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January 22, 2013 – Reports are circling around Apple’s supply chain of a potential shift in the company’s display strategy for its future iPhones and iPads — moving back to LCDs and away from touch panels — but a drastic realignment of its supply chain is probably not likely, observes DisplaySearch.

Calvin Hsieh, senior analyst at DisplaySearch, cites a report from China that Innolux has delivered "touch on display" samples for the iPhone, another China report that Innolux and AU Optronics have provided "one-glass solution" (OGS) samples for the iPad Mini, and his firm’s own analysis that the iPhone 5 uses in-cell touch technology but the iPad mini uses a glass/film dual ITO (GF2, or DITO) structure. With both those processes struggling to attain good yields, could Apple end up changing its display technology adoption midstream?

TOD is a proprietary on-cell touch technology developed by Innolux in which the sensor is located on the upper glass (the color filter substrate) beneath the top polarizer. On-cell touch combines both LCD and touch so it must meet Apple’s LCD display requirements; Hsieh notes, adding that Innolux accounted for less than 10% of iPhone 4 display shipments (3.5-in, 960×640). "If Apple were to adopt TOD, it would very likely request that Innolux share its technology, structure or even patents with Apple’s other LCD suppliers in order to ensure adequate supply," he writes," and Apple also probably would want to take over the controller IC and algorithm from any Innolux partners (e.g. Synaptics). Apple already owns DITO patents, he adds.

The OGS display technology is an even more complex problem, Hsieh points out. OGS integrates the touch ITO sensor circuits into the cover glass, via two possible methods: a piece type such as "touch on lens" (TOL) or a sheet type, each accomplished with a different process. Either way the X-Y sensor patterns are on the same side of the substrate, so it’s called a "SITO" structure or "G2." Touch panel maker TPK owns patents for the piece-type OGS method, and claim they have key SITO patents as well and are suing Nokia and Chinese panel maker O-film, Hsieh notes; whether the aforementioned Innolux-AUO partnership could produce the technology given the TPK patents is unclear, he says.

There’s more to Apple use of OGS display if it chooses that route. Sheet-type OGS has a compressive cover-glass strength of 500-6600 Mpa; Corning’s IOX-FS and Gorilla glass have 600-700 Mpa for smartphone sizes and cannot be used in sheet type, Hsieh says. Piece type has the higher CS value but are difficult to mask-stamp and align under lithography, and throughput may be low.

Among iPhone 5 panel suppliers only LG Display offers everything from in-cell touch LCD to cover glass lamination (consigned by Apple), Hsieh notes. Other in-cell touch LCD makers Japan Display and Sharp rely on partners for the cover glass. If Innolux and AUO continue with their OGS partnership, they have a choice:

  • An integrated offering of LCD, OGS sheet patterning (cover glass with SITO sensor), and lamination let Apple specify the IOX-FS glass sheet with compressive strength of Gorilla 1; "In this scenario, LG Display will never give up and must be one of the suppliers," he notes.

  • Integrate the LCD, OGS piece-type sensor patterning, and lamination, using consigned cover glass pieces from other finishers (e.g. Lens One). The challenge here is expanding tools, throughput, and yield for piece-type patterning, to be acceptable for the iPhone’s >100M unit base.

All that is somewhat speculation, though, because long-term Apple touch supplier TPK already "has excellent OGS sheet and piece-type technology, and high lamination yield rates," and is unlikely to simply hand over that business to new entrants. "Although AUO and Innolux have advantages as LCD makers and can shorten the supply chain by producing LCD and touch at the same time, TPK has strength in OGS integration from sensor patterning, cover glass finishing (for sheet type), to module lamination," Hsieh writes. "Thus, there is a good chance that TPK will once again be a key touch supplier to Apple if it decides to change touch structures."

January 17, 2012 – In the ranks of top foundries, there’s a new Number Three in town: Samsung, which climbed up the ranks again in 2012 thanks to its ubiquity in smart phone technology, according to updated rankings by IC Insights.

Samsung jumped into the foundry scene in mid-2010, and quickly became one of the anticipated long-term leaders in the sector. It’s now easily the biggest IDM foundry operation, with sales nearly 10× that of IBM, IC Insights notes. IC Insights’ August update projected Samsung finishing in fourth place just behind UMC, separated by about $400 million, but anticipated Samsung surpassing the Taiwan rival in 2013.

