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Globalfoundries Gives Up on Advanced Chip Production Technology

Globalfoundries Inc., one of the world’s largest semiconductor makers, has dropped out of the race to develop the most-advanced production technology, a move that will increase the electronic industry’s reliance on Taiwan Semiconductor Manufacturing Co.

The Milpitas, California-based company, which has plants in New York state, Dresden, Germany, and Singapore, said it’s shifting resources to improving and extending existing techniques and giving up on developing 7 nanometer technology. That’s the latest way to cram as many transistors as possible onto a silicon wafer — how the industry has improved electronic components for decades. The new strategy will require an unspecified number of job cuts.

The move further reduces the number of companies trying to build cutting-edge semiconductors and adds to concern that the industry is struggling to deliver advances that underpin all modern electronics. Globalfoundries, owned by the government of Abu Dhabi, is the second-largest manufacturer of chips designed by other companies, a market dominated by TSMC.

The logic of the move is simple for company Chief Executive Officer Tom Caulfield: Stop pouring the majority of its research and equipment budget into work that may never pay off and instead invest in current technology that many customers will continue to use for years. Most companies that want advanced production also want it in enormous volume, something Globalfoundries can’t handle. That narrows its list of potential customers, the CEO said.

“We need to be relevant to our industry,” he added. “We’ll still have heavy investment — more than a billion dollars a year — but we’re investing in areas where we can make a near-term return.”

Caulfield said Globalfoundries will concentrate on the ability to add features such as embedded memory to other chips — an important innovation for a wide range of components that don’t need to be made using the latest production techniques.

Apple Inc., Qualcomm Inc. and Nvidia Corp. are among a host of companies that rely on others to make the chips they design. These microprocessors are the heart of most smartphones and personal computers. They’ve been getting faster and more efficient for decades, thanks to manufacturing partners like TSMC and Globalfoundries that constantly improve production. However, this process has become increasingly difficult because some dimensions of the required transistors have shrunk to almost the width of an atom.

Intel Corp. used to lead this race, but it has delayed the latest round of shrinking. That’s given rivals like Advanced Micro Devices Inc. and Qualcomm a chance to leapfrog Intel and grab more of the markets for PC and server chips.

Still, Intel makes its own chips, while AMD and Qualcomm rely on other companies. AMD has been Globalfoundries’ largest customer, but it has been working with TSMC more recently. Globalfoundries decision to give up on the latest production technology means AMD will need TSMC even more now to ensure future processors emerge on schedule. AMD said it was aware of the change of strategy by Globalfoundries and added that the timing of new chips, to be produced by TSMC, won’t be impacted.

This could help TSMC continue an eight-year run of consecutive revenue increases. The only two companies with more revenue in the chip industry are Samsung Electronics Co., which leads in memory chips, and Intel, which dominates computer processors.

Samsung and Intel have had limited success breaking into the foundry market, industry lingo for the business of making other companies’ chips. Last year, TSMC had 52% of this market. Globalfoundries was second with 10%. United Microelectronics Corp. was third and Samsung fourth. Intel didn’t make the top eight, according to researcher IC Insights.

By Ian King

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