What they don’t know…

Just how rotten things have become in certain segments.

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AMD’s spinoff of its fabs with a big cash infusion from investors in the United Arab Emirates is an indication of just how rotten things have become in the processor manufacturing business.

AMD spent decades trailing one step behind Intel. When it finally caught up several years ago, using low-power as a selling point and bragging about better performance, Intel roared back to life and pummeled AMD with a slew of low-power, multicore chips and some really strong negotiating tactics that AMD said amounted to antitrust violations.

From there, things evolved into a very expensive war, which is to the chip business what the Iraq war has been to the U.S. economy. AMD bought ATI, the maker of graphics processors. Intel developed its own graphics rather than buying the remaining graphics competitor, Nvidia. And the two have been slugging it out ever since.

AMD poured more and more money into developing faster processors. Intel responded in kind by developing more of its own—and even expanding its lineup. And, to no one’s surprise, AMD ran out of money before Intel did, which is why it hasn’t broken ground on its proposed fab outside of Albany, N.Y. It’s also no surprise that Dirk Meyer was suddenly promoted to CEO and Hector Ruiz was kicked way, way upstairs to executive chairman. The jury is still out as to whether that’s a penthouse, the attic or the roof.

So now AMD is joining forces with the Common Platform folks. That’s not only a good idea, it’s the only alternative left for AMD. And AMD’s fab business, which was given a huge tax break by the state of New York, is now being financed by Arab oil money. This may not sit entirely well with New Yorkers, but it’s hard to argue with the projected addition of 1,400 jobs. It’s also hard to argue about the re-investment of petrodollars back into the United States with gas prices running so high.

The United Arab Emirates has been pouring billions of dollars into the tech industry in Abu Dhabi, in part because it doesn’t know what to do with all that money and in part because the amount of oil in the Sahara region is finite. Most of the major technology companies have a presence there, even though it’s not something most of them talk about, so it shouldn’t seem that farfetched that some of those investments are spreading beyond the Middle East.

What remains questionable, however, is whether AMD’s fabs—the proposed one in New York and the existing one in Dresden, Germany—will prove a wise investment at a time when most companies have opted to go fabless. It takes an awful lot of volume to break even these days, and the competition from the likes of TSMC, UMC, Chartered Semiconductor, SMIC and a bunch of smaller players is rather stiff.

Maybe the investors should start with a more modest plan—like building a bridge in Alaska. 

 


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