AMD walks fine line with $3 billion NY plant
The chipmaker is caught between the need to reduce manufacturing capacity on its books with pressure to build a fab in New York state.
Update at 2:15 p.m. PDT: Adds comments from AMD spokesperson.
Advanced Micro Devices is in a bind. The chipmaker is caught between the dire need to reduce manufacturing capacity on its books with pressure to build a $3 billion plant in New York state.
AMD's chairman Hector Ruiz is touring the Malta, New York site this week-- referred to as the Luther Forest Technology Campus--as Saratoga County installs a $79 million water pipeline that will service the facility. Moreover, this week, the town of Malta voted unanimously to approve plans for the plant, according to the The Saratogian, a Saratoga Springs, NY-based newspaper.
AMD need only say "I do"--a green light from AMD would seal the deal and release $1.2 billion in state incentives.
If it was only that easy. Back in the halcyon days of 2006 when AMD was basking in its status as the smarter, better chipmaker (having humbled Intel with its superior Opteron processors), a headline in the Timesunion proclaimed: "AMD chip plant deal was years in the making." It sounded like nothing less than a foregone conclusion that AMD had committed to building the facility.
And as recently as March 2008, the Daily Gazette of Schenectady, NY quoted U.S. Sen. Charles Schumer as saying that there was "no doubt in his mind" that AMD will "commit to a project to build a chip fabrication plant" in Malta.
Then, the report added: "Although he said he couldn't guarantee it."
Ay, there's the rub. What the report didn't say is that AMD is now in the midst of a major restructuring as it reels from a string of quarterly losses ($1.2 billion in the second quarter) and is shedding assets as quickly as it can. AMDafter saying back in July it would get out of the .
Reports also seem to be skirting the fact that AMD never completely committed to the plant. "It was such big news for the region. It got built up a little bit and people made a natural assumption that this means that we're building a new fab," said Travis Bullard, an AMD spokesperson. "When in reality all that was really announced (in 2006) was that we had this option to build a fab."
Enter Asset Smart--AMD's plan to rejigger manufacturing assets on its books so it can go forward with the Malta facility (among other commitments). "This is about their books and their finances more than their operations," said Dean McCarron, principal and founder of Cave Creek, Arizona-based Mercury Research. "It's about getting rid of the capital requirements for manufacturing."
"When the New York deal was done (in 2006) AMD was well on its way to ascendancy in terms of market share," McCarron said. "The belief was that two current-generation fabs would be necessary to satisfy full demand. If they got to the 30 percent goal (share of the x86-architecture chip market). But they're not at the goal, they're roughly in the 20 percent range."
So, how will AMD reconcile the countervailing forces of shedding manufacturing assets and building another $3 billion plant? One theory is that they get one of the sovereign wealth funds like Abu Dhabi to build a factory for them, said McCarron. In November of last year, AMD received $622 million in funding from Mubadala Development Co., the investment arm of the Abu Dhabi government.
But it is tricky because AMD would likely have to retain majority ownership. "There may be some issues with AMD having to retain controlling ownership. In order to be OK with patent licensing agreement with Intel," McCarron said. "Probably end up with some entity that's halfway between AMD and some other concern with a very interestingly structured contract built around it."
Depending on how this shakes out, "it doesn't preclude New York from happening," McCarron said. It would have to involve in some way another large player because "the whole reason for Asset Smart was that the fabs that they owned were a drag on their finances. Add another (plant) on top of that...that would not be the most prudent thing," McCarron added.
AMD thinks Asset Smart is a prudent move. "The option to build the fab in upstate New York is going to be a piece of the Asset Smart strategy," AMD's Bullard said. "We need to announce the Asset Smart strategy first and get all those pieces locked into place first. And then we'll be in a position to announce what we'll do with (the Malta) Fab 4X."
AMD's main manufacturing facilities are currently in Dresden, Germany.