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AMD will further separate itself from the flash business by forming FASL LLC, the evolution of its existing flash partnership with Fujitsu.
FASL LLC, a new flash memory company partly owned by both companies, will begin operations in the third quarter, executives from the two companies said. By further separating itself from Fujitsu and AMD, the new company will be able to form industry alliances and take the necessary steps to compete in the cutthroat market for flash memory.
“At AMD we are pursuing a strategy of partnering with silicon partners of choice, with a growing number of industry leaders around the world,” said Hector Ruiz, AMDs chief executive officer, at a press conference held Monday afternoon. AMDs strategy, which Ruiz calls “customer-centric innovation,” is to partner with silicon providers like IBM to regain ground lost to Intel in the manufacturing race.
FASL LLC will take Fujitsu-AMD Semiconductor Limited (FASL), a joint venture between the two companies, a step further. Currently, FASL is split 50-50 between Fujitsu and AMD, and the two companies divvy up the chips from the FASL lines in Japan, selling them with their own sales forces. Now, AMD will own 60 percent of FASL, with Fujitsu retaining the minority stake.
At its inception, FASL LLC will represent the worlds second-largest flash memory provider, behind Intel Corp. Although market researcher Semico Research expects flash dollar sales to overtake DRAM in 2004, driven by cell phones, PDAs, and the like, flash pricing has continued to decline, with a 30 percent drop in price per megabyte last year.
FASL LLC will use a unified sales force, and the company will be asked to stand on its own financially. However, AMD executives were reluctant to answer questions about how the operation would be funded, or whether FASL LLC would assume any of AMDs debt.
AMD executives historically havent broken out the profitability of any of its individual groups. For the fourth quarter of 2002, AMDs flash business represented 32 percent of the companys sales, or $217 million. However, AMD lost $855 million during the quarter, including charges.
Forming FASL LLC wont affect any of the operations of the Computational Products Group, which makes AMDs microprocessors, said Patrick Moorhead, vice-president of sales and marketing.
Ruiz estimated that the new FASL LLC would be worth about $2.5 billion, without disclosing any of the new companys assets or debt-to-equity ratio. AMD and Fujitsu will maintain an “arms-length” relationship with the new company, Ruiz said, allowing it to conduct business on its own. Both AMD and Fujitsu will contribute “whatever support we can offer them,” said Toshihiko Ono, currently group vice-president of the LSI Group at Fujitsu.
However, Ruiz said the company was not intended to be spun off as an entirely separate business.
While FASL LLC will conduct is own sales operations, AMD and Fujistu will also serve as the only distributors for the companys products. Both companies will operate in each territory, but AMD will be given first priority in the Americas, while Fujitsu will be granted priority status in Europe. Asia will be divvied up between the two companies.
From a manufacturing standpoint, AMD will contribute its 0.17 micron flash lines in Austin, Tex., while Fujitsu will add its JV1, JV2, and JV3 manufacturing facilities in Aizu-Wakamatsu. In total, the new company should boast about 7,000 employees.
The separation of FASL comes at a time when other manufacturers are trying to tie flash memory closer to other components. Intels “Manitoba” PXA800F, for example, combines an Xscale processor, DSP, and flash memory onto a single piece of silicon.
But Ruiz said that Intels strategy has been for its own benefit. “My feeling is that is our competitor pursued an internal strategy and not focused on customers,” Ruiz said.
“The only thing we fear is our own ability to execute,” Ruiz added.