AMD has amended its Wafer Supply Agreement (WSA) with its manufacturing partner GLOBALFOUNDRIES Inc., in a move that could help the company save cash as the PC market continues to decelerate.
AMD and GLOBALFOUNDRIES agreed on purchase commitments for fourth quarter 2012 and established fixed pricing and other terms of the WSA which apply to products AMD will purchase from GLOBALFOUNDRIES through Dec. 31, 2013.
Specifically, AMD lowered its wafer purchase commitments for the fourth quarter 2012. AMD currently estimates that it will purchase wafers from GLOBALFOUNDRIES for approximately $115 million in the fourth quarter 2012 and $1.15 billion in fiscal 2013. AMD has also committed to purchase wafers from GLOBALFOUNDRIES for approximately $250 million during first quarter 2014.
AMD expects to negotiate the remainder of its 2014 purchase commitments from GLOBALFOUNDRIES in 2013.
AMD will also make a termination payment of $320 million related to the take-or-pay agreement with GLOBALFOUNDRIES associated with the adjusted wafer purchase commitments in fourth quarter 2012.
The cash impact of the termination fee will spread over several quarters. AMD said that the termination fee would result in a net one-time charge of approximately $165 million recorded in the fourth quarter 2012.
"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."
Separately, as AMD moves to standard 28nm process technology, AMD will reduce future reimbursements to GLOBALFOUNDRIES for certain research and development costs.
As a result of the amendment, AMD expects to return to free cash flow generation in the second half of 2013.
The growing popularity of Apple's iPad and Google Android devices have sapped demand for PCs. With Chinese and European economic growth slowing and the U.S. recovery tepid, global PC shipments are expected to decline slightly this year - the first annual drop since 2001.
AMD has been laying off engineers while looking for new markets and trying to slow the pace at which it burns through cash.