AMD and GlobalFoundries Update Wafer Supply Agreement: Orders Through 2024, Now Non-Exclusive

In a brief Securities and Exchange Commission Form 8-K filing, AMD this afternoon has revealed that it has once again amended its wafer supply agreement with US fab (and AMD fab spin-off) GlobalFoundries. Under the terms of the amended seventh amendment, AMD will see out its existing commitment to use GlobalFoundries through 2024, with the latest amendment setting purchase targets for 2022, 2023, and 2024. Beyond those new targets, however, the agreement releases AMD from all further exclusivity commitments to GlobalFoundries. AMD is now free to use any fab on any process node that it wants.

As a quick refresher, the seventh WSA amendment, which was signed in January of 2019, set terms for the AMD/GlobalFoundries relationship through the end of 2024. Among other things, it set wafer purchase targets for the first three years of the agreement (2019-2021), leaving the last three years to be negotiated at a later time. Meanwhile, that agreement also began the process of decoupling AMD from GlobalFoundries by allowing AMD to utilize other competing fabs for 7nm and smaller, while GlobalFoundries remained AMD’s exclusive provider for chips made on 12nm and larger nodes.

The latest amendment, in turn, essentially finishes what the seventh amendment started. In what AMD/GloFo are calling the “A&R Seventh Amendment”, the updated amendment sets wafer purchase targets for 2022, 2023, and 2024. The full details on these targets are not yet available, however according to the 8-K filing, AMD expects to buy approximately $1.6 billion in wafers from GlobalFoundries in the 2022 to 2024 period.

As with the previous agreement, these targets are binding in both directions. GlobalFoundries is required to allocate a minimum amount of its capacity to orders from AMD, and AMD in turn is required to pay for these wafers, whether they use this capacity or not. For finished wafers, the agreement sets new, undisclosed prices. Meanwhile for any capacity AMD does not use, they will once again be required to pay GlobalFoundries a portion of the difference. GlobalFoundries will be also getting pre-paid for some of these orders in 2022 and 2023, though the 8-K form does not disclose by how much.

Arguably the bigger news here is that, outside of AMD’s minimum wafer purchase requirements over the next three years, the latest amendment otherwise further separates AMD and GlobalFoundries going forward, as it removes all other exclusivity commitments. This leaves AMD free to place orders at any fab on any process node that the company wishes, as opposed to having to use GlobalFoundries for 12nm and beyond.

Now with that said, the net impact of this change is likely to be limited as AMD was already free to pursue other fabs for 7nm and smaller nodes – which will be the vast majority of AMD’s needs over the next three years. But it does underscore how AMD and GlobalFoundries are slowly moving farther apart, as GlobalFoundries has left the race for cutting-edge manufacturing nodes.

It should also be noted that the latest WSA does technically extend the agreement one last(?) time. The previous seventh amendment was set to expire March 31^st, 2024. Whereas the new amendment expires on December 31^st, 2024. However other than adjusting it to cover the full calendar year, there are no current signs that AMD plans to significantly extend their current agreement with GlobalFoundries. By dropping all exclusivity agreements – and especially in the midst of this chip crunch – it looks like AMD is slowly winding down its dealings with GlobalFoundries for high-performance logic chips.

In the meantime, however, AMD still has three years and $1.6 billion in wafer orders to place at GlobalFoundries. According to a separate statement from AMD, these 12/14nm wafer orders will be used to fulfill orders for trailing-edge logic products, as well as for I/O dies for AMD’s current-generation Ryzen and EPYC CPUs. As with their trailing-edge prodcts, the company will still need to keep producing their current-gen products for a time, even after they’re supplanted with newer technologies. And, given the ongoing chip crunch, having a contractually-guaranteed supply of chips is no doubt a great relief to some executives within AMD.

Still, it’s somewhat difficult to imagine AMD needing over a billion dollars in last-gen logic and I/O dies going into the next three years. In 2019 we remarked that “AMD's needs for such a large node (or GlobalFoundries' other specialized nodes) in the 2022-2024 timeframe are not nearly as obvious” and that remains true to this day. So it will be interesting to see if AMD places enough orders to use all of that capacity, or whether they'll end up leaving some of it on the table.

Finally, GlobalFoundries also sent out a brief statement sharing their thoughts on the newest WSA amendment.

“We have partnered with AMD for more than a decade, playing a key role in accelerating their business, and look forward to extending our partnership for years to come. GF will provide wafers from our Fab 8 Malta, NY, facility, reinforcing both companies’ commitment to manufacturing in the United States.

This agreement gives AMD the support they need to continue their explosive growth in the server and high performance computing markets, and it demonstrates GF’s commitment to redefining the fabless-foundry relationship and helping out customers win their respective market segments”