Bye bye to Dhabi
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People have often accused AMD of having a split personality. Now it is official.
AMD is cleaving, dividing itself into two companies. One entity (to still be called AMD) will design chips. Its fraternal twin will be named The Foundry and will manufacture chips. Naturally the former will feed the later though this sibling separation will allow more creative mixing of technologies and partners (i.e., The Foundry will be allowed to manufacture non AMD designs and AMD will license IP rights to other fabs).
As interesting as this conjoined-twin separation may be, the doctor performing the surgery is more so. The Advanced Technology Investment Company (ATIC) was created by the government of Abu Dhabi who acquired a lot of the United States wealth via oil. In a limited way some of that money is coming home, though ATIC will invest heavily in updating Foundry fabs in Dresden. ATIC also assumes a large hunk of AMD debt, leaving leaner the design half of the company — a mere $1.7 billion in debt as opposed to their current $3.6 billion load. Part of that debt reduction is due to direct investment in AMD by Mubadala Development, another Dhabi outfit.
All AMD had to do was surrender majority control of The Foundry. ATIC will have 55.6% of The Foundry.
From a management perspective, this may have been both unavoidable as well as a success factor. Manufacturing chips is a moneyed business. Chip fabs ain’t cheep and operational costs are significant. With margins on chips small and shrinking, the manufacturing side of AMD was more of a drain that a profit center. Being a chip designer without the drag created from manufacturing may give AMD enviable freedom to innovate.
Like they did with Opteron.
Let us not forget that Opteron changed the entire chip market. I was consulting to SuSE Linux at the time, and SuSE was a day-one partner with AMD, having pre-ported Linux to Opteron. So was Microsoft who blessed AMD’s 64-bit instruction set, leaving a bewildered Intel and HP crying in their Itainium brand beer. To compete with AMD, Intel eventually had to license AMD’s 64-bit instruction set, a pleasant new revenue stream for AMD.
I won’t predict that AMD will again revolutionize the CPU business, but I can’t help but believe that shedding their manufacturing side will make them more agile.
The marketing lesson today? Only that doing what you do well and not being distracted by other “opportunities” is important. AMD once knew how to challenge the market status quo and may soon do it again.
