It was obvious that AMD's current financial status, and its competitive situation with Intel in the multi-core era, were both untenable. Drastic action had to be taken. But can AMD come back without owning its own processes?

Faced with a critical decision about how it could finance the expansions it needed in order to build processors that can help it regain its competitive footing against Intel, AMD made a decision that would make Solomon weep: It sold a majority stake in its most treasured possession, its fabrication facilities, to an entirely new company called ATIC, comprised of foreign interests that have agreed to place former AMD personnel at the head of its new managing company.

With a new company in principal control of AMD's existing foundries and leading the efforts to build new ones, the idea is for the Texas company to continue to develop new microprocessor technology. But here's the problem: Throughout its entire history, AMD has always developed that technology working in extremely close contact with its foundries. In fact, it's that close contact that enabled AMD to find the efficiencies it needed to beat Intel in CPU performance from 2002 to 2006. What happens to that vital link that has been the key to whatever success AMD has ever had?

"That's my biggest concern: the fact that having that knowledge base and that expertise in-house about the process technology, is critical, especially when you're doing highly integrated and timing-sensitive products," said Jim McGregor, director of semiconductor analysis for In-Stat and co-author of the heralded Microprocessor Report newsletter, in an interview with BetaNews this afternoon. "Just look at all the problems they had with Barcelona, and they had the expertise in-house."

When McGregor first learned of AMD's plans, he told us, he asked AMD officials where the processor production expertise will go. All of it, he says AMD told him, will go to the new entity currently being called The Foundry Company. And who is it that will be doing the participation with IBM, in the development of new fabrication and 22 nm production technologies. Again, McGregor was told it would be The Foundry Company.

"That's like a dagger through the heart," he remarked.

Other microprocessor firms, McGregor pointed out, have moved to a fabless production model -- where they outsource their production to others, like Qimonda -- and still maintain control of not just the design expertise but the process expertise as well. Infineon, he noted, remains a member of IBM's process alliance.

Back in the 1990s, the founder and CEO of Cypress Semiconductor, a man named T. J. Rogers, responded to those who were comparing the integrity of a semiconductor company that owned its own foundries with one that didn't. "Real men have fabs," he said.

With that axiom having been given new life in the wake of AMD's decision, McGregor paraphrased it gracefully. "I can justify the part [where people say] maybe real men don't need to own fabs. But real men definitely had better know what they're doing when they get to a fab."

Illuminata's principal IT advisor Gordon Haff doesn't share McGregor's concern. Though he agrees that some action on AMD's part was desperately necessary, he also feels that AMD's new business model could secure its long-term future.

"The capital investments for AMD to continue investing in its own fab-even given its R&D agreement with IBM...were just getting too large to contemplate for the long term," Haff told BetaNews. "That's not the only financial issue facing AMD, of course, but it was a big one and arguably a structural one given fab capital cost increases. As a fabless microprocessor design company, it's at least easier to see AMD as a long-term player."

But Haff also says it will be critical for AMD and the new Foundry Company to maintain that close bond.

"The problem with processors is that it doesn't matter how great your designs are if your process technology is behind the curve," stated Haff. "To the degree that you can get onto the same [curve], or close, in process tech, there's a lot more opportunity to have good design translate into actual product superiority."

Insight64 principal analyst Nathan Brookwood believes the current credit crisis gave AMD no choice with respect to how it would execute the expansion plans necessary to build the next generation of CPUs.

As Brookwood told BetaNews, "This move clearly keeps AMD in the game. They had reached the limits of their debt capacity, and had no access to equity markets, so they had no way to fund the retooling of Fab 38 for 300 mm production, nor to start the New York state fab. Now they can do both. I think ATIC will want to see AMD succeed, since they will be the Foundry Company's biggest customer for some time to come."

Next: Jim McGregor on the scary road ahead...