The disclosure of a pending agreement with a major silicon foundry in Asia comes after months of speculation and reports that AMD has been negotiating with third-party manufacturers--including United Microelectronics Corp. in Taiwan. One knowledgeable source in Taiwan told SBN that AMD was in fact working on a major pact with UMC. This could not be confirmed by either UMC or AMD.

Details about AMD's new foundry strategy were sketchy during Wednesday's conference call, which was held after the company posted better-than-expected revenues and reduced losses in the fourth quarter. Driven by record-high PC processor volumes, AMD's net sales were sequentially up 24% to $951.9 million and its net loss trimmed to $15.8 million in Q4 (see Jan. 16 story).

In addition to preparing a new foundry strategy for PC processors, AMD is planning to increase its capital spending by 20% to $850 million in 2002 from last year's expenditures (see Jan. 16 story).

Looking for new ways to expand its capacity and keep up with rival Intel Corp. in processor markets, AMD has been studying the foundry market in an effort to tap the acceleration of advanced technologies now available at Asian manufacturing sources, said Ruiz, who is also the company's chief operating officer.

"Considering that we are entering an era where we are expected to ship 40-to-50 million pieces a year by 2003 and beyond, it is much simpler to take a portion of the 'sweet spot' of that unit volume and really fine tune it for foundry capability," explained Ruiz, who was the chief architect of a major move to outside chip foundries at Motorola Inc. while he was president of the company's semiconductor business three years ago.

"Before the end of this quarter, we will make an announcement of what I believe is going to be a very significant relationship with a foundry that will give us an opportunity to leverage their investment and their technology," he told analysts while fielding questions.

When asked if AMD's contractual agreements with Intel prevented significant use of foundries for PC processors, company chairman and CEO W.J. (Jerry) Sanders III said there was no conflict with the new foundry goals and existing contracts. He confirmed that a previous agreement with Intel had prevented AMD from outsourcing more than 20% of its PC processors at silicon foundries, but that was no longer the case, Sanders said.

"We see no limitations to our objectives," Sanders said.

AMD believes leading-edge foundry capacity will be able to take on a significant portion of its PC processor volumes, but details about the amount planned were not made available in the conference call.

"The only places where the major foundries are slightly short of know-how is in areas where we excel," Ruiz said. "For example, transistor technology or backend capability," he suggested.

--J. Robert Lineback