AMD amends wafer supply agreement with GlobalFoundries

— 3:02 PM on April 4, 2011

When AMD spun off its chip fabrication business as GlobalFoundries, it entered a wafer supply agreement with the new firm dictating how wafers would be purchased. That agreement followed a cost-plus model that had AMD paying per-wafer costs in addition to fixed costs associated with some GlobalFoundries fabs regardless of whether they were being used by AMD.

Now, in an attempt to tweak its pricing strategy, provide better "cost visibility," and incentivize yield improvements, AMD has amended its wafer supply agreement with GlobalFoundries. The amendment mostly applies to 2011, during which AMD has agreed to purchase a fixed number of 32 and 45nm wafers. Rather thay paying for those wafers on a cost-plus basis, AMD and GloFo have agreed on a fixed price for 45nm wafers. A fixed price of sorts also appears to be in the cards for 32nm wafers, although AMD indicates that it will only be paying for good 32nm dies.

The fact that AMD is only willing to shell out for good dies suggests that GlobalFoundries' 32-nano yields might be lower than anticipated. However, according to AMD CFO Thomas Seifert, current 32-nm yields are "in-line with our expectations." He adds that 32-nm Llano APUs are shipping for revenue, and that systems based on the CPU/GPU hybrid will start appearing on the market this quarter.

Although the specifics haven't been made public, AMD has also agreed to make quarterly payments to GloFo if "conditions related to continued availability of 32nm capacity in 2012" are met. Those payments will total no more than about $400 million, says AMD. Sounds like a pretty good incentive to me.

Speaking of next year, AMD's wafer supply agreement with GlobalFoundries is set to revert to a cost-plus model in 2012. Fixed prices only apply for this year. There is one change to the cost-plus model for 2012, though. Instead of basing fixed costs on specific fabs, AMD will only be charged a fixed cost based on production capacity "attributable to AMD's forecasted demand."

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