News Article
AMD Adjusts Wafer Supply Agreement With GLOBALFOUNDRIES
AMD has successfully amended its Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES.
The closure of amendment negotiations solidifies AMD's new operating model as communicated at the third quarter 2012 earnings announcement.
To better align with today's PC market dynamics, 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 December 31st, 2013.
"Today's announcement demonstrates that the long-term strategic partnership between AMD and GLOBALFOUNDRIES continues to benefit both companies," says 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," maintains Read.
AMD lowered its wafer purchase commitments for the fourth quarter 2012. The firm 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 the first quarter 2014. AMD expects to negotiate the remainder of its 2014 purchase commitments from GLOBALFOUNDRIES in 2013.
The company will 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 be spread over several quarters: $80 million by December 28th, 2012, $40 million by April 1st, 2013; and a $200 million promissory note issued by AMD to GLOBALFOUNDRIES due on December 31st, 2013.
The termination fee will result in a net one-time charge of approximately $165 million1 recorded in the fourth quarter 2012. 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 accounting impact of the termination payment will result in a one-time charge of approximately $210 million offset by a $45 million credit in the fourth quarter of 2012. The $45 million credit was owed for wafer purchases under the 2012 Amendment to the WSA but is no longer owed under the terms of the third Amendment. Approximately $110 million of the $320 million termination payment will be capitalised into inventory in the fourth quarter 2012.