Samsung followed a sparkling 82% growth in 2011 by nearly doubling sales again to $4.33 billion, putting it just shy of GlobalFoundries which grew sales a solid 31% last year to $4.56B. (Compare that with former No.3 UMC, which has seen sales declines each of the past two years: -5% in 2011, -1% in 2012.) In fact IC Insights thinks Samsung will challenge GlobalFoundries for the No.2 spot before 2013 is done, leveraging its leading-edge capacity and huge capital spending budget. With dedicated IC foundry capacity reaching 150,000 300mm wafers/month by 4Q12, and an average revenue/wafer of $3000, Samsung’s IC foundry capacity could pull down $5.4B in annual sales, the analyst firm calculates.

How did Samsung get so big so fast in the foundry business? It supplied chips to nearly half of the industry’s 750 million smartphones shipped in 2012 — application processors for the 220 million of its own handsets in 2012, plus the 133 million iPhones Apple shipped. Note that Apple made up about 89% of Samsung’s total foundry sales, despite being bitter rivals in broader electronic device markets, and Apple is still very reliant on Samsung for IC processors for iPads, iPhones, and iPods — and gets favorable pricing thanks to "bundling" deals using Samsung’s memory chips, IC Insights notes. Apple is exploring other sourcing options (TSMC, GlobalFoundries, and possibly Intel) to decouple somewhat from reliance on Samsung, but the analyst firm points out that TSMC currently is already running high utilizations and can’t take on such a heavy new workload, and "as of early-2013, no other foundry in the world could come close to matching Samsung’s total IC supply capabilities."

January 11, 2012 – The annual Consumer Electronics Show in Las Vegas has become a mecca for all things electronic and digital, from useful to cool to just plain bizarre. Among the technologies at the confluence of cool and useful were two things that aim to rethink the PC model. (And for the cool/bizarre side of the CES spectrum, behold eatART’s rideable robot Mondo Spider.)

This year’s CES emphasized "designs that defied or pushed the limits of convention," with two clear examples, points out DisplaySearch’s Richard Shim: size-defying "phablets," and even more size-defying "table PCs."

The phablet — a combination of phone and tablet — got its start with Samsung’s Galaxy Note, which offered an expanded 5-in. OLED screen; the Galaxy Note II was even bigger at 5.5-in. At this year’s CES, the phablet took another screen-size step up thanks to China’s Huawei, which unveiled its Ascend Mate ,which has a 6.1-in. 1280 × 720 screen. (Huawei also touted its Ascend D2 with a 5-in., 1920 × 1080 display.) The Ascend D2 will be available in China later this month, followed by the Ascend Mate in February.

The "table PC," meanwhile, is essentially a supersized tablet, with the screensize of a large computer monitor. Sony’s Vaio Tap 20 (20-in. display) is now joined by Lenovo’s IdeaCentre Horizon with a 27-in. resistive touch-based display, and the company has a prototype 39-in. version planned for later this summer. Each of these "table PCs" can stand upright like an all-in-one desktop PC, but also laid down flat, Shim notes.

"Both the phablet and the table PC categories represent the extreme end of a form factor trend that we expect to see throughout 2013," Shim explains. "The traditional lines that have been used to define, categorize, and track devices are expected to only become more difficult to maintain," and suppliers will increasingly tinker with formfactors to find what resonates with consumers. (In his own CES research note, Barclays analyst CJ Muse acknowledged the interest shown in phablets, and likely reverberations they should cause among suppliers, along with "large screen touch, Next Gen TVs, and the Internet of everything.") Shim doesn’t expect these design tinkerings will greatly impact shipment trends in the near-term (DisplaySearch still sees notebook PC shipments dipping 5% Y/Y in 2013), but "we anticipate that brands can score image points and credibility with consumers for willing to be bold with design. That has translated to good fortune for Apple so it should not be underestimated."

(photos via DisplaySearch; credit photo #1 to Lori Grunin/CNet)

By Rebecca Howland, Ph.D., and Tom Pierson, KLA-Tencor.

Is it time for high-brightness LED manufacturing to get serious about process control?  If so, what lessons can be learned from traditional, silicon-based integrated circuit manufacturing?

