Chipmaker AMD splitting into two companies

Beleaguered Advanced Micro Devices, which has languished behind Intel as a technology innovator for two years now, is preparing to split itself into two pieces, which some see as a last ditch effort to keep a presence in the CPU market.

The move has been rumored for months but the details are nonetheless decidedly unusual: Two Abu Dhabi investment firms will pour $6 billion (or more) into the two companies, the temporarily-named Foundry Company (which will manufacture chips) and the Advanced Technology Investment Company (which will own the rest of AMD's assets, including the company that ultimately designs chips). The bulk of the $6 billion will go toward building new fabs and upgrading existing ones: The first new manufacturing facility will be built near Albany, New York

The big change with this new setup is that AMD's design arm will be able to do design work for other companies while Foundry will be able to produce other people's chips as a contractor. I'm not entirely clear why the company couldn't do this under its old structure, but the hefty monetary investment at least allows AMD to compete a little better in this cutthroat market. For those who don't know the history, Intel fell asleep at the wheel in the early 2000s, pumping out faster, hotter, and buggier Pentium chips while AMD went 64-bit with the Athlon and Opteron, immediately vaulting past Intel in performance. Intel finally got its act together and struck back in 2006 with the streamlined Core line of CPUs and immediately retook the lead. Try as it might, AMD has basically offered nothing that's been able to compete with Core ever since.

Will it work? In today's economic climate, anything seems worth a shot. One aspect of the new deal is that AMD could now actually start producing chips for Intel: In fact it already has a license to do so. But the interactions between the two AMD spinoff companies are bound to be complex and likely problematic to some degree. Anyone who remembers all the headaches that Palm went through when it spun off its hardware and software divisions into separate entities and tried to get them to operate independently will know what a mess this could end up being. If you need more evidence, just look where Palm is now.

Here's to wishing good luck for AMD during and after the transition.