AMD, Fujitsu form JV to fight Intel

SAN FRANCISCO: AMD and Japanese memory chip maker Fujitsu Ltd. are forming a new company to supply flash memory for cell phones and personal computers

AMD and Fujitsu, which have had a joint venture called Fujitsu AMD Semiconductor Ltd. (FASL) for about a decade, said the new company -- to be named FASL LLC and headquartered in AMD's home turf of Sunnyvale, California -- will begin operations in the third quarter of this year.

FASL LLC will have about 7,000 employees and a net book value of more than $2.5 billion, they said, declining to further comment on the financial aspects of the deal. AMD will own 60 percent and Fujitsu the remaining 40 percent.

"We expect the new company to be the strong number two player in the flash market," Hector Ruiz, AMD chief executive, said in a conference call. "Integrated operations will enable economies of scale and include improved profitability" of the flash business.

AMD will appoint Bertrand Cambou, senior vice president of its memory group, as the chief executive of FASL. Fujitsu will appoint Masamichi Ogura, corporate senior vice president and group president of Fujitsu's electronic devices business group, as the first chairman of the board.

AMD will contribute its flash memory group, fabrication plant in Austin, Texas, a research and development center called Submicron Development Center in Sunnyvale, and final flash memory assembly and test operations in Thailand, Malaysia and China.

Fujitsu will contribute its flash memory unit and Fujitsu Microelectronics final assembly and test operations in Malaysia. AMD will be the primary distributor of FASL's products in the Americas, Fujitsu in Europe and the two parent companies will split distribution in Asia, executives said.

The company will announce a product brand name in the future. Currently, the companies jointly develop products, each with a 50 percent ownership in the existing venture, but sell them separately.

AMD and Fujitsu are ranked second and fifth in the market, respectively, behind Intel in the top spot. AMD is also the second largest maker of microprocessors, the brains of computers, behind Intel, and has a technology development agreement with IBM on those products.

AMD SPLIT?

Analysts suggested the move is a precursor to AMD splitting in two, with management of its core microprocessor business based in Austin and some of the key memory business executives based in Sunnyvale.

Tim Mahon, an analyst at Credit Suisse First Boston, on March 19 said a spinoff was "imminent" and upgraded AMD's stock to "neutral" from "underperform." He said advantages gained would be increased revenue from flash memory and more control over the operations and investments of the flash business.

Nearly one-third of AMD's revenue comes from flash memory sales. The other two-thirds largely derive from sales of microprocessors. AMD has been moving for a few years to separate into two companies: microprocessor and flash, as it did with its programmable logic device business, which it eventually spun off, according to Kevin Krewell, a senior analyst at the Microprocessor Report.

"AMD is whittling its way down to being basically just a processor company," he said.

However, AMD spokesman Morris Denton dismissed the notions that AMD was preparing to split up the company. "This is not a move by AMD to begin that process at all," he said.

Combining AMD and Fujitsu's flash sales and marketing efforts will put an end to the occasional competition they posed each other in certain markets, and will create a stronger flash rival to Intel, analysts said. "Each looks like a smaller player when you look at the rankings versus Intel," said Nathan Brookwood of Insight 64.

Intel and AMD are the top two companies providing flash memory used in cell phones and PCs. Fujitsu is ranked No. 5, said Jim Handy of Semico Research. AMD and Fujitsu both saw sales decline last year while Intel's rose slightly. "It looks like something they've got ahead of them is gaining back market share," Handy said.