Ruiz: AMD to consider building chip sets for partners

Advanced Micro Devices (AMD) may get into the business of manufacturing chip sets after it opens a new chip factory in 2006, company Chairman, President, and Chief Executive Officer Hector Ruiz said in an interview Monday.

For the most part, chip sets for AMD's processors are currently designed by partners such as Nvidia, ATI Technologies, and Via Technologies, among others, who often hire other companies to manufacture the chip sets. AMD has previously said that it is not interested in building its own companion processor-chip set products like those made by its rival Intel, but Ruiz said Monday that the company is not opposed to deeper ties with chip set partners that could involve manufacturing agreements.

If chip set vendors farm out chip set manufacturing to AMD, the company would benefit in various ways. For example, AMD would generate additional revenue from manufacturing capacity that would otherwise sit unused. It would also have increased control over the process of manufacturing chip sets, which are used in tandem with AMD's chips to control the flow of data around a system.

Right now, AMD does not plan to start developing its own chip set products for the mass market, Ruiz said.

AMD will have the capability to take on additional manufacturing work between late 2006 and early 2007, after a new state-of-the-art chip fabrication plant, or "fab," ramps up to full production in Dresden, Germany, adjacent to a current AMD fab. Growing shipments of the Sunnyvale, California, company's emerging products such as its low-cost Geode chips could take up some of that excess manufacturing capacity, but financial analysts are curious whether AMD has other plans in mind for its older chip-making equipment.

About 1.5 million silicon wafers are produced each year to support the chipset needs of companies other than Intel, which is the world's largest chip set manufacturer, Ruiz said.

"It's entirely possible that some of that [excess] capacity can be part of a partnership with a chip set manufacturer," Ruiz said. In any event, AMD definitely plans to deepen relationships with its chip set partners in coming years, which could help the company produce better chips, he said.

AMD makes a limited number of chip sets to support its launch of new processors, but the vast majority of the chip sets for its products are made by third-party vendors, said Dean McCarron, principal analyst with Mercury Research in Cave Creek, Arizona. In the past, AMD simply hasn't had the capacity to build its own chip sets nor the desire to enter a low-margin market that requires research and development expenditures, he said.

Intel believes it can produce a more complete product when the processor and chip set are designed together from the beginning of a project. The company's current model is its Centrino mobile technology, which consists of a processor, chip set, and wireless chip designed from the early going to work together to lower power consumption and improve performance. Intel is expanding this design concept to desktops and servers as part of its "platform" strategy.

Intel's chip set business also allows the company to squeeze more productivity out of older factories that would have otherwise sat idle, McCarron said. Chip sets are far less complex than microprocessors and don't require the most advanced processing technologies, he said.