Why An IBM Sale Matters

Fallout over a possible sale of IBM’s semiconductor unit will be significant due to supply chain security issues.

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The rumored sale of IBM’s semiconductor unit to GlobalFoundries could add some interesting capabilities for the foundry, including deep process technology and expertise. It also could have some far-reaching effects for the entire semiconductor industry.

The reason revolves around ongoing U.S. government initiatives to improve visibility for components throughout its supply chain. IBM has been a major supplier to the U.S. military for the better part of a century, but GlobalFoundries is owned by a United Arab Emirates company called Advanced Technology Investment Company, or ATIC, a subsidiary of the Emirate of Abu Dhabi.

While GlobalFoundries still has its headquarters in Santa Clara, California—the company was spun out of AMD, after all—it’s uncertain whether the contracts IBM now has with the U.S. government will continue if the company is sold. This is all speculative—even the sale and what’s involved in that sale are not assured. There may never be a sale. Or it’s entirely possible that GlobalFoundries will satisfy all conditions for continuing contracts. But there also is a lot of speculation rumbling across the semiconductor industry today that existing contracts might be up for grabs by other U.S. chipmakers in the future.

Supply chains are a big risk factor when it comes to security, and for the military the risk is even higher. When a smart phone with a counterfeit or substandard part doesn’t work, it’s an inconvenience. When a weapon malfunctions—or there are extra parts on an assembly line that don’t get shipped to a supplier, and instead are sold on the black market—that can put lives at risk.

But which companies might benefit if the U.S. government balks at a sale of IBM’s chip business? The answer isn’t clear, partly because the direction of the military isn’t always clear. In a stark reversal of previous approaches to rely on established technology, industry sources say they have received queries from government agencies about the possibility of using highly advanced chips for military purposes—finFETs, 3D-ICs—due to their advanced performance and low power

There aren’t too many companies working at these advanced nodes. In fact, there is only one U.S.-based company aside from IBM that is manufacturing them¬—Intel. The other foundries working at those nodes are TSMC, Samsung and GlobalFoundries.

One of the reasons for this shift is the need for faster connectivity, faster processing of data, and faster I/O—all with lower power utilization and longer battery lifeWho will be able supply those technologies under government rules? That’s unknown at this point. Suppliers are reviewed on a case-by-case basis, and so far this is new ground.

How much pressure the government would put on the deal isn’t clear, either. IBM’s move to sell its low-end server business to Lenovo for $2.3 billion has been delayed because of a national security review, according to Bloomberg. And Australia’s Financial Review, quoting multiple intelligence sources in both the U.K. and Australia, said the U.S., Britain, Canada and New Zealand banned computers manufactured by Lenovo due to security risks.

Whether that kind of scrutiny would be moved to components such as semiconductors is uncertain, but it appears that governments are becoming much more cognizant of threats that can originate anywhere in a system. Back doors are now a very real threat. So is the ability to hack even secure chips by grinding off the package and inserting a probe.

These are interesting times, and the crossover between business and security hasn’t been so closely scrutinized since the days of the Cold War. At this point, there are no answers and lots of questions—with many more to come if IBM does indeed sell its semiconductor business.