A fab in Abu Dhabi?

After a lot of rumours suggesting that AMD would sell off its expensive chip fabrication plants, sure enough, they did - but in not many pundits had predicted the manner of the sell off, or that it would involve quite such a big investment from Abu Dhabi

Tags: Advanced Micro Devices IncorporatedInvestment
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By  Mark Sutton Published  October 8, 2008

After a lot of rumours suggesting that AMD would sell off its expensive chip fabrication plants, sure enough, they did - but in not many pundits had predicted the manner of the sell off, or that it would involve quite such a big investment from Abu Dhabi.

The deal has been well received by analysts though, and by Wall Street, with AMD stock up 18% on the announcement. AMD has proven in the past that it can steal a march on technology versus Intel, so freeing itself of the expensive plant will allow it to focus its efforts on catching up to Intel in design terms.

The really interesting bit of the deal though, is the new owners of the fabrication facilities - namely the AMD-Abu Dhabi Government joint venture 'The Foundry Company'.

Perhaps inevitably, the new CEO of the company, Doug Grose, has said that the company would consider setting up research and semiconductor manufacturing in Abu Dhabi.

But how likely is it that the deal will really bring manufacturing to the region?

I don't think a fab is likely anytime soon. For starters the CEO's comments were about as guarded as you could get - TFC would just 'consider' Abu Dhabi only after building out plants in the US and Germany, and only then if it made commercial sense.

Those plans, particularly for the US including the building of a new fab, are expensive and long term, with the US fab not due for completion for some four years. So any decision on Abu Dhabi wouldn't be likely for a long time yet.

It is also noticeable that TFC is headquartered in the US, with no mention of offices in the UAE, and although the deal includes some IP, the future of the company is also tied up with incentives to create jobs in the US.

The outsourcing model for chip production is not unproven, and the overall demand for chips is only going to go upwards as computing becomes more and more pervasive, but it is a risky business, which has shown over and over again that the global processor markets are volatile and will burn any player that is not very careful.

This means that any decision to build another new fab would have to be taken very carefully, and situating it in the UAE would have to have compelling reasons beyond how much money one of the partner companies was willing to throw at it.

The single biggest requirement for a fabrication plant is the skilled workforce. There's no doubt that these facilities create a lot of highly desirable high tech jobs. The TFC plant in the US is expected to create 1,400 direct jobs, and a further 5,000 indirect jobs; likewise the existing Dresden fabs directly employ 2,800, while Intel employs around 7,000 in Israel.

But these are highly skilled jobs, for high level engineers and researchers, of the sort that are only turned out by top-level universities, and frankly, there just isn't that sort of human capital in the region at the moment. It would take years of educational investment, particularly in the Gulf, to build the universities. This commentator refers to the same problems, but in India.

Human capital can be imported, but at the same time, its easier to develop those existing clusters of expertise rather than duplicate operations elsewhere and to try and attract talent from outside the region.

I think research projects have more potential for now however - and note that Grose only mentioned research on the live call, it was not in the press release, so who knows if he was on or off message there.

Dubai Silicon Oasis has already made some progress in attracting academia and chip design, although I'm sure there must be a fair few green faces at DSO to see Abu Dhabi take another significant stake in the semiconductor business.

There are other related technology research investments that have been announced for the region, most notably nanotech centres in Saudi Arabia and Egypt, although other allied fields like robotics and supercomputing will also play a role, although these projects themselves need to become reality, and not just cash investments in outside expertise without knowledge transfer. Investment in building a technically capable workforce is necessary before investing in complex manufacturing facility.

Let's hope that TFC brings at least some research opportunities to the region. It would be a shame if the Abu Dhabi investment was just a one-way cash deal that didn't do something to address the technology imbalance in the region.

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