Chartered shareholders - watch out Globalfoundries!

If you are a shareholders of Chartered Semicon, I really think you should be concern of this development. Globalfoundries, a spin off of AMD, is going to announce its first non-AMD customer in a month time.

And it has huge implication.

Before Globalfoundries, the wafer foundry market is basically dominated by TSMC, with spill over to smaller wafer foundries, like UMC and Chartered. TSMC is leading at all aspects, it has the technology, and process capability, and is able to exercise customer selection. Strictly speaking it is very difficult for the remaining to survice. Luckily TSMC has not expanded too aggressively, and to some extents, large customers would not want to see a monopoly.

This will change with Globalfoundries. Well I believe TSMC will still be the number 1. However, Globalfoundries will clear preferred choice for the number 2 candidate. I would believe that the customers would like to see a worthy opponent for TSMC, and clearly UMC and Chartered have failed them in this aspect.

Specifically what does this mean to Chartered?

1) Lower ASP (average selling price) - With the announcement of Globalfoundries in a month time, you can expect many of Chartered customers would go to Chartered and threaten to move the business to Globalfoundries. I believe an erosion on ASP is unavoidable.

2) Higher cost of sales - With such a big competitor fighting for resources (raw material, equipment), the bargaining power of these suppliers will be enhanced significantly.

3) Lower utilization - Obviously when some of the business is pulled away, the utilization will be lower. And you must remember that Chartered is still struggling to meet their own goal of breakeven at 75% utilization.

4) Loss of good quality customers - The customers always like to have dual source. I cannot see any reason why they would not choose Globalfoundries. Yes, may not be immediate, but it is inevitable.

5) Harder to find technology partners with customers - When there is good solution out there, I suspect customers will be less likely to invest in technology partnership with Chartered.

In summary, shareholders please watch Globalfoundries with respect.