AMD AND GLF Amend WSA

[mrmt]

http://www.earningscast.com/AMD/20121206?autoplay=false

Here's the call guys, and below some highlights I made. I'll post come comments in the next post

- AMD needs to find a CFO that can take the analysts.

- There won't be node skipping for AMD, they will go 28nm for now.

- SOI is dead for AMD, they are going bulk for 28nm and future nodes.

- There isn't exclusivity waiver on this new agreement, which means ALL 28nm chips have to be manufactured on GLF.

- Some of the GPU manufacturing will have to go to GLF 28nm

- AMD was in a take-or-pay contract with a minimum volume of 1.5 billion per quarter, now they switched to a take-or-pay contract with a minimum volume of 1.15 billion

- Liquidity IS a problem for AMD, but they think it is manageable. Devider Kumar explicitly mentioned selling IP to make cash.

- The company still refuses to provide any kind of guidance to gross margins or sales.

 

[mrmt]

The first thing I have to comment is about the exclusivity waiver. AMD omitted this very material and important information from the material they sent to investors, and if were not from a clever analyst that asked Kumar about this specific item the subject would not be touched at the call. As always, AMD cannot be forthcoming with its shareholders.

AMD was entitled to purchase some 375 million per quarter from GLF, and this quarter they are going to purchase only 115 million, which at current margins will give just 200 million in sales from Trinity and Bulldozer. They are posed to another slump with their big core lines. Bringing Kabini and GPU to GLF corroborates this hypothesis. Big core will be marginal for AMD in 2013. The fact that they also have to bring GPU to GLF is another red light. Why would they be ordered to bring GPU as a safety margin to the 1.15 billion number if Kabini and big core could sustain the volume?

BTW, with 1.15 billion in purchase commitments they might get less than 2 billion in revenues for the next year, but I think this is a worst case scenario.

Kumar explicitly mentioned IP sales as a mean to keep cash reserves. Market is already factoring this, and also explains Rory Read carefully worded statement at the time of the JPM rumor:

"we are not actively pursuing the sale of AMD or any of our significant assets"

GPU assets for that matter may not be considered as significant as CPU IP, and they may be passively seeking a sale through JPM.

 

[zebrax2]

How much does switching foundries affect chip design? I'm worried that their next gen GPUs could get delayed.

GLF is draining the life out of the barely alive AMD

 

[nforce4max]

AMD needs to find some way to get out of that hole even if it meant scrapping most of the company's assets at lest it might give them the chance to rebuild them selves. This has happened once before with Cyrix and their disastrous National Semiconductor merger that eventually destroyed the company. The x86 industry needs to avoid with anything that has IBM on the IP when it comes to anything on the foundry level.

 

[Idontcare]

AMD needs to find some way to get out of that hole even if it meant scrapping most of the company's assets at lest it might give them the chance to rebuild them selves. This has happened once before with Cyrix and their disastrous National Semiconductor merger that eventually destroyed the company. The x86 industry needs to avoid with anything that has IBM on the IP when it comes to anything on the foundry level.

Ironically it was IBM that played a hand in forcing the Cyrix/NatSem merger...IBM was the Cyrix's foundry and was having a heck of a time getting yields up as well as clockspeeds. IBM was also a node behind the competition at the time (AMD and Intel) so the Cyrix chips used a LOT of power to hit the clockspeeds they needed.

The final dagger though was the contract, for every chip that Cyrix took deliver from IBM, IBM got to hold one back for themselves to rebrand as IBM chips and openly sell on the market in direct competition with the Cyrix branded chips.

Only problem was, for Cyrix that is, IBM didn't need to price their rebranded chips as high as Cyrix did (IBM's cost per chip was less than Cyrix, obviously), and so IBM actively undercut Cyrix at every comparable chip level - Cyrix would sell their PR166 chip for $300, IBM would sell the exact same chip for $280, etc - and this just gutted Cyrix's revenue.

