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GlobalFoundries Rumored to Get a Bite of Apple Chip Business

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?

26 comments on “GlobalFoundries Rumored to Get a Bite of Apple Chip Business

  1. apek
    August 20, 2013

    GF is a great example of semiconductor manufacturing coming back to US. Also, Being independent of Wall Street influence…it is bound to do well in serving the fabless semiconductor eco-system in US. It is indeed a great news that Apple has decided to get wafers from GF. It is a ray of hope in this bleak economy to backshoring of hi-tech manufacturing to US for advanced transistor technologies.

  2. Taimoor Zubar
    August 21, 2013

    @apek: I agree that this step will ensure that semiconductor manufacturing comes back to the US or at least begins to do so. If this initiative is successful then we might see other foundries take similar initiatives. I think this is a good step for the industry and the US economy overall.

  3. FLYINGSCOT
    August 21, 2013

    If I were the Apple boss I would make sure that I always had second source capabilities so it would make sense to do this if they are going to move anyway to pure play foundries.

  4. Tam Harbert
    August 21, 2013

    Hmmmm – I wonder who has been serving as a second source for Apple so far? Anyone?

  5. elctrnx_lyf
    August 22, 2013

    I believe TSMC is also manufacturing the Apple components but I'm not really sure if this is directly from apple or samsung. But Global Foundaries have definitely come a long way from the time it is founded in 2009 and their strong cash deposits will surely help to be a supplier for Apple.

  6. _hm
    August 22, 2013

    This can be a good news, if it helps Apple reduce price for its product and make it more affordable to common person. Will Apple invest money in this organization for more control and reliable supply?

     

  7. Hailey Lynne McKeefry
    August 22, 2013

    @_hm, Apple has a long history of never reducing prices–No sales, no price erosion (or very little) over time. I doubt that the end consumer will benefit from this, execpt in so much as the company might invest more in innovation and more cool ideas.

  8. itguyphil
    August 22, 2013

    But I don't think Apple wants their products in everyone's hands. It's considered a premium brand.

  9. _hm
    August 23, 2013

    I have recently observed both new and old Apple products on sale and that is 10% to 15%. Also prices for Apple are reducing with more attractive to customer. I may opt for few Apple products.

     

  10. Hailey Lynne McKeefry
    August 24, 2013

    @pocharie, i don't think of Apple as a premium brand, but rather as an identity brand. Ealry in teh compnay's history it hired “technology evangelists” and peopel were talking about apple people and PC people.  And that's even true today. People who are creative, quirky, ahead of the curve… that is how Apple people think of themselves.

  11. Hailey Lynne McKeefry
    August 24, 2013

    _hm, where did you see thiss? I have to admit i haven't been shopping for Apple lately so i might have missed it. Was it in an APple store or a phone store?

  12. jbond
    August 26, 2013

    I know Verizon and AT&T have been dropping the prices on iphones lately. Also best buy has dropped the prices on iphones. As far as actual sales, I have only noticed sales at stores like best buy. I haven't seen a price drop at any of the apple stores. They only time I notice a drop in price at an apple store is when a new product is released and they drop the price of the previous model.

  13. Mr. Roques
    August 26, 2013

    I think Apple has double personality nowadays. With it's Mac lineup, it is normally at a premium level price but with the iPhone (due mostly to subsidies) it markets itself as THE phone for everyone. They started strong but Android quickly catched up and now surpassed them.

  14. itguyphil
    August 26, 2013

    They may not be as premium now. But when you think of the mobile device standard, who's first? Usually Apple.

    And why are Apple devices the most highly stolen in the world, because everyone wants one. Because it feels good to “fit in” & be in the Apple crowd.

    There's not that many other tech brands that can claim that. Which is why I call them a premium brand.

  15. itguyphil
    August 26, 2013

    Android caught up because of simplicity, alternatives, & price, not necessarily because it was “better” than Apple's line. Most people like having the option to choose between phones. With Apple you get the old one or the new one, no other choice.

  16. Eldredge
    August 26, 2013

    Tam,

        It seems like it would be a good move for Apple to partner with GF to provide addtiional source of supply.

  17. Hailey Lynne McKeefry
    August 26, 2013

    @pocharie it's also why its the only model of phone that AT&T wont' sell insurance for…they get stolen too often.

  18. Mr. Roques
    August 27, 2013

    I think Apple has double personality nowadays. With it's Mac lineup, it is normally at a premium level price but with the iPhone (due mostly to subsidies) it markets itself as THE phone for everyone. They started strong but Android quickly catched up and now surpassed them.

  19. Himanshugupta
    August 27, 2013

    Another reason for a higher andriod market share is the number of smartphone companies offering it and at various price ranges. Apple has always put their product in premium category so not everyone can afford them. While andriod has rightly captured people's imaginations and taken a much larger pie in the smartphone section…not to mention that Google has a good name amid general public and companies.

  20. Himanshugupta
    August 27, 2013

    I think the good thing about GF is that it has fabs in three parts of the world to cater the needs and averse the natural disaster risks. If GF can keep Apple happy then it will be a good steady cash flow and it will draw other customers too. For Apple, they will keep on pushing for better prices and margins.

  21. itguyphil
    August 27, 2013

    Yes maam. That in itself opened up a world of opportunity for other service providers and entrepreneurs. So some good has come out of it.

  22. itguyphil
    August 27, 2013

    I agree with the “split personality” part you mentioned. That's part of the diversion that seems to have taken place now that Jobs isn't at the helm. It seems to me that this wouldn't be a conversation point if he was still around.

  23. itguyphil
    August 27, 2013

    I mean yes and no. Market share can be a misleading statistic. If I sold a phone that 'works' for $20 and 10M people buy it, that doesn't necessarily mean my phone is better than a $200 phone with 10K customers.

    Android skewed the mobile landscape because it was free, cheap, & easy to hack compared to everything else that was around at the time.

  24. Hailey Lynne McKeefry
    August 28, 2013

    @Pocharie, and of course profit margin is incredibly important… i can sell something at any price and if the margin is too thin (or nonexistent) then it's worse than not selling it at all.

  25. itguyphil
    August 29, 2013

    Absolutely. Leads to wasted resources which will eventually put you out of business if it continues too long.

  26. Eldredge
    September 3, 2013

    Access to multiple locations may be a significant factor ofr interest in GF – good point.

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