Advanced Micro Devices and Globalfoundries have changed their wafer supply agreement that describes terms based on which AMD acquires chips from its contract maker of semiconductor partner. The amendments were made after Globalfoundries have to delay manufacturing of chips using 32nm process technology due to technical challenges, which materially impacted AMD's business performance.

The primary effect of the amendment was to change the pricing methodology applicable to wafers delivered in 2011 for AMD microprocessor and accelerated processing unit (APU) products. The amendment also modifies AMD's existing commitments regarding the production of certain graphics processing unit (GPU) and chipset products at Globalfoundries. Pursuant to the amendment, Globalfoundries has committed to provide AMD with, and the latter have committed to purchase, a fixed number of 45nm and 32nm wafers per quarter in 2011. AMD will pay Globalfoundries a fixed price for 45nm wafers delivered in 2011. AMD's price for 32nm wafers will vary based on the wafer volumes and manufacturing yield of such wafers. In addition, AMD also agreed to pay an additional quarterly amount to GF during 2012 if GF meets specified conditions related to continued availability of 32nm capacity as of the beginning of 2012. AMD expects Globalfoundries will meet the conditions to earn these payments.

"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. '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,'' said JoAnne Feeney, an analyst with Longbow Research, reports EETimes web-site.

For 2012, pursuant to the amended wafer supply agreement, AMD will resume compensating GF on a cost-plus basis to manufacture the wafers for its microprocessor and APU products.

AMD estimates that it will pay Globalfoundries approximately $1.1 to $1.5 billion in 2011 and $1.5 to $1.9 billion in 2012 for wafer purchases under the wafer supply agreement, as amended. In 2010, AMD paid GF approximately $1.2 billion for wafer purchases. AMD based its 2011 and 2012 estimated costs in part on our current expectations regarding GF’s manufacturing yields and wafer volumes. These costs could increase or decrease as a result of variations in those yields and several other factors including AMD's expectations regarding demand for its products.

"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. 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,'' added Ms Feeney.

Tags: AMD, Globalfoundries, Semiconductor, 32nm, 28nm, 45nm, ATIC