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It’s always interesting to observe foundries waffle-on about the cost of fabrication, the growth in fab-lite/fabless business strategies and therefore the obvious need for foundries to continue to grow and prosper as more of the industry turns to foundries over time. What we haven’t seen them explain in any detail or with any interest is that there is overcapacity at the foundries and wafer ASPs have been in decline for several years. Also we have seen the slowing of node migrations as the cost of design and masks prevents all but a small top 20 elite of companies to push down Moore’s Law as intended.

Basically there has been a need for consolidation in the foundry space even before SMIC threw billions of dollars at becoming just another CMOS foundry. UMC has never been able to ramp either of its 300mm fabs to full production and they were ahead of TSMC in getting 300mm production up and running!

With the oil money coming into the semiconductor industry, things are starting to change and change fast. Globalfoundries’ acquisition of Chartered Semiconductor is the right move at the right time and kind of solves some of the major doubts I had over its ability to survive and prosper as a pure-play foundry.

It gains bulk CMOS processes and fabs at both 200mm and 300mm a year or more quicker than was planned with the second module fill-out in Dresden. More importantly it gets the customers and can now bulk-up against UMC, its initial competitor in the revenue rankings.

Just saying we are turning into a foundry has never proved to be a good business decision, however buying another foundry that already is, does.

I still think that Globalfoundries will need to bulk-up some more so another acquisition could be planned, perhaps in China and not necessarily SMIC, though it must be an attractive buy considering its share price and record of unprofitable operations and according to market share data has 5% share.

However, as Len Jelinek commented at iSuppli two other deals are on the cards this year. A merger between Hua Hong NEC and Grace Semiconductor and UMC’s purchase of China ‘partner’ Hejin. Maybe Globalfoundries will look at one of these as both have China operations?

The key for Globalfoundries is to close the gap on TSMC, which has such a dominant position and forces all other competitors to feed of the scraps. This is a worrying time for TSMC as the oil money, coupled to Globalfoundries advanced processing capabilities and now improved capacity, process portfolio and customer base is surely the biggest threat they have ever encountered, after beating UMC to a pulp in the last 10-years.

That to me suggests that TSMC may be the next to bulk-up. If so we have a major fight for market share looming and in this industry that takes lots of dollars and we know who has those!