AMD to use outside factories

As competition with Intel heats up, the chipmaker says it will resort for the first time to using third-party manufacturers.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
SUNNYVALE, Calif.--Aiming to compete in an increasingly costly race with rival chipmaker Intel, Advanced Micro Devices said Thursday that it will use another company's factories for the first time to help make its microprocessors starting as early as next year.

At a meeting for financial analysts, AMD said it will use an outside foundry to produce its microprocessors with the 90-nanometer (.09-micron) manufacturing process, set to begin production in 2003, although foundry-made chips could start hitting the market late next year. The company expects its newest fabrication plant (fab), in Dresden, Germany, to be running at full capacity by next year.

The move marks a stark contrast to AMD's long-held position that it needed to produce all of its microprocessors in-house. CEO Jerry Sanders is known for saying, "Real men have fabs."

However, the huge capital costs of opening a new chip plant have led the company to look for partnerships and, now, to foundries. AMD had sought a partner to help finance and share the capacity of the Dresden facility.

"We intend to leverage foundry capability," said AMD President Hector Ruiz, who is set to take Sanders' spot as CEO next April. "We believe it is time for us to exploit that on our behalf."

Sanders said that AMD may look to outsource up to 25 percent of its processor production.

"It would be foolhardy not to take advantage of the capital expenditures of the foundry industry," Sanders said.

However, under a strict interpretation, the company's licensing agreement with Intel might limit AMD to producing 20 percent of its chips through outside sources.

Sources say AMD has been producing sample chips of its Athlon processor at Taiwanese foundry UMC. Ruiz confirmed the company is running qualification samples of the Athlon at a foundry but wouldn't say which one.

AMD will continue to build its own plants, however. In 2005, AMD plans to open two factories, both in conjunction with partners, that use 12-inch silicon wafers, as opposed to today's 8-inch discs. One plant will produce flash memory and will be a joint venture with Fujitsu, while the other will produce microprocessors and be operated in conjunction with a yet-to-be-named partner.

As for who the microprocessor partner will be, Ruiz said it is "not a foundry. It is almost a pseudo-extension of our family."

That would suggest at least three possibilites. IBM developed the silicon-on-insulator process that AMD will use with its next-generation "Hammer" family of chips. Motorola developed the copper-wire manufacturing process that AMD uses in its Dresden plant, and Ruiz is a former head of Motorola's chip business. Perhaps less likely is Fujitsu, a partner with AMD in the flash memory business.

In September, AMD said it would cut 15 percent of its staff and shut two older wafer fabrication plants in Austin, Texas.

Sanders reiterated the company's outlook for the current quarter, but warned that it may not be profitable in the first quarter of next year due to a possible dip in PC processor sales and competition in the flash memory market.

"Seasonal patterns in the PC industry lead us to believe that AMD PC processor revenues in the first quarter of 2002 could retreat somewhat from the current quarter," Sanders said in a statement. "The outlook for flash memory going into 2002 remains uncertain, and pricing pressures on flash memory products are expected to remain intense. We currently expect that these conditions will delay our return to profitability until the second quarter of 2002."

Sanders added: "2002 will largely be determined by our success in the mobile and server space and holding ground in the desktop space."

But AMD expects to be profitable for the full year in 2002. "While we expect only very modest overall growth in the semiconductor industry next year, we believe that our new product offerings and low manufacturing costs will result in a profitable year overall for AMD in 2002," Sanders said.

CNET News.com's Ian Fried contributed to this report.