In the fast-paced world of technology, Advanced Micro Devices (AMD) achieved a remarkable turnaround—transforming from a company on the brink of collapse to becoming the No. 2 player in the AI chip market, just behind NVIDIA. While AMD is a large, global company, its story offers valuable lessons for small and medium-sized businesses (SMEs) as well.
This blog post explores how AMD's strategic decision to spin off its manufacturing division, GlobalFoundries, enabled both companies to focus on their core strengths—resulting in extraordinary success.
For SME business leaders, especially those navigating growth through mergers and acquisitions (M&A), AMD’s journey offers a counterintuitive lesson: sometimes, the best path to growth isn’t through consolidation, but divestiture. Read on to discover how this insight could inform your own business strategy.
AMD: The Fight for Survival
In the early 2000s, AMD found itself in a fierce battle against industry titans including Intel in the CPU space and NVIDIA in GPUs. As a smaller player with significantly fewer resources, they faced immense competitive pressure. Adding to the turmoil was their acquisition of ATI Technologies in 2006. Although this move aimed to expand their product offerings, the hefty price tag and the substantial debt incurred to finance the acquisition pushed the company to the brink of bankruptcy. By November 21, 2008, AMD’s stock had plummeted from a peak of $41.91 on May 19, 2000, to just $1.82 on 21 November 2008— a 96% drop that nearly erased the entire company’s value.
Competing Needs
At that time, AMD operated with two main divisions: Design and Manufacturing. Unfortunately, these divisions had conflicting needs, making it difficult for the company to respond effectively to market developments. The Manufacturing arm required significant capital investment to maintain its fabrication plants, while the Design division needed the agility to innovate and efficiently meet evolving customer requirements.
The Spin-Off
So, what did AMD do? On March 2, 2009, AMD made the bold decision to spin off its manufacturing operations, rebranding it as GlobalFoundries. The spin-off aimed to enable each entity to focus on its core strengths—AMD on design and product development, and GlobalFoundries on manufacturing. AMD sold a 66% stake in GlobalFoundries, raising critical funding for its own needs while retaining a 34% ownership stake and becoming GlobalFoundries' first customer.
The Wafer Agreement
As part of the spin-off, AMD and GlobalFoundries entered into a supply agreement known as the Wafer Agreement, which dictated the terms of their relationship. This agreement mandated that AMD purchase all of its products, with pricing determined on a cost-plus model—meaning the cost of the goods plus a percentage markup. If GlobalFoundries could not meet AMD's volume demands, AMD was permitted to temporarily source from another foundry. These arrangements provided GlobalFoundries the opportunity to evolve into a strong, independent player in the semiconductor industry while enabling AMD to explore alternative manufacturing options to better meet its customer demands.
Nurturing Independence
While this agreement still binds the two companies today, it has undergone several significant amendments over the years, progressively granting AMD the freedom to pursue partnerships with GlobalFoundries' competitors. One such competitor is TSMC, a leading Taiwanese chip manufacturer, which has become a crucial partner for AMD in chip manufacturing. Through this partnership, AMD has leveraged TSMC's cutting-edge manufacturing technologies to create breakthrough products, leading to its remarkable comeback in the chip-making industry. Today, AMD's share price has surged to $155.97—nearly 86 times its lows in 2008. While still significantly smaller than NVIDIA, AMD has positioned itself as a formidable rival, second only to the giant in the AI chip market.
Meanwhile, GlobalFoundries has established itself as a prominent player in semiconductor manufacturing, boasting a market capitalisation exceeding $22 billion.
Key Takeaways for SME Business Leaders
So, what can you learn from AMD's journey as a business leader exploring growth strategies for your SME?
Sometimes, the best path to growth lies not in adding more (M&A) but in refining what you already have (divestures).
As you reflect on your own organisation, ask yourself:
Are there non-core services or divisions that could operate more effectively on their own, allowing you to focus on delivering the best services to your clients?
Could reallocating resources from less profitable operations help fuel the innovation you need to stay competitive in your industry?
Just as AMD’s decision to divest its manufacturing operations allowed both AMD and GlobalFoundries to thrive, your business could benefit from a similar focus on core strengths.
If your SME is facing similar growth or restructuring challenges, let's explore how strategic divestitures or M&A could unlock your next growth phase. Reach out for a free consultation on how Zenify Investments can tailor these strategies to your industry and size.
About Zenify Investments
Zenify Investments is a boutique M&A advisory firm specialising in Australian SMEs. We bring big-firm expertise without the premium price tag, providing hands-on director-level support throughout every engagement. Whether you're considering buying, selling, or need a business valuation, we deliver sophisticated analysis with practical, actionable insights.
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