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Contract Chip Makers Strike Deal to Supply US Defense Industry

July 17, 2020
Globalfoundries, the top contract chip manufacturer in the US, said the deal with Skywater Technology would give defense and aerospace firms a more secure supply of trusted ICs. They have also agreed to cooperate on the development of new technologies.

Globalfoundries, a top US contract chip manufacturer, and startup Skywater Technology are partnering up to boost the supply of chips used by the US aerospace and defense industry and cooperate on bringing emerging technologies to market. The companies are trying to tap the US government's efforts to ease its heavy dependence on overseas supply chains.

Globalfoundries, which holds around 10% of the pure play foundry market, said the new deal with Skywater Technology would strengthen the supply chain for semiconductors in the US. As part of the deal announced last month, the companies said that they would cooperate to give their defense and aerospace customers a more secure supply of trusted components.

Globalfoundries, which makes chips for customers ranging from AMD and Broadcom to Skyworks and Qualcomm, is also one of the top chip vendors to defense and aerospace customers in the US. Last month, the company said that it would consider adding to its most advanced fab in New York, where it has invested more than $13 billion to date. It has also expanded protections at the plant to avert technology theft and tampering.

Skywater Technology is an emerging player in the $60 billion market for made-to-order chip production and it is hoping to bring more chip manufacturing back to the US. The company, which is headquartered in the US, was founded to take control of its sole production plant, which it agreed to buy out from Cypress Semiconductor in 2017. The firm, which is fully owned by US investors, also acts as a trusted foundry for the Defense Department.

The startup has around 500 employees and runs through more than 10,000 wafers every month at its plant in Bloomington, Minnesota. It rolls out 200-millimeter wafers—smaller than the 300-mm plates standard at other fabs—out of its 80,000-square-foot cleanroom. Other pure play chip foundries are owned by foreign investors, including GlobalFoundries.

Last year, the DoD said it would invest up to $170 million in Skywater to boost production and enhance its technology, including the development of a process to make chips used in satellites and other systems that can withstand high-levels of damaging radiation in space. It has also been granted funding through the Defense Advanced Research Projects Agency, or DARPA, to use 90-nanometer process technology to crank out far more advanced chips.

Brad Ferguson, Skywater’s chief technology officer and head of government relations, said that the deal marks "a new chapter of cooperation" in the US production of classified chips. It also "shows proactive industry cooperation that can complement developing government policy focused on restoring American leadership for semiconductor manufacturing," he said.

Both firms are also trusted to produce small orders of military-grade processors and other parts in the Defense Department's trusted foundry program. "The US government keeps a very short list of foundries it trusts to make semiconductors," Bill Ray, electronics industry analyst at Gartner, said in a blog. "For decades, the top name on that list was IBM, and when IBM sold its microelectronics division to Globalfoundries, the responsibility went with it." 

Intel, Micron Technology, Texas Instruments, and other US semiconductor makers—which holds 50% of the global chip business—continue to assemble chips at home. But that only amounts to only slightly more than 10% of the world's total IC capacity. Advanced chips are largely imported from contract manufacturers on the other side of the world. Domestic US chip production has been in decline for decades as the sector's factory floor shifts to Asia. 

Globalfoundries, which has the second largest share of the foundry business behind TSMC, halted development of its most advanced chips at the 14-nanometer process node in 2018.

That has inflamed concerns about the Defense Department's access to the most advanced chips for use in missiles, rockets, radar, ships, tanks, airplanes, satellites and other systems.

The US has fallen behind in the global battle for semiconductor investment in recent decades because of the cost of building the most advanced plants. US vendors are also grappling with the risk that new production plants could end up outdated before they start running. Federal funding for more advanced US factories has fallen behind China and other regions, which are rolling out billions of dollars in subsidies and other forms of incentives.

Building the most advanced chip factories today can cost more than $10 billion and a huge portion of the investment is used to buy tools to process and slice up the silicon wafers.

