AMD's First Chip-Making Customer Is a Doozy

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Advanced Micro Devices (NYSE: AMD  ) is turning dreams into reality. Its recently detached chip manufacturing operator, GlobalFoundries, has landed its first outside customer -- and it's a biggie.

Swiss technology giant STMicroelectronics (NYSE: STM  ) has signed a multi-year partnership to leverage GlobalFoundries' low-power, 40-nanometer manufacturing technology starting next year. STMicro has 15 chip factories of its own, but is working to reduce its capital expenses and therefore wants to expand its outsourcing activities. With nearly $10 billion of sales in each of the last three years, this is a big player that could send serious amounts of business to GlobalFoundries, and by extension help make the foundry a profitable venture for AMD and its majority partner, an investment fund for the Abu Dhabi government, somewhere down the line.

The fact that STMicro was the first chip designer to sign on the dotted line here should surprise nobody. AMD and STMicro have long worked together under the umbrella of IBM's (NYSE: IBM  ) technology alliance, alongside Big Blue itself, Chartered Semiconductor Manufacturing (Nasdaq: CHRT  ) , Samsung, Toshiba, and other technology titans.

The alliance is hard at work on 32-nanometer and 28-nanometer manufacturing processes, with the more advanced technology due for "early risk production" in the second half of 2010. Smaller processor traces translate into lower power draws, smaller chips, and more chips per silicon wafer, so these advances play a major part in keeping processor technology profitable.

To give you some idea of what "early risk" means, foundry veteran Taiwan Semiconductor Manufacturing (NYSE: TSM  ) rolled out the "early risk" stage for its now-quaint 90-nanometer process in the third quarter of 2002 and switched to volume production about three quarters later. Intel (Nasdaq: INTC  ) is skipping the 28-nano process, moving directly to 22-nanometer processes instead -- due for delivery in sometime in 2011.

Depending on how well the IBM team and Intel manage to stick to their roadmap dates, it looks like STMicro, AMD, and others will have access to a very competitive technology in 2011, possibly with a lead over Intel's 32-nanometer technology for a couple of months. That is not something AMD is used to, and that kind of progress could attract lots of curious foundry partners as well. Texas Instruments (NYSE: TXN  ) , having arguably started this asset-light outsourcing trend, could very well end up using GlobalFoundries -- which was inspired by TI in the first place. Oh, the delicious irony!

Of course, there are plenty of ifs, buts, and best-case scenarios involved in getting to that point. Keep an eye on this space to stay abreast of GlobalFoundries and its technical progress. High technology leads to cold, hard cash in this saga.

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Fool contributor Anders Bylund owns shares in Taiwan Semiconductor and AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (2) | Recommend This Article (12)

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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 July 31, 2009, at 5:15 PM, SnarfJabroni wrote:

    This is very strange...AMD does not make chips any longer, so pray tell, how can AMD have a chip-making customer?

  • Report this Comment On August 03, 2009, at 12:26 PM, Runner09 wrote:

    Signing up big names is good for Global Foundries. How about if GF acquires either UMC or Chartered?

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