As chip companies adapt to continuing global chip shortages, some companies are adopting strategies to lock-in access to needed materials and supplies, including wafers, for coming years.
In one recent example, chip designer AMD on Thursday filed a Form 8-K with the Securities and Exchange Commission disclosing an updated multi-year wafer supply and pricing agreement with GlobalFoundries, a chip specialty foundry with 250 global customers and operations in the U.S., Europe and Asia.
GF recently announced plans to move its headquarters from California to Malta, New York. In early March, the company said it would invest $1.4 billion in 2021 to raise output at three factories in the U.S., Singapore and Germany because of the chip shortage.
A previous Wafer Supply agreement between AMD and GF had required the companies to mutually agree on wafer purchase targets and wafer pricing beyond 2021. In the new amendment, GF agreed to a minimum allocation of 12 nm and 14 nm wafer nodes through December 31, 2024. The amount was not disclosed.
Also, the two companies agreed to pricing and annual purchase “targets” for 2022, 2023 and 2024 and AMD agreed to pre-pay GF certain amounts (also undisclosed) for those wafers in 2022 and 2023. If AMD fails to meet any annual purchase target, it must pay GF a portion of the difference between its actual wafer purchases and the wafer purchase target for that year.
AMD estimates it will purchase about $1.6 billion of wafers from GF for 2022 to 2024, the Form 8-K says.
AMD will use the 12 nm and 14 nm nodes for CPUs and GPUs as well as I/O dies for Ryzen and Epyc processors, according to Seeking Alpha. However, TSMC will still provide 7nm cores to AMD.
Notably, a provision in the agreement removes any prior exclusivity commitments and gives AMD “full flexibility to contract with any wafer foundry with respect to all products manufactured at any technology node.” Gartner analysts, among others, have been urging supply chain managers in various industries to seek alternative suppliers to guard against shortages because of the pandemic’s impact.
In a statement, GF said the agreement “gives AMD the support they need to continue their explosive growth in the server and high performance computing markets…It demonstrates GF’s commitment to redefining the fabless-foundry relationship and helping our customers win in their respective market segments.”
The two companies have partnered for more than a decade “and look forward to extending our partnership for years to come,” GF said. GF will provide the wafers from from its Fab 8 Malta facility, a signal of both companies’ commitment to manufacturing in the U.S., the statement added.
Gartner advised supply chain managers in early 2021 to adapt to chip shortages with new tactics and strategies, including being prepared to face a bidding war on chip prices. Some chip customers have paid three times the previous price for critically needed chips.
In a note to clients that Gartner published on April 26, analyst Gaurav Gupta urged supply chain managers to “diversify supplier base and leverage partnership with resellers and distributors” as well as “look at preinvestment opportunities to guarantee supply.”
Gupta noted that several fabless companies are investing in smaller chip foundries and testing houses. “One approach is to look toward preinvesting in a commoditized part of the chip supply chain and/or foundries,” Gupta advised.
GF is third by revenue among global foundries with about $5.7 billion in revenue in 2020. TSMC is by far the largest with nearly $48 billion in revenue in 2020, with Samsung second. GF is a unit of Mubadala, a fund owned by the emirate of Abu Dhabi in the UAE. GF is expected to seek an initial public offering and reportedly may do so as early as late 2021.
The AMD-GF agreement comes as Congress and the White House are sorting through proposals to fund the CHIPS Act, authorized last year, for about $50 billion in tax and related incentives to boost domestic chip production. On Friday, four bipartisan U.S. senators have negotiated a compromise on funding of $52 billion for chip production and research.
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