TSMC, the world's largest contract chip vendor by overall sales, has leaped out to the lead in the most advanced chips based on 10-nanometers or smaller nodes. TSMC has cemented its status as one of the world's most valuable chip companies by making chips on contract for major US chip designers, including Apple, Google, Qualcomm, Broadcom, Nvidia, Marvell, Xilinx, and many, many others. Intel was also one of its more than 500 customers last year.

It also produces programmable chips for Xilinx used in US defense systems and baseband modems for Qualcomm that connect to 5G networks, a big battleground in the trade war.

Fears about the fragility of the US supply chain have deepened in recent years due to trade tensions with China, which is also spending billions of dollars to build out its IC production.

The concerns have been exacerbated by the spread of the coronavirus, which hampered the production of chips—including packaging and test operations—across China and other countries in the region. The fallout from the virus also delayed logistics operations globally as airlines canceled flights used to transport chips. The outbreak has also underlined the potential danger of the US chip industry's heavy dependence on a distant supply chain. 

Michael Hogan, senior vice president and head of the aerospace and defense business in Globalfoundries, said the new deal with Skywater opens the door to "a secure ecosystem for dual domestic sourcing to serve the US government and its technology needs for the future.” He added: "we are in a unique position to extend the availability of advanced technologies."

Under the terms of the deal, the foundries said they would align technology roadmaps so that they can support dual sourcing and handle larger orders from US defense customers.

Dual sourcing—outsourcing the production of a microprocessor or other chip to more than one foundry—tends to be a very long and extremely costly endeavor. Unless the production lines are aligned in research and development, then different foundries will roll out different processes. While both fabs can manufacture chips based on the same blueprint and same process node, the chips will not have identical performance, power, area and other features.

For dual sourcing, chip companies are forced to prototype the chip once per fab in order to address the inconsistencies. That means huge investments in time, cost and engineering.

Globalfoundries and Skywater are also trying to tap into US government efforts to ease its dependence on distant supply chains and lure more advanced chip foundries to the US.

Last month, the US Senate proposed a law that aims to reinvigorate US chip production. If the proposed law is passed, it would invest up to $10 billion in funding for federal grants to match state and other subsidies for chip manufacturers trying to build advanced more fabs in the US. The funds would also be used to defray the high cost of chipmaking equipment.

The law would also roll out $12 billion in funding to research and development projects that could boost US dominance in chip technology, such as advanced packaging and other areas. It would also grant the Defense Department the green light to use investment under the Defense Production Act, to "enhance a domestic semiconductor production capability."

The funding is also focused on the return of packaging, testing, and other important steps in the complex process of making computer chips from Southeast Asia and China to the US.

Separately, TSMC has announced plans to build its latest production plant in the US. The fab could start production of chips based on its 5-nanometer node by 2024, according to TSMC. The company, which has been struggling to escape out from under the US trade fight with China, said spending on the fab would start in 2021 and total $12 billion by 2028.

Intel has advanced fabs in the US, where it makes 10-nanometer chips to rival TSMC's. But the Silicon Valley giant is not a major player in the business of building chips for others. 

Skywater Technology is trying to reinvigorate US chip production by upgrading decades-old process nodes—including the 90-nanometer process popular in the aerospace and defense sectors—to rival the most advanced chip technology today. Last year, the company landed over $60 million in funding from DARPA to create a process for producing chips containing carbon nanotube transistors and memory stacked on top of standard CMOS logic chips.

Globalfoundries is also investing more in the advanced packaging of tiny slabs of silicon—called chiplets—as an alternative to rolling out chips with smaller and denser transistors.

Globalfoundries has also strengthen practices at its most advanced US plant to meet DoD standards—or ITAR, for International Traffic in Arms Regulations—so that it can be trusted with future government contracts as well as orders from the US defense market. The firm said the changes would help it serve the US government's technology needs "for decades."

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