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Posted: January 25, 2009

AMD $4.6bn Chip Fab in Malta Nearing Reality With Abu Dhabi Investment

(Nanowerk News) Advanced Micro Devices Inc. shareholders will gather in Austin, Texas on Feb. 10 to authorize an investment by the Emirate of Abu Dhabi that could top $9 billion.
The transaction, which includes the spin-off of AMD's manufacturing operations in Germany into a joint venture called The Foundry Co., will fund construction of a $4.6 billion chip fab at the Luther Forest Technology Campus in Malta.
The global economic downturn and a precipitous drop in the price of oil -- the major source of funding for Abu Dhabi and other Gulf states -- has worried some about the future of the project.
But Persian Gulf analysts say oil would have to drop a lot more to have a real impact on Abu Dhabi's investments.
And now things are heating up. The shareholder vote was set just nine days ago, and there are other encouraging signs that the project is moving forward toward a summer groundbreaking.
"I'm very excited about it," said Michael Relyea, executive director of the Luther Forest Technology Campus Economic Development Corp., the nonprofit that manages Luther Forest. "It's very reassuring."
After the deal with Abu Dhabi closes -- a transaction that should take place within 48 hours of a successful shareholder vote -- the 222 acres needed for the plant are expected to be purchased from Luther Forest relatively quickly. The purchase price is expected to be at between $7 million and $8 million, according to documents filed with the Saratoga County Industrial Development Agency.
Then in March or early April, once the ground begins to thaw, Foundry will begin tree clearing and root removal, getting the site ready for full-scale construction.
A groundbreaking is planned by July, when a $1.2 billion state incentive package for the project expires, although the groundbreaking isn't required at that time under the agreement with New York state.
Although road construction activities at Luther Forest have stopped for the winter, water line construction continues, Relyea said, And legal, engineering and logistical work also continues.
"All the behind the scenes work is still being done," Relyea said.
This follows AMD receiving key approvals from New York state for the transfer of the $1.2 billion package to Foundry, and national security clearance from the U.S. Treasury Department's Committee on Foreign Investment in the United States.
Still, with all the stars seemingly aligned, there could be unforeseen obstacles that the project might face in the wake of the financial meltdown.
Last week, AMD announced a plan to shed 1,100 jobs -- 9 percent of its global workforce -- and also cut salaries, including those of its top executives.
And on Thursday, AMD announced that it lost $3 billion in 2008, only slightly better than the $3.3 billion loss it posted in 2007.
And it's no secret that the fortunes of oil-rich nations like Abu Dhabi have suffered during the financial crisis.
After all, a barrel of crude oil, which was trading for $147 during the summer, is now trading for slightly above $40, and even dipped below $35 recently.
And a new report by the Council on Foreign Relations, a New York City think tank, says that sovereign wealth funds in the Persian Gulf experienced huge losses in 2008 and will likely lose more this year.
Officials from the Abu Dhabi fund that is investing in Foundry did not return calls and e-mails seeking comment.
But analysts who follow Persian Gulf affairs and AMD don't believe that the drop in oil prices will hinder Foundry's plans.
Thomas Mattair, an author and former director of the Middle East Policy Council in Washington, D.C., says that Abu Dhabi only needs oil to sell at $36 a barrel to meet its budget, according to data he has seen from the Institute of International Finance.
Since oil averaged well above that in 2008 and may likely remain above that this year, he doesn't see a problem with investments it has committed to so far.
"Abu Dhabi should be under less pressure to slow down or postpone projects than the other (Gulf) oil producers," Mattair said
F. Gregory Gause III, a University of Vermont political science professor who focuses on the Middle East and the Persian Gulf, says Abu Dhabi's investment in projects such as Foundry aren't about economic diversification of their oil economy as much as getting the best return on earnings.
"They hope that they will be able to get a good return on their savings, and that is why they are investing in these kinds of projects," Gause said.
Abu Dhabi could also generate jobs for its own people, since the AMD deal could include future fabs built in the small city state.
Andy Ng, an analyst for the Chicago research company Morningstar Inc., agrees that it doesn't look like the price of oil -- or the economy in general -- will derail Foundry's plans.
"It appears that Abu Dhabi is committed to it," Ng said.
In the meantime, Relyea is starting to turn his attention to trying to market the rest of the 1,380 acres at Luther Forest to companies that will supply the chip fab or other companies involved in nanotechnology and computer chip manufacturing that want to be located near the factory. He says that he has already received serious interest from companies he won't name, but his hand will strengthen significantly once construction begins.
"We have to go sell the campus now," Relyea said. "We expect that will be an easier sell once they put a shovel in the ground."
Larry Rulison can be reached at 454-5504 or by e-mail at lrulison@timesunion.com.
Fab 4X timeline
Here are some key milestones expected for the construction of AMD's $4.6 billion computer chip factory in Malta.
Feb. 10: AMD shareholders will gather in Austin, Texas to vote on a proposal to spin-off AMD's manufacturing to a joint venture with the Emirate of Abu Dhabi called The Foundry Co.
March 7: Transaction between AMD and Abu Dhabi must close by this date, although AMD says deal should close 24 to 48 hours after the shareholder vote.
March/April: Tree clearing and grubbing planned at chip fab site
July: Groundbreaking expected by this month
Source: AMD (press release)
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