AMD is altering the wafer supply agreement it's maintained with GlobalFoundries for some time now. In a rather cryptic press release issued this evening, the company says the new agreement "further strengthens our strategic manufacturing relationship with GLOBALFOUNDRIES while providing AMD with increased flexibility to build our high-performance product roadmap with additional foundries in the 14nm and 7nm technology nodes."
As AMD tells it, the new agreement does the following things:
- Covers a 5-year period, spanning from calendar year 2016 through 2020;
- Establishes a comprehensive framework for technology collaboration between AMD and GF for the 7nm technology node, building on the success of the 14nm node;
- Provides AMD with the flexibility to manufacture certain products with another wafer foundry;
- Sets annual wafer purchase targets from 2016 through the end of 2020, fixed wafer prices for 2016, and a framework for yearly wafer pricing.
In exchange for the new agreement, AMD is giving GlobalFoundries the following consideration:
- Make a $100 million cash payment to GF, paid in installments beginning in Q4 2016 through Q3 2017.
- Make quarterly payments to GF beginning in 2017 based on the volume of certain wafers purchased from another wafer foundry.
- Grant to West Coast Hitech L.P., a wholly-owned subsidiary of the Mubadala Development Company PJSC, a warrant to purchase 75 million shares of AMD common stock at a purchase price of $5.98 per share. The warrant may be exercised in whole or in part prior to February 29, 2020. The warrant is only exercisable to the extent that Mubadala or its subsidiaries do not beneficially own, either directly or indirectly, an aggregate of more than 19.99 percent of AMD's outstanding capital stock after the exercise.
The thrust of this new agreement seems twofold to us. AMD seems to be expecting to purchase wafers from another company, either to the detriment of GlobalFoundries or at least without expanding its demand of chips from GloFo. It's willing to pay for that apparent flexibility in sourcing to the tune of $100 million in cash and the option to sell as much as another 2.2% of itself to the Advanced Technology Investment Company (ATIC), which is owned by Mubdala Development Company. ATIC in turn is the owner of GlobalFoundries. In total, AMD will record a one-time charge of $335 million for the privilege of altering its supply agreement with GloFo, not accounting for the payments it'll make to the company if it starts sourcing 14-nm wafers from another foundry.
The natural question that arises from this agreement is who AMD's alternate source for wafers might be. Aside from GloFo, the only major providers of 14-nm products are Samsung and Intel, to our knowledge, and only Samsung is offering services for the same 14-nm Low Power Plus FinFET technology that AMD is already using in its Polaris graphics cards and its upcoming Zen CPUs.
Intel certainly offers 14-nm products through its Custom Foundry service, but it seems highly unlikely that AMD is seeking to pad the pockets of its competitor through that service. AMD doesn't specifically note that it's trying to source 14-nm wafers only, however, so it might also be looking to establish a partnership with TSMC to use that foundry's 16-nm FinFET process. That technology has already been deployed to great effect in Nvidia's Pascal cards. We suppose we'll just have to wait for official word from AMD for more info about its sourcing strategy.