AMD’s future in production at Fab 36

Friday will mark the opening of Advanced Micro Devices’ third chip-making factory, Fab 36. The Dresden, Germany, facility is a billion dollar gamble that AMD will be able to keep the factory humming by gaining market share from Intel, but unique technology and creative financing make it a calculated risk.

AMD currently operates Fab 30 in Dresden, where all of its Opteron and Athlon 64 processors are made. It is putting the finishing touches on Fab 36, which is the future site of AMD’s most advanced manufacturing technology. Volume production at Fab 36 will begin shortly after an official opening ceremony this Friday in Dresden featuring local officials and media. The Sunnyvale, California, company will start shipping processors from Fab 36 in the first quarter of next year.

Fab 36 will be AMD’s first 300 millimeter plant, which means it will now build chips on silicon wafers measuring 300mm in diameter. This allows the company to cut more chips from a single wafer, reducing the manufacturing cost per individual chip. Intel already has four 300mm plants up and running, with three others in various stages of the planning process.

AMD will move its existing 90-nanometer process technology to the 300mm manufacturing equipment, hoping to avoid some of the problems that IBM encountered when trying to implement two significant changes to the chip-making process. IBM struggled with yield problems in 2004 when it opened a new plant with 300mm manufacturing equipment and switched from its 130nm process technology to its 90nm process technology. A process technology is the recipe of materials and techniques used to build processors, and the number refers to the average size of features on the chip.

Modern microprocessor manufacturing is an extremely expensive undertaking. Before a single chip has left its production lines, Fab 36 has already cost about $1.5 billion, according to AMD. The federal government of Germany and the state of Saxony put up $300 million of that figure, a local group of investors took an equity stake valued at $325 million and AMD borrowed the rest, a company spokesman said. Another $1.5 billion in investments from AMD will be required to bring Fab 36 to full capacity, which reflects the cost of ordering additional manufacturing tools and equipment, according to the spokesman.

Despite the significant expense, AMD needed new production capacity if it was ever to grow beyond its current market share, said Risto Puhakka, president of VLSI Research in Santa Clara, California.

According to data from Mercury Research, AMD ships about 15 percent to 16 percent of all x86 processors worldwide, and Fab 30 is currently running at virtually full capacity, Puhakka said. The company has done some very innovative things with its Automated Precision Manufacturing (APM) technology to make the most of its capacity, but eventually it would have had to build a new facility to expand, he said.

APM is AMD’s system of computer-controlled manufacturing. The huge expense of making modern microprocessors has much to do with the complexity of building circuits at extremely small dimensions. A complicated recipe of chemicals and materials are required to build processors, but sometimes that recipe needs to be altered at various steps in the process due to changes in demand or the discovery of defects in the silicon.

APM allows AMD to collect data from its manufacturing tools at every step of the process and authorize a computer to make changes to the recipe based on changing conditions, all in the hopes of maximizing yields, said Thomas Sonderman, director of APM at AMD. Every chip maker worries about yields — the number of working processors that can be cut from a single wafer — but maximizing yields is even more important when you’ve only got one manufacturing facility.

APM also lets AMD maximize the efficiency of those extremely expensive chip-making tools, Sonderman said. “The idea is to keep the wafer processed all the time, and not in a staging area,” he said.

Usually, 75 percent of silicon wafers in a manufacturing plant are just sitting around, waiting for their turn to enter a processing tool. AMD hopes to get that percentage down to 50 percent, Sonderman said.

“AMD has been faced with issues of how to compete with somebody with 5 to 10 times more resources. This is one of the innovations they needed to compete, to make sure their manufacturing is world class,” Puhakka said. Several other companies have developed their own automated manufacturing systems, but AMD was the first company to recognize a need for this type of system and install it in a fab, he said.

By the end of next year, AMD will have introduced its 65nm process technology in Fab 36, Sonderman said. Eventually, Fab 36 will become home to AMD’s 45nm and 32nm process technologies, which should take it through the end of the decade. AMD has not yet made a decision as to its future capacity plans beyond Fab 36, he said. AMD currently has a relationship with Singapore foundry Chartered Semiconductor Manufacturing Ltd. for some excess capacity.

The company will also need to make a decision about what to do with the existing manufacturing capability in place at Fab 30. AMD Chairman, President, and Chief Executive Officer Hector Ruiz told IDG News Service earlier this year that AMD was thinking about taking orders from its chipset partners in order to take advantage of its fully depreciated manufacturing facility.

Fab 30 will be at full capacity for all of 2006, so AMD has some time to make its decision about that fab, Sonderman said. “It’s a question of what makes the most economic sense. The whole idea in a fab is you want to keep it running at capacity, it’s a matter of how to keep the fab filled,” he said.

But the biggest challenge for AMD will be filling Fab 36 with gains in market share at Intel’s expense. Sonderman declined to comment on the market share target AMD set when making capacity plans for Fab 36, but did confirm that the company will have to grow its market share, and not just depend on the overall expansion of the market, to keep Fab 36 full.

“This is reflecting AMD’s expectations of aggressive market share growth. We can maximize capacity without having to put big fixed investments in place,” Sonderman said.

AMD’s future market share could be tied to the outcome of an antitrust suit filed against Intel earlier this year, in which AMD has claimed that Intel is locking it out of lucrative accounts like Dell Inc. through the selective distribution of rebates to vendors who agree to limit their purchases from AMD or exclude it altogether. Intel has denied the charges, and the companies plan to go to trial around the end of next year, around the time Fab 36 becomes fully operational.

AMD’s financial situation pales in comparison to Intel’s. Intel tends to announce new billion-dollar fabs every year, while Fab 36 is AMD’s first new facility in five years. But the financial package that AMD has managed to obtain makes it easier for AMD to fund such an undertaking, said Dean McCarron, principal analyst with Mercury Research in Cave Creek, Arizona.

“It changes the economics of building a fab when you do have that kind of support coming in. That may allow AMD to stretch a little further in terms of financing, and allows them to take a bigger risk than if they had to fund this out of their own pocket,” McCarron said.