Yet another example of a parasitic foundry that sucks the life out of its customer.

Cyrix was a shell of its former self at that point, so it was either merger with National Semi and live to see another day or die a quick death at the hands of their foundry "partner".

(Cyrix ended up at IBM because of a bad experience at yet another parasitic foundry partner - Texas Instruments )

 

[nforce4max]

One can also blame IBM for a lot of grief over the years for their failures in the Apple PPC machines and the console market. I hate IBM for what they had done by aiding Germany in the holocaust by providing the punch card machines then immediately after the war collected the profits from their Dutch subsidiary.

 

[Idontcare]

One can also blame IBM for a lot of grief over the years for their failures in the Apple PPC machines and the console market. I hate IBM for what they had done by aiding Germany in the holocaust by providing the punch card machines then immediately after the war collected the profits from their Dutch subsidiary.

That wasn't IBM, that was a handful of despicable employees in the executive offices who were willing to do anything, regardless how disgusting, in the name of war profiteering.

I don't blame IBM the company for that, the US military did some pretty despicable things to our indigenous native americans in the 19th century but that doesn't mean today's US military is the same as back then.

But the pitiful excuses for human beings that made those decisions, they should be named and shamed for all of history. Just like Colonel Custer.

 

[Centauri]

Do you hate Google for allowing their OEM partners to sell phones to warlords and dictators? Same difference. Hating companies for their WWII affiliations and activities is not only a waste of energy but a rather large display of ignorance to the ramifications of the war; every major global company was involved at one level or another, and the line between good and evil wasn't as clear cut as modern history has written it.

Money moves constantly, but it flies during war time - every company with anything to offer wants in on that, period.

 

[Ajay]

The first thing I have to comment is about the exclusivity waiver. AMD omitted this very material and important information from the material they sent to investors, and if were not from a clever analyst that asked Kumar about this specific item the subject would not be touched at the call. As always, AMD cannot be forthcoming with its shareholders.

AMD was entitled to purchase some 375 million per quarter from GLF, and this quarter they are going to purchase only 115 million, which at current margins will give just 200 million in sales from Trinity and Bulldozer. They are posed to another slump with their big core lines. Bringing Kabini and GPU to GLF corroborates this hypothesis. Big core will be marginal for AMD in 2013. The fact that they also have to bring GPU to GLF is another red light. Why would they be ordered to bring GPU as a safety margin to the 1.15 billion number if Kabini and big core could sustain the volume?

They are bring GPU production to GF? Seriously? When? Thanks!

 

[Idontcare]

They are bring GPU production to GF? Seriously? When? Thanks!

Given their choice of wording, I read it to mean that their next-gen of vcards will be produced at GloFo but they will continue to produce existing products at TSMC until those existing lines are fully phased out of production (same with Brazos and so forth).

So when is AMD supposed to release their next generation of video cards? Next fall?

 

[Ajay]

Given their choice of wording, I read it to mean that their next-gen of vcards will be produced at GloFo but they will continue to produce existing products at TSMC until those existing lines are fully phased out of production (same with Brazos and so forth).

So when is AMD supposed to release their next generation of video cards? Next fall?

Last I read, next summer. That, of course, is merely rumor. Pretty much everyone expects a refresh next year on the same node, with pretty modest performance improvements. Most NV fans are hoping for a GFX version of Gk100.

The real next gen will be @ 20nm, which, apparently, NV has approved of TSMC's 20nm process. Will GF even have a high performance 20nm process by then?

 

[Idontcare]

The real next gen will be @ 20nm, which, apparently, NV has approved of TSMC's 20nm process. Will GF even have a high performance 20nm process by then?

They don't have even have a high performance 28nm node yet...the prospects of them having a 20nm node that is comparable to TSMC's 20nm node next fall is pretty darn close to zero.

