Chip maker enters a different class

Globalfoundries, the Abu Dhabi computer chip venture, will expand its business to "a whole new class of customers", when the acquisition of Singapore's Chartered Semiconductor is completed later this year, its chief executive said. The Advanced Technology Investment Company (ATIC), the Government-owned investment business that runs Globalfoundries in a joint venture with the California-based chip maker AMD, said last week that it had struck a deal to buy Chartered for Dh14.4 billion (US$3.92bn) in cash and debt.

"What this does for us is gives us an even bigger worldwide capacity footprint," said Doug Grose, who was named as the interim chief of Chartered after the acquisition. "They bring some established, older technologies that compliment nicely the future technologies that we are driving to. What they bring is something we were not going to invest or drive into and it brings along customers that we wouldn't have been able to acquire."

The factories owned by Globalfoundries are capable of making state-of-the-art computer central processing units (CPUs). This gives the company a niche ability in the industry but limits its products to high-end chips. Chartered's facilities can produce a different class of products, particularly the simpler or cheaper chips that many customers demand. In acquiring the world's third-largest contract chip maker, or foundry, and merging its operations with Globalfoundries, ATIC is creating the world's second-largest foundry company, according to a report by the research group iSuppli.

The merged business would hold about 17 per cent of the world market, iSuppli estimated based on data from the first half of the year. That is dwarfed by the 47 per cent held by the market leader Taiwan Semiconductor Manufacturing Company (TSMC). But it pushes Globalfoundries ahead of Taiwan's United Microelectronics Corporation (UMC), which previously held second place with a 15 per cent share. Jim McGregor, the chief technology strategist at the research group In-Stat, said the Chartered acquisition completed what he considers the three immediate priorities in improving Globalfoundries's long-term prospects.

The first two, acquiring a new customer base and breaking ground on new facilities, were achieved in recent months. The third, to join the Common Platform alliance that is a standard in the semiconductor industry, has been achieved through the Chartered acquisition. "What is most impressive is that Globalfoundries accomplished all three of these tasks in less than a year, far quicker than In-Stat had predicted," Mr McGregor said in a research note.

When the acquisition is completed and the integration process begins, the company will evaluate which of Chartered's customers could eventually have demand for the more advanced products made by the Globalfoundries facilities in Germany and the new facility in New York state that is due to open in 2011. But it will also increase efforts to attract new customers based in its expanded product portfolio.

"The part that we don't know is which companies that are not Chartered or Globalfoundries customers now might want to come to the table," Mr Grose said. "That is a very exciting part of the process for us." [e-mail]