AMD are rumoured to be looking to amend the Wafer Supply Agreement again after GloFo drop out of the 7nm race

[Master Disaster]

Let's start at the beginning, as most of you know Global Foundries used to owned by, and run as a part of, AMD however they decided to split into separate companies during AMDs excavator years while the company was facing financial difficulties.

 

As a result of the split a legally binding agreement was made between AMD & GloFo called the Wafer Supply Agreement (WSA) which governs the relationship between the 2 separate entities.

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This is a very big deal. To understand how big of a deal this is, we first need to look at the 6th amendment to the WSA and the conditions it had set for AMD. To those who don’t know, the WSA (or the Wafer Supply Agreement) is the document that dictates the design-manufacturer relationship between GlobalFoundries and AMD. As some of you may know, GloFo used to be part of AMD before the latter spun it off into a separate entity.

The split happened in 2009 while AMD were in a pretty dire financial situation, at the time it made no sense for AMD to hold onto an expensive RnD branch however even after the split the WSA essentially tied AMD into only buying wafers from GloFo or face financial penalties.

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This was done due to the fact that the foundry business was starting to hurt in terms to an increasingly cash-strapped AMD and it did not make sense at the time to retain such an R&D intensive branch. Ironically, even though the company was spun off, AMD was still bound to purchase a ‘quota’ of wafers from the company every year and could not reach out to other pure-play foundries without heavy penalties.

When Lisa Su took over at AMD she renegotiated the WSA and added what was termed as the 6th amendment which gave AMD more freedom to buy wafer from other foundries without as much penalty.

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Lisa Su entered the scene and renegotiated the terms of the WSA with GloFo to introduce the 6th amendment to the scene. This gave AMD massive amounts of freedom to outsource its GPU and CPU ambitions to other pureplay foundries and is one of the reasons Zen has flourished. But all of this came at a cost. It is here that I will start to get into specifics.

Under the WSA AMD basically buys wafer from GloFo or they face being penalised, possibly twice if the annual quota isn't met which is why AMD are looking to renegotiate.

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Assume AMD wants to fabricate a single wafer. It will have the following two choices:

 

Go with GloFo:

• Simply pay the cost of the lone wafer
• 1 Wafer deducted from annual wafer quota (This is good for AMD)

Go with TSMC/Samsung:

• Pay the cost of the lone wafer
• Pay a relatively small penalty to GloFo for each wafer produced at TSMC/Samsung. This will be included in the annual wafer quota calculations.
• If the annual wafer quota is not met, then pay a penalty on a fraction of the difference too.

The leverage AMD now has to renegotiate comes from the fact the agreement states that GloFo will continue node shrinking and AMD will continue to buy reduced node size wafers. Now GloFo has dropped out of 7nm they've effectively broken the terms of the WSA leaving AMD the power to renegotiate.

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So as you can see, fabricating a wafer at any other foundry than GloFo is basically double jeopardy for AMD. Simply put, these were/are shackles that still bind the company to its former whole. All of that, however, might change with GlobalFoundries officially dropping out of the race and materially changing the nature of their relationship with AMD. See, the understanding between both companies was that GlobalFoundries will continue to churn out new process nodes and AMD will keep buying – with the former no longer happening the latter can now be, well, amended.

 

While the specifics of the amendment haven't been given its important to note that AMD aren't looking to penalise GloFo here. The anonymous source has stated the new terms will be mutually beneficial but should allow AMD freedom to buy more wafer from other sources without such severe penalties.

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I have been told that AMD is certain they will agree to the new terms that are “mutually beneficial” to both parties. Keep in mind, my source did not actually state that the terms would benefit AMD, just that they would be ‘mutually beneficial’ and they are fairly confident GloFo will agree to them. This implies that we are probably looking at increased leniency (in the annual wafer quota) and even better terms for the company.

This is also a good indication that AMD are preparing for 2020 when the WSA ends and AMD become effectively fabless. It obviously makes sense for AMD to build good relationships with other fabs as early as possible.

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More cash freed up from the WSA means more money it can put into R&D or just about anywhere else. Not only this, but its also a reminder that the WSA has a limited lifespan and it will start to wind up in 2020. This is the first sign of AMD transitioning to a truly fabless entity and probably the only silver lining to come out of GloFo dropping out of the nm race. It goes without saying that there is also the very slim (but non-zero) chance that GloFo manages to increase AMD’s burden with the 7th amendment instead of alleviating it, but I would think that unlikely.

https://wccftech.com/amd-is-negotiating-a-7th-amendment-to-the-wsa-wafer-supply-agreement/

 

Very interesting stuff. Obviously from AMDs POV if GloFo aren't meeting the agreement then a renegotiation is essential but I'm more interested in what happens after 2020. We already know Vega 20 will be 7nm based so does this mean we will see Samsung being the only supplier of AMD GPU wafers? What will AMD do after 2020?

 

Interesting times ahead.

[Streetguru]

 

[Guest]

Really nice article until I saw WCCFTech as a source. Other WCCFTech articles include; When Pigs Fly; Cow Jumps Over Moon, Toms Hardware's Chief Editor Best PR.

 

Hard to tale seriously but looking good for AMD

[Humbug]

What I understood (before this thread) is that the cost for AMD per 7nm chip is going to go down.

As they no longer have to pay the penalty to Global Foundries for using TSMC...

 

[Doobeedoo]

The WSA agreement between AMD and GloFo really is quite tough, too much control there yet they're split. And in 2020 it's ending, also GloFo backing down on 7nm investment as well. 

So yeah 7nm chips for AMD with no penalty is really good. 

Also I wondered would AMD merge back with GloFo or something else to have it's own fab. 

[XenosTech]

6 minutes ago, Doobeedoo said:

The WSA agreement between AMD and GloFo really is quite tough, too much control there yet they're split. And in 2020 it's ending, also GloFo backing down on 7nm investment as well. 

So yeah 7nm chips for AMD with no penalty is really good. 

Also I wondered would AMD merge back with GloFo or something else to have it's own fab. 

It's not out of the real of possibilities but I'd figure it would be cheaper to pay some one else to fab your design than to fab it yourself. One option give you more QC over the other though.

[MMKing]

Following the announcement to cease development of the 7nm node, the writing was pretty much on the wall regarding the wafer supply agreement. The 6th amendment in 2016, explicitly mentions technology collaboration on the 7nm node.

 

Seeing as the 7th amendment will be mutually beneficial (allegedly) . AMD will likely not have to pay a single cent buying 7nm from TSMC, but will in return benefit Global Foundries current 14nm in some way.

[GDRRiley]

Not that surprising after they dropped 7 NM. AMD will still use them for the APUs in some system but global foundries needs to get their act together. 

[Trixanity]

2 hours ago, GDRRiley said:

Not that surprising after they dropped 7 NM. AMD will still use them for the APUs in some system but global foundries needs to get their act together. 

They are. They're going for profits. It has been running red for a long time now. They've cut everything risky which 7nm and beyond would be considering the investments required, the limited capacity and difficulty competing with TSMC and Samsung.

[ravenshrike]

18 hours ago, RorzNZ said:

Cow Jumps Over Moon,

Just because WCCF tech knew of sekrit Russian experiment slingshotting cow around moon is no reason to get snippy. Also North Korean experiment attempting to genetically engineer flying attack pigs. The Tom's Hardware article was a hack by Chinese agents attempting to besmirch their good name.