AMD Pays GF to get out of wafer commitment

[jones377]

Has this ever happened between TSMC and one of it's customers?

 

[sontin]

Here's the rundown posted at Hot Hardware

Wow. They are burning $500 Millions in two quarter. That's 1/3 of their cash...

Even AMD doesn't see a market for their CPU products.

 

[SlowSpyder]

I like my budget Thuban chips. If they had shrunk and made an 8-core Thuban, and added AVX and some of the other new opcodes, I would def. have purchased it.

I've been saying this since BD launched. I bet they could have tweaked Thuban for a bit better IPC, added a couple of cores, made the L3 faster, and then have a $200-$250 chip people actually want to buy. I bet they could of had something like this out to market much sooner than the time it took for BD to finally arrive. But AMD's last six or seven years are littered with "Why did they do that and not this?" questions.

Their drivers are flawed both in crossfire and single gpu config, its evident gaming is smoother on nvidia cards and u can find the research done on it in v&c.

AMD's drivers are fine, you are spreading fud about AMD, again.

 

[Idontcare]

Has this ever happened between TSMC and one of it's customers?

No. But "take or pay" is common in the industry. What is uncommon is the forced dependence that AMD signed itself into with the exclusivity contract to GloFo. No one does that, well no one but AMD that is.

It really was structured to be in GloFo's best interest, a privately held company, at the expense of AMD's best interest, a publicly held company.

What you get with hindsight here is that it appears there was very little fight by AMD to structure a contract that was reasonable or practical for AMD's shareholders. Look at how they managed milk their remaining equity from AMD in exchange for the last WSA amendment.

In March, AMD announced that it would be paying GF $730M and giving up its share of the company. Today's penalty means that AMD's erstwhile foundry division has pocketed over a billion dollars worth of penalty payments from a partner that can't really afford to pay them.

^ this symbiotic fabless/foundry has gone full circle and is now truly operating in parasitic mode.

This is not a healthy foundry relationship and this is exactly the kind of parasitic foundry behavior that will keep other fabless companies away from GloFo.

Wow. They are burning $500 Millions in two quarter. That's 1/3 of their cash...

Even AMD doesn't see a market for their CPU products.

That is perhaps the most disconcerting part of this news. AMD's margins are so low, and demand for their product is so low, that they had no confidence in being able to sell $320m worth of product at a price that would have netted them $65m in gross profit

That is pretty scary and pretty sad. That is getting close to "we can't even give this stuff away at cost" territory.

 

[meloz]

This is not a healthy foundry relationship and this is exactly the kind of parasitic foundry behavior that will keep other fabless companies away from GloFo.

I am not so certain of that.

For one thing, GloFo now have available capacity thanks to AMD deciding to not produce. Moreover, this capacity has already been paid for!

GloFo can now bid very aggressively and woo fabless customers who until now were loyal to TSMC et al. They can play the pricing game more agressively than anyone else in the free market.

Other customers are also free to negotiate their own terms with GloFo, they do not have to sign on the terms AMD did.

And you make GloFo sound so evil, whereas the reality is more nuanced. The terms which now look so favorable for GloFO were part of a larger agreement between both companies in which there was plenty of give and take, and both sides would have reaped benefit if each partner did its share of job.

AMD also got a lot out of GLoFo, for example, they did not have to pay by the wafer but only by die/chips. (Cannot recall where I first read this, but I'm fairly certain this is true). Contrast this to the current situation at TSMC where you pay for the entire wafer, yields be damned.

 

[Ferzerp]

The reason they're priced so well is because Intel had the upper hand in pricing when the duel was Sandy Bridge vs. Bulldozer, even though AMD's chip was released later. AMD would much rather charge the 245 MSRP of the FX-8150 because they sorely need the money, but they can't because Intel has the i5s around.

Look at how they're selling. They're not priced well. The demand is extremely low. If they were priced well, demand would be high.

 

[podspi]

Also, when GF was spun from AMD, it took with it a ton of debt. As others have said, it looks like the wafer agreement was a way for AMD to take that debt off of its balance sheet. It still has had to 'pay' it.

There are just so many bad management decisions made by that company it is difficult to know where to start. It is a shame but, it is what it is. They still make some decent products (GPU-side, and the Bobcat and soon Jaguar derivatives), hopefully those will be enough to carry them through in the end.

Edit:

Look at how they're selling. They're not priced well. The demand is extremely low. If they were priced well, quantity demanded would be high.

Sorry for being pedantic, but the distinction is (in my mind) important. The overall demand for the FX-series chip is very, very low. Despite this, volume would still be high(er) if they were priced lower. That being said, it isn't clear that AMD has priced the FX-series incorrectly. In order for us to say that, we would have to know something about their cost structure. The fact that they're willing to pay millions not to purchase more of their own product hints to me that they would not benefit from pricing lower and selling more.