The answer to the first question can be approached in a straight-forward manner: by weighing the benefits of process control against the costs of the necessary equipment and labor.  Contributing to the benefits of process control would be better yield and reliability, shorter manufacturing cycle time, and faster time to market for new products. If together these translate into better profitability once the costs of process control are taken into account, then increased focus on process control makes sense.

Let’s consider defectivity in the LED substrate and epi layer as a starting point for discussion. Most advanced LED devices are built on sapphire (Al2O3) substrates. Onto the polished upper surface of the sapphire substrate an epitaxial (“epi”) layer of gallium nitride (GaN) is grown using metal-organic chemical vapor deposition (MOCVD).

Epitaxy is a technique that involves growing a thin crystalline film of one material on top of another crystalline material, such that the crystal lattices match—at least approximately. If the epitaxial film has a different lattice constant from that of the underlying material, the mismatch will result in stress in the thin film. GaN and sapphire have a huge lattice mismatch (13.8%), and as a result, the GaN “epi layer” is a highly stressed film. Epitaxial film stress can increase electron/hole mobility, which can lead to higher performance in the device. On the other hand, a film under stress tends to have a large number of defects.

Common defects found after deposition of the epi layer include micro-pits, micro-cracks, hexagonal bumps, crescents, circles, showerhead droplets and localized surface roughness. Pits often appear during the MOCVD process, correlated with the temperature gradients that result as the wafer bows from center to edge. Large pits can short the p-n junction, causing device failure. Submicron pits are even more insidious, allowing the device to pass electrical test initially but resulting in a reliability issue after device burn-in. Reliability issues, which tend to show up in the field, are more costly than yield issues, which are typically captured during in-house testing. Micro-cracks from film stress represent another type of defect that can lead to a costly field failure.

Typically, high-end LED manufacturers inspect the substrates post-epi, taking note of any defects greater than about 0.5mm in size. A virtual die grid is superimposed onto the wafer, and any virtual die containing significant defects will be blocked out. These die are not expected to yield if they contain pits, and are at high risk for reliability issues if they contain cracks. In many cases nearly all edge die are scrapped. Especially with high-end LEDs intended for automotive or solid-state lighting applications, defects cannot be tolerated: reliability for these devices must be very high.

Not all defects found at the post-epi inspection originate in the MOCVD process, however. Sometimes the fault lies with the sapphire substrate. If an LED manufacturer wants to improve yield or reliability, it’s important to know the source of the problem.

The sapphire substrate itself may contain a host of defect types, including crystalline pits that originate in the sapphire boule and are exposed during slicing and polishing; scratches created during the surface polish; residues from polishing slurries or cleaning processes; and particles, which may or may not be removable by cleaning. When these defects are present on the substrate, they may be decorated or augmented during GaN epitaxy, resulting in defects in the epi layer that ultimately affect device yield or reliability (see figure).

Patterned Sapphire Substrates (PSS), specialized substrates designed to increase light extraction and efficiency in high-brightness LED devices, feature a periodic array of bumps, patterned before epi using standard lithography and etch processes. While the PSS approach may reduce dislocation defects, missing bumps or bridges between bumps can translate into hexes and crescent defects after the GaN layer is deposited. These defects generally are yield-killers.

In order to increase yield and reliability, LED manufacturers need to carefully specify the maximum defectivity of the substrate by type and size—assuming the substrates can be manufactured to those specifications without making their selling price so high that it negates the benefit of increased yield. LED manufacturers may also benefit from routine incoming quality control (IQC) defect measurements to ensure substrates meet the specifications—by defect type and size.

Substrate defectivity should be particularly thoroughly scrutinized during substrate size transitions, such as the current transition from four-inch to six-inch LED substrates. Historically, even in the silicon world, larger substrates are plagued initially by increased crystalline defects, as substrate manufacturers work out the mechanical, thermal and other process challenges associated with the larger, heavier boule.

A further consideration for effective defect control during LED substrate and epi-layer manufacturing is defect classification. Merely knowing the number of defects is not as helpful for fixing the issue as knowing whether the defect is a pit or particle. (Scratches, cracks and residues are more easily identified by their spatial signature on the substrate.) Leading-edge defect inspection systems such as KLA-Tencor’s Candela products are designed to include multiple angles of incidence (normal, oblique) and multiple detection channels (specular, “topography,” phase) to help automatically bin the defects into types. For further information on the inspection systems themselves, please consult the second author.

