AMD-IBM Potential Fab Deal May Still be On Track, Says Analyst Firm

@ 2004/10/29
While undersupply of AMD’s chips for servers is not evident and the company is on-track to build a new foundry that will allow it to make more chips, a leading analyst firm Merrill Lynch says IBM and AMD could collaborate in order to alter the market of server MPUs.

“AMD’s Opteron processor backed by IBM’s manufacturing could remake the competitive server landscape. If IBM is willing to make the commitment to AMD, we think that Intel’s problems keeping Pentium 4 on an improving performance trajectory in the first half of 2004 could provide a competitive opening,” said Merrill Lynch.

This is not the first time when a possibility of manufacturing collaboration between Advanced Micro Devices and IBM is being discussed. In early 2003 a representative for AMD said that while the company wanted to be the main source for its processors, it was possible that AMD would outsource part of the manufacturing activities and IBM would be included on the list of potential partners the Sunnyvale-based semiconductor company might evaluate. In mid-2003 a report about IBM building a fab for AMD hit the web, but none officials confirmed this.

Merrill Lynch analysts Joe Osha and Steven Milunovich in their report entitled “Can IBM help itself with AMD?” say that the Big Blue’s PowerPC server multiprocessing units have been consistently loosing market share to x86 chips primarily supplied by Intel Corp.. With that said the analysts believe that while IBM’s manufacturing of AMD’s x86-64 Opteron chips may undermine IBM’s HPC PowerPC strategy, from strategic standpoint such a situation is more positive for IBM compared to Intel’s continuous strengthening.

IBM’s foundry business has been pretty successful so far and the East Fishkill, New York, fab was allocated pretty densely. Additionally, AMD itself expressed doubts that its Fab 36 will be 100% utilized when operational and suggested that it could manufacture certain products for other companies.

Equipment installed into Fab 36 in Dresden, Germany will be similar to what IBM plans to use with its 65nm process technology. Fabrications technologies from 65nm and beyond are claimed to be co-develop by IBM and AMD. Similar equipment and technologies will allow AMD and IBM to enhance manufacturing capabilities of each other in future, but it is unclear whether the two companies will have any need for such collaboration.

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