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AMD's GlobalFoundries deal reveals weak demand

AMD's GlobalFoundries deal reveals weak demand

AMD has dramatically dropped its orders with GlobalFoundries, taking a major financial hit in doing so and revealing weaker than expected demand for its products.

AMD has renegotiated its wafer supply agreement with once-and-former subsidiary GlobalFoundries, slashing its requirements in the face of slumping demand and growing excess inventory.

Under the companies' previous supply agreement, AMD was to purchase around $500 million in wafer output for its GPU, CPU and APU products in the fourth quarter of the financial year. This figure has now been dramatically revised to just $115 million, indicating the demand for the company's new family of accelerated processing units has not been quite as healthy as AMD had hoped. It's also a reaction to an inventory write-down in the third quarter, a move which cost the company an estimated $100 million due to component oversupply.

That's a situation AMD can't afford to repeat - hence the decision to renegotiate its wafer supply agreement with GlobalFoundries. Sadly, the savings won't be quite as dramatic as the agreement suggests: under the newest agreement, AMD must pay a termination fee for wafers it had agreed to purchase but now no longer requires. This fee, totalling $320 million, means that AMD will be paying $435 million to GlobalFoundries but only receiving $115 million in parts - although, looking on the bright side, the termination payment is being spread out with a $80 million payment due at the end of this year, a further $40 million by the start of April 2013 and the remaining $200 million in the form of a promissory note which falls due on the 31st December 2013.

The new wafer supply agreement also lowers the company's requirements for upcoming quarters, with AMD now looking to spend no more than $1.15 billion with GlobalFoundries over the 2013 financial year. Thus far, neither company has agreed on purchase agreements for 2014, beyond the promise of a $250 million order in the first quarter of that year.

'Today's announcement demonstrates that the long-term strategic partnership between AMD and GlobalFoundries continues to benefit both companies,' claimed AMD's president and chief executive Rory Read, in an attempt to put a brave face on what is quite a dramatic misjudgement in demand on his company's part. 'GlobalFoundries' performance in meeting our delivery requirements in 2012 was strong and they remain a strategic and important foundry partner moving forward. We are committed to develop and grow our business with GlobalFoundries, increasing our engagement across our industry leading APU and graphics roadmaps. The newly amended agreement is another step we are taking to further strengthen our relationship with GlobalFoundries as well as AMD's financial foundation.'

Read's comments aside, the new wafer supply agreement does demonstrate one thing: there is to be some belt-tightening ahead at AMD, and things are likely to get worse before they get better.

20 Comments

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greigaitken 7th December 2012, 10:35 Quote
it's like they had 2 or 3 good designs and then backed off innovation. sure bulldozer is 8x the performance of an xp1800 but it took 10 years. they know they cant compete on speed but now they've given up. squishing more and more of the same old cores onto a die aint gonna help - not even in server land.
Griffter 7th December 2012, 12:45 Quote
shame, do feel a bit sorry for them, and more sad for us. no real competition in business is never good for us normal guys!
Xir 7th December 2012, 13:01 Quote
A bit misleading, GloFo doesn't sell wafers, it sells a product on a wafer.
Dave Lister 7th December 2012, 13:09 Quote
Could they not use the old phenom 2 architecture? put as many of the old top end chips in a single chip using the latest 20nm (not sure if AMD are that far along yet, but whatever the latest is) fabrication process. I know the phenom 2 is good because i'm still using an X6 1100T, which runs all my games fine and is also good at more boring stuff .
Gareth Halfacree 7th December 2012, 13:14 Quote
Quote:
Originally Posted by Xir
A bit misleading, GloFo doesn't sell wafers, it sells a product on a wafer.
And AMD doesn't buy wafers, 'cos it's a fabless chip company these days. Nevertheless, the agreement betwix the two companies is called a Wafer Supply Agreement. Yes, GloFlo puts stuff on the wafers before it sends 'em to AMD - that's GloFo's job. If it's confusing, blame AMD and GloFo - they're the ones calling it a WSA.
Quote:
Originally Posted by Dave Lister
Could they not use the old phenom 2 architecture?
It took Intel six years to realise that the NetBurst architecture was rubbish and switch back to a process-shrunk and optimised version of the PIII architecture. We're now just over a year into Bulldozer, so if AMD follows Intel's path it'll be another five years before it ditches it and goes back to the way things were. Assuming: it doesn't catch on sooner, and; it doesn't run out of cash before then.
Dave Lister 7th December 2012, 13:19 Quote
Quote:
Originally Posted by Gareth Halfacree
Quote:
Originally Posted by Xir
A bit misleading, GloFo doesn't sell wafers, it sells a product on a wafer.
And AMD doesn't buy wafers, 'cos it's a fabless chip company these days. Nevertheless, the agreement betwix the two companies is called a Wafer Supply Agreement. Yes, GloFlo puts stuff on the wafers before it sends 'em to AMD - that's GloFo's job. If it's confusing, blame AMD and GloFo - they're the ones calling it a WSA.
Quote:
Originally Posted by Dave Lister
Could they not use the old phenom 2 architecture?
It took Intel six years to realise that the NetBurst architecture was rubbish and switch back to a process-shrunk and optimised version of the PIII architecture. We're now just over a year into Bulldozer, so if AMD follows Intel's path it'll be another five years before it ditches it and goes back to the way things were. Assuming: it doesn't catch on sooner, and; it doesn't run out of cash before then.

