GlobalFoundries eyes opportunities in China's semiconductor industry

Contract chip manufacturer GlobalFoundries is looking to foster deeper ties with the mainland's semiconductor industry, after completing its acquisition of International Business Machines Corp's microelectronics business.

GlobalFoundries, which is owned by the Abu Dhabi government's Mubadala Development, agreed in October last year to take over IBM's loss-making semiconductor technology operation for US$1.5 billion, which IBM will pay the California-based chip manufacturer over three years.

"Our design footprint is tiny right now in China, but we expect to leverage IBM's large presence in China to start building new IP [intellectual property] designs," Chuck Fox, the senior vice-president for worldwide sales at GlobalFoundries, told the South China Morning Post. "I can't be specific, but we are now in active discussions with multiple IP partners [on the mainland] … The challenge in our industry is about design, so we're making greater investments in IP."

Integrated circuit design continues to be the fastest-growing segment of the mainland's semiconductor industry, according to a report published by PwC in October last year.

Fabless semiconductor design companies outsource fabrication to contract chipmakers.

It estimated the chip design market on the mainland increased at a compound annual growth rate of 37.6 per cent, from US$541 million in 2003 to more than US$13 billion in 2013.

The China Centre for Information Industry Development has forecast the country's chip design sector to grow to US$23.8 billion by 2016.

Fox said the IBM deal, in which GlobalFoundries will gain thousands of semiconductor patents, also included about 100 technical staff in Beijing, Shanghai and Shenzhen doing design work for application-specific integrated circuits as well as radio-frequency technologies used in smartphone and tablet antennas.

"Our focus will be to enable the Chinese fabless companies to pursue innovation with both mainstream and advanced design platforms," he said.

GlobalFoundries expected the IBM deal to close around the middle of this year.

Mark Li, a senior analyst at Bernstein Research, predicted GlobalFoundries to become a major part of the electronics supply chain for components used in the mainland assembly of the next-generation iPhone model for Apple next year.

An alliance formed in April last year between GlobalFoundries and Samsung Technologies now enabled the two companies to steal orders from Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract chip maker and the foundry which made the advanced processors for the current iPhone models.

"With its technology becoming compatible with Samsung's, GlobalFoundries would make an ideal second source for Apple to produce the next-generation iPhone processor. I also believe GlobalFoundries' price will be lower than TSMC's," Li said.