Investors approve Chartered sale to ATIC

David George-Cosh

• Last Updated: November 04. 2009 7:16PM UAE / November 4. 2009 3:16PM GMT

Abu Dhabi is one step closer to owning the second-largest chip maker in the world after shareholders of Chartered Semiconductor Manufacturing approved its sale to Advanced Technology Investment Company (ATIC) yesterday.

ATIC, owned by the Abu Dhabi Government, said it would pay S$2.5 billion (Dh6.56bn) to shareholders of the Singapore-based chip maker and planned to merge the company with Globalfoundries, the semiconductor factory it bought from Advanced Micro Devices last year.

The combined company is likely to create pricing pressure for its Taiwanese rivals, United Microelectronics Corp (UMC) and Taiwan Semiconductor Manufacturing Company (TSMC) for market share in the customised chip making industry.

“This entity will go to existing Chartered customers in 2010 to land new contracts, and we expect to see pricing pressure in the industry happen in 2011,” said Pranab Sarmah, an analyst with Daiwa Securities.

By merging the two companies, Singapore’s Temasek Holdings, the owner of about 62 per cent of Chartered Semiconductor, is ending a 22-year investment in the unprofitable company, which has eliminated workers and cut overtime to reduce costs.

“With the combined strength of both entities, we are in a much better position to compete,” the Chartered chief executive Chia Song Hwee said yesterday.

Chartered, which makes chips used in the Xbox 360 game consoles made by Microsoft, will double its annual capacity for customised semiconductors from 25,000 wafers to 50,000 by 2011, he said.

The increased production puts Globalfoundries directly in line to eventually become the second-largest custom chip maker in the world. It will have 11.3 per cent of the market compared to UMC’s 14.1 per cent, according to a recent report by the computer manufacturing consultancy iSuppli. TSMC owns the lion’s share of the market with 49 per cent.

“Once Globalfoundries can enter in that market, the question is how much they can expand on that area,” Mr Sarmah said.

Globalfoundries needs to be first to develop chip designs in the 28 nanometre to 32 nanometre range to gain significant market share, Mr Sarmah said. The company also must give customers deep discounts on pending product offerings and consistently be first to the market with new chips. It is unlikely to be profitable for its first few years in business because of high fabrication costs, he said.

Meanwhile, Ibrahim Ajami, the chief executive of ATIC, said the company would not be affected by the resignation of Hector Ruiz, an executive linked to the Galleon Group insider-trading case.

“We appreciate Mr Ruiz’s contribution, but this will not impact our progress and our continued path to become a significant player in this industry,” Mr Ajami said.



dgeorgecosh@thenational.ae

* with Bloomberg