5.4 Billion Reasons to Respect AMD

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Intel (Nasdaq: INTC  ) is very proud of its manufacturing prowess. In fact, it's one of the strongest cards it holds in the never-ending rivalry against smaller processor designer Advanced Micro Devices (NYSE: AMD  ) .

But now AMD has something it never had before: enough cash behind its manufacturing services to keep it competitive in the long run.

A Bloomberg report today says that Globalfoundries will double its capital investments this year, pumping the money into new and improved facilities on three continents. That's a $5.4 billion commitment that AMD could never have made on its own.

It's not all about making AMD look good: Globalfoundries Chief Financial Officer Rob Krakauer says that the big spending "is based on customer programs and requests. This isn't speculative." After acquiring Chartered Semiconductor and baking it together with AMD's factories, the customer list now includes Broadcom (Nasdaq: BRCM  ) and Qualcomm (Nasdaq: QCOM  ) ; heated AMD rival NVIDIA (Nasdaq: NVDA  ) used to be a Chartered customer, but has probably moved its business elsewhere for competitive reasons.

But what it all boils down to is big investments in process methodology and manufacturing equipment, and AMD itself isn't paying for any of it. Whether or not Globalfoundries ever overtakes foundry leader Taiwan Semiconductor Manufacturing (NYSE: TSM  ) is beside the point and really only matters if you're a Taiwan Semiconductor shareholder. AMD gains little (it does still own part of the company) from Globalfoundries widening its market reach, sales, or profitability, but gets all the benefits of a deeply funded manufacturing organization with strong ties to the company.

And it looks like the market gets it: AMD's stock jumped 2% today on this news and is reaching fresh six-month highs. It's a great start to what could be a banner year in AMD's rocky history.

Add AMD to your Foolish watchlist to stay apprised of coming twists and turns.

Fool contributor Anders Bylund owns shares of AMD but holds no other position in any of the companies discussed here. Intel is a Motley Fool Inside Value pick. NVIDIA is a Motley Fool Stock Advisor recommendation. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 10, 2011, at 3:34 PM, austec wrote:

    Another well-written Fool article. Can you smart guys do some research and let investors know whether or not Intel is still BRIBING AND COERCING THE ENTIRE PC INDUSTRY?

    AMD has had a few design wins since the FEDERAL TRADE COMMISSION'S CONSENT DECREE against Intel, but many of us suspect that Intel will stop at nothing to monopolize the market - including continuing to break antitrust laws all over the world.

    Do you Fool writers believe that corporations can have a conscience? Intel certainly seems to lack one.

    Excerpt from court documents -


    "On February 16, 2006, Intel took note of a service report in which Dell’s CEO Kevin Rollins had said that Dell had “made no plans to begin using” AMD chips.

    “Finally something positive” commented one Intel executive. Otellini commented: “THE BEST FRIEND MONEY CAN BUY."

    Intel's corruption knows no bounds. INTEL UNCHECKED GREED MAKES AMERICA PROUD!

  • Report this Comment On January 10, 2011, at 3:41 PM, meowkittymeow wrote:

    Hm. Just that you failed to mention who/what "Globalfoundries" is, and in particular how is it related to AMD.

    Without that little datum, the article is hard to fathom.

  • Report this Comment On January 10, 2011, at 3:44 PM, BuyemHoldem wrote:

    now let's see how many Fools acknowledge that INTC has been buying their way into the minds of readers for many, many years. AMD IS the better design company. INTC HAS BEEN the better manufacturing company but that was because of their economies of scale brought on by graft. my, my, my but the world just might turn right side up this time.

  • Report this Comment On January 11, 2011, at 11:35 AM, techy46 wrote:

    AMD only exists because Intel second sourced their chip IP (designs) to them. GlobalFoundries is NOT AMD's foundry, it is a foundry for many branded chip companies. TSM is ARM's foundry for many branded chip companies. As Andy and Gordon once said, only the paranoid survive and you must re-invented your company every ten years. AMD is a nice contrarian play but once Intel lowers their next ATOM iteration to $15 the real low end chip battle begins. However, the PC/Server markets for chips is about $55b/y while the mobile markets are about $15b/y so it's all about downscaling and manufacturing economics. Luckily, capitalism doesn't coexist well with socialism. Greed and Profits are good.

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