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With new factory, AMD ups ante against Intel

Advanced Micro Devices opens a new factory. Will the multibillion-dollar gamble let the company take ground from Intel? Photos: Inside AMD's German fab

For years, Advanced Micro Devices has dreamed of nabbing 30 percent of the market share for PC microprocessors.

Although achieving that goal won't be easy, a new fabrication facility opened in Germany on Friday gives the company the real estate to try.

Fab 36, located next door to an existing fab outside the city of Dresden, adds 13,400 square meters of clean-room space to AMD's manufacturing arsenal. Combined with factory capacity at Chartered Semiconductor that's available to AMD under an existing alliance, AMD will have a substantial part of the infrastructure needed to churn out 100 million processors a year by 2008, said Daryl Ostrander, senior vice president of logic, manufacturing and technology at AMD.

Running full tilt, that should be enough to hit the elusive number, or at least help AMD participate in all segments of the PC market.

"We can get to 30 percent market share from Chartered and Fab 36," Ostrander said. "We have become a manufacturing powerhouse."

Roughly 1,000 people will work in Fab 36.

Though chip designers often get most of the attention and glory in the industry, semiconductors rise and fall through manufacturing. Efficient manufacturing techniques and its meticulous "copy exactly" philosophy for building fabs have been significant pillars in Intel's rise, according to, among others, Chairman Craig Barrett and "employee No. 3" Les Vadasz.

Conversely, AMD often stubbed its toe in the past in getting chips out of the factory, resulting in product delays, chip shortages and huge financial losses. In terms of manufacturing, AMD has typically done better than most other chipmakers, according to Dan Hutcheson, CEO of VLSI Research, one of the chief research houses on semiconductor manufacturing. It was simply pushing too hard to stay up against the mass-production monster that is Intel.

In one instance last decade, AMD discovered that circuits were peeling on its chips. An investigation uncovered that a person in purchasing switched suppliers of a particular chemical. Although technically the same chemical, there was an extra atom in the new stuff, causing problems.

"Microprocessors are one of the most difficult things to manufacture. It is easy to fall out of bed," Hutcheson said.

The situation began to change in the late '90s under executives such as Bill Siegel. Now the company wins citations from, among others, Sematech, an industry trade group.

The secret sauce in AMD's production is a methodology the company calls Automated Precision Manufacturing. Under APM, the chipmaker can tweak the manufacturing recipe of a single wafer as it winds through the entire production process, which takes weeks. In the past, semiconductor makers had to run several wafers, look at the results and then adjust the formula.

As a result, AMD can get to what the industry calls "mature yields," or the situation when the majority of chips in a given wafer work. APM also lets the company ramp up or decrease output of specific chips while in the middle of a production run to better suit what's happening on store shelves.

"APM is allowing them to identify issues with yields much quicker, and once you fix a problem, it stays fixed," Hutcheson said.

Success, however, is not foreordained. Fabs cost billions to erect and fill with equipment. Roughly $2.5 billion will get invested in outfitting Fab 36 through 2007, according to the company. An industry downturn or product delays can turn large factories into liabilities.

Intel will also likely continue to erect fabs. Another risk: Chartered. Turning a profit on PC processors through foundry arrangements has not been easy to date.

To ameliorate some of the financial risks, AMD will not completely build out the facility just yet. As it stands now, AMD can start production on 13,000 silicon wafers a month. Enough empty space, however, exists to crank that up to 20,000 wafer starts a month. Getting to the 100 million mark will involve populating the current empty space in the 13,400-square-meter plant with equipment.

The wafers from Fab 36 will have a diameter of 300 millimeters. AMD currently produces chips on 200-millimeter wafers. A wider wafer means more chips without a huge increase in costs. Intel, IBM and others have already graduated to 300-millimeter production.

The facility will produce chips made on the 65-nanometer process, which will hit store shelves next year. Later, AMD will churn 45-nanometer and 32-nanometer chips out of the facility.

Ostrander said AMD has not fully formalized plans on what to do with Fab 30 next door. It may retrofit it for 300-millimeter manufacturing, or it may use it for another purpose.

The 30 percent mark has been a white whale for the company for years. Founder Jerry Sanders often set it as a goal and always fell short. AMD currently has about 17 percent of the market, though at one point a few years ago, it commanded a little more than 21 percent.

One of the changes current CEO Hector Ruiz brought to AMD was not to mention the figure early in his tenure. The number, however, has been cropping up more recently in speeches from AMD executives.

Why did AMD build in Germany, a country known for tight labor laws and high-price employees? Tax breaks and subsidies. The vast majority of the costs go into semiconductor manufacturing equipment, which roughly costs the same all over the world. Labor costs are a minor factor in the multibillion-dollar budget.

Thus, the most significant variable is the amount local governments are willing to pay to bring in a what will become a major economic engine for them. By 2007, AMD and the local government estimate that the two fabs will have created 7,500 new jobs, directly and indirectly, in the former East Germany city.

Government loans and subsidies come to about $1.5 billion, according to AMD.