News

AMD Splits Operations in $7B Foreign Funding Deal

• By Jim Barthold
• 10/09/2008

AMD was on the financial ropes and facing heavy competition in the cost-conscious semiconductor business when two Abu Dhabi companies, the Advanced Technology Investment Company (ATIC) and Mubadala Development Company, stepped to the fore. The near $7 billion deal will split the AMD chip-making operations into a separate business, which is temporarily being called The Foundry Company. The Foundry Company will be majority owned by ATIC and have AMD as its first and biggest customer.

The deal breaks down like this. ATIC, which is a standalone, separately capitalized investment company owned by the government of Abu Dhabi will own 55.6 percent of The Foundry Company with AMD controlling the remaining 44.4 percent. AMD will contribute its manufacturing facilities in Dresden, Germany and related assets and intellectual property to the deal and Mubadala will concurrently increase its current investment in AMD to 19.3 percent.

Doug Grose, AMD's senior vice president of manufacturing operations, explained in a released statement that the investment will enable The Foundry Company to "deliver on our expansion plans by adding a second leading-edge 300-millimeter facility with bulk silicon capabilities" in Dresden, Germany.

In addition, the plan is to add more than 1,400 employees to a "state-of-the-art manufacturing facility at the Luther Forest Technology campus in upstate New York," he explained. Grose will become CEO of The Foundry Company.

The expansion plans suggest that AMD is ready to make silicon waves that will rock the boat of its major competitor, Intel Corp. As part of that effort, The Foundry Company is expanding its "highly successful collaboration with IBM to bring in leading bulk silicon technology for deployment in Dresden," according to Grose's statement.

New York State, anxious for the new jobs, is offering the company $1.2 billion in financial support. The state is offering the funds despite a $2 billion budget shortfall, and despite majority ownership by a foreign entity. The funding plan drew support from such political luminaries as Sens. Hillary Clinton and Charles Schumer, both of whom released statements reacting positively to the news. In addition to the 1,400 jobs The Foundry Company is promising, New York State expects another 5,000 support jobs will be created in the region.

The deal means AMD is staying in the chips business while avoiding manufacturing costs.

AMD is "assured of access to leading edge manufacturing processes without the capital expense requirements that come from owning a world class manufacturing operation," explained Dirk Meyer, AMD's president-CEO, in a prepared statement. He added that AMD "can now intensify our focus on serving our customers as the only company capable of delivering both world class CPU and graphics designs for next-generation computing and digital media platforms."

Grose said he would "expect a small number of layoffs" in AMD's noncore segments, such as consumer electronics. He added, "The first order of business is about job creation in the interest of creating a new company."