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Globalfoundries' First Big Score: STMicro

Globalfoundries, the chip fabrication company formed when AMD spun off its fabrication plants with an investment from the Middle East, today announced its first major non-AMD customer, STMicroelectronics.

The smart betting money had been on nVidia (NASDAQ: NVDA), AMD's rival in the graphics processor market. But in the end, the business went to STMicro, as it's called, which may not be as high-profile or as sexy as the maker of high-performance graphics, but it's a big company.

In 2008, Switzerland-based STMicro reported revenue of $9.84 billion, more than double that of nVidia. It's currently an integrated company, meaning it makes its own chips, but has been wanting to ditch its fabrication facilities and go fabless, like nVidia already is.

STMicro isn't as recognizable as some firms but it's in a lot of businesses. It has products for communications, automotive, computer peripherals, printer controllers, power supplies and memory.

Under the agreement, STMicro will partner with Globalfoundries to produce products based on 40nm Low Power bulk silicon technology, which will be ideal for many of STMicro's wireless applications, handheld devices, and consumer electronics, which require low power consumption. First tape out and production of ST products will begin next year at Globalfoundries' German facilities.

Globalfoundries has just broken ground on a massive facility planned for upstate New York, but that won't open until 2011 and be operational by 2012. In the mean time, it is upgrading the facilities in Dresden, Germany to handle 40nm fabrication. AMD is moving to 45nm for its CPUs and beginning the process of migrating to 32nm.

"With a strong commitment to manufacturing and technology excellence at the leading-edge, we believe Globalfounrdies is an excellent partner to collaborate on low-power design innovation in 2010 and beyond," said Jean-Marc Chery, executive vice president and chief technology officer of STMicroelectronics in a statement.

In terms of size, STMicro is the number five player behind Intel (NASDAQ: INTC), Samsung, Toshiba and Texas Instruments, and all but TI have their own fabs, notes Nathan Brookwood, research fellow with Insight 64.

"Rumors of nVidia not withstanding, in a way I think the STMicro partnership is a better one to be the first guy out of the chute than nVidia, because nVidia is a traditional fabless company. They've never had the kind of intimate relationship with their foundry partner that Globalfoundries is offering STMicro," he told InternetNews.com.

With STMicro an integrated player now but trying to get out of that business, it's a telling endorsement for a firm to ditch its own plants and throw its business behind Globalfoundries, he said. "Globalfoundries is saying we can accommodate people who were integrated and want to go fabless but still need a close relationship with the factory. That is in fact something companies looking for foundry partners care about."

TSMC's pain, GF's gain

STMicro's decision to sign on is one selling point for Globalfoundries, but in the end, the failures at TSMC may prove another. TSMC is the massive fabrication company in Taiwan that many firms use, including AMD's graphics unit, ATI, and nVidia. ATI had a new design using 40nm manufacturing ready to go this year but TSMC could not make it in volume.

Yields are a closely-guarded secret but some hardware-oriented news sites were pegging the yields at about 30 percent, which meant 70 percent of the chips being made were paperweights. The delay in getting 40nm right has been so bad that nVidia has been able to catch up to ATI in getting a 40nm part, although Brookwood said ATI still has the performance lead in other areas.

"nVidia still has yet to complete and get WHQL [Windows Hardware Quality Labs] certification for their DirectX 11 parts. So there's more than just tech here," he said, adding that regardless of nVidia's delays, ATI has to be frustrated at TSMC for not getting its act together. That means another point in Globalfoundries' favor.

"It's good if you can succeed because you're better than the other guy, but it never hurts if the other guy screws up," Brookwood said.