ajb - More speculation on Dresden and MOT
yahoo.cnet.com, Motorola consider stretching out agreement
By Bloomberg News
Special to CNET News.com
September 23, 1999, 9:50 a.m. PT
SUNNYVALE, California--Advanced Micro Devices and Motorola, the world's No. 3 computer chipmaker, may be in talks to extend an existing agreement to include making Motorola processors at AMD's new factory in Dresden, Germany, analysts said.
Such an agreement could give Motorola the capacity to make its speedy G4 chips, the brains of Apple Computer's Power Macintosh computers. Cash-strapped AMD could get an infusion of money and use the full capacity of the Dresden plant if sales of its new Athlon processors fall short of expectations.
Apple this week warned of lower fiscal fourth-quarter earnings because it didn't get enough Motorola G4 processors to meet demand for its new machines. AMD, Intel's biggest microprocessor rival, is pinning its future on Athlon chips that use copper technology developed by Motorola.
"This could make sense, since semiconductor capacity is tight right now and Motorola is trying to outsource as much as possible," said Mark McKechnie, a Banc of America Securities analyst, who rates Motorola "strong buy."
Motorola and AMD already work together as part of a seven-year agreement struck in July 1998 that lets AMD use Motorola's copper technology in exchange for Motorola's use of AMD's technology for making specialized memory chips.
Motorola spokesman Scott Stevens said the company has "no plans at this point" for AMD's Dresden plant.
AMD rose 0.44 to 18.94. Its shares have lost more than a third of their value since trading as high as 33 in January.
Motorola fell 2.13 to 85.75. Its shares have gained about 41 percent this year, though they dipped 5 percent in the past two days because of concern that the company's chipmaking business in Taiwan could be hurt by the earthquake.
Phasing out?
AMD plans a grand opening of the state-of-the-art German plant next month and will begin commercial production of the Athlon chip these early next year, said Scott Allen, AMD spokesman.
The chip, which competes with Intel's fastest microprocessors, is now made in AMD's Austin, Texas, facility. Allen said AMD hasn't publicly said it's looking for a partner for the $1.9 billion Dresden facility.
"If we found ourselves in a situation with too much capacity, it might make sense to explore a partner," he said.
This week, the Wall Street Journal reported that Gateway, the second-largest direct seller of personal computers, is phasing out purchases of AMD microprocessors as Intel cuts prices to make its chips more attractive.
Gateway and AMD officials wouldn't comment on the report, except to say that they both expect AMD to keep competing for Gateway's business.
Share and share alike
Because AMD and Motorola already share technology, Allen said a shared use of the Dresden plant wouldn't be out of the question.
"Sharing a common process would allow us to make their products and vice versa in a short amount of time," Allen said. "We can share our expertise and share the costs and risks, and share manufacturing."
Allen said it would take little effort to outfit the Dresden plant for production of the G4 processor.
Motorola working with AMD "would be strategic," said analyst McKechnie. "Motorola can't ship as much of the G4 processor as it thought, and Apple counted on full production and didn't get it."
Apple's low earnings warning and blaming Motorola is a black eye to the Schaumburg, Illinois-based company. Motorola struggled for the last two years to turn its chip business around by cutting thousands of jobs, shutting down aging plants, and selling off large chucks of its less-profitable semiconductor product lines. Motorola wants to contract out at least half of its chip production in the next year or so and eventually do very little manufacturing except for the most advanced products.
The battle wears on
AMD has been scratching for a way to survive--if not win-- against Intel. It's lost money in six of the last eight quarters because of price cuts by Intel and production problems and was looking to the Athlon chip as an answer. Independent tests have shown the Athlon to be faster than Intel's fastest chips.
In July, AMD reported a second-quarter loss from operations of $162 million, or 1.10 a share, compared with a loss of $64.6 million, or 45 cents, in the year-earlier period. Profits disappeared because customers, who switched to Intel products in the first quarter when AMD couldn't make enough chips to meet demand, didn't return.
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