Analyst: AMD’s restructuring is survival move

AMD Bid to crack the foundry business won’t be easy

By Jim Carbone -- Purchasing, 10/8/2008 11:14:00 AM

Chipmaker AMD, based in Sunnyvale, Calif., plans to form a U.S.-based foundry company called The Foundry Company in a joint venture with Advanced Technology Investment Co. (ATIC) of Abu Dhabi. AMD will own a 44.4% share and ATIC will possess the remaining 55.6% stake. The new company will build’s AMD’s microprocessors and chips for other semiconductor companies.

The AMD plan creates a new semiconductor foundry company, but will not have a significant impact on the microprocessor market or the foundry industry, according to researcher Bill McClean, president of IC Insights based in Scottsdale, Ariz. He says that “this deal is a positive for AMD’s balance sheet. Without it, the company most surely would have continued to die a slow death. However, this is a survival move, not a strategy that will help them gain market share.”

He says The Foundry Company’s 2009-2013 capital spending budget is forecast to be $4.8 billion. The funds will be used to install capacity to produce devices for AMD as well as to enter the IC foundry business.

“IC Insights believes that this financial commitment is uninspiring at best,” says McClean. He notes that AMD’s capital expenditures over this and the previous four years (2004-2008) were expected to total $6.4 billion. Meanwhile, AMD’s rival Intel is expected to spend $25.6 billion dollars in capital expenditures from 2004-2008, four times what AMD will spend over the same time period. IC Insights forecasts that Intel’s capital expenditures over the next five years will total about $30 billion, or five times the Foundry Company’s most optimistic plan of investing $6.0 billion over that time.

 TSMC, the largest pure-play foundry in the world, is on track to spend $11.3 billion in capital expenditures from 2004-2008. Considering the amount of capital expenditures and the difficulty involved in entering the semiconductor foundry market, AMD’s restructuring will have little impact on the microprocessor industry and foundry segment, according to IC Insights. “AMD will be lucky to sustain flat market share in the microprocessor segment,” says McClean.

Also see:  AMD to launch chip foundry in joint venture