The two companies also announced a separate foundry agreement under which UMC will produce PC processors for AMD. The foundry agreement is aimed at augmenting capacity at AMD's Fab 30 in Dresden, Germany, with additional production of products at the 130-nm (0.13-micron) technology node and below. AMD said it expects to obtain its first 0.13-micron processors from UMC's existing fabs in Taiwan by the end of this year.

The deal had been widely rumored in Asia. The announcement confirms what sources told SBN two weeks ago after AMD president Hector de J. Ruiz disclosed plans to strike a foundry agreement for PC processors (see Jan. 16 story ).

For AMD, the alliance with UMC is aimed at overcoming a major hurdle in competing with Intel Corp., which now has nearly a half dozen 300-mm factories in the works or on the drawing boards.

"First and foremost, we wanted to make sure that we removed Intel's one remaining advantage, which was volume capacity beyond what people thought we might be able to get," said W.J. (Jerry) Sanders III, chairman and chief executive of AMD. "The joint venture will make available to AMD for its half of the 300-mm fab more square inches of silicon than our Dresden facility," he said in a press conference today.

Under the terms of the alliance, AMD and UMC will form a joint venture in Singapore, called AU Pte Ltd. The two companies expect to begin commercial production in the 300-mm fab using 65-nm (0.065-micron) process technology by mid-2005.

AMD and UMC do not plan to build a separate plant for the new venture. Instead, the new venture will be added as an expansion to UMC's existing 300-mm fab facility in Singapore. That facility also houses a joint venture between UMC and Germany's Infineon Technologies AG--called UMCi Pte Ltd.--which was announced over a year ago (see Dec. 14, 2000 story ). Recently, however, reports from the region indicated that tool installation for the UMCi venture could be delayed because of the industry's oversupply of ICs.

"Our Singapore site is already in construction for the 300-mm fab," said Robert Tsao, chairman and chief executive of UMC. During today's press conference, he said the entire Singapore facility is large enough to accommodate both ventures.

AMD and UMC officials declined to provide cost estimates for the joint production facility.

The move represents AMD's first effort in 300-mm technology. "Today's agreement reflects an innovative response to the tectonic shift that has changed the fundamental economics of the worldwide semiconductor industry," declared Sanders. "The advent of 300-mm manufacturing ushers in a new era for the semiconductor industry."

During the press conference, Sanders said he doubted that more than one or two semiconductor companies--outside the foundry business--could afford full ownership of 300-mm fabs in the future. One of those companies, he said, is Intel--AMD's archrival in processors--and the other might be DRAM maker Micron Technology Inc., Sanders added.

Sanders said the current plan is to equip the Singapore 300-mm fab for 10,000 wafers per week in the jointly owned module.

The two companies will equally own the production module, with AMD taking half of its output for processors and UMC making the rest of the volume available to its logic foundry customers. UMC will not be allowed to sell its foundry capacity to AMD processor competitors, but it believes there will be strong demand for high-performance logic, particularly in graphics ICs, said Tsao.

AMD's Sanders said the company is now migrating its entire production at its Dresden Fab 30 to 130-nm (0.13-micron) technology. All of the company's Athlon processors are on bulk silicon wafers, and the German plant has begun producing prototypes of its "Hammer" series on silicon-on-insulator (SOI) substrates using 0.13-micron technology, Sanders said during the press conference.

AMD's Fab 30 will have enough capacity to produce 50 million processor per year, which is will be reached by the end of 2003, said Sanders. That will be enough capacity for AMD to reach its target of 30% market share in PC processors compared to just over 20% today, he added.

"We think we can do better than 30% market share over time by working with UMC," Sanders said. "We believe they will be building 130-nm devices for us certainly by the end of this year."

AMD president and COO Ruiz said that the joint venture with UMC will enable AMD to make the transition to 300-mm manufacturing at precisely the right time. "One of the important benefits of working with UMC on technology development is that we will gain immediate access to an existing 300-mm wafer fab for R&D activities," said Ruiz, noting that the Taiwan foundry company has already begun 300-mm wafer production in Japan and Taiwan.

"In the next few years, we expect to require substantial additional production capacity," he said. "We believe the optimum time for us to make the transition to high-volume production on 300-mm wafers is in the mid-2005 time frame when we expect to be starting production on the 65-nm node."