Everyone seems to be tightening their belts these days, including Advanced Micro Devices (AMD). Strapped for cash and in the midst of an ambitious restructuring effort, the Sunnyvale chip designer amended its Wafer Supply Agreement (WSA) with Globalfoundries. Under terms of the revised deal, AMD is only on the hook to purchase a third of the wafers it previously agreed to, though it comes at the cost of a hefty fine.
Rather than spend $500 million on wafers from Globalfoundries in the fourth quarter of 2012, AMD now estimates it will spend $115 million. Looking ahead, AMD plans to spend $1.5 billion on wafers in fiscal 2013, and $250 million in the first quarter of 2014 before renegotiating its contract for that year.
"Today's announcement demonstrates that the long-term strategic partnership between AMD and Globalfoundries continues to benefit both companies," said Rory Read, president and chief executive officer, AMD. "Globalfoundries’ performance in meeting our delivery requirements in 2012 was strong and they remain a strategic and important foundry partner moving forward. We are committed to develop and grow our business with Globalfoundries, increasing our engagement across our industry leading APU and graphics roadmaps. The newly amended agreement is another step we are taking to further strengthen our relationship with Globalfoundries as well as AMD's financial foundation."
Even though Globalfoundries allowed AMD to renegotiate terms of its contract, it comes with an early termination fee. AMD will make a termination payment of $320 million related to the take-or-pay agreement it previously inked, which will be spread over several quarters ($80 million by December 28, 2012; $40 million by April 1, 2013; and a $200 million promissory note due on December 31, 2013).