Advanced Micro Revises GlobalFoundries Contract - Analyst Blog

Advanced Micro Devices, Inc. AMD recently announced the details of its 2014 purchase commitment with its manufacturing partner GlobalFoundries.

The wafer supply agreement (WSA) as it is called reflects AMD's growth prospects, which are not tied to the PC market quite as much as it was before. The company has grown its graphics business securing important wins at all the leading game consoles.

AMD now expects to buy $1.2 billion worth of products in 2014, up from the $960 million it committed to purchase last year. But this year, it has extended purchases to game chips, graphics processing units (GPUs) and customized video game console products. The chipmaker doesn't expect the agreement to impact its financials, including its gross margin targets for 2014.

Last year, AMD initially agreed to make minimum purchases of $1.15 billion, but this was later amended to $960 million, as the company was ravaged by weak demand. In 2012, AMD had agreed to pay $320 million to downscale the supply agreement as a result of weaker-than-expected PC sales and the loss of some business to archrival Intel Corp INTC.

GlobalFoundries, which manufactures integrated circuits (ICs) for semiconductor companies such as Broadcom BRCM, Qualcomm QCOM and STMicroelectronics STM, was formed in 2009 by divesting AMD's manufacturing unit. In 2010, it merged with Singapore-based Chartered Semiconductor Manufacturing to become the third largest foundry in the world.

AMD believes that the revised WSA displays its persistent commitment to the contract computer-chip manufacturer and reflects the foundry's ability to deliver on its goals.

Advanced Micro Devices Inc. is a leading worldwide designer, manufacturer and marketer of microprocessor solutions for the computing, communications and consumer electronics markets. Its solutions include embedded microprocessors for personal connectivity devices and other consumer markets. The microprocessor products are used in desktop and mobile personal computers, servers and workstations, and chipset products.

Currently AMD carries a Zacks Rank #1 (Strong Buy).