Wall Street Journal: New disputes in chip manufacturing, but the competitive landscape is unlikely to change-EEWORLD

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A new dispute has unfolded in the chipmaking industry, but it is unlikely to change the industry’s harsh realities.

Minority-controlled chipmaker GlobalFoundries Inc., formerly owned by Advanced Micro Devices, has launched a full-scale legal assault on Taiwan Semiconductor Manufacturing Co., 2330.TW, TSM -0.7% , a much smaller rival that has accused the chipmaking giant of patent infringement. The dispute involves several lawsuits seeking to get the U.S. International Trade Commission to block imports of products using allegedly infringing technology.

Those products include some iPhones and iPads from Apple Inc., laptops from Lenovo Group Ltd. and Asustek Computer Inc., and networking equipment from Cisco Systems Inc. and Arista. TSMC has strongly denied the allegations, and its Taiwan-listed shares have actually risen since GlobalFoundries announced the lawsuit. But the scope of the matter shows how the market for high-end chipmaking has become an oligopoly, with only a few companies having the scale to compete.

GlobalFoundries stressed that its announcement last year that it would shelve its efforts in the 7-nanometer production process was effectively equivalent to abandoning the so-called "cutting-edge" market for chip manufacturing. In the era of mobile devices, the foundry business (producing chips developed by others) has become particularly important, and the requirements for high performance and low power consumption require the most advanced chips to be produced using the most cutting-edge processes.

But keeping up with all this is expensive. TSMC spent just over $10 billion on capital expenditures last year. Chip giants Intel Co. and Samsung also spend tens of billions a year to keep up with the pace, though they mostly make chips of their own design. GlobalFoundries, owned by the Abu Dhabi government, doesn’t disclose its financials. But Wes Twigg, an analyst at KeyBanc, estimates that the company spent about $2.5 billion on capital expenditures last year. Trendforce predicts that GlobalFoundries’ overall foundry business generated about $2.6 billion in revenue in the first half of this year.

GlobalFoundries has been getting smaller, not bigger. The company sold its Avera Semiconductor design unit to Marvell Technology (MRVL) in May and a chip manufacturing plant in upstate New York to ON Semiconductor a month earlier. A successful move against TSMC would certainly help the company’s financials, but it would not change the competitive landscape in a sector where scale is key.

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