Not A Done Deal . . .

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You may have heard that AMD is going to build a new fab in the United States: New York State.

Well, not quite yet.

The current terms of the deal are:

  • New York State will give AMD $650 million to build the plant, and offer at least $350 million in tax incentives. Most of this still needs to be approved by the New York State legislature.
  • If a binding deal is reached, AMD will start building a 32nm fab somewhere between July 2007 and July 2009. and will start production in the usual 2+ years after that.

    However, this isn’t a done deal yet.

    If you take a look at the AMD press release, you’ll see that this is a non-binding deal, and AMD can back out of it for a variety of reasons, and here are the reasons mentioned in the press release:

  • a binding agreement related to the development of this fabrication facility is not reached between AMD and the Empire State Development Board or local governmental entities in the timeframe required under the non-binding letter of intent entered by the parties and announced herein
  • local infrastructure requirements are not provided or required permits for building the proposed fabrication facility are not obtained in the required time frame; or
  • market requirements may change and the need for a new fabrication facility will not be required until a date later than that set forth in this release.

    A Bird In the Hand

    It’s a bit curious that the AMD language in the press release emphasizes the non-binding nature of the agreement. As Hector Ruiz put it:

    “AMD’s ability to serve market demand for our industry-leading technology depends on an intelligent, flexible way to scale our manufacturing capacity . . . ”

    In English, that means, “We now have the option to build it.”

    Why is AMD being so tentative about this?

    Well, New York State still has to do a number of things to fulfill its part of the deal, and that’s not a done deal, either. Spending about a half million dollars a job to put a fab in one of the leading local legislator’s district may lead to some squawking (though I wouldn’t bet against them approving it).

    More likely, though, it’s AMD that is the party more likely to back out. In the short term, they can wave this package around to the Germans and East Asians who were interested in having the fab for at least a while and say in effect, “Can you top this?”

    In the longer run, though, this deal seems to be insurance that AMD can meet demand provided all goes very well for them the next few years. After all, AMD has Fab 36, which ought to last a few process shrink generations, as would a refurbished Fab 30.

    If things don’t go very well for AMD in the next few years, the two Dresden plants ought to be enough (or be made to be enough) to last through 32nm.

    I don’t know, there seems to be more to this story than meets the eye. I’m not knocking AMD for this approach, it looks like they’re trying to be prudent and looking for the best deal in what looks to be a shaky environment for massive expansion.

    But that’s all the more reason to think this deal isn’t quite done yet.

    P.S. For those a little geographically challenged, the site for the fab is nowhere near either New York City (about 175 miles away) or IBM’s fab plant in East Fishkill (about 125).

    Ed


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