TSMC Drops Hint of Processor Deal With AMD

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world's largest contract chip maker, is gearing up to make microprocessors for an undisclosed customer that appears to be Advanced Micro Devices Inc. (AMD).

TSMC will manufacture processors for the unnamed customer in 2008, Rick Tsai, TSMC's chief executive officer, told analysts during a meeting that was transmitted live over the Internet.

"We expect to see something start to happen during the second half of next year," he said, adding the deal is expected to make a "meaningful contribution" to TSMC's revenue.

Tsai declined to disclose many details, but revealed TSMC is investing heavily in high-K metal gate technology for the customer. "We are putting in technology for them," he said.

High-K materials are a key component of 45-nanometer process technology.

As chip manufacturers make transistors smaller and pack them closer together, they need to prevent electrons leaking from one part of the transistor to another. A long-standing problem, leakage becomes severe with chips made using a 45-nm process. The number refers to the average size of the smallest feature that can be created on a chip.

To solve the leakage problem, chip makers turned to high-K materials that significantly reduce leakage compared to silicon dioxide, which is used with older process technologies.

TSMC already makes microprocessors for Taiwan's Via Technologies Inc. But Via's processors are made using older process technology and are unlikely to require high-K materials any time soon.

That leaves AMD -- which already uses TSMC to manufacture its line of graphics chips -- as the most likely customer. Intel Corp., which uses a high-K material and a 45-nm process to make its upcoming Penryn processor chips, manufactures its own processors.

AMD currently outsources some processor production to Singapore's Chartered Semiconductor Manufacturing Ltd. But Taiwanese press reports recently suggested AMD plans to use TSMC to manufacture its upcoming Fusion chip, a processor that combines a CPU with a graphics processor on a single piece of silicon. Fusion is expected to hit the market next year and will be made using a 45-nm process.

Currently, AMD's most advanced processors are made using a 65-nm process that does not use a high-K material.

AMD executives could not immediately be reached for comment.

AMD and TSMC have built a closer relationship since AMD's acquisition of ATI Technologies Inc., a graphics chip maker and former TSMC customer, last year. In May, the two companies announced a deal for TSMC to make graphics chips for AMD using a 65-nm process. That announcement followed a manufacturing deal between TSMC and Spansion Inc., which counts AMD as an investor, and came amid speculation that AMD was seeking a partner for a joint-venture chip plant.

Tsai's remarks on TSMC's processor manufacturing plans came as the company announced its second-quarter results. The company said demand for chips picked up during the period, in line with expectations that the worst of a global chip glut is over.

TSMC's second-quarter revenue was NT$74.9 billion (US$2.3 billion as of June 30, the last day of the period being reported), up 15.4 percent over the previous quarter. But that figure -- which came in at the upper range of TSMC's forecast -- was nearly 9 percent lower than the same period last year, when the company reported revenue of NT$82.1 billion.

TSMC reported net income was lower during the second quarter, down 25.1 percent to NT$25.5 billion. The chip maker reported net income of NT$34 billion during the second quarter of 2006.