Rebecca Howland, Ph.D., is a senior director in the corporate group, and Tom Pierson is a senior product marketing manager in the Candela division at KLA-Tencor.

Check out other Process Watch articles: “The Dangerous Disappearing Defect,” “Skewing the Defect Pareto,” “Bigger and Better Wafers,” “Taming the Overlay Beast,” “A Clean, Well-Lighted Reticle,” “Breaking Parametric Correlation,” “Cycle Time’s Paradoxical Relationship to Yield,” and “The Gleam of Well-Polished Sapphire.”

December 28, 2012 – Researchers in Japan have devised a microelectromechanical system (MEMS) fabrication technology using printing and injection molding, fabrication of large-area devices with low capital investment, without a vacuum process, and lower production costs. Thus, MEMS devices can be made and applied for fields where manufacturing cost has been an issue, such as lighting.

The team from the Research Center for Ubiquitous MEMS and Micro Engineering of the National Institute of Advanced Industrial Science and Technology (AIST) integrated microfabrication technology and MEMS design evaluation technology, and combined it with Design Tech Co. Ltd.’s signal processing technology to fabricate a lighting device.

Conventional commercial MEMS devices use fabrication techniques with semiconductor manufacturing systems used to produce integrated circuits, including vacuum processes. Resins could be used to form patterns onto moving microstructures but production costs are high due to vacuum-based processes. Also, it has proven difficult to form and thin MEMS structures such as springs and cantilevers because resins harden immediately after mold injection.

AIST researchers now say they have realized low-cost printing and transferred the structure using injection molding, and improved the mold structure to fill thin moving structures. A film for transferring the MEMS functional laser is formed, and the release layer and MEMS functional layer are printed onto the film with a screen or gravure printer. The printed film is aligned and put into an injection mold, into which is injected a molten resin that is cooled and solidified into the MEMS structure. The mold is then opened and the MEMS structure is separated from the film; the ink layers printed on the film are transferred to the MEMS structure.

Figure 1: MEMS fabrication processes by printing and injection molding.

The printed MEMS functional layers can be changed according to the desired purpose of the MEMS device — from acceleration sensors and gas sensors to power generation devices. This enables low-cost MEMS fabrication in fields where costs are currently too high. One example the AIST highlights is in light distribution control of LED lighting. MEMS mirrors produced with semiconductor manufacturing processes are based on costs determined by devices per wafer; so large-area mirrors are costly, while more cost-friendly micromirrors necessitate a more complex optical system. This new MEMS fabrication technology, though, could produce low-cost large MEMS devices (larger than several mm across), which opens the door for MEMS-based active light distribution control devices. Future work will seek to improve the symmetry of the MEMS mirror synchronization with the LED timing, and expand the range of the light distribution by improving the arrangement of the optical system, the signal processing, and the control circuit.

Figure 2: MEMS mirrors for active light distribution fabricated by using only printing and injection molding (left), and examples of the resulting light distribution patterns (right).

Injection molding can be used easily to form complex 3D objects such as spheres; the researchers expect MEMS devices will be formed on the surface of, or inside, 3D objects. Moreover, injection molding processes are commonly available in Japan, and systems cost less than semiconductor manufacturing systems. AIST projects its work will lead to MEMS fabrication coming out of non-semiconductor industries, such as plastics molding — and participation from these other sectors into MEMS manufacturing will help develop new applications for MEMS devices.

Figure 3: Examples of MEMS devices fabricated with the AIST technology. Top & middle: A reflective mirror and a mirror displacement sensor incorporated into a MEMS mirror device for lighting. A mirror ink for the reflective mirror, a conductive ink for the strain sensor, and a magnetic ink for driving the mirror are printed on the film, and then the printed ink patterns are transferred to the MEMS structure by injection molding. The MEMS mirror device for lighting did not break after more than 100 million operations driven by an external coil. Bottom: A MEMS device array can be fabricated using an arrayed MEMS pattern mold.

December 20, 2012 – Global spending on wafer fab equipment (WFE) is now on pace to finish 2012 with a -17% annual decline, and 2013 now looks like it’ll only be slightly better at a -10% dropoff, before the next cyclical spending upturn begins in 2014, according to an updated forecast from Gartner.