Which will suck for absolutely no one excepting those few fabless companies that have gone and signed an exclusivity contract with GloFo :whiste:

 

[nforce4max]

Given their choice of wording, I read it to mean that their next-gen of vcards will be produced at GloFo but they will continue to produce existing products at TSMC until those existing lines are fully phased out of production (same with Brazos and so forth).

So when is AMD supposed to release their next generation of video cards? Next fall?

Reading between the lines consumers are getting fewer and fewer quality options overall except second hand aging antiques D:

I Hate that foundry, if it were not for their failures AMD would at least have a fighting chance but in the end it is us the consumers who get screwed. No one is going to be as enthusiastic as they had been in past generations for AMD's cards if that is the case. I expect that power consumption is greatly increase and yields are going to be worse than with TSMC. :'(

 

[ViRGE]

I haven't had a chance to listen to the entire announcement yet, but the GloFo exclusivity is accurate? AMD will be producing all of their future APUs and GPUs at GloFo? That just doesn't sound right.

 

[mrmt]

I haven't had a chance to listen to the entire announcement yet, but the GloFo exclusivity is accurate? AMD will be producing all of their future APUs and GPUs at GloFo? That just doesn't sound right.

Everything on the first post comes straight from the audio. This part specifically is one of the last questions in the Q&A part of the audio. Kumar wouldn't touch the subject if weren't for a clever analyst that asked directly about what product was going to be on TSMC and what on GLF, and Kumar then had to drop the bombshell.

 

[Joseph F]

Another nail in the coffin for AMD, it would seem. I wish they didn't have to bind themselves to GloFo, considering how they lag behind the competition in their flagship process node.

 

[Elixer]

I still think it is wait and see.
TSMC is by no means perfect at everything they do, and they have thrown wrenches at AMD (and others) forcing them to delay products.

If, indeed AMD is 100% GloFo, then you can pretty much bet that if GloFo fails to produce, there are probably heavy discounts/fines, or even termination of contract wording in there someplace...

The GloFo fishkill plant got a major upgrade as well, so, we just don't have enough facts to see how this will fit in the big picture of things.

 

[mrmt]

If, indeed AMD is 100% GloFo, then you can pretty much bet that if GloFo fails to produce, there are probably heavy discounts/fines, or even termination of contract wording in there someplace

The GloFo fishkill plant got a major upgrade as well, so, we just don't have enough facts to see how this will fit in the big picture of things.

That's wishful thinking. GLF already failed to deliver, twice, first with 32nm and then with 28nm and guess what, nothing happened. OTOH whenever AMD fails with its commitments they have to pay in cash. AMD and GLF don't have a partnership. It is GLF calling the shots and not delivering and AMD obeying and paying.

If you still think that AMD has any saying on this relationship have a look at the audio of the conference, then look at what the severance payments to GLF will do to AMD cash reserves. AMD is burning a fifth of their cash reserves to rearrange the WSA and moving now to 28nm at GLF at AMD when 28nm is already very mature at TSMC.

In any case, the issue with the exclusivity isn't strictly related to GLF performance. GLF track record is bad enough, but even if it was good AMD should not enter in an exclusivity deal.

Let me quote IDC that gave a brilliant explanation about this issue in another thread:

http://forums.anandtech.com/showpost.php?p=34351306&postcount=93


(1) the exclusivity agreement is toxic, it would be toxic for any fabless company to tie themselves to the success/failure of just one specific foundry...it defeats the value of being fabless and having the flexibility to shop for the best deals from competing foundries in terms of wafer prices and process node technology capabilities (gate first was a bad idea and everyone knew it, but AMD got stuck with it because IBM wanted it).

GloFo has a guaranteed captured audience in AMD with the exclusivity clause, and with a take-or-pay contract they are guaranteed to get paid too. Kinda defeats the competitive spirit that is supposed to rally GloFo employees to best TSMC at anything, let alone best them at everything as they ought to be attempting.

