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Motorola ready to make AMD chips

Stemming from an alliance announced earlier this week, the two companies partnership is growing closer.

SAN FRANCISCO--The alliance between Motorola and Advanced Micro Devices appears to be getting stronger by the day.

AMD now says that Motorola is getting ready to manufacture its upcoming K7 processors, while the Intel rival will likely become a stand-in manufacturer for the diversified communications giant.

The cross-manufacturing alliance stems from a deal announced this month, in which the two companies agreed to codevelop technology for copper-based semiconductors and share the steep financial burdens of today's semiconductor industry, according to Jerry Sanders, chief executive officer of AMD.

If it works, the deal will allow AMD to become a "virtual gorilla"--that is, a company with available factory capacity to compete with Intel that it doesn't have to build and maintain by itself.

It would also mark the first time that Motorola produced chips based on the PC architecture dominated by Intel; until now, it has manufactured Power PC processors for Macintosh computers. Strictly speaking, the new chips would not be Intel clones since the K7 is based on a new AMD architecture.

"That is certainly a distinct possibility," a Motorola spokesman said of cross-manufacturing with AMD. It's not part of any current agreement, but the spokesman said such an arrangement is quite possible because the two companies will soon have identical process technology. He would not elaborate.

Cross-manufacturing capabilities will come with the first copper-based K7 chips in mid-2000, Sanders said. At that point, it will be possible for Motorola and AMD to use each other's latest plants.

"We can use each other's fabs to balance out demand," he added. If AMD finds itself short on capacity, for instance, it will be able to use Motorola's upcoming plant in Virginia to make K7 chips. In similar fashion, Motorola will be able to go to AMD's Dresden, Germany, plant to manufacture microcontrollers.

Chip fabrication plants, which can cost $2 billion or more, are getting too risky for companies to undertake on their own, Sanders noted. To compete in the marketplace, companies need extensive fabrication operations, but they can become a huge financial drain if chip volumes drop.

"If you don't sell in volume, you can't afford the assets to stay in business. Being big is not only good. It's essential," he said. "The fixed costs in this business are enormous."

By sharing facilities, AMD or other manufacturers can skirt these costs while minimizing risk that companies will find themselves short on plant capacity. Capacity generally exceeds demand.

Under terms of the seven-yaer patent licensing deal between the two companies, AMD and Motorola will develop copper interconnect technology, which will allow AMD to shift from chips using aluminum circuit interconnections, as well as other microprocessor manufacturing technology. Motorola in turn receives the rights to AMD's flash memory technology.

Sanders noted that Motorola did not get a license for AMD's PC chip technology.

If successful, copper interconnect technology will come to AMD chips before it appears on Intel chips. (Intel is an investor in CNET: The Computer Network).

Although performance gains will be minimal at first, copper is expected to improve processor performance because it conducts electricity better.