Advanced Micro Devices is canceling its five-month-old silicon-foundry agreement with IBM, following Monday's announcement of a long-term technology partnership with Motorola, said AMD chairman and CEO W.J. Sanders in an interview with Semiconductor Business News.
Sanders said Sunnyvale, Calif.-based AMD (company profile) is now able to meet its immediate capacity needs internally, and the alliance with Motorola will enable the company to gain access to copper-interconnect technology needed for high-performance microprocessors in the future.
To address a shortfall in its own ability to produce K6 microprocessors, AMD announced a two-year foundry pact with IBM Microelectronics' contract manufacturing operation. "We notified IBM last week that we will not be going forward with our foundry arrangement, starting immediately," Sanders said.
Sanders said AMD has successfully been able to ramp its own production capacity for 0.25-micron K6 and K6-2 microprocessors. The company sold 2.6 million of the chips in the second quarter, all of which were produced in-house, and Sanders has said AMD has enough capacity to roll out 12 million of the devices per year. "We no longer have need for additional production from IBM," he said. "We can now manufacture internally all the product we need."
This announcement, in effect, shoots down the IBM deal before it ever got off the ground, because Big Blue still has not produced any K6 chips. Sanders said such arrangements typically require six to nine months before volume silicon is available. While IBM (company profile) has delivered K6 samples, none of the chips will ever hit the commercial market.
AMD's alliance with Motorola (company
profile) was a factor in terminating this agreement because it gives the chip company access to copper-process technology. Copper is expected to be used to produce faster, next-generation semiconductors, and IBM is leading the race to manufacture devices using the metal in place of aluminum. Industry observers have speculated AMD might later expand its foundry agreement with IBM in order to utilize its copper technology.
"The foundry arrangement was the only deal we had with IBM, and it could have led to something else," said Sanders, "but now clearly it won't."
Although the foundry agreement is technically still in place, an IBM spokesman confirmed AMD had notified them that it would not be placing any orders for volume K6 shipments. He said he wasn't surprised by the move. "This deal was meant as a stopgap measure until AMD got its 0.25-micron yield problems ironed out, and it looks like those problems have been resolved," the spokesman added.
Nathan Brookwood, microprocessor analyst at Dataquest, said the IBM agreement was more of a short-term tactical move, while the Motorola deal was a more strategic, long-term approach. "I think this means that AMD is ahead of where they expected to be in terms of their transition to 0.25-micron devices and their yields," he said. "Since it now appears that IBM was just part of their backup strategy, it looks like AMD is pretty confident that they are out of the woods."