I like to call that (price very low to boost volume) the General Motors strategy of doing business. It doesn't matter if you are #1 if you are losing money per unit

Of course, as others have pointed out this could hurt them in the long-run as well. In particular, they are going to have a lot of trouble getting motherboard manufacturer support if they can't field products with higher volumes.

 

[Piotrsama]

So this indicates they are moving to TSMC due to GF lag on moving to smaller process?

 

[zebrax2]

Is this a 1 quarter thing or does this payment changes the agreement on subsequent quarters as well?

AMD can't really seem to have any breaks this days

 

[meloz]

Look at how they're selling. They're not priced well. The demand is extremely low. If they were priced well, demand would be high.

Priced well, but not priced at a loss. That's not sustainable.

The fact that they are paying GloFo to not produce suggests that there is no more margin in their products to 'price well'.

So this indicates they are moving to TSMC due to GF lag on moving to smaller process?

How on Earth can anyone come to this conclusion.....

 

[Ferzerp]

Priced well, but not priced at a loss. That's not sustainable. The fact that they are paying GloFo to not produce suggests that there is no more margin in their products to 'price well'.

That was part of my point. It doesn't appear that this is a workable product. There exists no price where demand will be high enough to warrant its existence, but still high enough to make a profit.

 

[Piotrsama]

How on Earth can anyone come to this conclusion.....

They reduce volume of produced chips on one foundry to increase it on other.....

 

[Phynaz]

Must be one of those subscriber-only articles? Regardless, those numbers are dead awful. AMD really got hamstrung by Dirk's and Hector's creative accounting shenanigans when they spun off GloFo.

Search for article title on Google news, and link from there. You should be able see the entire article.

 

[Fox5]

I'm kind of surprised a Chinese corp doesn't buy out AMD at this point. AMD is getting dirt cheap, their designs are still relatively advanced and competitive in the high performance computing market, and China has struggled for years to come out with a home grown high performance chip. It seems like buying AMD would be a cheap way to jump start that R&D endeavor.

 

[Idontcare]

So this indicates they are moving to TSMC due to GF lag on moving to smaller process?

How on Earth can anyone come to this conclusion.....

Because AMD said so.

For some new chip models, AMD has turned for production services to Taiwan Semconductor Manufacturing Co., which has produced its graphics chips. But Rory Read, AMD's CEO, stressed that Globalfoundries remains a key partner.

But GloFo remains a key partner, a contractually obligated take-or-pay cash sucking key partner :thumbsup:

With partners like that, AMD doesn't need to worry about competitors like Intel or Nvidia

 

[Ferzerp]

Why do people keep thinking that the US govt would allow a chinese takeover of AMD? If we blocked the sale of a windmill farm because it was too close to sensitive assets, do you really think that we would allow Chinese interests to purchase AMD? Beyond trade, China is considered to be a hostile nation for the most part (especially in the area of intelligence and IP).

 

[Idontcare]

Search for article title on Google news, and link from there. You should be able see the entire article.

Thanks :thumbsup: Must be some cookie issue because once I did what you suggested, I was able to read the article, and your link in the OP works for me now as well.

 

[BD231]

AMD's drivers are fine, you are spreading fud about AMD, again.

No bro, you're in denial.

http://techreport.com/review/23981/radeon-hd-7950-vs-geforce-gtx-660-ti-revisited/4

 

[mrmt]

Must be one of those subscriber-only articles? Regardless, those numbers are dead awful. AMD really got hamstrung by Dirk's and Hector's creative accounting shenanigans when they spun off GloFo.

In fairness with Dirk I don't think much of the blame should lie with on his shoulders.

Dirk got a very tough situation from Hector. Shrinking sales, loads of debt, ATI write offs that essentially shut AMD out of the debt market and dwindling cash reserves that were making people question the very viability of the company. It was in this context that ATIC negotiated the GLF spin off and I bet a beer pack with everyone here that they were very tough with AMD at the table.

Some people in the tech community were thinking that Mubalada was a nice partners and was interested in save AMD, so they took some debt off their balance sheet. It is clear by now that this is far from the truth, what they really did is pay to lock AMD in until 2024 and instead of money they paid absorbing AMD debt. In that situation the more debt AMD could offload to GLF the better, and GLF played with that, essentially getting a 15 years exclusivity contract from them.

This is no accounting shenanigan, it is a fair agreement, but one that IMO wasn't sufficiently explained to shareholders, and one that could expose AMD to heavy liabilities, as it did in the last two years. It is the lack of information that hurts here and hurts the value of the stock, after all, how many skeletons we are going to find off AMD's balance sheet?

 

[ShintaiDK]

I'm kind of surprised a Chinese corp doesn't buy out AMD at this point. AMD is getting dirt cheap, their designs are still relatively advanced and competitive in the high performance computing market, and China has struggled for years to come out with a home grown high performance chip. It seems like buying AMD would be a cheap way to jump start that R&D endeavor.

Debt, liabilities, contracts etc. AMD is anything but cheap.

