Gary Lerude, MWJ Technical Editor
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Gary Lerude

Gary Lerude is the Technical Editor of Microwave Journal. Previously, he spent his career as a “midwife” aiding the growth of the compound semiconductor industry, from device to application, from defense to commercial. He spent 19 years at Texas Instruments, 11 years at MACOM and six years with TriQuint. Gary holds a bachelor’s in EE, a master’s in systems engineering and an engineers degree (ABD) in EE.

Analysis of the IBM-Globalfoundries Deal

October 21, 2014

globalfoundries-logo.jpgGlobalfoundries will acquire IBM’s semiconductor technology business, including the fabs and essentially all of the 5,000 employees supporting the operations in Burlington, Vermont, and East Fishkill, New York. IBM’s RF SOI and SiGe processes and foundry services are part of the agreement, which was announced yesterday (October 20).

Ironically, in a reversal of the normal model for an acquisition, IBM will pay Globalfoundries approximately $1.5 billion in cash over three years. Also, IBM recorded a $4.7 billion pre-tax charge reflecting asset impairment and the cost of transferring the business.

Globalfoundries CEO Sanjay Jha said they have “no current plans for layoffs or to shut down fabs.” He said Globalfoundries will gain 800 of the best semiconductor technologists in the world, with the capability of “making us world class" and enabling Globalfoundries “to lead in RF technologies.”

The win for Globalfoundries

Acquiring IBM’s semiconductor technology and fabs makes Globalfoundries the manufacturing partner for IBM; they will be the exclusive supplier for 22, 14 and 10 nm server processors for the next 10 years.

The move also strengthens Globalfoundries' position as the second largest foundry after TSMC (Taiwan Semiconductor Manufacturing Company). In the press release announcing the deal, Jha stated “We can now offer our customers a broader range of differentiated leading-edge 3D transistor and RF technologies.”

Globalfoundries will have access to IBM’s continuing semiconductor R&D through their joint collaboration at the Colleges of Nanoscale Science and Engineering, at the SUNY Polytechnic Institute in Albany, New York. The relationship will likely allow Globalfoundries to commercialize IBM-funded technologies and then provide products back to IBM to support their systems.

The win for IBM

The agreement with Globalfoundries reflects IBM’s strategy to focus on their core business and where they have market differentiation: servers and storage hardware systems. It recognizes that IBM cannot provide the scale needed for ongoing investments in next-generation process nodes and wafer fabs, which John Kelly, IBM’s Senior Vice President & Director of Research, acknowledged in a conference call.

However IBM will continue to invest in strategic semiconductor R&D that enables their system differentiation, which they have identified as cloud, mobile, big data analytics, and secure transaction-optimized systems. Kelly said IBM remains committed to their previously announced $3 billion investment over five years.

The Wall Street Journal reported in April that IBM was seeking a buyer for the unprofitable semiconductor unit and was discussing a deal with Globalfoundries, Intel, and TSMC. According to the report, IBM was asking for more than $2 billion for the operation. Globalfoundries has now emerged as the “buyer,” although on terms significantly different than what IBM apparently wanted.

Who is Globalfoundries?

Globalfoundries’was formed in March of 2009 when Advanced Micro Devices (AMD) spun out its semiconductor manufacturing. It then acquired Chartered Semiconductor in December of 2009. The company is owned by the Mubadela Development Company, an investment firm established by the government of Abu Dhabi to diversify the country’s economy. Corporate offices are in Silicon Valley.

2013 revenue was $4.3 billion, compared with $19.8 billion for TSMC, according to a report by IC Insights. Globalfoundries employs over 13,000 and operates three 300 and five 200 mm fabs, with facilities in Singapore, Germany and New York. The company processes more than 2 million wafers per year and will invest some $10 billion in capital in 2014 and 2015.

Globalfoundries is Peregrine Semiconductor’s manufacturing partner, running the jointly developed, 130 nm UltraCMOS 10 process that is used for Peregrine’s Global 1 reconfigurable front end for mobile devices.

Bottom line

With the trend toward fewer, larger semiconductor suppliers, this move will strengthen the RF industry by adding technology and scale to Globalfoundries. The company already offers RFCMOS processes spanning 180 to 40 nm as well as a 180 nm SiGe BiCMOS process. The addition of IBM’s technology complements this portfolio and, as CEO Sanjay Jha stated, Globalfoundries will arguably become the leader in RF silicon.

 Have you worked with either GlobalFoundries or IBM? How do you see this deal? Share your thoughts in the comments.

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