AMD expects further APU, CPU declines, cuts chip orders to GF

Advanced Micro Devices on Thursday revealed that it had signed a new wafer supply agreement (WSA) with GlobalFoundries for 2015. Based on the disclosed terms of the agreement, AMD will significantly reduce purchases from GlobalFoundries, which indicates that the company projects further declines of PC-related product shipments this year.

Under the terms of the new agreement, AMD expects wafer purchases from GlobalFoundries to be approximately $1 billion this year on a take-or-pay basis, which is a decline from 2014. Last year AMD planned to spend $1.2 billion on purchases from GlobalFoundries, but its actual purchases from the company in 2014 were approximately $1 billion due to lower fourth quarter purchases.

GlobalFoundries is AMD’s largest manufacturing partner. The company produces accelerated processing units, central processing units, graphics processing units as well as semi-custom APUs for video game consoles for the Sunnyvale, California-based chip designer.

Since demand for PS4 and XB1 system-on-chips is expected to increase this year, this means that the share of such semi-custom APUs in AMD’s purchases from GlobalFoundries will rise as well. However, it also means that the share of APUs, CPUs and GPUs for personal computers will decline in AMD’s purchases from its main partner. Even in the best-case scenario, if everything goes well for AMD this year, the company does not expect sales of its microprocessors and accelerated processing units for PCs to exceed sales of such chips in 2014.

In Q1 2015, AMD spent $161 million on wafer purchases from GlobalFoundries, which is another indicator that the company’s business is declining rapidly. By contrast, in Q1 2014, AMD spent approximately $250 million on wafer purchases from its key manufacturing partner.

Both International Data Corp. and Gartner forecast that shipments of PCs will drop in 2015. Therefore, it is not surprising that AMD projects its APU, CPU and GPU sales to decline. However, it is noteworthy that AMD does not plan to reclaim market share it has lost to Intel Corp. over the years.

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KitGuru Says: AMD does not seem to be very ambitious or optimistic, which is understandable. This year the company will barely have any all-new products to offer to customers (code-named “Carrizo” APU and “Fiji” GPU seem to be good for their market segments, though). Therefore, all the company wants is to stabilize its positions, sustain revenue and earn some profits. Next year AMD plans to introduce brand new microprocessors based on “Zen” and “K12” micro-architectures as well as all-new graphics processors. Perhaps, this is when AMD will actually initiate its fight back?

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