 

[mrmt]

What you get with hindsight here is that it appears there was very little fight by AMD to structure a contract that was reasonable or practical for AMD's shareholders. Look at how they managed milk their remaining equity from AMD in exchange for the last WSA amendment.

AMD isn't exactly a star on the private equity world and nobody was really interested in AMD in 2009, so it was either take ATIC deal or fill for chapter 11. It was ATIC way or the highway.

That is perhaps the most disconcerting part of this news. AMD's margins are so low, and demand for their product is so low, that they had no confidence in being able to sell $320m worth of product at a price that would have netted them $65m in gross profit

That is pretty scary and pretty sad. That is getting close to "we can't even give this stuff away at cost" territory.

They took a 100 million charge in Llano inventory and Trinity didn't really improve pricing over Llano, so from a market POV the product isn't much better and might suffer the same markdown problem they had last quarter with Llano, so yes, they are in trouble.

 

[thilanliyan]

Their drivers are flawed both in crossfire and single gpu config, its evident gaming is smoother on nvidia cards and u can find the research done on it in v&c.

XFire I have no idea but their drivers have worked perfectly well in single card configs for me and have done for all the AMD cards I have used. The only driver problems I have ever had were with nvidia ones ironically, considering how everyone raves about nV drivers...

 

[Idontcare]

This is no accounting shenanigan, it is a fair agreement, but one that IMO wasn't sufficiently explained to shareholders, and one that could expose AMD to heavy liabilities, as it did in the last two years. It is the lack of information that hurts here and hurts the value of the stock, after all, how many skeletons we are going to find off AMD's balance sheet?

I view it as being a means of creative shenanigans in the sense that Dirk (who was Sr.VP at the time, planned to take over for Hector because the deal was engineered to have Hector move over to GloFo) and Hector swapped an existing liability that was on the books (debt) in exchange for a long-term liability that was neither on the books nor divulged to the shareholders (a take-or-pay contract extending some 15 yrs).

And as we have seen over the course of this year, that liability has cost AMD nearly $1B in cash and assets this year alone.

To me the lack of transparency was intentional, it would have been a bombshell on the investor community if the liability was fully communicated and factored into AMD's market valuation...but that would have been a conflict of interest for Hector and Dirk who's career paths were depending on the spin-off going through.

Now these were the same masterminds who engineered forking over billions of shareholder equity to ATI shareholders, so it is not really of any surprise that the GloFo deal was rigged with special little equity-destroying nuggets. It does appear to have been their forte.

 

[pablo87]

The optics for Global Foundries are terrible. If you're considering them as a vendor, sure as heck doesn't give you the warm and fuzzies.

 

[pablo87]

I view it as being a means of creative shenanigans in the sense that Dirk (who was Sr.VP at the time, planned to take over for Hector because the deal was engineered to have Hector move over to GloFo) and Hector swapped an existing liability that was on the books (debt) in exchange for a long-term liability that was neither on the books nor divulged to the shareholders (a take-or-pay contract extending some 15 yrs).

And as we have seen over the course of this year, that liability has cost AMD nearly $1B in cash and assets this year alone.

To me the lack of transparency was intentional, it would have been a bombshell on the investor community if the liability was fully communicated and factored into AMD's market valuation...but that would have been a conflict of interest for Hector and Dirk who's career paths were depending on the spin-off going through.

Now these were the same masterminds who engineered forking over billions of shareholder equity to ATI shareholders, so it is not really of any surprise that the GloFo deal was rigged with special little equity-destroying nuggets. It does appear to have been their forte.

The WSA was filed with the SEC but the key figures were blacked out so as a shareholder, you could not know what the commitments were and had to rely on Seifert's say so.

I remember at one point two years ago during a conference call or investors day where there was a discussion on foundry partners and Seifert stated in no uncertain terms that Global Foundries was their fab partner, period. At the time, his emphasis didn't really make sense and certainly raised my eyebrows - of course now we know. In his head he was probably thinking do you guys have any idea the amount of the take or pay agreements with Global Foundries? its in the tens of billions of dollars, we have no choice in the matter!!!

Dirk otoh had nothing to say on the WSA except to hold GF's feet to the fire on ramping up 32nm and improving yields. My impression was that he was not a fan at all.

Don't think anybody knew at the time as the analysts became positive on news of the spin-off - had they known the extent of the commitment (guesstimate 1.9B in 2010, 1.7B in 2011, 1.5B in 2012, 1.1B in 2013 and 1.1B in 2014 though I think the latter 2 were revised downward from the original WSA - so basically $8B or 1,600,000 wafers or 1.3B Brazos), the stock price would have tanked.

http://blogs.barrons.com/techtrader...ein-turns-bullish-cites-globalfoundries-spin/

It also explains the SEC putting AMD's feet to the fire more than once.

PS - on ATI, its not so much that AMD overpaid but that they couldn't afford it the way they structured the deal.