Advanced Micro Devices on Wednesday announced plans to slightly boost its purchase commitment from GlobalFoundries by around $50 million this year compared to last year. As part of the agreement, the contract maker of chips will manufacture not only its traditional central processing units (CPUs) and accelerated processing units (APUs) for AMD, but also graphics chips and semi-custom chips for video game consoles.
AMD and GlobalFoundries agreed on purchase commitments for 2014 and established fixed pricing and other terms of the wafer supply agreement which apply to products AMD will purchase from GlobalFoundries. Under this amendment AMD expects to pay GlobalFoundries approximately $1.2 billion in 2014. In 2013 AMD planned to purchase $1.15 billion worth semiconductor wafers from GlobalFoundries. However, actual purchase was $960 million.
Cleanroom at GlobalFoundries fab 8 in New York
What is interesting is that AMD is boosting its purchase commitments to GlobalFoundries by about $50 million this year (de-facto increase is $240 million). But at the same time it significantly expands product portfolio that GF will manufacture for AMD. Traditionally, GlobalFoundries has made only CPUs and APUs for its partner. Starting this year, the company will also produce certain graphics processing units as well as semi-custom APUs for video game consoles, such as Microsoft Xbox One and Sony PlayStation 4.
Chips for popular video game consoles are made in rather high quantities and require similar specifications. For example, in the previous calendar year AMD ordered over ten million of chips for Microsoft Xbox One and Sony PlayStation 4 to Taiwan Semiconductor Manufacturing Co. Given that sales of the two consoles are only going to increase, AMD’s chip orders will raise as well. Therefore, it is not surprising that it had asked GlobalFoundries to become the second source for the semi-custom APUs.
GlobalFoundries’ fab 8 in New York
Analysts estimate that every system-on-chip that powers the latest game consoles cost platform holders from $100 to $110. Assuming that AMD sells them at corporate average margin of 35 per cent, it should buy them for $60 – $65. AMD increased its purchase commitment to GF by $240 million compared to last year, which means that it could order up to four million of console SoCs. Given current sales numbers of the PS4 and Xbox One, four million of chips from the second sources sounds reasonable. Note that $240 million number includes not only semi-custom APUs for consoles, but also certain GPUs.
In case the amount of ordered console chips is correct (keep in mind that the number could not be verified), this may mean that AMD expects sales of its microprocessors and accelerated processing units for PCs to either remain on the last year’s levels or decline. As a result, AMD’s financial results will depend less on PC shipments and more on console sales.
“The successful close of our amended wafer supply agreement with GlobalFoundries demonstrates the continued commitment from our two companies to strengthen our business relationship as long-term strategic partners, and Globalfoundries’ ability to execute in alignment with our product roadmap,” said Rory Read, president and chief executive officer, AMD. “This latest step in AMD’s continued transformation plays a critical role in our goals for 2014.”
KitGuru Says: According to market analysts from International Data Corp., shipments of personal computers this year will decline by 6 per cent compared to 2013. It looks like AMD expects sales of its PC chips to also drop, which means that one should expect AMD’s CPU/APU market share to either stagnate of decrease this year. When it comes to GPUs, AMD may has a little bit more freedom and probably expects GPU sales to grow in 2014.