AMD and IBM Extend Chip Processing Deal

AMD and IBM are extending their microprocessor manufacturingcollaboration deal another three years and will now continue workingtogether on next-generation computer chips through 2008, according to aSecurities and Exchange Commission (SEC) filing from AMD this week.

The extension, which has yet to be approved by IBM’s board of directors,builds on a chip-making process partnership formed two years ago and appearsto be an endorsement of its benefits for both companies, according toindustry analysts.

The chip collaboration highlights the barriers to advancing chip designsand processes. It allows both companies to build on their existinginvestment in manufacturing processes and keep up with Intel, which isbecoming the only company capable of going it alone.

Joint Work Continues

“Intel is pretty much the only company that can go about it themselves,”Mercury Research president Dean McCarron told TechNewsWorld. The extension of the AMD-IBM deal “shows that [Intel’s] primary competitors are investing andwill be there too.”

AMD said in its SEC filing that it had, through a letter of agreementwith IBM, signed on to continue jointly developing logic processtechnologies, which include 65-nanometer and 90-nanometer chipmanufacturing.

AMD said that during the three-year extension it would pay IBM between $250million and $280 million, to be dependent on the number of partners engagedin related development projects at IBM facilities.

The parties additionally agreed to extend the target dates forachievement of certain development milestones, the SEC filing said.

Next-Generation Chip Partners

McCarron said the extension of the chip-making deal indicatesboth companies are happy with the progress of their collaboration so far.

The analyst added that it makes sense for both companies to share theburden of developing next-generation processes, which can cost severalhundred million or billions of dollars to create.

McCarron said the deal was less about dealing with competition and moreabout continuing to innovate and advance the technology of both companies.

“You need to develop next-generation processes to create yournext-generation parts, so it makes a lot of sense for them to pool theirresources and do it this way rather than everyone going out and trying toreinvent the wheel,” McCarron said.

Third Party Possible

McCarron highlighted a provision in the extended agreement that wouldallow AMD to use a third-party foundry, or manufacturing facility, to makechips relying on the technology born out of the AMD-IBM partnership.

“This could be a signal that [AMD is] trying to increase theirmanufacturing options, and perhaps [looking for] a new foundry,” McCarronsaid. “They could find a third party to do the manufacturing for them withprocesses developed jointly” with IBM.

McCarron said both the deal itself and the option to use another foundry are reactions to the rising cost of chip research and development.

Need to Advance

Gartner research vice president Martin Reynolds told TechNewsWorld thatas both AMD and Intel push 90-nanometer, 64-bit and other chip technologies, the need to continue advancement is paramount.

“They have to keep performance going, and they have to keep thetechnology advancing,” Reynolds said.

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