Abu Dhabi lands lead role in microchip manufacturing

Original Article

Abu Dhabi // A new company owned by the Abu Dhabi Government will become the world’s second-largest maker of microprocessors after the announcement of a venture in which as much as US$8 billion (Dh29.3bn) will be invested.

In strengthening its ties with AMD, Mubadala Development Company sealed its reputation as a long-term investor in growth industries such as technology, energy, aerospace and health care. The deal “significantly reshapes the global semiconductor industry”, said Waleed al Mokarrab, the chief operating officer of Mubadala, who will assume a leading role in the venture. He said the tie-up could even see Abu Dhabi become home to some of the most advanced industrial infrastructure and technology on the planet.

AMD, based in Sunnyvale, California, will spin off its manufacturing business into a new venture controlled by the Abu Dhabi Government through a newly created business, Advanced Technology Investment Company (ATIC).

At the same time, Mubadala will more than double its stake in AMD and get a seat on the company’s board of directors.

AMD has struggled to compete with its larger rival, Intel, which dominates the industry. Its stock price has fallen 90 per cent since 2006.

ATIC will invest $2.1bn for a 55.6 per cent stake in the new business, and will invest up to $6bn more in the next five years to expand its manufacturing capacity.

The restructuring of AMD “is one of the most important announcements in the history of the semiconductor industry”, said Dirk Meyer, AMD’s president and chief executive.

Mubadala first invested in AMD in 2007, acquiring an 8.1 per cent stake in the company for $622 million. A further investment of $314m was announced yesterday, raising Mubadala’s stake in AMD to 19.1 per cent. Yesterday’s investment was based on AMD’s average stock price in the 30 days leading up to the deal.

Splitting AMD into two businesses “is the smart way to go”, said Khaldoon al Mubarak, Mubadala’s chief executive. “Accordingly, we are making a big bet on it. It is a classic Mubadala type of investment.”

The new business, tentatively named The Foundry Company, will lighten the burden AMD has carried in building and operating microprocessor fabrication plants, which can cost $2bn to construct.

After the completion of the deal, AMD’s core business will be the design and marketing of chips. “What AMD needed moving forward was focus,” Mr Mokarrab said. “This deal lets them focus on chip design, while the new company can make the investments in manufacturing technologies.”

The Foundry Company will also be free to sign production contracts with other companies, turning it into a service business that could manufacture on demand for companies anywhere in the world. The Foundry Company will begin looking for new business immediately, Mr Mokarrab said. AMD operates a microchip fabrication plant in Dresden, Germany, which is being upgraded extensively. Work on a new plant in New York will begin immediately. Both sites will be owned and operated by The Foundry Company. Once the New York and Dresden plants are completed, a factory could be built in Abu Dhabi. “I think the possibility of a new plant being built in Abu Dhabi is high,” said Mr Mokarrab. “Abu Dhabi is becoming increasingly competitive, when you look at areas like infrastructure, logistics and transport. All of this is done for a reason, and now we are bringing it all together as we look at how to diversify our economy.”

Mubadala also announced yesterday that it would create a joint venture with Veolia Water, a French firm, to focus on water production and wastewater treatment across the region. Veolia will own 51 per cent of the company.

The partnership is a sign of deepening ties between the Government and Veolia, which was awarded a contract in July to build wastewater plants in the capital and in Al Ain, a deal that will be worth Dh2bn for the company.

“It is a very exciting venture with a good partner,” Mr Mubarak said of the Veolia deal. “What we will add to the venture is what Mubadala does best: business development, bringing value in a region we know very well. It’s the right partner, right sector, right region – a very solid partnership.”