Persistent speculation this week that Singapore's government may sell its interest in Chartered Semiconductor Manufacturing Ltd. is brushing hard against management's belief that the foundry is on the cusp of a turnaround bolstered by a series of recent tactical maneuvers.
With two larger foundries dominating the sector amid signs of increasing semiconductor outsourcing by chipmakers, Chartered's strategy is to regain market share by expanding beyond the sluggish communications industry while trying to match its larger rivals with cutting-edge technology.
"Our target is to be within the same design window as the big two, and we're closing the technology gap," said Michael Buehler-Garcia, vice president of worldwide business development and marketing at Chartered in Milpitas, Calif. "We're in a strong position to take on an expanded customer base."
Those expectations could go awry if the Singapore government, troubled by the worst downturn in the history of the electronics industry, pulls out of the chip business, leaving Chartered to sink or swim on its own.
Singapore controls 61% of Chartered through ST, or Singapore Technologies (Pte.) Ltd., and has been one of its more ardent supporters since the company was established in 1987.
"It wouldn't surprise me if the Singapore government sells its stake in Chartered," said Len Jelinek, an analyst at iSuppli Corp., El Segundo, Calif. "Designing with ODMs is going to be key to gaining market share, and right now Chartered is not being as successful."
Position is slipping
Both Chartered and Temasek Holdings (Pte.) Ltd., which manages ST, declined to comment this week on the government's position, but there were signs Chartered had slipped in the race to sign up major customers, according to analysts.
Although Chartered's second-quarter revenue grew more than 50% sequentially, to $127.5 million, and its capacity utilization rose to 42% from 28% in the preceding three-month period and 31% in the year-ago quarter, the company trails the two market leaders on almost every metric.
Second-quarter capacity utilization rose at Taiwan Semiconductor Manufacturing Co. Ltd. to 85% from 67% in the March quarter, and climbed at Taiwan's United Microelectronics Corp. to 72% from 50%.
"Chartered has struggled more than TSMC and UMC and its fab utilization has lagged quite a bit," Jelinek said. "Chartered's technology is adequate, but their average selling price is the lowest of the three, and the competition in China, Korea, and Malaysia is clearly charging in."
Chartered's executives said they are erasing the company's image as a technology laggard. Over the last few months, the foundry has signed six agreements covering IP collaboration and other strategic initiatives with companies such as ARM, Artisan Components, Cadence, Fujitsu, Synopsys, and the Virtual Component Exchange. The company's recent ramp-up of its 0.18-micron process also contributed to the strong second-quarte r revenue growth.
"We were not at the leading-edge technology before," Buehler-Garcia said. "With our 0.18-micron fab we've been able to expand our market base."
Nevertheless, Chartered may find itself severely hobbled if the Singapore government pulls its support. As with its other holdings, the government has from the beginning provided crucial support to Chartered.
All of the company's five fabs are situated on land leased from entities controlled by the Singapore government, which also helps secure favorable group-rate insurance and provides other administrative support services.
Moreover, the government has granted Chartered an "oral" credit facility for $100 million and guarantees its loans and other financial commitments, according to a filing with the Securities and Exchange Commission.
"ST's wide spectrum of industries provide us with operational and financial leverages in dealing with external third parties," the company said in the SEC statement.
If Singapore sells or redu ces its stake in Chartered, many of these services will have to be renegotiated or scrapped, potentially leaving it in an administrative logjam. But this is something Chartered may have to eventually deal with, industry sources said.
"The Singapore government wanted to make the country a powerhouse in the semiconductor market," said an industry executive who asked not to be identified. "That job is done. Singapore is the major microelectronics center except for Taiwan. Now, they want to move on to biotechnology."