GlobalFoundries and Ford plan to work together to boost chip supplies to support the US auto maker’s cars and the broader US auto industry, as acute chip shortages continue to ravage the sector.
The companies announced Thursday a “non-binding” agreement that opens the door for Globalfoundries to boost its production capacity for chips used in Ford’s current lineup. The deal also has the potential to span research and development into several types of chips that are likely central to the car of the future, such as in-vehicle networking, self-driving, and battery management systems.
“It’s critical that we create new ways of working with suppliers” to give Ford “greater independence in delivering the technologies and features our customers will most value in the future,” Ford CEO Jim Farley said. “This agreement is just the beginning.”
The chip shortage has slammed into the auto industry this year, forcing Ford and other auto giants to curtail production. Most companies are trying to wring out more profit by funneling the chips they can procure to their most profitable models. Lead times—how long it takes between when a chip is ordered and when it is delivered to a customer—for many chips used in cars are reaching record levels: often 52 weeks or more.
After almost a year of supply-chain problems, chip executives say auto makers are looking for new ways to buy parts.
GlobalFoundries is the largest made-to-order chip manufacturer based in the US. It works with a wide range of auto suppliers, such as NXP and Infineon.
It also manufactures radio-frequency chips designed by Qualcomm and Qorvo. It also builds chips for Broadcom and AMD.
Under CEO Tom Caulfield, GlobalFoundries has pivoted from playing in the most advanced process nodes with the likes of TSMC and Samsung. It focuses instead on radio-frequency ICs, power-management ICs, and other special-purpose chips based on less advanced nodes, which are increasingly vital to the car industry. Chips based on these “legacy nodes” are in very short supply due to lagging investments around the world.
Globalfoundries has previously said that it would at least double its output of chips to the automobile sector this year and plans to increase its supply even further in 2022.
GlobalFoundries raised $2.6 billion in an IPO valuing it at around $26 billion last month. The company said it would use the proceeds to help fund future investments in capacity. GlobalFoundries, which is reportedly sold out of production capacity through 2023, plans to invest $6 billion to upgrade its fabs over several years. Its most advanced plant is in upstate New York, and it operates others in Europe and Southeast Asia.
The company has warned, however, that the expansion plans will only start to boost the industry’s front-end wafer supply from 2023 and that the auto sector will continue to face chip shortages at least into 2022.
Auto Chip Drought
The sprawling supply chain used by the global auto industry has to coordinate the delivery of up to 30,000 parts and up to 1,500 different chips from hundreds of suppliers to assemble even a single vehicle. For the supply chain to work, the components required to finish a car have to get where they are needed when they need to get there.
Even a slight delay in the delivery of a single component can make it impossible to assemble the final vehicle.
Typically, it takes about six months from the shipment of a finished component to the vehicle’s final assembly. That is on top of the three to sixth months it takes to manufacture, package, test, and then deliver a chip to a customer. NXP, TI, Infineon, Analog Devices, Renesas, and other major vendors are struggling to fill orders from auto makers trying to replenish their chip inventories, slowing down the whole supply chain.
Stung by the global chip shortage, auto makers are taking steps to gain greater access to chips. They are striking longer-term purchase agreements and investing to help chip firms expand production capacity. Chip firms have started favoring customers that tell them what chips they will need in the future. Ford and other auto makers are giving chip firms a look at long-term forecasts so they can better accommodate demand.
Ford has previously said that it was redesigning parts with more widely available chips to ease its production woes. The company was also weighing whether to alter its procurement strategies, including signing deals directly with contract chip firms like GlobalFoundries and TSMC.
According to Ford, about 60% of the chips in its current lineup are based on 55-nm and less advanced nodes.
Farley said the new deal with GlobalFoundries plays into Ford’s plan to vertically integrate key technologies that will “differentiate Ford far into the future,” signaling a potential move into more in-house chip design.
In March, GlobalFoundries partnered with Bosch to develop a next-generation radar and other chips for self-driving cars. Bosch is trying to differentiate itself by bringing its intellectual property directly to a foundry instead of buying merchant silicon.
Ford said it would work with GlobalFoundries to research chips used to prolong the battery life of electric vehicles, transfer data over in-car networks, and power self-driving systems.
GlobalFoundries declined to detail any terms of the pact, including whether Ford is providing funding or other incentives to reserve capacity at any of its current or future fabs. They said only that the deal would not include any “cross-ownership” between the companies.
“Our agreement with Ford is a key step forward in strengthening our cooperation and partnership with automakers to spur innovation, bring new features to market faster, and ensure long-term, supply-demand balance,” Caulfield said.
The auto sector is high on the priority list for GlobalFoundries. The company has started “pre-qualifying” its production lines for car chips instead of adapting technology nodes for other sectors to auto makers’ needs.
Before being incorporated in cars, chips must be rigorously tested or “qualified” against a range of industry standards to guarantee they can tolerate harsh temperatures, vibrations, interference, or other conditions.