AMD plans to open third processor factory in 2004

The Sunnyvale, Calif.-based chipmaker is laying the groundwork for a Fab 35, which will be used for PC processors such as the Athlon chip, according to John Greenagle, a company spokesman. Unlike AMD's current microprocessor fabs in Austin, Texas, and Dresden, Germany, the plant will be used to process chips out of 300-millimeter in diameter wafers.

The 300-millimeter wafers, larger than the 200-millimeter wafers used throughout the industry today, will allow companies to produce more chips, but not at a terribly higher cost, because of the larger surface area found on each wafer. Rival Intel will open its first 300-millimeter production facility for microprocessors in the middle of 2002.

A third processor fab will likely play a crucial role in AMD's strategy to enter the corporate market. Unlike software developers who can replicate their products at will, semiconductor companies need to build fabs or outsource manufacturing to increase production. As flamboyant AMD CEO Jerry Sanders once said: "Real men own fabs."

Increasing the number of fabs can also help speed development as one fab can be dedicated to refining production techniques while others can be used to meet current demand. Before October 1999, AMD had only one production facility. The situation contributed to a series of chip glitches, analysts said at the time, because AMD did not have ample production facilities to test its products before releasing them.

Building fabs, however, has always been a risky business because of the huge sums involved. 300-millimeter fabs, for instance, cost approximately $4 billion to construct. As a result, AMD will seek a co-tenant.

"There's more capacity than we can handle (initially) and more than we want to pay for," Greenagle said.

Two years ago, Sanders floated the idea of fab sharing between Motorola and AMD to help pay for Dresden, which prompted one semiconductor executive to joke whether the sports car-driving Sanders would change his dictum to "real men share fabs."

Greenagle further added that FASL, a joint venture between AMD and Fujitsu, will build a 300-millimeter facility in 2002, but it will be dedicated to making flash memory.

Waiting until 2004 to open a 300-millimeter facility seems "a little late," said Mike Feibus, an analyst with Mercury Research. Still, if the company's chips begin selling in the commercial market, the additional capacity will come in handy.

"If they start selling in the corporate market, all bets are off" when it comes to contemplating the potential size of AMD's market, he said.