Advanced Micro Devices, Inc. (NASDAQ:AMD) is licensing the design of its state-of-the-art processor to a freshly formed Chinese organization, creating a fresh competitor for Intel Corporation (NASDAQ:INTC).
The former is giving the rights to its x86 processor and system-on-chip technology to an organization named THATIC (Tianjin Haiguang Advanced Technology Investment Co. Ltd.) a joint venture of AMD and a group of private and public Chinese organizations.
AMD is supplying all the know-how required for THATIC to produce a server chip. THATIC will be able to produce different versions of the x86 chips for different kinds of servers. It will use the technology to manufacture chips for server systems to be released only in China. In return, AMD will get $293 million in licensing charges as well as royalties on sales of chips built by the venture. Most servers, as well as PCs, run on x86 chips. However licensing the chip know-how to other organizations is rare even in the case of a joint venture according to principal analyst at Tirias Research, Jim McGregor.
AMD is quite smaller than Intel and licensing gives it an easy channel to expand the installed base of AMD products. The company which has relatively less resources will obtain licensing revenue too. AMD is doing everything it can to compete with Intel. It looks likely that it will eventually license its PC chip designs. President and principal analyst at Moor Insights and Strategy, Patrick Moorhead said that the deal is an indication that AMD is seeking to monetize its vast portfolio of intellectual property.
Intel won’t be pleased with this development. The two-player x86 race may now have more players which would affect Intel adversely. Intel dominates the PC as well as server markets and licensees would mean more of AMD’s x86 chip variants in servers and PCs.
AMD declared the China deal with its first quarter financial data which was a bit better than anticipated. However, its computing and graphics division is struggling. The division had $460 million in revenue a drop of 2% from the earlier quarter and 14% less from a year ago due to lower sales.