AMD splits manufacturing, The Foundry Co. born

In line with suspicions aired early this morning, AMD has announced that it will be shedding is manufacturing arm into an entirely new company temporarily known as The Foundry Company. The new firm will be majority-owned by Abu Dhabi-based ATIC and operate AMD’s Dresden, India, and future New York fabs. AMD proper will continue in the business of chip design and benefit from increased investment from Mubadala Development Company in the UAE to the tune of 19.3% ownership.

When the dust settles in 2009, here’s how it will pan out:

The Foundry Company

• Have a total enterprise value of $5.0 billion, consisting of AMD’s contribution of manufacturing assets and intellectual property (including its fabrication facilities in Dresden), intellectual capital and employees valued together at $2.4 billion; ATIC’s contribution of $1.4 billion in new capital; and $1.2 billion of debt assumed by The Foundry Company from AMD.
• Be consolidated with AMD for purposes of financial reporting.
• Have a board of directors whose membership is equally divided between representatives of AMD and ATIC.
• Have only AMD and ATIC as stockholders, each of which at the closing will have equal voting rights.
• Be owned 44.4 percent by AMD and 55.6 percent by ATIC on a fully converted to common basis. ATIC’s economic ownership will increase over time based on the differences in securities held by AMD and ATIC, and depending on whether AMD elects to invest proportionately with ATIC in future capital infusions to support The Foundry Company’s growth.
• Have its principal headquarters in Silicon Valley, and its research and development and manufacturing leadership teams and ecosystems in New York, Dresden, and Austin.
• Have an exclusive supply agreement with limited exceptions to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products.
• Begin construction of the Fab 4X manufacturing facility in New York in the middle of 2009, directly employing more than 1,400 workers in Upstate New York when the facility is in full operation.
• Expect to increase capacity through completing the 300mm conversion of a second state-of-the-art facility in Dresden in 2009.
• Join the IBM technology development alliance for both SOI and bulk silicon technology, greatly expanding the addressable market of The Foundry Company.
• After the upgrade and expansion in Dresden and the build-out of the New York facility, The Foundry Company envisions expanding its global manufacturing footprint over time, if commercially justified, to also include new fabrication facilities in Abu Dhabi.
• Announce its permanent corporate name and identity.

Advanced Micro Devices

• Have equal voting rights with ATIC in The Foundry Company.
• Own 44.4 percent of The Foundry Company on a fully converted to common basis.
• Improve its liquidity through The Foundry Company’s assumption of approximately $1.2 billion of AMD’s debt, ATIC’s $700 million payment to AMD for ownership interests in The Foundry Company and Mubadala’s purchase for $314 million of 58 million newly issued AMD shares and warrants for 30 million additional shares.
• Tightly focus on the design and development of the next generation of innovation based on the fusion of computing and graphics processing.
• Elect a Mubadala designee as a member of its board of directors.
• Excluding its consolidation of The Foundry Company for financial reporting purposes, improve its net cash position by $2.1 billion, through The Foundry Company’s assumption of approximately $1.1 billion in debt (net of approximately $100 million cash transferred by AMD to The Foundry Company) and cash payments from ATIC and Mubadala aggregating $1.0 billion.
• Have the option, but not any requirement, to provide additional capital funding to The Foundry Company in response to future capital calls.
• Have an exclusive supply agreement with The Foundry Company, with limited exceptions, to manufacture AMD processors and to manufacture, where competitive, certain percentages of other AMD semiconductor products.

ATIC:

• Have equal voting rights with AMD in The Foundry Company.
• Own 55.6 percent of The Foundry Company on a fully converted to common basis.
• Invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD.
• Commit a minimum of $3.6 billion and up to $6.0 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden and construction of a new facility in Upstate New York.

Mubadala:

• Purchase for an aggregate of $314 million 58 million newly issued AMD shares and warrants for 30 million additional shares, giving it a total stake in AMD of 19.3 percent on a fully diluted basis.
• Have a right to designate a representative for election as a member of the board of directors of AMD.

As expected, the current plan has come to fruition by virtue of the financial burden AMD has endured to make each new fab. As part of their asset light and asset smart strategies, a fabless model will allow AMD to focus on design without the tremendous cost of plants and manufacturing.

The cash infusion will also permit AMD to finish their next-generation $4.2 billion plant in Malta, NY, a fab often seen as essential to the future of AMD. Expected to develop technologies at 42nm and beyond, it is believed that the plant is the cornerstone of AMD’s renewed fight against Intel in the arms race of processing power.

IBM has also renewed its promises to AMD, extending the long-standing manufacturing and idea-sharing compact out to 2015.

As the market prepares to open in the US, pre-market speculation has AMD up more than $1.25 a share, or 31.44%.