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AMD's new fab slated for Germany

Advanced Micro Devices plans to announce later this week that it will build its next chip fabrication facility near Dresden, Germany, according to sources.

Advanced Micro Devices plans to announce later this week that it will build its next fabrication facility near Dresden, Germany, according to sources.

The new fab is intended to process 300-millimeter wafers, a first for AMD, and the initial chips to come out of the factory will be made on the 65-nanometer process. (The nanometer figure refers to the average feature size of the chip. A nanometer is a billionth of a meter.) Manufacturers right now are coming out with 90-nanometer chips.

Earlier this month, AMD said it would build a 65-nanometer fab, but declined to name the location. Dresden, where AMD already makes all of its microprocessors, was one of the prime suspects, but speculation also swirled around Singapore and Texas.

AMD officials declined to comment for this report, but sources close to the company have said that the plant is being built in Dresden. A number of engineers have been sent to that city, in the former East Germany, to work on 300-millimeter manufacturing in the past few months, other sources have said.

The company's German division also sent out a notice that a press conference on Thursday will feature CEO Hector Ruiz; Edelgard Bulmahn, German minister of education; and Georg Milbradt, prime minister of the German state of Saxony.

The fab will start producing chips in late 2005 or in 2006. Intel is already producing chips on 300-millimeter wafers.

Although the facility will cost billions of dollars, it ideally would help the company cut costs over time. Current wafers have 200-millimeter diameters, and a move to 300 millimeters means that the surface area on the wafer is expanded by more than 200 percent. With more surface area, more chips can be made at one time without a substantial increase in operating costs.

Similarly, shrinking chips to 65-nanometers reduces the overall size of the chip, meaning that roughly 30 percent more chips can be popped out of the same wafer. By producing more chips at once, AMD can more easily amortize the onerous cost of building the fab.

Fab construction has become a high-risk venture for semiconductor manufacturers. The cost of building a fab doubles every four years, according to "Rock's Law," named after venture capitalist Arthur Rock. Ninety-nanometer fabs cost between $2 billion and $3 billion. Most companies do not have the wherewithal or potential revenue stream to build these on their own.

AMD will in all probability share the building with a partner, company executives and analysts have said. Originally, the company planned to build a 65-nanometer plant with United Microelectronics Corp. in Singapore, but the alliance fell apart. Loans and grants from local governments will also invariably be part of the financing.

Although a number of U.S. companies are moving operations overseas to capitalize on lower labor costs, that expense wasn't a significant factor in AMD's selection. The vast majority of the costs involved in building a fab are in the equipment. Automation has also greatly reduced the number of employees who work in fabs. Instead, the main considerations are the tax breaks and grants from local governments and proximity to research universities.

The deal is not expected to affect AMD's process technology alliance with IBM. Under that deal, the two companies are to work together to develop technology for making 65-nanometer chips, but it does not include a manufacturing element.

Kai Schmerer of ZDNet Germany reports from Munich. CNET News.com's Michael Kanellos reports from San Francisco.