Chartered merger 'huge step' for Globalfoundries

Proposed buyout of Singapore semiconductor player by key owner of Globalfoundries helps address "glaring weaknesses", says analyst.
Written by Vivian Yeo, Contributor

The proposed merger of Chartered Semiconductor Manufacturing and Globalfoundries will help the AMD manufacturing spinoff propel forward in its bid to become a foundry leader, according to analysts.

Earlier this week, Advanced Technology Investment Company (ATIC) and Chartered Semiconductor Manufacturing announced that they entered into a definitive agreement, in which ATIC would acquire Chartered for S$2.5 billion (US$1.75 billion). ATIC owns about two-thirds of Globalfoundries--the joint venture that the investment firm created with AMD.

The deal is subject to Singapore's High Court and Chartered's shareholders, but according to market analyst iSuppli, chances are good the deal will go through.

In a statement, iSuppli said Chartered and Globalfoundries earned a combined revenue of US$1.2 billion for the first half of 2009, which would propel it to No. 2 among pure-play foundry players. TSMC was the clear leader at US$3.3 billion.

iSuppli top foundry players by revenue

Globalfoundries revenue includes combined Chartered Semiconductor and Globalfoundries revenues for Q1 and Q2 2009 (Source: iSuppli)

The deal addresses a number of "glaring weaknesses" Globalfoundries has in service and its ability to produce in bulk, which the company had not been able to correct up till now. In particular, with the addition of Chartered, Globalfoundries would have two operational 300mm facilities and five 200mm ones.

Chartered: Date for shareholder meeting not fixed

The date for a meeting by Chartered Semiconductor Manufacturing shareholders to vote on the sale of the company to Abu Dhabi's Advanced Technology Investment Company (ATIC) has not yet been set, according to a Chartered spokesperson.
The company, however, is targeting for the shareholders to congregate in November, she said in an e-mail.
According to a joint statement issued Sep. 7, ATIC and Chartered said that pending board approvals, Globalfoundries CEO Doug Grose would serve as chief executive of the combined operations. Chia Song Hwee, CEO of Chartered, would assume the role of chief operating officer and spearhead the integration effort.
The companies have just initiated the "integration planning process", the U.S.-based spokesperson added. Chartered has around 6,000 employees worldwide, with the "vast majority" based in Singapore. It has one 300mm facility and five 200mm fabs in the island-state.

"This acquisition provides Globalfoundries the ability to produce both bulk and Silicon on Insulator (SOI) technology," Len Jelinek, iSuppli's director and chief analyst for semiconductor manufacturing, said in the statement. "Prior to this, Globalfoundries could only manufacture SOI. But even of larger significance is that prior to the acquisition, the company was stuck doing things the way their largest customer --AMD--wanted.

"Now, they pick up the infrastructure that Chartered had in place and that's a major boon for them," he added.

Jim McGregor, chief technology strategist at In-Stat, said in a research note the potential merger was a "huge step" for Globalfoundries. He pointed out that the deal would deliver the third of three critical factors defined by In-Stat as vital to the foundry's long-term success.

The first two--gaining a significant customer and breaking ground on new capacity--had already been achieved. The third, becoming a part of the Common Platform manufacturing alliance.

"Gaining Chartered gives the company formal entree to the Common Platform alliance, which it was already loosely linked to through its relationships with IBM," McGregor explained. "This does assume that the transaction doesn't nullify the alliance or any contractual obligations, but we do not believe that it will because it actually adds more value to the Common Platform as an alternative to TSMC, the world's foundry powerhouse."

McGregor added that the fact that Globalfoundries had accomplished all three of these tasks in less than a year--"far quicker than In-Stat had predicted"--was "impressive" and drives the company "into a critical position in the market".

Market shifts ahead
iSuppli added that the old foundry landscape was under duress, and that changes are fast-happening. UMC (United Microelectronics Corporation) could regain its second spot, with the expected completion of its acquisition of Hejin later in the year.

UMC did not respond to ZDNet Asia's request for comments by press time.

Editorial standards