AMD breaks ground on new chip plant

AMD will build the new plant, or fab, to keep up with technology and to help meet anticipated demand for its chips. The company said it expects to spend $2.4 billion over the next four years to construct and later upgrade the plant, dubbed AMD Fab 36. The plant is scheduled to begin turning out chips in volume in 2006, AMD said.

"Positive customer response and increasing momentum for our AMD64 processors make it clear that the time is right to expand our manufacturing capacity in order to effectively meet future demand," CEO Hector Ruiz said in a statement.

The Sunnyvale, Calif., chipmaker evaluated several U.S. locations including New York and Texas, but eventually it again chose Dresden, a city in the German state of Saxony. As previously reported, the new facility will be located adjacent to the company's AMD Fab 30.

Building Fab 36 in Germany doesn't mean AMD won't add another fab elsewhere in the world. But the company has been happy so far with the results from its endeavors there, company executives said.

"We want to fortify our presence in Europe," said Gary Heerssen, AMD's senior executive for corporate manufacturing.

The Fab 36 project "leverages off of the success we've seen in the last several years now with Fab 30," Heerssen said. "We attribute that to...the people--highly educated, highly motivated engineers and scientists--and our automated manufacturing environment. The third thing is the financial package that is available to us," Heerssen said.

Fab 36 will use 300-millimeter wafers--the disks that chips are produced on--which help increase unit volume and cut costs. The plant will also turn out chips at the 65-nanometer level, AMD has said. The nanometer measurement, one billionth of a meter, refers to the size of the tiny features inside each chip.

AMD, which is currently producing 130-nanometer chips, expects to move to 90-nanometers next year, roughly the same time as other chip leaders. Shrinking the feature sizes is a twofold payoff for chipmakers: It allows them to add transistors and increase chip performance while also making their chips smaller. This can increase manufacturing efficiency.

AMD designed Fab 36 to produce at least three generations of chips, starting at the 65-nanometer level, then moving to 45-nanometers and 32-nanometers. It also has set what it says is an aggressive schedule for construction. The company expects to complete the building and begin moving in equipment during 2004.

"We have heavy equipment already on the site, so earth is being moved around as we speak," said Tom Sonderman, director of AMD's automated precision manufacturing program.

Out with the old
Because of the relentless pace of technology, chipmakers typically invest in new manufacturing facilities every few years, rather than retrofit older fabs. The more senior facilities are often relegated to producing chips that require lower-tech manufacturing or chips that are converted to create other kinds of silicon.

AMD's Fab 25, which produced its K6-2 chip and later the Athlon, now turns out flash memory, for example. AMD's Fab 30 now produces its Athlon and Opteron processors.

Although Fab 36 will cost billions of dollars to erect, having a second PC chip plant should eventually help the company streamline costs. Moving to 300-millimeter wafers from the 200-millimeter wafers it now uses will allow AMD to produce more chips at one time without a substantial increase in operating costs.

The move to 65-nanometers also promises to reduce the size of AMD's chips enough so that roughly 30 percent more of them can be sliced from the same size wafer. Producing more chips at once helps lower costs and allows AMD to more easily amortize the cost of building the fab.

But building new fabs is still a high-risk venture for chipmakers. The semiconductor market typically follows a boom-and-bust cycle, where every few years, demand spikes and then falls. The Semiconductor Industry Association's latest forecast predicts a boom year in 2004, followed by slower chip sales in 2005 and 2006.

Many companies do not have the financial wherewithal to spend the billions required, several years in advance to build a fab on their own. Some attempt to share the cost through manufacturing partnerships; others use contract manufacturers such as Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. (UMC)--or even IBM--as an alternative.

AMD was originally aiming for a partner, but it did not announce one on Thursday. It was instead able to break ground on the 1,000-employee fab thanks to about $1.5 billion in financing to be distributed over the next four years.

The chipmaker will receive about $700 million in loans from a consortium of banks and about $500 million in grants and allowances from the German and Saxon governments, pending European Union Commission approval, the company said. It will also gain about approximately $320 million in equity funding from Saxony and a group of European investors.

AMD, which indicated it has not eliminated the potential for a partnership, will provide the rest of the funding, the company said.

At one time, AMD had planned to build a 65-nanometer plant with UMC in Singapore. That agreement ultimately fell apart, leading AMD to evaluate other options.