The firm now sees 2012 WFE investments coming in at about $29.9B, a -17.4% decline from 2011. That compares with an earlier projection of a -13% decline made in October, which was itself a downward revision (-9% in June, -11% in March). Those numbers are slightly steeper, but the trend is similar, to SEMI’s recent projections which also predict a rebound coming in 2014.

The environment has softened significantly in just the past few weeks, Gartner says, as the macroeconomic suffering takes a toll on consumer spending, which trickles down to overall capital spending (equipment plus facilities services, etc.) — which Gartner now sees declining -10.7% in 2012 vs. its -9.3% forecast in the third quarter. That will be followed by another -14.7% decline in 2013, as semiconductor manufacturers deal with excess capacity and a slow macroeconomy.

"Although a period of inventory correction that led to lowered production levels in the first half of 2012 appears to be over, inventories remain at critical levels," Johnson warned. "High inventories, combined with overall market weakness, will continue to depress utilization rates into the first half of 2013."

The year started off strong for wafer fab equipment spending as chipmakers ramped sub-30nm production and needed new tools to prop up yields, but as yields improve that equipment demand is softening, explains Bob Johnson, research VP at Gartner. Overall yields will touch bottom below 80% by the end of 2012 and slowly creep up to around 85% by the end of 2013, Gartner says; leading-edge utilization will be a bit higher as always, moving from mid-80% up to the low-90% range over the same period.

There’s hope on the horizon, though. Memory and logic spending should realign in 2014 with "substantial increases" in investments, followed by a flat to slightly positive 2015. look for a new WFE growth cycle starting in 2014, and lasting through 2016.

Here’s how Gartner sees things shaping out near-term, by technology investment:

— Memory: Continuing to be weak through 2013, with maintenance-level investments for DRAM and a slightly down NAND market until supply and demand are in balance.

— Foundry: Spending will increase 7.4% in 2013, as both IDMs and semiconductor assembly/test services (SATS) companies absorb spending declines.

— Logic: The only positive driver for capital investments in 2012 increasing just 3%, Gartner notes, thanks to the aforementioned sub-30nm ramp. Smartphones and media tablets won’t be enough to bring up utilization levels to where chipmakers need them, though, Johnson notes.

Projected global spending on semiconductor manufacturing equipment, in US $M. (Source: Gartner)

December 17, 2012 – Samsung Austin Semiconductor sent out a PR last week about previously announced $4B investments in its Austin, TX facilities. The site is on schedule for production in 2H13 for mobile application processors (28nm process technologies on 300mm wafers). Samsung Austin Research Center also is adding about 200 engineers to fuel this effort, according to the company. The commitment — representing the largest single foreign investment ever made in the state of Texas — will bring Samsung’s total investment in its Austin Semiconductor unit to more than $15B since 1996.

The original Samsung Austin investment announcement — much less this update, thin on new details — wasn’t exactly a surprise; a 3Q12 retrofit had been seen as one of the key capex drivers for the latter half of this year. Samsung is expected to push its capex by 11% in 2012 to $13.1B, just ahead of Intel’s $12.5B (16% Y/Y growth) — together representing fully 40% of worldwide capital spending this year.

In a quick research note, Barclays’ CJ Muse notes that Samsung’s overall capex could be as much as halved this year (a -30% to -50% range), with most of it coming from the logic side due to an Apple defection. He currently models Samsung LSI’s capex in 2013 declining about 25% to KRW 6 trillion (~$5.4B), and possibly even more, and that it will focus on a 32nm-to-28nm transition, i.e. "spending will be shrink-oriented vs. capacity-oriented." Near-term, Muse sees Samsung’s orders, currently at "negligible levels," as possibly picking up in 1H13 to support this Austin push. He thinks this will contribute to an overall sector-wide orders environment of "flattish to slightly up (in-line with expectations)."

Another thing this announcement accomplishes, Muse notes, is a signal to the marketplace that Samsung is still investing to remain competitive with TSMC. Apple has openly partnered with Samsung in Austin to make the "engine" of the iPhone and iPad, despite the two companies’ fierce and broad competition in finished electronics devices. That business is in doubt, though, as many speculate about the electronics giant will seek other noncompetitive partners for future chip orders. With this $4B pledge, even if Samsung loses Apple’s business, it is sending a message to other fabless firms who may decide to grab some of that vacated capacity in 2013-2104.

