversion of Fab 30/38, and plans to break ground on the planned New York fabrication plant that was first announced in 2006.

The big picture

The split isn't a done deal yet, as it must still pass muster with both the government and the company's stock holders, but AMD believes this is the best—possibly the only—way 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. Even so, Sunnyvale has consistently lagged Santa Clara when it comes to transitioning to new process nodes; the two companies haven't transitioned at the same time since both moved to 0.18 micron back in 1999. The graphs below—included as part of AMD's presentation (PDF) on the deal (PDF)—explain the company's problem quite clearly.

The trend lines on these graphs apply to Intel just as much as AMD, but Santa Clara has the funds and market position to bear the cost of design, R&D, and manufacturing in-house, while AMD doesn't. In a sense, AMD is actually behind the curve—most other semiconductor manufacturers saw the writing on the wall long ago and sold their manufacturing assets to pure-play foundries like TSMC or UMC. AMD expects its side of the company—AMD Design, as I'm calling it here—to receive some $1 billion in total additional investments, rid itself of ~$1.2 billion in debt, and substantially reduce its capital expenditures. The company's relationship and technology-sharing program with IBM remains in effect, and the entire deal was obviously structured in a way that allows AMD to continue to design and manufacture x86 processors under the terms of its licensing agreement with Intel.

One final note on the cost-per-node chart as shown above. One of AMD's arguments in its ongoing antitrust lawsuit against Intel is that Intel's past actions in the 2002-2006 timeframe substantially damaged AMD's ability to invest in future technology, ramp up production, and remain competitive. Whether you agree or disagree with AMD's lawsuit, the data presented here demonstrates why most other semiconductor design firms left the foundry business long ago—and how AMD's ability to generate revenue in past years directly impacts the state of its technology today. 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.

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