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.