Globalfoundries to Buy Property to Build Out Its Most Advanced Chip Plant

Globalfoundries, one of the world's top contract chip manufacturers, is trying to tap the US government's ambitions to disentangle the semiconductor supply chain from Asia and keep its technology lead over China and other countries. The firm  said it agreed to purchase a large parcel of land adjacent to its most advanced US fab, as it looks to stay ahead of customer demand. 

The Santa Clara, California-based company said it hammered out a contract giving it the right to purchase the property sometime in the future. Globalfoundries, the largest contract chip maker in the US, said the portion of land could be used to build out its most advanced US plant located in upstate New York. The production plant, Fab 8, is where it fills orders for chips based its highest-end 12-nanometer and 14-nanometer nodes for others.

The company said it has invested more than $13 billion in the foundry to date. It has also invested $2 billion for upgrading its other US fabs, including the former IBM plants it runs.

Globalfoundries, which makes chips for hundreds of customers from Advanced Micro Devices and Broadcom to Skyworks and Qualcomm, said how it proceeds with the property will depend on demand from its customers, including defense and aerospace contractors in the US. But the fallout from the novel coronavirus and uncertainty around the ongoing trade war with China has clouded 2020 forecasts for chip sales, industry analysts say.

Over a year ago, Globalfoundries said it discontinued the development of its 7-nanometer node in the face of soaring costs and rising concerns around the return on its investment.

But it has also manufactured small orders of military-grade processors and other chips for years in the US government's Trusted Foundry Program. The plants where these chips are assembled have long been seen as one of the most vulnerable links of the Department of Defense's supply chain. Globalfoundries runs the fabs under strict rules to prevent chips from being tampered with and to keep blueprints from falling into the wrong hands.

But many of the most advanced chips must still be imported from contract chip vendors in Asia that roll out hundreds of millions of chips for consumer electronics devices. That has raised questions about possible supply issues and the Department of Defense’s access to chips at the most advanced nodes of production in the US. Advanced chips are needed in aircraft, satellites, rockets and other systems to communicate and engage enemy targets.

Concerns about the fragility of the global electronics supply chain has deepened in recent years. The US semiconductor industry has been pushing for federal funding to keep it ahead of China, which is spending billions of dollars to nurture domestic production of chips and  close its technology gap with the US. China’s push to reduce its dependence on US chips has been speeding up as a result of bitter trade tensions between Washington and Beijing. 

Last month, the US government moved to block shipments of chips to Huawei from TSMC and other vendors, signaling that it is trying to wrestle global supply chains from China.

These concerns have been exacerbated by the lethal virus, which hampered the production of ICs—including packaging and testing operations—throughout China and other countries in the region. The virus also delayed logistics operations, with airlines canceling the globe-spanning flights used to ferry chips globally. The fallout has also underlined the danger of the US semiconductor industry's heavy dependence on distant supply chains, analysts say.

“Amid growing consensus in our nation's capital for investment in semiconductor manufacturing, it's more important than ever that we are ready to fast track our growth plans at Globalfoundries' most advanced manufacturing facility in the US," Ron Sampson, senior vice president of the company's US fab operations, said in a statement. The deal to purchase the land gives it "additional flexibility to expand our footprint" for future growth.

The company is also preparing for a boost to its business as the US government moves to invest in US chip manufacturing, which has been in steep decline for several decades. 

Last month, both houses of Congress proposed bills to invest billions of dollars in funding to rebuild US chip manufacturing that has been depleted over the last several decades, as the chip industry's center of gravity has shifted to Asia. If the proposed act is passed, it would roll out up to $10 billion fund for federal grants to match state and other subsidies to encourage chip manufacturers to build more advanced foundries in the US.

The law would also invest up to $12 billion in funding at research and development. Other stimulus funding would be focused on promoting the return of  IC packaging, testing, and other steps in the complicated process of making chips to the US. The act also proposes giving the green light to the Department of Defense to use funding under the Defense Production Act to "enhance a domestic semiconductor production capability."

TSMC, which has more than 50% of the market for made-to-order chip services, is capable of making the most advanced chips based on its 7-nanometer node in the world. It serves the world's top chip designers, including Apple, Nvidia, Qualcomm, Broadcom and Xilinx. Intel also runs state-of-the-art plants in the US, where it builds 10-nanometer chips to rival TSMC's. But the Silicon Valley giant is not in the business of building chips for others.

TSMC, which is the world's largest contract chip vendor by overall sales, said last month that it plans to construct its latest production plant in the US at an estimated cost of $12 billion. The fab is projected to start supplying 5-nanometer processors by 2024, TSMC said.

The contract manufacturer last year said it plans to start large-scale production of chips based on its 5-nanometer node at its most advanced fabs by the second half of 2020. Intel of the US and Samsung Electronics of South Korea have been struggling to close the gap.

Globalfoundries holds the second largest share of the total foundry business behind TSMC.