by Anton Shilov
10/07/2008 | 09:13 AM
Advanced Micro Devices on Tuesday officially unveiled details regarding its “asset smart” strategy that the company has been talking about for over a year. Under the terms of the agreement, AMD will spin-off its manufacturing fabs into a new company called The Foundry Company that will partly be owned by Advanced Technology Investment Company (ATIC) based in Abu Dhabi, United Arab Emirates.
“ATIC and AMD are the ideal partners with which to create The Foundry Company. Working together allows us to combine ATIC’s long-term vision and patient capital with our manufacturing leadership, innovation and highly-skilled workforce. Moreover, The Foundry Company’s presence in Upstate New York alongside IBM and other research leaders will cement the region’s position as one of the world’s premier centers of nanotechnology development,” said Hector Ruiz, chairman of AMD’s board of directors, who will become chairman of The Foundry Company.
AMD will contribute to The Foundry Company its manufacturing facilities, including two fabrication facilities in Dresden, Germany, as well as related assets and intellectual property rights. As a result of the transactions, AMD will strengthen its financial position and focus on the design and development of computing and graphics solutions.
ATIC will invest $2.1 billion to purchase its stake in The Foundry Company, of which it will invest $1.4 billion directly in the new entity and the remainder will be paid to AMD to purchase additional shares in The Foundry Company. The Foundry Company will also assume approximately $1.2 billion of AMD’s existing debt. ATIC has committed additional equity funding to The Foundry Company of a minimum of $3.6 billion and up to $6.0 billion over the next five years to fund the expansion of The Foundry Company’s chip-making capacity beyond the manufacturing facilities initially contributed by AMD. These funds will be used by The Foundry Company to proceed with capacity expansion at its fabs in Dresden, Germany, including an upgrade of one of its fabs and begin construction on a new fab in Saratoga County, New York, subject to the transfer of previously-approved New York State incentives.
The board of directors of The Foundry Company will be equally divided between representatives of AMD and ATIC. AMD will own 44.4% and ATIC will own 55.6% of The Foundry Company’s fully-converted common stock upon its formation.
Back in the nineties Jerry Sanders, the founder of AMD, vowed not to sell manufacturing fabs of the company and proclaimed “only real men have fabs” motto for the chipmaker. However, in the current market conditions AMD has to concentrate on creating leading-edge central processing units (CPUs) and graphics processing units (GPUs), which is why the company could not afford investments that should constantly be made into upgrade of its fabs as well as development of new process technologies.
ATIC is an investment company formed by the government of Abu Dhabi to invest in advanced technology opportunities that require patient capital and long-term time horizons to achieve economic returns while also increasing the economic diversification of Abu Dhabi. While it enhances its capabilities specific to the transaction, ATIC will enter into a 12-month agreement with Mubadala, an existing AMD shareholder, to project manage ATIC’s interest in The Foundry Company. Waleed Ahmed Al Mokarrab Al Muhairi, the chairman of ATIC, is also general director of the Abu Dhabi council for economic development and chief operating officer of Mubadala Development Company.
AMD will improve its liquidity through The Foundry Company’s assumption of approximately $1.2 billion in debt, ATIC’s $700 million payment to AMD for ownership interests in The Foundry Company and Mubadala’s $314 million paid to AMD for 58 million newly issued AMD shares and warrants for 30 million additional shares.
Mubadala will increase its stake to 19.3% of outstanding AMD shares on a fully diluted basis. This will be accomplished through the purchase for $314 million of 58 million newly issued AMD shares and warrants for 30 million additional shares. Mubadala will also have the right to appoint a designee to AMD’s board of directors.
Upon closing of the transaction, The Foundry Company will commence operations with approximately 3000 employees who will transition into the new company from AMD facilities in Silicon Valley, New York, Dresden, and Austin. The new company’s principal headquarters will be in Silicon Valley and its research and development and manufacturing teams and ecosystems will be based in New York, Dresden, and Austin. After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi.
The Foundry Company will be able to make chips not only for AMD, but also for other companies, earning revenues that AMD could not get keeping its fabs exclusive for itself. As a result, other contract makers of semiconductors, such as Chartered, IBM, TSMC and UMC have all reasons to worry as they have just got a very strong rival with technology experience of AMD and financial support from UAE-based investors.
“More than a year in the making, today’s announcement significantly reshapes the global semiconductor industry – it is an investment where all parties see significant opportunity. Independent and well-capitalized, The Foundry Company begins day one with an established leading-edge customer, an advanced technology roadmap, an R&D partnership with IBM, and a clear plan to scale capacity, providing it the foundation to become a clear leader in global semiconductor manufacturing,” said ATIC chairman Waleed Al Mokarrab.
“Today is a landmark day for AMD, creating a financially stronger company with a tightened focus,” said Dirk Meyer, president and chief executive officer of AMD. “With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading-edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing. I particularly want to congratulate our chairman Hector Ruiz, whose vision and leadership of our Asset Smart strategy is fulfilled today.”
The transaction is expected to close at the beginning of 2009 following satisfaction of conditions such as approvals from regulators, transfer of previously-confirmed New York incentives to The Foundry Company, and the approval of AMD stockholders for the issuance of common stock and warrants to Mubadala. Prior to closing, AMD, ATIC and Mubadala will file a joint voluntary notice of the transaction for review by the Committee on Foreign Investment in the United States (CFIUS), a government inter-agency committee chaired by the Secretary of the Treasury.
Doug Grose will relinquish his current role as AMD’s senior vice president of manufacturing operations to become chief executive officer of The Foundry Company. Hector Ruiz will relinquish his current role as AMD’s executive chairman and chairman of the board to become chairman of The Foundry Company. Dirk Meyer will remain chief executive officer and president of AMD.