New sup­ply agree­ment cuts AMD’S costs

Chip­maker will re­duce num­ber of pro­cessed wafers it buys.

Austin American-Statesman - - BUSINESS - By Kirk Laden­dorf kladen­dorf@states­ Con­tact Kirk Laden­dorf at 445-3622.

Ad­vanced Mi­cro De­vices Inc. re­ported a new man­u­fac­tur­ing agree­ment Thurs­day with a key sup­plier that al­lows the chip­maker to dra­mat­i­cally cut spend­ing in the cur­rent quar­ter.

AMD, which is the sec­ond largest maker of pro­ces­sor chips for PCs, reached the new agree­ment with Glob­alFoundries Inc., its chief part­ner for pro­cess­ing sil­i­con wafers into AMD-de­signed chips.

As part of the agree­ment, AMD plans to sub­stan­tially re­duce the amount of pro­cessed wafers it buys from Glob­alFoundries in the cur­rent quar­ter.

Un­der the former agree­ment, it was ob­li­gated to buy $500 mil­lion in wafers from the sup­plier in the cur­rent quar­ter. Un­der the new agree­ment, AMD will cut those pur­chases to $115 mil­lion for this quar­ter.

AMD still owes Glob­alFoundries $320 mil­lion to change its wafer agree­ment, but it can spread the pay­ments over the next year to re­duce the cash im­pact.

AMD will take a one-time ac­count­ing charge of $165 mil­lion in the cur­rent quar­ter.

AMD, which em­ploys about 2,000 peo­ple in Austin, has strug­gled to cut costs in the face of the PC sales slump, which dra­mat­i­cally weak­ened its sales this year.

The com­pany an­nounced in Oc­to­ber that it was cut­ting 1,600 work­ers world­wide, in­clud­ing about 400 in Austin, to cut costs.

Rory Read, CEO of AMD, said the new agree­ment helps his com­pany strengthen its fi­nan­cial po­si­tion while strength­en­ing its ties to Glob­alFoundries.

AMD ex­pects to re­sume gen­er­at­ing free cash flow from its op­er­a­tions in the sec­ond half of next year and says the new sup­ply agree­ment with Glob­alFoundries will help it ac­com­plish that.

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