Back to Capital Region Happenings

GlobalFoundries enhances prospects with STMicroelectronics deal

Friday July 31, 2009

The Business Review ( Albany ) – by Pam Allen

GlobalFoundries has secured its second customer—Geneva, Switzerland-based STMicroelectronics.

The agreement to manufacture chips for STMicro’s wireless, handheld and computer devices starts in 2010. STMicro (NYSE: ATM) is the fifth largest semiconductor company in the world. Chip production will be done at GlobalFoundries’ plants in Dresden , Germany .

GlobalFoundries did not release terms or duration of the deal or how many chips will be produced under the agreement.

It’s a major milestone for the Sunnyvale , Calif. , chip maker, the company building a $4.2 billion manufacturing plant in Saratoga County . GlobalFoundries’ only customer had been Advanced Micro Devices Inc. (NYSE: AMD).

AMD spun off GlobalFoundries in February as part of its move to adopt a “fabless” business model, a growing trend in the semiconductor industry. Dresden plants, formerly owned by AMD, and now owned by GlobalFoundries, already manufacture AMD’s products.

STMicro, which develops semiconductors for the wireless, consumer electronics, computer, automotive and industrial industries, had worldwide revenue of $10.35 billion in 2008. The company’s U.S. headquarters are in Carrollton , Texas , near Dallas . Currently, the company manufactures all of its chips, but it’s phasing out operations by 2010 at its factories in Carrollton , Phoenix and Ain Sebaa , Morocco , and at some of its overseas plants in Singapore , Italy and France .

“STMicro is exactly the kind of company GlobalFoundries said it wanted to address as a customer,” said Nathan Brookwood, principal analyst with Insight 64, in Saratoga , Calif.

AMD has a 34 percent stake in GlobalFoundries; Advanced Technology Investment Co., an investment fund owned by the Abu Dhabi government, owns the remaining 66 percent.

The plant at the Luther Forest Technology Campus in Malta will begin operations in 2012. It’s expected to employ as many as 1,500 over the two-year construction period, and another 1,400 permanent employees when the facility is running at peak in 2014.

Brookwood said it’s too soon to tell if that plant will benefit from the STMicro contract.

It’s more likely that the production needs of companies such as ATI, which is AMD’s graphic business, or Nvidia—initially named in tech blogging circles as GlobalFoundries’ potential new customer—would be fulfilled at the Malta plant, Brookwood said. Nvidia is one of the largest graphics chip suppliers in the world.

To compete with such large manufacturers as IBM Microelectronics, Chartered Semiconductor Ltd. and Taiwan Semiconductor Manufacturing Co. Ltd., GlobalFoundries needs to land customers that run large lots of products, said Jim McGregor, chief technologist at In-Stat, a technology analyst in Scottsdale , Ariz.

All of STMicro’s and AMD’s products couldn’t come close to filling the two Dresden plants and one Saratoga County plant, McGregor said.

To that end, GlobalFoundries must concentrate on the big players, said Brookwood, of Insight 64.

“Let’s assume Nvidia signs on; that could involve almost all of the Malta output itself,” Brookwood said.

McGregor said he was surprised to learn the new customer was STMicro. Some of that company’s products are not a good fit for a 300-mm production facility such as the ones in Dresden and Malta . For instance, STMicro’s analog product line requires different characteristics than microprocessors manufactured for computers, which means they could not be manufactured by GlobalFoundries.

“I thought it would be a Broadcom or Qualcomm—somebody in the wireless segment or developing logic functions, high-end integration and microprocessors,” he said.

The plant in Malta —called Fab 2—will be able to produce 35,000 wafers a month.

It’s too early to know how much, if any, demand there will be to make STMicro and AMD products at Fab 2, said Travis Bullard, GlobalFoundries spokesman.

“It will depend on market conditions at that time,” he said.

McGregor said a chip plant must run at 85 percent capacity around the clock to turn a profit. He said GlobalFoundries’ Malta plant likely will come online in stages, with capacity increased as new customers are added.

No customer is too far-fetched to consider, McGregor said.

He suggests a partnership with Intel Corp. (Nasdaq: INTC), a competitor of GlobalFoundries. Intel has 80 percent of the world’s microprocessor market, and GlobalFoundries will employ next-generation technology in its chip-making.

“It’s not within Intel’s nature to play with its potential enemy,” McGregor said. “But I’d be knocking on their door if I were GlobalFoundries. You never know.”