Intel never had the financial problems that AMD seem to have, so hopefully that will be a bit of a kick in the Ar*e for AMD to rethink everything more quickly.
rollo 7th December 2012, 13:53 Quote
115mil is nothing in this market. Thats a pretty huge reduction from the 500mil it had on order before.

Expecting a GPU patent sale before end of next year by AMD.
Xir 7th December 2012, 15:21 Quote
Quote:
Originally Posted by Gareth Halfacree
And AMD doesn't buy wafers, 'cos it's a fabless chip company these days. Nevertheless, the agreement betwix the two companies is called a Wafer Supply Agreement. Yes, GloFlo puts stuff on the wafers before it sends 'em to AMD - that's GloFo's job. If it's confusing, blame AMD and GloFo - they're the ones calling it a WSA.
Ah? Dicing and Packaging and Test is also GloFo, or is that still AMD?
I only know GloFo Dresden ships entire wafers, the rest is done in a couple of places in southeast asia.
Gareth Halfacree 7th December 2012, 15:36 Quote
Quote:
Originally Posted by Xir
Ah? Dicing and Packaging and Test is also GloFo, or is that still AMD?
Here: this is AMD's press release on the matter. Note the use of the term 'Wafer Supply Agreement (WSA)' throughout; note also the complete lack of any reference to dicing, packaging or testing. Here's how it works: AMD's Wafer Supply Agreement (WSA) is AMD's contract with GlobalFoundries which states how many wafers AMD will buy in a given period; these wafers are 'supplied' to AMD, but likely do not leave the building until AMD has paid separately for them to be diced, packaged and tested. That, however, is a separate agreement - and likely doesn't need renegotiating, as it will be a simple blanket "pay us $X per $Y final products." AMD buys fewer wafers, there are fewer completed products, the cost of the miscellany goes down.

Thus: AMD has renegotiated its wafer supply agreement with GlobalFoundries, as the article states. That wafer supply agreement is an agreement on the supply of wafers to AMD ready for further processing, either by GloFo, by AMD, or by A. N. Other Company. The latter part has not been renegotiated; only the wafer supply agreement, as the article states.

The article isn't misleading at all; it does what it says on the tin. It's just that businesses are a lot more complicated and convoluted than you give them credit for: you can 'buy' a product without ever actually receiving anything physical, and you can even sell it on too - all without ever having actually held the item in question.
Chicken76 7th December 2012, 15:54 Quote
It's not as bad as it sounds. GloFo's yields on 32nm wafers must have improved over the years, and will probably improve further in 2013. That means AMD will need to buy fewer wafers from GloFo in order to sell the same number of finished products.
greigaitken 7th December 2012, 22:48 Quote
there is a way out - if they can make an 'on-the-fly' real time x86 - gpu compiler and excute instructions in real time invisible to developer and user then they have a chance. I know that goal has probably been looked into and a 'no sir' probably came back, but they have more chance on that route than arm rubbish.
Xir 8th December 2012, 16:47 Quote
I'm sorry if I sounded...accusing. I didn't mean to imply you mted something.

Still it's strange that they order a specific amount of wafers, and not (working) devices. Different products yield different amounts of devices per wafer. (due to different devicesizes and yields) Not to mention enormous differences in price per wafer depending on the device.

No reason to doubt my professionalism in regard to this matter though;)
asura 8th December 2012, 17:38 Quote
It's still the same amount of materials and work, regardless of the yield. Just as Architects charge for work done and submitting applications; not getting permission from said application.

