Abu Dhabi: High-tech mecca or mirage?

By Tam Harbert, Contributing editor -- EDN, November 30, 2010

And the next semiconductor hot spot in the world will be ... Abu Dhabi?

That's the goal of Advanced Technology Investment Company (ATIC),  the majority owner of GlobalFoundries.  In September, ATIC Chief Executive Ibrahim Ajami detailed the company's plans to invest $6 billion to $7 billion to build a 12-inch fab in Abu Dhabi. He said the facility will ramp up production between 2014 and 2015.

ATIC, which is owned by the Abu Dhabi government, has been talking about developing a high-tech industry in the capital city of the United Arab Emirates for several years. As an arm of the Mubadala Development Company, Abu Dhabi's sovereign wealth fund, ATIC's mission is to help diversify the area's industrial base. But this is the first time it has announced specific details on its semiconductor plans.

Ajami told The Wall Street Journal  that the fab was just the first step toward building an advanced technology manufacturing hub. Today, however, the whole thing is just a mirage because there is no infrastructure to support it. Although GlobalFoundries is committed to establishing a technology and manufacturing cluster in Abu Dhabi, the company has not committed to building a fab, according to Geoff Akiki, director of Abu Dhabi development for GlobalFoundries.

"At this point, we are helping ATIC with the details around their long-range vision of developing a significant semiconductor eco-system in Abu Dhabi," he said.

Akiki, who spent 27 years in microelectronics at IBM Corp in Burlington, Vt, was hired by GlobalFoundries and moved last year to Abu Dhabi specifically for that purpose. "My role is to understand Abu Dhabi, understand ATIC's strategy, and understand GlobalFoundries' role in that," said Akiki, who speaks Arabic. "I was sent here to find out what's possible."

The biggest reason to locate a fab in Abu Dhabi is the same reason GlobalFoundries is  currently building a fab in New York, said Akiki: economic incentives. First of all, Abu Dhabi has no corporate income taxes. Second, GlobalFoundries expects the Abu Dhabi government to offer enticements, although details are not yet settled. "Clearly there will be a financial-aid package in Abu Dhabi, although it may be made up quite differently because of the economic structure here," he said.

While developing high-tech manufacturing is certainly possible, analysts say the region has a long way to go. There is the obvious advantage of a Mideast location: there's plenty of energy, first in oil and then potentially solar energy, an industry that the government is also heavily investing in. And there's the obvious disadvantage of locating in the middle of a huge desert: a lack of water. But the United Arab Emirates has some of the largest desalinization plants in the world to purify water from the Arabian Sea. "They have good infrastructure," said Akiki. "But it's not industrial-level infrastructure. We have to figure out how to get [power and water] from where it's generated to where we want to use it." The planned site of the fab is near the Abu Dhabi International Airport.

The single biggest barrier to high-tech development is the lack of a high-tech workforce and an educational system in semiconductor manufacturing that is "not up to US standards," said Akiki.

That's a barrier that could take decades to overcome, but ATIC has started. In the last six months, it has:

• Partnered with Semiconductor Research Corporation, a consortium of university researchers, to increase its members' research activities at Abu Dhabi universities;
• Sponsored internship programs for 60 Emirati students at the GlobalFoundries fab in Dresden, Germany, as well as a smaller number of students at its fab in Singapore;
• Worked with the Massachusetts Institute of Technology to develop a masters program in microelectronics at the Masdar Institute of Science and Technology in Abu Dhabi; and
• Established a professorship for semiconductor research at United Arab Emirates University.

ATIC is also acquiring other building blocks of a high-tech hub. In August, it joined a syndicate that invested $48 million in Calxeda, formerly Smooth-Stone Inc, an Austin, Texas-based startup developing low-power chips for the server market.

"They are taking a very comprehensive view," said John Ciacchella, a principal at Deloitte Consulting and the leader of its semiconductor practice in Silicon Valley. "They need to act as a catalyst to get the ecosystem started. Eventually they will have to encourage even the primary suppliers to the industry -- such as equipment manufacturers and specialty chemical and gas companies" to locate there.

Ciacchella likens it to building a shopping mall. A GlobalFoundries fab might be one anchor store, but ATIC still needs at least one, perhaps two, more major manufacturing facilities, he said. They need not be chip plants, he added, speculating that ATIC could get a solar panel maker or an LCD facility, both of which use technologies similar to chip fabrication. ATIC's parent, Mubadala, has jointly invested with GE in a solar power project.

"I wouldn't be surprised to hear something along those lines sometime in the next 12 to 18 months," he noted.

In fact, GlobalFoundries is open to other manufacturing ventures. "We have not committed to the kind of fab it might be," said Jason Gorss, a public relations manager at the company. "There are different types of manufacturing processes beyond just your standard semiconductor fab that you could envision."

Linley Gwennap, founder and principal analyst of The Linley Group, thinks a solar fab makes sense. "That kind of fab is less sophisticated," he said. "It might be an intermediate option to focus on building solar cells, and then work their way up to building microprocessors."

With such manufacturers in place, ATIC could start bringing in other elements, such as design houses. "You could invest in a dozen little start-ups, like Smooth-Stone," said Jim Turley, owner and principal analyst at Silicon Insider. "You figure nine won't survive, two might do OK, and one will hit it out of the park."

With the deep pockets of sovereign wealth, ATIC has the money and the patience to succeed. "If they decide they want a high-tech 'mecca,'" said Turley, "they can make it happen."