AMD's Foundry Business

As we have noted on and off over the past AMD seems to be becoming an asset-lite or fabless design house (see Is AMD Going to Spin-Off their Manufacturing). AMD have denied they are spinning off their manufacturing and insist they will keep their fabs. The problem is if they keep their fabs they will be less competitive against Intel as the fabs suck up a lot of money. The relevance of this to Taiwan tech firms is that if they do spin-off their manufacturing, the chances are they will use Taiwan's pure-play foundries to manufacture their products. An excellent commentary on EE Times highlights the difficult choices facing AMD.

EE Times says:

In the future, AMD is supposedly planning to split the company into two parts. It will supposedly spin out its manufacturing unit, turning AMD into more or less a design house.

The manufacturing spinoff may take ownership of AMD's fabs, especially its leading-edge plant in Dresden, Germany. Reports have surfaced in the media that AMD will also have its parts made on a foundry basis by Chartered, TSMC and possibly United Microelectronics Corp.

Sources say otherwise. TSMC is expected to get the lion's share of AMD's foundry business--leaving Chartered on the outside looking in, according to one source. Chartered may make some of AMD's products, but the many of AMD's key parts have already migrated to TSMC's fabs, according to the source.

In any case, the strategy is risky. There is little or no evidence that a foundry can keep up in the high-volume processor game against Intel. Foundries can make processors, but they have typically worked with small, third-tier suppliers over the years. Competing with Intel is a different story.

On second thought, there's a good change the strategy will succeed. By the time AMD makes its asset lite announcement--and based on the company's recent execution--the processor vendor could lose what's left of its status and become a second- or third-tier player.

Maybe not a third-tier player, but one that is fighting to stay relevant.

I find it interesting the commentary argues the foundries won't be able to maintain their high-volume processor manufacturing. I don't think the pure-play foundries have ever competed with Intel directly as the business models are different. I imagine the problem here would be the utilization rates of the fabs. To compete evenly with Intel a significant amount of the fabs processing capacity will have to be used to manufacture the processors. This will have a negative effect on the pure-play foundry's other customers. Its an interesting dilemma that they will have to solve themselves.

EE Times: Commentary: Who won AMD's foundry business?