What is the main purpose of the second amendment to the Wafer Supply Agreement with GLOBALFOUNDRIES?

The main purpose of the amendment is to restructure the wafer supply terms for 2012, establish a framework for 2013 pricing, and crucially, provide AMD with the flexibility to contract with other wafer foundries for specified products and periods. This flexibility was secured through a significant cash payment and the transfer of AMD's ownership stake in GF.

What is the financial impact of this agreement on AMD in the first quarter of 2012?

AMD expects to record a one-time charge of $703 million in the first quarter of 2012. This charge consists of a $425 million cash payment made to GF and a $278 million non-cash charge, which represents the carrying value of the GF capital stock transferred to GF.

What does it mean for AMD that it is no longer an owner or partner of GLOBALFOUNDRIES?

By transferring its shares of GF capital stock, AMD is no longer considered an owner or tax partner of GF. This also means AMD is no longer entitled to designate a director on GF's board, and its designated director has resigned. This signifies a complete divestment of its ownership in GF.

What are AMD's estimated wafer purchase obligations to GLOBALFOUNDRIES in 2012 and beyond?

AMD currently estimates it will pay GF approximately $1.5 billion for wafer purchases in 2012 under the amended agreement. Additionally, there are estimated R&D related purchase obligations of about $71 million for 2012. AMD expects that its future purchases from GF will continue to be material beyond 2012, though the exact amounts are not quantifiable at this time.

AMD 8-K: Material Agreements

Summary

Advanced Micro Devices, Inc. (AMD) filed an 8-K on March 4, 2012, detailing a significant amendment to its Wafer Supply Agreement with GLOBALFOUNDRIES Inc. (GF). The amendment primarily restructures the terms for wafer supply in 2012, establishing fixed quarterly commitments for microprocessor unit (MPU) wafers and a framework for 2013 pricing. Crucially, AMD has paid GF $425 million and transferred its entire stake in GF (1,063,798 Class A Preferred Shares) to gain flexibility in sourcing wafers from other foundries for specific products and periods. This transaction results in AMD recording a substantial one-time charge of $703 million in Q1 2012, comprising the cash payment and the carrying value of its GF shares. While AMD is no longer an owner or partner of GF for tax purposes, it anticipates continued material wafer purchases from GF beyond 2012. The amendment also waives certain previously agreed-upon quarterly payments related to 32nm capacity. Investors should note the significant financial impact of this deal, including the substantial charge and ongoing wafer purchase commitments, as AMD seeks to enhance its supply chain flexibility.

Key Highlights

1AMD entered into a second amendment to its Wafer Supply Agreement with GLOBALFOUNDRIES Inc. (GF) on March 4, 2012.
2The amendment modifies wafer pricing and terms for microprocessor unit (MPU) products to be delivered by GF in 2012, including fixed quarterly purchase commitments.
3AMD paid GF $425 million and transferred all its owned capital stock in GF (1,063,798 Class A Preferred Shares) to secure greater foundry sourcing flexibility.
4This transaction is expected to result in a one-time charge of $703 million for AMD in Q1 2012, including the cash payment and a non-cash charge for the transferred GF shares.
5AMD is no longer an owner or tax partner of GF and has lost its board designation rights.
6GF has waived certain quarterly payments related to 32nm capacity, previously agreed upon under a prior amendment.
7AMD estimates approximately $1.5 billion in wafer purchases from GF in 2012 under the amended agreement, with continued material purchases expected beyond 2012.

ADVANCED MICRO DEVICES INC 8-K Report, Material Agreement (Mar 5, 2012)

Summary

Key Highlights

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