Advanced Micro Devices Inc. (AMD (News - Alert)) has restructured its wafer supply agreement with its former microchip manufacturing unit, GlobalFoundries. The deal will result in AMD relinquishing its equity stake in GlobalFoundries in return for negotiated wafer pricing and the elimination of AMD's additional 2012 quarterly payment obligations.
The move is being hailed as a victory for GlobalFoundries, which will be able to diversify its customer base by establishing itself as a truly independent foundry. Milpitas, Calif.-based manufacturer GlobalFoundries will also receive a cash payment of $425 million and a non-cash payment of $278 million.
AMD will still remain a critical customer to GlobalFoundries, but under redefined terms that will help AMD establish more favorable wafer pricing. In addition to the elimination of additional 2012 quarterly payment obligations, GlobalFoundries waived the exclusivity arrangement for AMD to manufacture certain 28nm APU products at its location.
An AMD spokesperson told the Wall Street Journal that the move will enable the company to partner with another company – Taiwan Semiconductor Manufacturing (News - Alert) Co. – to build some of its 28-nanometer chips. However, GlobalFoundries will continue to remain a wafer supplier for AMD.
"The amended wafer supply agreement demonstrates that AMD and GLOBALFOUNDRIES remain committed as long-term strategic business partners," Rory Read, chief executive officer of AMD, noted in a statement. "We made significant progress last year to strengthen our relationship, and we're pleased with GLOBALFOUNDRIES' recent performance in meeting our delivery requirements across our product line."
The one-time charge of $703 million will be booked in Q1 of 2012 but is not expected to have any impact on AMD's non-GAAP gross margin guidance for the coming year. AMD maintained an 8.8 percent equity stake in GlobalFoundries before Monday's deal was inked.