Later, Not Sooner

Add Your Comments

So far, the reaction to AMD’s UAE deal has been lukewarm.

This is largely due to for the reasons stated in this email I recently received:

Hi Ed:

. . . This little piece from your article called my attention:


“Both Intel and AMD fab their own major products (Foundry Company may become effectively independent someday, but for now, it’s AMD under a different name).


Let’s suppose that in the foreseeable future the Foundry Co. becomes independently (like you state), how would this scenario affects AMD’s operations?

I think a fabless AMD would make it more vulnerable to fight Intel’s. For this sole reason, I hate this move that they (AMD) made.

Hope to know from you soon on any thoughts you might have about this specific issue.

My reply:


First, the most likely scenario is that the UAE people will end up buying the rest of AMD when it becomes legal to do so.  I simply don’t believe these people just want to fab other people’s chips; that’s not where the money is in the business.  For now, you have to assume that the current plan of the UAE folks is to eventually buy the whole company and take on Intel.   They may change their minds after a few years, but that’s what they must be thinking now. 

Second, keep in mind that this Foundry Company is staffed by ex-AMD employees, and it’s not like the UAE guys know anything about the business.  The AMD people will be making all the operational calls the first few years (noting that a lot of these calls are really being made by IBM).
The point I’m trying to make is not that this is a marriage made in heaven and everybody will live happily ever after, but that if problems occur, they’ll occur later, say 2-3 years from now, not sooner.  This isn’t like one tech company taking over another, with immediate culture clashes.  The UAE people have essentially bought themselves a stake in the company and get their feet wet, then they’ll decide whether or not to fully commit.
Let me add a bit to this:
I think a lot of people are making the mistake of thinking this is like AMD going to somebody else to have their chips fabbed.  It isn’t.  For now, and for some time to come, the only real difference between before and after is that somebody else will be paying the AMD fab employees.  For now and for some time to come, all the operational employees are going to be AMD employees.  Maybe more importantly, the key strategic decisions regarding new/revamped fab production for the next few years have already been made, and it seems like the real decision-maker hasn’t been AMD or the UAE folks, but IBM.  If you’d like a little proof of that, look here.  Bulk CMOS with high-K is going to be IBM’s standard at 32nm. 
It must also never be forgotten that all this spinning-off is likely more theater than finance to duck the provisions of the Intel-AMD patent swap agreement.  The UAE folks thinking that they’ll probably end up buying AMD lock, stock and barrel provided things go reasonably well.  They may handle the reunited company well, they may handle it poorly, but the two sides of the company will be handled together. 
Maybe the best way to view this is to jump ahead to 2011.  By 2011, it will be clear whether or not AMD will again be able to go toe-to-toe against Intel again, or at least make money doing whatever it is they are doing.  By 2011, any big global slowdown/recession will either be over, or we’ll know it won’t be over any time soon.  By 2011, it will be clear what various government agencies will do against Intel, and while the antitrust lawsuit will probably still be alive (provided it isn’t settled out of court), the world will have a much better sense of what the results will do for AMD.  By 2011, it will be much clearer what other business besides AMD’s the Foundry Company will be able to get. 
It’s already clear that the UAE folks would like to be the center of a technological power house; they’ve spent a lot of money getting other tech firms to come to the UAE, and they don’t scare easily.  On the other hand, they haven’t fully committed yet, and you can be sure that over the next few years, their people will learn this business from the ground up.  
By around 2011, it should be time enough to for the UAE folks to decide whether or not to go full-speed ahead, cut their losses, or do something inbetween.  Until then, there’s going to be a honeymoon, pretty much because the UAE folks bought into the strategy for the next few years when they bought their stake.  It will only be after that period, when the next generation of strategies and resources to meet them are being fabricated that problems between the two parties are likely to emerge.  

Leave a Reply

Your email address will not be published. Required fields are marked *