Globalfoundries Plans to Double Spending on Factories This Year, CFO Says

Globalfoundries Inc., seeking to become the world’s largest contract manufacturer of computer chips, will double spending on plants and equipment this year.

The company plans to increase spending to $5.4 billion in 2011, from $2.7 billion last year, Chief Financial Officer Robert Krakauer said in an interview. The money will go toward upgrading a plant in Dresden, Germany, building another in upstate New York, and planning a factory in Abu Dhabi.

“This is based on customer programs and requests,” Krakauer said. “This isn’t speculative.”

The company, owned by an investment arm of the government of Abu Dhabi, is taking aim at Taiwan Semiconductor Manufacturing Co. in the growing market for outsourced chip production. Globalfoundries -- formed out of the manufacturing operations of Advanced Micro Devices Inc. and Chartered Semiconductor -- is raising spending to levels that only a few chipmakers can match.

Taiwan Semiconductor, the largest made-to-order chip producer, said in October that capital spending this year will likely surpass the $5.9 billion level of 2010. Only Intel Corp., which budgeted $5.2 billion for last year, and Samsung Electronics Co., which spent about $10 billion, are also in that same range.

TSMC shares rose 2.3 percent in Taipei trading today, while Samsung Electronics fell 0.4 percent in Seoul.

Factory Costs

The rising cost of building a chip factory means fewer companies are making their own products. That’s increasing the pool of customers for contract-manufacturing plants, known as foundries. A factory requires an investment of over $4 billion, with individual machines costing more than $10 million apiece.

The burgeoning market means that Globalfoundries can grow without having to take orders from its rivals, Krakauer said. “We don’t have to fight for foundry market share to grow,” he said. The company expects the market for outsourced chip production to outgrow the broader semiconductor business.

The Sunnyvale, California-based company has won contracts from customers such as Qualcomm Inc. and STMicroelectronics NV since its creation in 2009. Those orders -- along with sales from Chartered’s customers -- has lessened its reliance on AMD, which initially provided all of its revenue, Krakauer said.

The company inherited plants from AMD in Dresden and a proposed factory near Albany, New York. That facility will begin production in 2012 and shipments to customers in 2013. Globalfoundries’ Abu Dhabi plant, meanwhile, is part of that country’s effort to lessen its reliance on oil revenue.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net

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