The newly formed chip manufacturing venture by Advanced Micro Devices Inc (AMD) and Advanced Technology Investment Company (ATIC) controlled by the government of Abu Dhabi could weaken the pricing power of existing players as competition rises, Fitch Ratings said.
On Tuesday, chipmaker Advanced Micro Devices Inc (AMD) said it planned to spin off its chip plants into a new joint venture with investors of Advanced Technology Investment Company (ATIC) controlled by the Persian Gulf state of Abu Dhabi.
The venture, temporarily called “The Foundry Company” (TFC), will make microchips for AMD and other companies.
“The new foundry venture foreshadows increased competition over the longer-term and this comes at a time when the sector is going through a downward correction, with industry-wide price erosions at both the leading and trailing edge, and worsening macro-conditions in key end-markets,” Fitch said in a report issued on Thursday.
Intensifying the competition “could derail the industry’s tentative steps towards firmer pricing on advanced technologies, effectively delaying a rebound in fundamentals,” Fitch said.
Asian contract chipmakers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), United Microelectronics Corp (UMC, 聯電), Semiconductor Manufacturing International Corporation (SMIC, 中芯) and Singaporean Chartered Semiconductor Manufacturing Ltd accounted for around 70 percent of the foundry market last year, Fitch said.
Potential order reductions at AMD would cause limited order reductions for TSMC, UMC and CSM because AMD is a relatively minor revenue source for all three foundries, the rating agency said.
AMD’s outsourcing arrangements with TSMC and UMC for graphics, chips, chipsets and consumer electronic devices are likely to continue over the next year or so, as most of TFC’s existing capacity will be dedicated to manufacturing microprocessors for AMD, the report said.
The actual competitive impact is likely to become apparent only in November 2010 if TFC ramps up new capacity as planned, Fitch said.
In the short term, TFC will not pose a threat given its small monthly capacity, the agency said.
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