They may have a "buy back" rate on any defective chips, as presumably the silicone its self is still of a sufficiently high purity to go back into the melting pot, as it were...
Xir 8th December 2012, 19:22 Quote
Quote:
Originally Posted by asura
It's still the same amount of materials and work, regardless of the yield. Just as Architects charge for work done and submitting applications; not getting permission from said application.

They may have a "buy back" rate on any defective chips, as presumably the silicone its self is still of a sufficiently high purity to go back into the melting pot, as it were...

Partially right, the amount of work and material is about the same. Processors will have morw layers of wiring than than other chips though.
"simple" designs have a much higher yield (good dies per wafer) as fast/complicated ones though, and die size ( and therefore number of dies per wafer) varies wildly though.

Buy Back for defective dies...the amount of functioning dies is known before delivery. But yes, maybe. Can't comment on that.
Melting back old silicon, you'd think it'seasy. But forget it, it's not done. Wafers (unpatterned) aren't manufactured by GloFo (or any other semicon company).
The solar guys make their own though.
Most wafer manufacturers don't make their own silicon.

Ah I just remembered, there are companies that buy silicon "rubbish" from the likes of GloFo and also some that buy defect and broken "raw" wafers.
If it interests you, look at www.wafernet.com, they make for cool clocks or mirrors and the likes :D
DbD 10th December 2012, 09:34 Quote
Quote:
Originally Posted by Chicken76
It's not as bad as it sounds. GloFo's yields on 32nm wafers must have improved over the years, and will probably improve further in 2013. That means AMD will need to buy fewer wafers from GloFo in order to sell the same number of finished products.

It is pretty bad - it means no one wants to buy the chips. You understand what this agreement says:
Instead of AMD buying and selling $500 mil chips, they will buy $115 mil chips and pay GloFo $320 mil to do nothing. i.e the situation is so bad they can't even sell the chips at cost or lower prices ($500 mil chips sold at 1/2 cost price would still be $250 mil money, a lot better then whatever they can sell $115 mil chips for minus $320 mil).
DbD 10th December 2012, 09:44 Quote
No edit - it gets worse. In 2013 AMD must buy $1.15 billion of wafers from GloFo, they are not allowed to use any other fab to build chips. If they don't need $1.15 billion of wafers they must pay up again. So they can't buy what they need from whoever gives them the best deal, GloFo has em by the short and curlies and is squeezing hard.
Xir 10th December 2012, 15:52 Quote
Quote:
Originally Posted by DbD
they are not allowed to use any other fab to build chips.
Even though most Foundryfabs will tell you otherwise, switching a product from one fab to another isn't as easy as you'd think, not even within one company, let alone from one company to another.
Takes....well years to get a decent yield really.

Also, GloFo is specialised in the processes AMD needs. (as they were developed at GloFo when they still were AMD's Fab 38) :D
DbD 10th December 2012, 17:22 Quote
Quote:
Originally Posted by Xir
Quote:
Originally Posted by DbD
they are not allowed to use any other fab to build chips.
Even though most Foundryfabs will tell you otherwise, switching a product from one fab to another isn't as easy as you'd think, not even within one company, let alone from one company to another.
Takes....well years to get a decent yield really.

Also, GloFo is specialised in the processes AMD needs. (as they were developed at GloFo when they still were AMD's Fab 38) :D

The whole point of being fabless is you can pick the best fab for your business, and right now GloFo's gate first process node technology isn't the best.
Tyinsar 11th December 2012, 15:10 Quote
All I know is that there are a lot of people who'd like to make ITX systems with AMD APUs but there is practically no supply of FM2 ITX boards. The Asrock one has issues (and extremely limited availability) and the MSI one has disappeared.

I have an ITX case, a 160W-200W PicoPSU (with a 192W brick) and no FM2 board for it. :( I dropped in a Gigabyte Z77N-WIFI board & Intel i5-3750K chip and am toying with the idea of a triple boot system (Win 8, Mountain Lion, & Linux) instead. Still, if I could find a decent FM2 ITX board...
Xir 11th December 2012, 15:23 Quote
Quote:
Originally Posted by DbD
The whole point of being fabless is you can pick the best fab for your business, and right now GloFo's gate first process node technology isn't the best.

Theoretically yes.
Why do you think certain Graphics people stuck with TSMC when their process didn't deliver? :D
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