Rumors are swirling about a deal with Apple for GlobalFoundaries. The already successful foundry may be poised for even bigger success.
Last year GlobalFoundries surpassed United Microelectronics Corp. in revenue, becoming the second largest foundry in the world, behind Taiwan Semiconductor Manufacturing Corp. While unlikely to catch up to TSMC anytime soon (TSMC's $17 billion in 2012 revenue is four times GF's $4 billion, according to research firm IHS), GlobalFoundries has been quite successful.
In midsummer, multiple press reports speculated that Apple was considering moving some of its chip business to GF's $6 billion fab in New York State. Apple is one of the largest purchasers of chips in the world. In 2012, it bought more than $21 billion worth of semiconductors, according to Gartner. As it moves chip production for its iPhone and iPad away from Samsung and to pure-play foundries, Apple will “single-handedly boost the growth of the chip contract manufacturing market this year,” says IHS. The market research firm forecasts pure-play semiconductor foundry revenue will rise 21 percent in 2013, compared to only 5 percent for the overall semiconductor industry.
“The growth outlook for the pure-play foundry business has risen considerably in anticipation of Apple's transition of its applications processor chip manufacturing to third-party manufacturers,” says Len Jelinek, director and chief analyst of semiconductor manufacturing at IHS.
As it moves away from Samsung, it makes perfect sense for Apple to consider using the top two foundries. Although not confirmed, there have been widespread reports for months that Apple will move some production to TSMC. Why not talk to the second-largest foundry as well? Apple probably doesn't want to put all its eggs into one basket again.
GF was founded in 2009, when Advanced Micro Devices sold off its manufacturing arm to Advanced Technology Investment Company (ATIC), a wholly owned subsidiary of the Mubadala Development Company, which is the sovereign wealth fund of the government of Abu Dhabi. ATIC then bought Singapore's Chartered Semiconductor Ltd. and merged the two operations. AMD retained a 14 percent stake in the venture until last year when it sold its stake back to GF.
AMD is certainly no longer GF's major customer. In fact, AMD has been struggling mightily as the PC market implodes. Late last year, AMD paid GF a $320 million termination fee to reduce its wafer purchases. Electronics360 reports that GF's customer list has grown steadily and now totals more than 160, including Qualcomm, STMicroelectronics, Rambus, and IBM.
Meanwhile, GF seems to be signing up a steady stream of new business. Qualcomm is apparently increasing its business with GF, reportedly switching 20 percent of its orders for 28 nanometer orders from TSMC to GF starting September 2013, according to Digitimes.
In June, GF CEO Ajit Manocha said his company expects to spend $4.5 billion to expand production this year, up from $3.8 billion in 2012, and that capital expenditures would be even higher next year as the company wins more business for chips for smartphones and tablets. Anticipating double-digit revenue growth, Manocha said the company plans to double its production capacity at its New York fab to 60,000 wafers per month in the next 18 months.
Even if it doesn't get the Apple business, GlobalFoundries will likely grow as the hot smartphone market continues to draw OEMs of all stripes into the business: from Hewlett-Packard — which recently announced it was reentering the smartphone business — to InFocus, a business projector company that recently introduced two smartphones into the Asian market. Many OEMs see particularly strong potential in the market for low-end smartphones and tablets in China and developing countries, and chip vendors are rushing to meet that need. Chinese mobile-chip design company Fuzhou Rockchip Electronics Co., for instance, recently hired GF to manufacture tablet chips using 28 nm technology.
With the deep pockets of the sovereign wealth fund of Abu Dhabi, GF has the resources to invest in fabs and leading-edge technology. It just might be the perfect partner for Apple.
What do you think? Are there good reasons Apple should avoid partnering with GlobalFoundries?