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Will AMD partner up with Motorola to announce a fabrication plant partnership in the first quarter of 2001? AMD is looking FABulous!


Due to the increasing popularity of AMD's Athlon chips, AMD is going through a renaissance.


Strengthening gross margins, strong execution and growing market share has produced record earnings this year for AMD that has been growing by surprising leaps and bounds every quarter since Q3 '99 tapping into previously unrecognized operating leverage.

With new and improved products on the verge of coming out with the capabilities and functionality that commercial customers demand, this trend shows no signs of slowing down. In fact, by all measurements, this process seems to be growing despite their competitor's curious stagnating growth amidst solid and growing PC and Internet markets. As AMD begins to penetrate into the commercial market, and takes advantage of Intel's confused and chaotic corporate strategies, AMD looks to continue to grow its margins at Intel's expense.

Instead of dealing with execution problems (as AMD has been known for in the past), AMD has executed flawlessly, and has watched Intel's market share deteriorate due to a continuous string of strategic missteps, manufacturing problems, product delays and product recalls as well as a laundry list of other problems that all point to increasing problems.

While Intel would like everyone to believe that there inability to keep up with demand is due to not having enough manufacturing capacity, that's simply not the case. The real cause is AMD's competitive pressures are driving prices down. The laws of competitive markets dictate that if it weren't for AMD, Intel would be able to raise it's prices as high as it wanted.

The simple laws of supply and demand dictate that at some point, prices would be high enough that demand would fall to the point where Intel could meet that demand. As more of Intel's market segments come under competitive pressures, they will continue to have additional products on allocation. Consequently, their partners like Dell will increasingly feel the pinch.

Intel has reacted poorly to these competitive pressures. The declining quality of their earnings has forced Intel into boosting earnings with investment gains and share buybacks. Their inability to compete in new markets has Intel conspicuously suing their competitors; VIA and Broadcom are the latest targets of the Intel law firm.

Unfortunately for Intel, these legal cases are very different from some of their earlier cases. In their arbitration case against AMD, Intel held the designs, and refused to give them to AMD -- Intel had the upper hand. Intel's cases with Via and Broadcom are vastly different. In the Broadcom case, Intel is fighting an uphill battle in a market that it just doesn't seem to be able to get traction. Intel's case against VIA is trying to prohibit VIA from producing chipsets for AMD. These cases will, it seems, take time, and time is one more thing that isn't on Intel's side any longer.

While Intel seems to have hit its ceiling, AMD has just begun to hit its stride.

A key part of AMD's strength has come from the recently added capacity from their new state-of-the-art Dresden manufacturing facility, known as Fab30, that produces their popular high-end Athlon copper chips, and is ahead of schedule in the midst of ramping up to full capacity. AMD is expected to produce about 25 million CPUs this year and about 50 million in 2001 from their two facilities. You don't have to be a genius to realize that growing ASPs (average selling prices) along with twice as many chips will produce another record year for AMD.

Their other market, flash memory, is already sold out for all of this year with a solid outlook for next. With industry leaders for customers like Cisco, Nortel, Nokia and Palm, AMD is positioned for strength in that market as well. In fact, if AMD could produce more chips, they would be able to take advantage of their stronger competitive position that much more.

Fabrication plants are the engines of semiconductor companies. The more competitive chips they can make, the more they can sell. In the past, AMD has not had a top-to-bottom competitive offering, but this is quickly changing with their Athlon chip.

As a consequence of their growing market share and vastly improved financial position, AMD has been researching another multi-billion dollar manufacturing facility. As some may be aware, AMD is widely expected (although they have not said as much) to announce another fabrication plant sometime during Q1 '01.

Not as widely known, AMD has space on their Dresden property to build an additional fabrication plant.

Not only is AMD looking to build a new manufacturing facility, coincidently, so is AMD's copper process partner, Motorola. Both companies are looking to build a logic-chip facility that would add important capacity to their current abilities in their respective growing markets.

In AMD's case, they need additional capacity for their popular Athlon chip and the their upcoming 64-bit CPU design codenamed Hammer, while Motorola is looking for a new plant for wireless chipsets. Both companies intend to build new 300 mm (12 inch) wafer plants that can produce about 2.5 times the number of chips per wafer from traditional plants based on 200 mm (8 inch).

In the article "New execs describe their vision for Motorola chip operations" (http://www.eet.com/story/industry/semiconductor_news/OEG20000908S0054#New%20execs%20describe%20their%20vision)in EETimes.com, Fred Shlapak (who is responsible for jointly running Motorola's Semiconductor Products Sector) said that "we probably don't want to build a 300-mm wafer fab alone; we would like to do it with some form of partner. To get the economies of scale, you have to spend about $2.5 billion to $3 billion."

The following two paragraphs are from the aforementioned article:

While Intel, Texas Instruments and others are building 300-mm (12-inch) wafer fabs now, Motorola has decided to pause until the tool set becomes manufacturing-worthy, the executives said. Since 1993 Motorola, along with partner Infineon Technologies, has operated a 300-mm development and prototyping facility in Dresden, Germany, called SC300.

"Motorola had the foresight over the last nine years to research the whole 300-mm manufacturing question," Shlapak said. "We don't have DRAMs any more, or a single-product focus like Intel. We probably don't want to build a 300-mm wafer fab alone; we would like to do it with some form of partner. To get the economies of scale, you have to spend about $2.5 billion to $3 billion, and to justify that you have to get a product up to the billion-dollar run rate. For us that probably will be our wireless chip sets."

To followers of Motorola and AMD, these statements may seem uncannily similar to remarks made by Motorola's copper process partner -- none other than AMD's President and Chief Operating Officer Hector Ruiz.

In an Interview with Mr. Ruiz in the Electronic Buyers' News article "AMD prepares for 64-bit battle" (http://www.ebnews.com/story/OEG20000825S0058#AMD%20prepares%20for%2064-bit%20battle), he is quoted as saying that "we haven't said where a new fab might be located. Dresden is definitely a candidate. We've said the next AMD fab will be for 300-mm wafers. Since we estimate a 300-mm fab may cost $3 billion, we think it would be great if we could find a compatible partner."

AMD's Jerry Sander's is legendary for striking powerful and strategic partnerships with industry heavyweights like DEC, Compaq, Gateway, Motorola, Microsoft, Sun Microsystems, Red Hat and SuES Linux in addition to enlightened agreements with governments like Dresden, Germany and German banks along with competitors like VIA/Cyrix.

Beyond developing relationships, he's also noted for forward-thinking strategies like his policy that "AMD's plan is to be the nucleating point for an alternative to an Intel monopoly" as stated near the end of AMD's document titled "Competing with an 800-Pound Gorilla" (http://www.amd.com/about/investor/speeches/robertson98.html#Competing%20with%20an%20800-Pound%20Gorilla) from the Robertson-Stephens Conference in San Francisco, California. Back in 1998, after Jerry announced the ground-breaking cross-technology sharing agreement with Motorola, and proclaimed that AMD was a "virtual gorilla", it was perceived as brave lip service, today we call it vision.

Enlightened competition and not survival of the most paranoid seems to be the order of the day. Maybe Intel workers should read the book "How to Win Friends & Influence People" by Dale Carnegie.



al aguinaldo

aguinaldo@engineer.com
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