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Sunday, August 10, 2008

Strategic innovation at AMD - Go Fabless

Call it surrendering before the big brother Intel or just plain survival strategy, AMD is likely to outsource its chip making activities. After losing money for seven quarters, AMD needs a long-term strategy to keep pace with its deep-pocketed rival and to cut red ink. It will henceforth be just a chip designer saving enormous investments in inventory and maintenance of fabrication units, joining the league of the other Fabless smarts like Xilinx. AMD presently owns manufacturing plants in Dresden, Germany, and has an option to build a plant in New York. It already has experience with outsourcing. Its ATI graphics chips are made by Taiwan Semiconductor Manufacturing and it works with IBM at an IBM factory to develop future chip production technologies.

But will it work? Is it ok to expose chip making to outsourced chip makers? How reliable will the outcome be? What about impact of policy shifts? Too many pertinent questions. But when a brand new chip making plant will cost upwards of $3.5 billion and if the company is short by one half, it can’t have the luxury of choice. Not the least when the lead competitor- Intel - has 8 times free cash in its balance sheet.

Ok AMD, all that’s best… Here’s to your success - Go, get a life!

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