Third Fab's a Charm for AMD

Even so, Len Jelinek, at semiconductor-manufacturing analyst iSuppli, said AMD will run out of space at Fab36 in two years.

A new fab could provide AMD with capacity to produce 20,000 to 30,000 wafers a month, depending on how aggressive the company chooses to be, says Jelinek. He estimated AMD's current wafer capacity at around 50,000 wafers.

"Right now they have an excellent product with dual-core that's allowed them to expand in the marketplace," said Jelinek. "If they're able to maintain that trajectory of growth, then one could see them going for a building closer in the 30,000 wafer range."

Of course, too much capacity can quickly become a costly liability if demand slows or competition heats up.

Intel has vowed to retake market share from AMD beginning this summer, when it ships a line of processors featuring the new Core microarchitecture. Intel's new processors will be built using advanced 65-nanometer circuitry, which allows the company to squeeze more transistors onto an individual chip, increasing performance and functionality. Intel plans to begin manufacturing even more-advanced 45-nanometer chips in the second half of 2007.

AMD's new fab will probably take two years to get running, and will likely begin manufacturing chips that feature 65-nanometer circuitry, before evolving to producing chips with 45-nanometer dimensions, say analysts.

While AMD currently has its two fabs located in Dresden, there has been speculation that the company might opt to build its newest facility in the Asia-Pacific region, where labor costs are lower.

Semico's Cavanaugh, however, says that automation at the most advanced fabs require fewer workers, making labor costs a smaller factor in deciding where to build a facility.

More important, says Cavanaugh, is the quality of the local infrastructure, such as reliable power and water supplies, as well as roads and transportation to facilitate shipping the products.

Since Dresden already provides this kind of infrastructure to AMD's existing facilities, there's a benefit to expanding there.

Shares of AMD closed Friday up 66 cents, or 2.1%, to $31.63.

>To order reprints of this article, click here: Reprints