AMD severs IBM wafer fabrication agreement

Processors Foundry deal halted as design problems are ironed out.

AMD has pulled the plug on its foundry agreement with IBMned out. Microprocessors, only five months after the deal was signed, to alleviate the chip manufacturer's yield problems.

Under the terms of the deal, signed in February, IBM should have started wafer fabrication of AMD's K6 processor in the third quarter this year, but the chip clone manufacturer has decided it has boosted production sufficiently since then to satisfy demand.

Rana Mainee, AMD European planning manager, said: 'We gave IBM the rights in the first quarter but our yield is up and we no longer need to exercise these rights. Our yield is better than expected.'

Sukh Rayat, general manager of Slough distributor Flashpoint, pointed out that AMD chip design problems earlier in the year had been overcome, adding that supply was 'healthy'.

Mainee denied a soft market had enabled AMD to fulfil demand. 'No way is the market soft. If anything, our yield is up. We forecast shifting 2.2 million K6 and 0.5 million K6-2 chips in Q3,' he said.

Kelly Henry, senior analyst at IDC, said although AMD does not have an immediate second source, she does not expect the vendor to utilise IBM's manufacturing plant, especially with AMD's plant in Dresden, Germany scheduled to open next year.

An IBM representative confirmed the arrangement had been broken off, adding the decision would have 'no significant impact' on business. 'IBM was never going to be a volume supplier,' he added.

Last week, AMD signed a seven-year strategic alliance with chip vendor Motorola, which gave AMD access to Motorola's copper interconnect technology (PC Dealer, 22 July). Both AMD and Motorola will be using the technology for next generation CPUs - x86 for AMD and PowerPC for Motorola.