Globalfoundries, seeking to streamline its contract chip manufacturing business, said Monday that it would sell one of its main production plants to On Semiconductor for $430 million. As part of the deal, Globalfoundries will supply power and analog products for On Semiconductor starting in 2020. At the end of 2022, On Semiconductor will take full control of the 300mm Fab 10, which is located in East Fishkill, New York.
Under the terms of the deal, On Semiconductor will pay $100 million to Globalfoundries, the No.3 player in the roughly $60 billion made-to-order chip business. The company will add another $330 million to that total at the end of 2022. The deal was designed to give Globalfoundries time to transition its process technologies to its other 300mm fabs. The agreement also stipulates that On Semiconductor will supply Globalfoundries through to the end of 2025.
For much of the last year, Globalfoundries has streamlined its business. Under C.E.O. Thomas Caulfield, the company has put pursuing profits over advanced chip production. “We are shifting our resources and focus by doubling down on our investments in differentiated technologies,” he said in a statement last August. The Silicon Valley firm discontinued its 7-nanometer development last year amid mounting costs and competition.
Globalfoundries also cut more than 5% from its global workforce, spun out its $500-million custom chip business into a separate company, and moved out of MEMS manufacturing. The Santa Clara, California-based company plans to build its business around three 300mm production plants: Fab 1 in Dresden, Germany; Fab 7 in Singapore; and Fab 8 in Malta, New York. The company's customers include AMD, Qualcomm and Broadcom.
Glofoundries is focused on enhancing its existing processes, including its 14- and 12-nanometer processes. The company is building its $10 billion fab in the central Chinese city of Chengdu, planning to start producing processors based on 22-nanometer FD-SOI in the world’s largest electronics market. Nodes more advanced than 12-nanometers will represent roughly 25% of the $85 billion made-to-order chip market in 2022, according to Gartner.
On Semiconductor, which plans to invest an another $270 million in Fab 10, said it would produce MOSFETs, IGBTs, and analog devices. The agreement will also help move more of its manufacturing output from 200mm to 300mm, maximizing profits. “The acquisition adds additional capacity over the next few years to support growth in our power and analog products,” Keith Jackson, On Semiconductor's C.E.O., said in a statement.
On Semiconductor said that the additional capacity will pump up its potential sales by roughly $2.2 billion per year. The company is expected to retain the roughly 1,300 employees at the new production plant, which was owned and operated by IBM before Globalfoundries acquired it. As part of a long-term licensing deal, On Semiconductor will gain access to 45-nanometer and 65-nanometer CMOS processes, which it can use in future analog chip development.
Buying is also often cheaper than building. On Semiconductor plans to conserve about $1 billion in capital spending as a result of the deal. On Semiconductor estimates that the average 200mm production plant currently costs $1.5 billion to $1.7 billion to build. “This partnership enables Globalfoundries to further optimize our assets globally and intensify our investments in the differentiated technologies that fuel our growth,” Caulfield said in a statement.