AMD cuts silicon wafer order by three quarters, gets a nasty fine
If you're in need of a concrete example of how the chip-making industry is trickier than ever, and how it rewards scale at the expense of flexibility, then please, look no further. AMD has just significantly reduced its order for silicon wafers from its old mate Globalfoundries, in an effort to avoid the inventory surpluses and write-downs that have recently plagued its balance sheet. Instead of buying the originally agreed $500 million-worth of cake trays this quarter, it's now committed to spending just $115 million. Except it was never, ever gonna be that simple. In lieu of reneging on its contract at short notice, AMD will have to pay Globalfoundries a $320 million penalty on top, bringing the final cost of the deal to just $65 million less than what it would have paid for the full order.
On the plus side, of course, that's still a major saving for a company which is going through an intense rough patch (to say the least) and trying to cling to every dime. Besides, AMD managed to get out of paying the fee as a lump sum, while also reducing its obligations for 2013 and agreeing to pay Globalfoundries less for R&D once it shifts to a more standard 28nm process -- so it can't entirely have run out of clout.
Sentiment: Strong Sell