8-KMaterial Agreements

ADVANCED MICRO DEVICES INC 8-K Report, Material Agreement (Dec 6, 2012)

Filed December 6, 2012For Securities:AMD

Summary

Advanced Micro Devices, Inc. (AMD) filed an 8-K on December 6, 2012, to report on a material definitive agreement: the third amendment to its Wafer Supply Agreement with GLOBALFOUNDRIES Inc. (GF). This amendment significantly modifies terms related to wafer supply for AMD's microprocessor unit products, specifically for Q4 2012 through the end of 2013. Key changes include a waiver of certain take-or-pay purchase commitments for Q4 2012 by GF, in exchange for which AMD will pay a $320 million termination fee. The financial impact of this fee is estimated to be a net one-time charge of $165 million for inventory write-down, including a $45 million credit. Approximately $110 million of the fee will be capitalized and expensed over Q4 2012 and Q1 2013. The cash outflow for the fee is structured with payments totaling $120 million by April 1, 2013, and the remaining $200 million via a promissory note maturing on December 31, 2013. AMD is also revising future reimbursements to GF for R&D costs due to its transition to 28nm standard process technology.

Key Highlights

  • 1AMD entered into a third amendment to its Wafer Supply Agreement with GLOBALFOUNDRIES Inc. (GF) on December 6, 2012.
  • 2The amendment modifies wafer supply terms for microprocessor unit products for Q4 2012 through December 31, 2013.
  • 3GF waived a portion of AMD's take-or-pay wafer purchase commitments for Q4 2012.
  • 4In exchange for the waiver, AMD agreed to pay GF a $320 million termination fee.
  • 5The termination fee is expected to result in a net one-time charge of $165 million for inventory write-down, including a $45 million credit.
  • 6AMD has committed to approximately $115 million in wafer purchases from GF in Q4 2012 and $1.15 billion in fiscal 2013.
  • 7AMD will issue a $200 million promissory note to GF, maturing December 31, 2013, as part of the termination fee payment structure.

Frequently Asked Questions

The third amendment modifies pricing and other terms for wafer supply from GLOBALFOUNDRIES (GF) to AMD for microprocessor unit products, primarily covering the period from Q4 2012 through December 31, 2013. It also includes a waiver of certain purchase commitments and a related termination fee.

AMD estimates a net one-time charge of $165 million for inventory write-down, which includes a $45 million credit. Approximately $110 million of the fee will be capitalized into inventory and expensed over Q4 2012 and Q1 2013. The cash impact is spread over several quarters.

AMD will pay $80 million by December 28, 2012, and $40 million by April 1, 2013. The remaining $200 million will be paid via a promissory note issued to GF, which matures on December 31, 2013.

AMD estimates purchasing approximately $115 million in wafers from GF in Q4 2012 and $1.15 billion in fiscal 2013. The company has also committed to roughly $250 million in wafer purchases for the first fiscal quarter of 2014, with negotiations for the remainder of 2014 expected in 2013.