Impact of Globalfoundries’ acquisition of Chartered Semiconductor

EL SEGUNDO, USA: The acquisition of Singapore-based Chartered Semiconductor by Globalfoundries over the Labor Day weekend has catapulted the company into the No.-2 position among pure-play foundries in terms of revenue for the first half of 2009, according to iSuppli Corp.

But the real impact of the purchase resides in how, long term, Globalfoundries will be able to compete at a level in the foundry market unlike they have ever before. Vying for new customers and offering a new production partner for many semiconductor companies looking for another option.

In its bid to become a major force as a pure play foundry, besides attaining the No.-2 position in revenue overall, the deal addresses a number of glaring weaknesses Globalforundries has in terms of service and its ability to produce in bulk, something the company has not been able to do up until now.

“The old foundry landscape is under duress,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli Corp. “The global recession has opened up a number of opportunities for the strong to get stronger causing a dramatic shift in who will be the leaders in the pure-play foundry market for years to come.”

The table presents iSuppli’s updated revenue rankings for pure-play foundries for the first half of 2009.

Global H1 2009 Pure-Play Foundry Revenues by Company (Millions of Dollars)* Globalfoundries revenue includes combined Chartered Semiconductor and Globalfoundries revenues for Q1 and Q2 2009
Note: Revenue does not include management fees
Source: iSuppli

Although the integration process between Chartered and Globalfoundries must be completed and the deal permitted, given Temasek, the Singaporean investment firm that owns 62 percent of Chartered, approved the deal, chances are good it will go through.

Addressing the weaknesses
The new Chartered/Globalfoundries entity will immediately be able to build on the strengths of Chartered’s infrastructure and customer base to challenge for additional customers.

Specifically, Globalfoundries, which prior to the acquisition had just one 300mm facility capable of producing bleeding edge products, will now have two operational 300mm facilities and five 200mm factories, enabling the pure-play to cover all technology nodes.

But equally important is that Globalfoundries now has a presence in Asia, Europe and in North America, where the company recently broke ground on a new factory.

“This acquisition provides Globalfoundries the ability to produce both bulk and Silicon on Insulator (SOI) technology,” Jelinek said.

“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. This is really not conducive to how a foundry operates. A foundry must be very service oriented. Now, they pick up the infrastructure that Chartered had in place and that’s a major boon for them.”

One of many deals coming
The old global foundry landscape is indeed under duress. In 2008, Tower Semiconductor acquired Jazz in order to boost its own standing in the market. Currently, two other deals are likely to be completed this year – the Hua Hong NEC and Grace merger and the UMC and Hejin deal that will likely push UMC back into the No.-2 position.

However, Globalfoundries has also stated they are not opposed to additional acquisitions to enhance their position.

Stay tuned, changes in the foundry arena are happening fast and iSuppli will be watching to see what happens.