An Abu Dhabi-owned technology company will be one of a handful of standalone semiconductor manufacturers after consolidation.
Atic joins semiconductor elite
An Abu Dhabi-owned technology company will be one of a handful of standalone semiconductor manufacturers to emerge from the coming consolidation of the industry, according to the founder of the world's largest independent maker of computer memory chips. Earlier this month, the Advanced Technology Investment Company (Atic), a newly formed business owned by the Abu Dhabi Government, formed a partnership with the microprocessor maker AMD to spin off its manufacturing system into an independent business.
The new company would continue to produce microprocessors for AMD, the world's second-largest chipmaker, but also would begin the search for new business opportunities immediately, said Waleed al Mokarrab, the chairman of Atic. Mr Mokarrab is also the chief operating officer of Mubadala Development, the Abu Dhabi Government-controlled investment company. With the semiconductor industry facing the dual threats of a glut in production and faltering global demand, some analysts questioned the sustainability of the move. But John Tu, the co-founder of Kingston Technology, said it made sense given the overall upwards trend of the industry.
"When I first read the news, I thought 'I'm not sure what is behind it'," he said. "But Abu Dhabi has the money and wants to build for the future - they have a longer-term vision. In the future, semiconductors will still be there, and they are betting that others will not be able to survive - so they want to occupy the market now." Mr Tu, originally from Taiwan, founded Kingston in 1987 after moving to the US. By early 1992, it was listed as the fastest growing company in America, and had sales of more than US$1 billion (Dh3.67bn) by 1995. He was ranked number 165 in Forbes magazine's rich list last year, with a personal fortune estimated at $2.5bn.
The emergence of small, cheap, reliable memory chips has driven the proliferation of digital music players and the USB memory sticks that are everywhere in modern offices. Both have dropped dramatically in price as the cost of memory fell. The memory chip industry is being rocked by these falling prices, caused by excess production and weak demand, which is predicted to drop further as western economies enter into recession. A number of new companies built memory production facilities in the late 1990s, anticipating a boom in demand as laptop computers, music players and mobile handsets all became common consumer items across the world.
But too much extra capacity came online at the same time, with memory prices falling every year since 2005. "Right now, there is too much supply and less demand," Mr Tu said. "A dark cloud is hanging over us, and we don't know how deep or how bad it will be." He said the current turmoil in the industry would quickly shake out the weaker players, leaving a handful of well-capitalised businesses left to split the market in the future. "In a time like this, who has the deeper pockets makes a big difference," Mr Tu said. "Consolidation will happen and people will go out of business. The strong players will survive, and it will be a better market."