December 12, 2012 – Increased tablet adoption, with Apple’s continued dominance and emergence by new players (see Google, Microsoft) are changing the mobile PC competitive landscape — and supply-chain partners are having to rethink their strategies to stay atop the game.

Competitive conflicts are now a big concern, points out Jeff Lin, value chain analyst at NPD DisplaySearch; he cites Samsung Display planning to reduce its share in Apple and increase support to captive brands and other external customers, including Amazon and Barnes & Noble. New competitors in the market will seek to emphasize touch notebooks and ultraslim devices in 2013, while entrenched mobile PC competitors (Lin points to HP, Lenovo, Samsung, and Acer) need solid agreements with their own OEMs. Their collective demands will strain supply-chain logistics, from panels to OEMs, he notes.

“With 2013 business planning well underway, product portfolios, sales strategies, and sourcing plans for mobile PC brands will certainly impact the supply chain,” Lin noted. Top PC brands will see only 2% annual growth in 2012 for notebook PCs, and a -28% plunge in mini-notebook PCs — but tablet PC growth chugs on at 75%. In 2013, however, these PC companies are setting their sights higher, planning 16% Y/Y shipment increases on average for notebook PCs, while tablet PC growth "may be less impressive than in 2012,” he says.

LG Display was the top supplier of mobile PC panels, with more than a third of its shipments going to Apple. Still the clear leader in mobile PCs (defined as notebooks, tablets, and ultraslim PCs), Apple accounted for more than 84% of total tablet PC shipments in 2Q12 (primarily made by Foxconn). HP was second, with Quanta covering about 33% of its production. Foxconn led in all PC OEM production in 2Q12 with >85% of its volume from Apple’s new 9.7-in. iPad and iPad 2. (Quanta started making Google’s Nexus 7-in. tablet PC in 2Q12.)

OEM shipments to mobile PC customers, in millions. (Source: DisplaySearch)

What will 100M iPads do to the tablet supply chain?

Speaking of Apple, panel makers including Samsung, LG Display, Sharp, and Innolux are expected to ship 70M iPad panels (9.7-in.) in 2012; about a third of them (23M) for iPad 2 XGA panels and the rest (47M) the new iPad QXGA panels that use both a-Si and oxide TFT technologies. Strong sales of the legacy iPad model continue, though, so Apple and its panel makers are having to adjust their panel production plans.

Die-hard techies love their favorite devices, none more so than Apple fans. The iPad mini, which was recently voted one of the hottest consumer products of 2012 in Japan, immediately faced supply shortages for its 7.85-in. XGA display supplied by AUO and LG Display. Apple had originally planned to sell 6M units in 2012; only 1.6M panels shipped in 3Q12, but the company wants panel makers to ship another 12M to meet demand.

This is even harder than it sounds. The iPad panels are known to be complex and difficult to make, notes DisplaySearch’s David Hsieh. Not only must they have high resolution and low-power consumption, but their wide viewing angle and high color saturation require additional photomask steps. "Standard a-Si TFT backplanes require 4 or 5 photomask steps, but the iPad and iPad mini panels require 6 to 7," notes Hsieh. "And for panel makers with limited experience in IPS [in-plane switching] or FFS production, as many as 8 mask steps may be used. Increased mask steps means longer production times and lower yield rates."

If Apple’s expectations for a substantially bigger 2013 come true, it might have to rethink its supply chain even further. Answering the strong demand for the iPad mini, the company is targeting 100M iPad shipments in 2013 — half of those for the mini, 40M for the new iPad, and 10M of the iPad 2 model. (DisplaySearch projects over 170M total tablet PC shipments in 2013, which would give Apple continued domination at 60% share.) But there’s a downside, notes Hsieh: "If the iPad mini volume is anything near 50 million units, Apple will need to find other panel suppliers in addition to AUO and LG Display, just as it always has three suppliers for the iPad panels," he writes. Likely candidates include Century (China), Innolux (Taiwan), and Panasonic LCD (Japan), all of whom are experienced in IPS technologies. Apple must also manage its iPad panel supplies in case it ends up parting ways with longtime partner/competitor Samsung.

December 7, 2012 – AMD and GlobalFoundries have finalized amendment of their wafer supply arrangement, establishing fixed pricing and other terms for 2013.