 

[wlee15]

Everything on the first post comes straight from the audio. This part specifically is one of the last questions in the Q&A part of the audio. Kumar wouldn't touch the subject if weren't for a clever analyst that asked directly about what product was going to be on TSMC and what on GLF, and Kumar then had to drop the bombshell.

What he said was "... from an obligation standpoint under the WSA we make all of our Microprocessor products at GlobalFoundries and some of our GPU products below or at 28nm technology node at GlobalFoundries..." which is consistent with the original WSA.

Pursuant to the Wafer Supply Agreement, the Company will, subject to limited exceptions, purchase all of its microprocessor unit (“MPU”) product requirements from The Foundry Company.

and

In addition, once The Foundry Company establishes a 32nm-qualified process, the Company will purchase from Foundry Company sales entities, where competitive, specified percentages of its graphics processor unit (“GPU”) requirements at all process nodes, which percentages will increase linearly over a five-year period.

http://www.wikinvest.com/stock/Advanced_Micro_Devices_(AMD)/Filing/8-K/2009/F1307283

Also note that the limited wavier of exclusivity was for 28nm APU products and not GPUs which is interesting considering there's no AMD 28nm APU out at this moment. It's also important to note that while this third amendment doesn't have a limited Wavier of exclusivity it doesn't mean that the one in the second amendment is no longer in effect.

 

[mrmt]

What he said was "... from an obligation standpoint under the WSA we make all of our Microprocessor products at GlobalFoundries and some of our GPU products below or at 28nm technology node at GlobalFoundries..." which is consistent with the original WSA.

If you went through the audio could you please quote the part where he says that the waiver is no more in the Q&A?

The problem is that he didn't disclose that the waiver was gone in the presentation and in the speech. We would still be thinking that there was a waiver if the analyst didn't ask him about it. That's the kind of attitude that destroys credibility in the financial community.

Also note that the limited wavier of exclusivity was for 28nm APU products and not GPUs which is interesting considering there's no AMD 28nm APU out at this moment. It's also important to note that while this third amendment doesn't have a limited Wavier of exclusivity it doesn't mean that the one in the second amendment is no longer in effect.

Could you give us a source of this 28nm restriction? I understand that they could manufacture certain CPUs out of GLF, including, but limited to, 28nm chips, otherwise they wouldn't be able to manufacture Brazos at TSMC 40nm.

 

[wlee15]

If you went through the audio could you please quote the part where he says that the waiver is no more in the Q&A?

The problem is that he didn't disclose that the waiver was gone in the presentation and in the speech. We would still be thinking that there was a waiver if the analyst didn't ask him about it. That's the kind of attitude that destroys credibility in the financial community.

"...in the last amendment we had a limited wavier of exclusivity for certain 28nm products, and you rightly noted that in this particular amendment we have no wavier of exclusivity for any of the products..."

I've read the call on the first amendment to the WSA and I personally think that the limited wavier of exclusivity is for the APUs destined for the next-generation Xbox and Playstations.

"Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

Okay. Can you give us some feeling for -- it's for a specified period of time, how long of a specified period of time is this exclusivity agreement waived?

Thomas Seifert - Chief Financial officer, Principal Accounting officer and Senior Vice President

At this point in time, we cannot be more specific than that because it covers certain arrangements we have with customers. But we feel comfortable about the agreement with respect to the products and the timelines we have put in place. "

http://seekingalpha.com/article/411671-advanced-micro-devices-inc-special-call?part=single

Could you give us a source of this 28nm restriction? I understand that they could manufacture certain CPUs out of GLF, including, but limited to, 28nm chips, otherwise they wouldn't be able to manufacture Brazos at TSMC 40nm.

Well the original WSA required that all AMD Microprocessor unit be made at GF with limited exceptions. The Bobcat based APUs were well under development when the original WSA was agreement so I would assume that the Bobcat APUs were one of those specific exceptions.

 

[mrmt]

I've read the call on the first amendment to the WSA and I personally think that the limited wavier of exclusivity is for the APUs destined for the next-generation Xbox and Playstations.

