Why The Chartered Semiconductor Acquisition Matters

Putting together the pieces of two recent deals will create a much larger and fiercer competitor. And this is only the beginning…

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The acquisition of Chartered by a wholly owned subsidiary of the Abu Dhabi government may sound like a rather brash investment, but our sources say it’s all part of a rather audacious plan that began unfolding one day after the deal to jointly run AMD’s foundry was hatched.

In fact, this is anything but an impulsive buy by a country swimming in oil profits. The plan is actually to integrate two foundries that weren’t quite first-tier—but which also were significantly more successful than second-tier players—to create a mammoth and sophisticated first-tier competitor with deep pockets and broad capabilities.

Chartered has always pulled its weight in the Common Platform development, but it’s hard to gain much attention when your partners are IBM and Samsung and the top competitor is TSMC. And AMD’s role in advanced technology development inside of IBM’s ecosystem has been quite impressive, while its foundry operation has been a drag on profits. AMD simply doesn’t have the resources that Intel does, and owning its own fab is getting to the point where…well…you have to be Intel to still afford it.

By combining the advanced capabilities of AMD’s new fab outside of Albany, N.Y., and the process expertise that Chartered has picked up working with the Common Platform, this could well prove to be an effective combination. Both AMD and Chartered have a strong tie into the IBM ecosystem, and both now have the capital to sustain the investment needed to make a foundry business successful.

But foundries typically are a starting point for government investment, too. China’s investment in SMIC, Taiwan’s support of TSMC, and even Singapore’s support for Chartered are all starting points. The real money is in the business that can be built above the chips, which means lots of investment in tools, engineering talent, schooling and more jobs. It also ultimately means a bigger market and potentially new sources of competition.

But that’s getting ahead of the story. Backing up to the more immediate news—the acquisition of Chartered—you have to wonder just how many facets and how deep the plan by the Abu Dhabi government actually runs. Our guess is this is just phase one.

–Ed Sperling