TSMC Chairman Predicts Tough Victory Over GlobalFoundries

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Taiwan Semiconductor Manufacturing (TSMC) Chairman Morris Chang predicted a long fight and ultimate victory against new contract chip rival GlobalFoundries, a joint venture between AMD and an investment fund from Abu Dhabi.

"We consider GlobalFoundries to be a formidable competitor," Chang said at an investors' conference in Taipei on Thursday. "I really think the battle will be a high casualty one. My job is to minimize the casualties on my side."

Casualties will be represented by money, he said.

Chang compared the ground breaking of a new US$4.2 billion chip factory by GlobalFoundries in New York last week as a strategy of total commitment. They must stand, there is no retreat, he said, likening the strategy to that of the Germans at the Battle of Stalingrad in World War II. The German generals were ordered to maintain their position at Stalingrad after they were surrounded by Russian troops.

"Like Stalin, I have no doubt of the outcome," he said.

One of the biggest hurdles to the chip business is managing the cost of factories while continually making improvements with the latest technologies, which are also costly. A downturn can send a company into bankruptcy unless it maintains payments on debt. Qimonda AG of Germany and Spansion of the U.S. are two chip makers that filed for bankruptcy during the current global recession.

Contract chip makers need many chip design customers to help pay for factories. TSMC counts a number of leading chip companies as customers, including graphics chip vendor Nvidia, communications chip designer Qualcomm, Texas Instruments, and Intel. TSMC's Chang founded the contract chip business, which his company continues to dominate.

GlobalFoundries is the newest rival to the industry. GlobalFoundries was formed last October after AMD spun off its manufacturing operations in a joint venture with Advanced Technology Investment Co. (ATIC), a public investment fund from Abu Dhabi.

The company currently produces AMD microprocessors, but recently signed a contract to supply chips for STMicroelectronics starting next year. Executives at the company have said finding new customers is one of their most important tasks.

Chang said that among the rest of the contract chip business, only Chartered Semiconductor of Singapore was worth buying.

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