From what he said at the call, even those will have to be with GLF at some point in the future.

ed: Thanks for the quotes.

Well the original WSA required that all AMD Microprocessor unit be made at GF with limited exceptions. The Bobcat based APUs were well under development when the original WSA was agreement so I would assume that the Bobcat APUs were one of those specific exceptions.

FWIW what I got from the exclusivity waiver is that they had to manufacture all their high performance CPU/APU with GLF and the rest could be manufactured at GLF. Made sense as GLF didn't have a bulk process ready at the time, just expensive SOI.

 

[NostaSeronx]

I'm reviving this for....

Wafer Supply Agreement;
http://www.sec.gov/Archives/edgar/data/2488/000119312509046101/dex105.htm

Amendment #1;
http://www.sec.gov/Archives/edgar/data/2488/000119312511200905/dex101.htm

Amendment #2;
http://www.sec.gov/Archives/edgar/data/2488/000119312512222047/d312884dex101.htm

Amendment #3;
http://www.sec.gov/Archives/edgar/data/2488/000119312513069422/d486815dex1034c.htm

Amendment #4;
http://www.sec.gov/Archives/edgar/data/2488/000119312514177314/d714367dex101.htm

So, much [****] for [****]y.

From WSA;

The technical information that AMD may request from FoundryCo may include:

•SPICE models of varying degrees of accuracy, in concert with the state of process development at FoundryCo
•Various EDA tools support files (for example, SDK’s and PDK’s)
•lot status update reports
•Defect density trends on a per-fab basis for any technologies that are being used by AMD
•WIP status updates on all Products
•Yield status update on all Products
•Wafer sort data
•Inline trend charts for key process modules
•Inline data for specific process modules
•Process failure analysis timetables and reports, as necessary
•Detailed explanation and sharing of all relevant data for significant fab excursions
•Any qualification reports for technology and technology options (process qual, eFuse qual etc&#8230

So, AMD does pretty much know everything about any process GloFo builds.

Amendment#1;

If for an applicable quarter it is determined that AMD has not (A) placed orders for manufacture by FoundryCo of the GPU Volume Ramp Products or the GPU Minimum Percentage of GPU Products starting with the [****] GPU Product Family, or (B) complied with any other requirements as set forth herein to enable FoundryCo the opportunity to manufacture the GPU Minimum Percentage throughout the entire duration of this Agreement, the parties agree to meet, discuss and implement a mutually acceptable corrective action plan to address such non-compliance and to enable FoundryCo to manufacture higher volumes of the GPU Products in the following quarters.

So, the Amendment #2 waiver in 2012 also included 28-nm/Southern Islands.

For Amendment #3;

Pricing for GPU Products at [****] will be set at $[****]/Wafer ([****]).

For Amendment #4;

AMD’s commitment to purchase and pay for, in the form of a take-or-pay obligation, a total of [****] Production Wafers containing MPU Products or GPU Products during the period from January 1, 2014 through December 31, 2014 (the “2014 Period&#8221

MPUs or GPUs but not MPUs and GPUs.

AMD’s commitment to satisfy certain tape out obligations with respect to GPU Products from January 1, 2014 and thereafter.

AMD must tape out GPU products by the end of 2014.

 

[krumme]

And that translate into a worse situation 2015 as GF still dont deliver. Right?
Investing in AMD stock is investing in GF.
Investing in AMD is thereby the same as investing in Mubadala.
And who in their sane mind does that voluntarily with their own money?
(if by a miracle process quality goes up high- the price will do the same - so no difference for AMD business anyway)
Is there anything new here?

 

[mrmt]

For Amendment #3; For Amendment #4; MPUs or GPUs but not MPUs and GPUs.AMD must tape out GPU products by the end of 2014.

You have really bad reading/comprehension skills. All that phrase says is that for the effect of complying with the WSA quota wafers for MPU or GPU will count. Had they used "and", only wafers containing both GPU and MPU at the same would count.