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Pricey AMD plant to make 1-GHz copper chips

A new facility in Dresden, Germany, will enable the company to commercially produce copper-based microchips running at a speedy 1 gigahertz by the second half of next year.

A new fabrication facility in Dresden, Germany, will enable Advanced Micro Devices to produce copper-based microchips running at a speedy 1 gigahertz by the second half of next year, but industry analysts question how the bills will be paid.

AMD today opened "Fab 30," a $1.9 billion plant designed to make the company's much-touted Athlon processors. If all goes well, high-end chips will be produced in volume by the second quarter of 2000, and reach 1 GHz by the second half of the year. Moreover, all of the chips from this factory will be made with copper wires, rather than aluminum. Copper is expected to enhance chip performance.

But as with all things AMD, the new factory represents a potent opportunity and a significant risk. On one hand, Fab 30 will vastly expand AMD's production capacity, long an Achilles' heel for the company, while giving it a momentary technology edge over Intel. On the other hand, the Dresden facility has been expensive to build and won't be cheap to run, especially worrying for a company that's lost nearly $400 million over the last three quarters.

Some analysts have estimated that AMD will need to sell close to 5 million microprocessors a quarter, even factoring in the higher price that Athlon commands, just to break even.

Archrival Intel has more than 12 facilities dedicated to producing microprocessors; until Dresden, AMD has had one. The capacity imbalance has chronically hurt AMD's ability to keep up with price cuts as well as avoid the inevitable bugs that come along with manufacturing advances.

Fab 30 also will allow AMD to market a product the industry leader will not have until 2001. All of the Athlons from the Dresden facility will be based around copper chip technology from Motorola.

Over time, copper is expected to enhance processor performance because the metal conducts electricity better than aluminum. Under current 0.18-micron manufacturing techniques, the difference between the metals is fairly negligible, according to some analysts. But copper advocates disagree, arguing that, if anything, moving to copper now will provide AMD a valuable learning experience.

Intel will not switch from aluminum until it moves to the finer 0.13-micron process in the second half of 2001, officials at that company have said.

"Today we are dedicating a magnificent new manufacturing facility, the first fab of the new millennium and the most advanced semiconductor manufacturing facility in the world," said Jerry Sanders, chief executive of AMD, in a prepared statement. "Next year, we plan to be producing AMD Athlon processors capable of running at 1 gigahertz, or 1,000 megahertz, here in Dresden."

Some 950 employees will work at the Dresden plant, a number that will expand to 1,800, the company said.

The facility was funded by AMD, grants from the eastern German state of Saxony, and loans from a consortium of banks. The terms of the deal have been renegotiated to the point where one analyst called the financing "bizarre."

Sanders, in fact, last year stated that AMD had discussed fab sharing with Motorola to defray cost and risk. "We can use each other's fabs to balance out demand," Sanders said then. "The fixed costs in this business are enormous."

Chip manufacturing advances, such as opening new facilities or switching manufacturing methods, rarely go exactly as planned. Glitches during evolutionary leaps with the K6-2 processor led to shortages and financial losses for AMD in 1997 and 1998.