AMD Cozies up to Contract Chip Maker TSMC

The company also currently farms out some microprocessor orders to IBM and Singapore's Chartered Semiconductor Manufacturing Ltd., in addition to producing chips at its own factories.

But it has also said it is realigning its business to ensure long-term profitability, and that could mean some major changes in its operations and partnerships.

Last week, AMD spinoff Spansion Inc. signed an agreement with TSMC to jointly develop its MirrorBit flash memory chips at 40-nanometers and below. The nanometer term describes the size of the smallest feature that can be manufactured on a single chip. There are about three to six atoms in a nanometer, depending on the type of atom, and there are a billion nanometers in a meter. Reducing the size of the features on a chip enables companies to create smaller, more energy efficient, and more powerful chips.

AMD's cash position dropped by around $400 million in the first quarter. "Given the massive hemorrhaging, it is a relief to us that AMD announced that it is adjusting its business model, capital spending and cost structure to return to profitability," wrote Michael Masdea, chip analyst at Credit Suisse Securities (USA) LLC, in a recent report.

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