Earlier this year AMD and GlobalFoundries amended their wafer supply deal to a "take-or-pay" structure, which gave AMD flexibility to source 28nm parts from other foundries. (AMD also officially gave up its remaining ownership interest and board seat in GlobalFoundries.) In AMD’s 3Q12 results call, execs noted they were renegotiating that WSA; those negotiations appear to have concluded, with the following results:

– Lowered wafer purchase commitments for 4Q12, to $115M;
– A $320M payment (spread out in three installments) to terminate the current take-or-pay agreement, associated with that adjusted 4Q12 commitment;
– Wafer purchase commitments in fiscal 2013 of $1.5B;
– Wafer purchase commitment of $250M in fiscal 1Q14;
– Reduction in further reimbursements to GlobalFoundries for R&D costs, as AMD moves to standard 28nm process technology.

With this renegotiated WSA, AMD says it will return to free cash flow generation in 2H13.

"GlobalFoundries’ performance in meeting our delivery requirements in 2012 was strong and they remain a strategic and important foundry partner moving forward," stated Rory Read, AMD president/CEO. "We are committed to develop and grow our business with GlobalFoundries, increasing our engagement across our industry-leading APU and graphics roadmaps. The newly amended agreement is another step we are taking to further strengthen our relationship with GlobalFoundries as well as AMD’s financial foundation."

What the analysts think

Wall Street analysts generally see a mixed blessing in the move for AMD, providing some short-term relief and flexibility (as does the sale/leaseback of its Austin facility), but believe the move doesn’t solve the broader problem of longer-term liquidity, and that the company will have to take on new debt by midyear.

– Cash required to run the business is approaching ~$700M, so AMD might need to issue more debt, notes Barclays’ CJ Muse. More importantly, he sees "no change to our ongoing concerns of competitive pressure from both the high-end (Intel) and low-end (ARM) with traction in ARM servers."

– "AMD incrementally lowered its near-term costs but also gave up some long-term flexibility," sums up Deutsche Bank’s Ross Seymore. He points out that AMD still lacks flexibility in its foundry multisourcing strategy, given its commitment to have GlobalFoundries make all its microprocessors in 2013.

– John Pitzer from Credit Suisse thinks even the renegotiated WSA is "expensive" at 33% of COGS and 19% of AMD’s market capitalization.

– The new WSA’s complexity is itself "a negative," thinks Craig Berger from FBR Research. He agrees that more debt financing will be required, and also echoes worries about the PC market’s stagnation — low-end PC users (surfing the Web, checking e-mail) have swung over to using tablets and smartphones for that functionality, a trend he thinks is increasing in emerging markets with lower-cost options.

Berger also questions whether AMD really can get to free cash flow by 2H13, without clarity into the company’s internal revenue or gross margin assumptions. He notes that AMD was almost net-cash-neutral a year ago, but has since paid out a lot to GlobalFoundries in take/pay and termination fees, acquired SeaMicro, "and operationally burned cash." Adding up existing commitments, AMD likely will be below the aforementioned $700M baseline for operating cash, which will mean additional financing.

– Vijay Rakesh with Sterne Agee, though, sees a more positive near-term scenario for AMD, with "multiple liquidity options" including a similar sale/leaseback for its Santa Clara facility, access to ~$500M in secured loans, and monetizing its IP portfolio of thousands of patents (including those obtained through acquisitions) which he says could amount to $2.2B.

Next week is the semiconductor industry’s flagship technical conference show-and-tell: the 58th annual IEEE International Electron Devices Meeting (IEDM, Dec. 10-12), this year held back on the West Coast at the San Francisco Hilton Union Square (and preceded by two days of short courses and tutorial sessions). Highlights of the IEDM 2012 technical program, which comprises some 220 presentations, include unveiling of Intel’s trigate manufacturing technology; a plethora of advances in memory technologies; high-performance logic on flexible plastic substrates; continuing advances in transistor scaling to teens and single-digit nodes; advancements in emerging new materials, wafer-level packaging, MEMS technologies and applications, and more.

Solid State Technology’s Pete Singer will be on site at IEDM 2012, and we’ll be getting input from bloggers and our industry friends. To kick things off, we’ve scanned the entire IEDM 2012 program to present a quick sampling of some of the more intriguing papers. Enjoy the slideshow!

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