Could ON Semiconductor be GlobalFoundries’ White Knight?

Could ON Semiconductor be GlobalFoundries’ White Knight?

In light of recent rumors, could ON Semiconductor’s acquisition of GlobalFoundries’ East Fishkill fab save the company from being carved up further?

The Basics

Phoenix, AZ-based ON Semiconductor (ON Semi) announced its second big acquisition in the past month: the purchase of GlobalFoundries’ (GF) East Fishkill 300mm semiconductor fab. The first was the acquisition of WiFi technology company, Quantenna Communications.

The $430 million GF deal will involve a three-year transition and is expected to conclude in 2022. During the transition, GF will manufacture 300mm wafers for ON Semi while the new owner builds its staff and installs new equipment to support its growing power device business.

This deal will reportedly allow GF to double its sales at the Fishkill plant, and also invest in growing the Malta facilities (also known as Fab 8).

Likewise, acquiring the fab will help ON Semi add capacity for its power and analog products used in electric vehicles (EV), 5G networks, cloud computing, and alternative energy.

This is all according to a report in the Phoenix Business Journal. There are a lot more details about the purchase, agreements around employee retention, investment by Empire State Development Corp. and more here.

Our Analysis

I find this piece of news particularly interesting on several fronts.

First, ON Semi’s aggressive investments in its power device business validates the growing importance of the power semiconductor market, as applications like EV, 5G, AI, and high-end cloud computing initiate a paradigm shift for the microelectronics industry.

And if ON Semi follows through on its promises to retain employees and add new jobs, it will allow those folks to breathe a deep sigh of relief.

Second, in the wake of rumors about GF being sold, as reported by our own Phil Garrou, it begs the question, does this confirm or dispel them? Is this just the beginning of the break-up, or is the company merely streamlining operations and recouping on some bad investments? After all, this is the same facility IBM paid GF 1.5 billion to take off its hands in 2015.

After almost two years of cost-cutting, restructuring, and re-strategizing, GF reported an increase in revenues of 35% in 2018 over 2017 (not to be confused with profits). It’s well known that last year, the top-tier foundry player replaced its CEO, made sweeping layoffs, and abandoned the pursuit of 7nm node scaling to focus instead on 14nm FinFETS, FD-SOI, and to collaborate with OSATS on heterogeneous integration technologies.

Hopefully, acquisition by ON Semi will give GF the boost it needs to continue on its upward trajectory.