New supply agreement cuts AMD’S costs

Chipmaker will reduce number of processed wafers it buys.

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.