AMD (NYSE: AMD) 
and IBM (NYSE: IBM) are extending their microprocessor manufacturing
collaboration deal another three years and will now continue working
together on next-generation computer chips through 2008, according to a
Securities and Exchange Commission (SEC) filing from AMD this week.
The extension, which has yet to be approved by IBM's board of directors, builds on a chip-making process partnership formed two years ago and appears to be an endorsement of its benefits for both companies, according to industry analysts.
The chip collaboration highlights the barriers to advancing chip designs
and processes. It allows both companies to build on their existing
investment in manufacturing processes and keep up with Intel (Nasdaq: INTC) , which is
becoming the only company capable of going it alone.
Joint Work Continues
"Intel is pretty much the only company that can go about it themselves," Mercury Research president Dean McCarron told TechNewsWorld. The extension of the AMD-IBM deal "shows that [Intel's] primary competitors are investing and will be there too."
AMD said in its SEC filing that it had, through a letter of agreement with IBM, signed on to continue jointly developing logic process technologies, which include 65-nanometer and 90-nanometer chip manufacturing.
AMD said that during the three-year extension it would pay IBM between $250 million and $280 million, to be dependent on the number of partners engaged in related development projects at IBM facilities.
The parties additionally agreed to extend the target dates for achievement of certain development milestones, the SEC filing said.
Next-Generation Chip Partners
McCarron said the extension of the chip-making deal indicates both companies are happy with the progress of their collaboration so far.
The analyst added that it makes sense for both companies to share the burden of developing next-generation processes, which can cost several hundred million or billions of dollars to create.
McCarron said the deal was less about dealing with competition and more about continuing to innovate and advance the technology of both companies.
"You need to develop next-generation processes to create your next-generation parts, so it makes a lot of sense for them to pool their resources and do it this way rather than everyone going out and trying to reinvent the wheel," McCarron said.
Third Party Possible
McCarron highlighted a provision in the extended agreement that would allow AMD to use a third-party foundry, or manufacturing facility, to make chips relying on the technology born out of the AMD-IBM partnership.
"This could be a signal that [AMD is] trying to increase their manufacturing options, and perhaps [looking for] a new foundry," McCarron said. "They could find a third party to do the manufacturing for them with processes developed jointly" with IBM.
McCarron said both the deal itself and the option to use another foundry are reactions to the rising cost of chip research and development.
Need to Advance
Gartner (NYSE: IT) research vice president Martin Reynolds told TechNewsWorld that
as both AMD and Intel push 90-nanometer, 64-bit and other chip technologies, the need to continue advancement is paramount.
"They have to keep performance 
going, and they have to keep the
technology advancing," Reynolds said.
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