Why did AMD-GF ink new wafer deal?

SAN JOSE, Calif. - Why did Advanced Micro Devices Inc. forge a new and complex amendment to its wafer-supply agreement with Globalfoundries Inc. (GF)?

The wafer-supply deal was announced on Sunday. As reported, the move that could give AMD a better deal, at least on 32-nm wafers in 2011. As part of the deal, AMD appears to be transitioning more of its business in chip sets and graphics processors to Globalfoundries and away from TSMC.

Some time ago, AMD spun off its manufacturing unit into a new foundry company called Globalfoundries.   

In a report, JoAnne Feeney, an analyst with Longbow Research, listed three main reasons why the new wafer-supply deal was struck.

1. Good chip incentives

''The renegotiation of this agreement had been underway since last year when technical challenges delayed GF's 32nm implementation. Recall that because of the trouble Globalfoundries was having with its launch of the 32nm manufacturing process, AMD was forced to delay the release of the Llano product line from last year to this,'' Feeney said.  

''During that time, AMD had continued to pay for 32nm wafers under the original agreement despite the lack of good chips. AMD received far less than it would have reasonably expected from GF in 2010, so in that sense it overpaid for chips,'' she said.

The amended deal creates ''the incentives to improve yields creates a mutually beneficial contingency: GF’s unit costs fall if it improves yields and some of that benefit is passed to AMD,'' she said.

2. Winning new business

''Second, this agreement gives GF an opportunity to improve its chances of winning foundry business away from competitors such as TSMC. The semiconductor community is viewing GF with caution and is watching to see how well it performs in serving its main customer, AMD, and in launching new manufacturing technology nodes,'' she said.

This contract also allows GF to further signal that it has solid confidence in its ability to ramp 32nm to mature yields rapidly, and, by implications, that it can do the same for 40nm and 28nm nodes,'' she said.

3. Success strategy

''AMD and GF are both at least partially owned by ATIC (Advanced Technology Investment
Company of Abu Dhabi). To be successful, ATIC will need GF to attract customers away from market leader, TSMC. GF will need to encourage potential customers to choose to use its fabs at 40nm and 28nm. And, most importantly, it needs to ensure that AMD does not defect to TSMC,'' she added.