AMD Expands GlobalFoundries Deal, Locking Up $2 Billion in Wafers

AMD has agreed to buy more than $2 billion worth of silicon wafers from GlobalFoundries through 2025, an increase of about $500 million over its previous agreement. The deal allows AMD to lock in additional supply years ahead of time as it works to navigate a strained global supply chain.

GlobalFoundries was established in 2008 when AMD split its chip-making operations into a separate firm. Since then, the firms have maintained a "wafer supply agreement" that is regularly renewed and amended. GlobalFoundries was based in Silicon Valley before moving its headquarters to upstate New York last year.

Under the terms of the updated agreement, the Santa Clara, California-based company has agreed to buy approximately $2.1 billion of wafers from GlobalFoundries from the start of 2022 to the end of 2025, in a move to boost the output of its central processing units (CPUs) in data centers and personal computers.

GlobalFoundries is the fourth-largest player in the global market for made-to-order chips, which surged by 12% to $27.3 billion last quarter due to robust demand, new production capacity, and rising wafer prices, according to market research firm Trendforce.

GlobalFoundries pulled out of the race with TSMC and Intel to roll out the most advanced chip production processes in 2018. Instead, it has focused on supplying special-purpose chips based on mature nodes to Qualcomm, NXP, and others, with its most advanced chips based on the 12- and 14-nm nodes. However, made on these "legacy" nodes are in short supply around the world due to lagging capacity investments.

Since then, AMD has turned to TSMC to supply the most critical components in its flagship Ryzen and EPYC processors for personal computers and data centers. These chips are assembled out of smaller slabs of silicon called “chiplets” or “tiles” packaged in a module instead of cramming all the components on a monolithic die. TSMC squeezes the CPU cores on several discrete die, all manufactured on a 7-nm node.

AMD plans to upgrade its family of EPYC server processors to TSMC’s latest 5-nm process node in 2022.

While TSMC has become AMD’s primary foundry partner, it uses a separate semiconductor die from GF to tie its components together in a module. Not everything needs to be on the most advanced processes in a heterogeneous package. The TSMC-made chips are co-packaged with a central I/O die based on the 14-nm node from GlobalFoundries that coordinates data traveling from one cluster of CPU cores to another.

This is the second amendment to AMD's wafer supply agreement with Globalfoundries in recent months.

In May, AMD updated its wafer supply deal with GlobalFoundries to end all exclusivity agreements with the company, giving it the flexibility to work with other foundries for 7-nm and smaller nodes for the first time. But as part of the accord, it also pledged to keep sourcing chips from Globalfoundries: AMD said it would buy $1.6 billion of wafers from 2022 to 2024, keeping it as its supplier for 12-nm and more mature nodes.

Demand for chips is growing at an unprecedented rate globally. A severe chip shortage and a broken global supply chain have caused shutdowns of U.S. car factories and snagged production of a range of consumer devices. AMD makes the chips at the heart of gaming consoles such as Sony’s Playstation 5 and Microsoft Series X, and it is also gaining ground in PCs—all of which have been affected by the supply chain turmoil.

The crisis has forced chip firms to find new ways to guarantee supplies to customers. Some are striking long-term agreements with their foundries to keep them ahead of orders. Nvidia, Marvell, and other major players are spending vast amounts of money to reserve capacity at the most advanced nodes from TSMC and other foundries years ahead of time. AMD is gambling that demand for its chips will continue growing.

Under the terms of the deal, GlobalFoundries must allocate a minimum amount of its capacity to AMD’s chips. AMD, in turn, is required to pay for the wafers whether it needs them or not. AMD said it would be required to pay GlobalFoundries a portion of the difference for unused capacity. Wafers are plates of silicon (on average 300-mm wide) that serve as the fundamental building blocks of chips.

Thomas Caulfield, CEO of Globalfoundries, said in a statement: “Our amended agreement with AMD is a prime example of our customers' desire and willingness to secure long-term supply.”

GlobalFoundries raised $2.6 billion in an initial public offering (IPO), valuing it at around $26 billion earlier this year. The company said it would use the proceeds to expand global capacity to meet rising demand.

The company's production capacity is completely booked through the end of 2023, plans to invest $6 billion to upgrade its three fabs this year, including its most advanced chip foundry in Malta, New York.

"We have been working closely with our customers for more than a year to help address the ongoing supply-demand imbalance in our industry,” Caulfield said.