Moody’s Puts Chartered On Check

Moody’s senior analyst Ken Chan put Chartered Semiconductor’s (CHRT - Snapshot Report) speculative-grade Ba2 rating under review for a possible downgrade after Abu Dhabi’s nationalized investment firm, ATIC, proposed to buy the Singapore-based company for $1.8 billion.

The acquisition would transfer the majority holding from Singapore investment agency, Temasek (Moody’s rating Aaa) to ATIC (Abu Dhabi’s sovereign rating Aa2).

Analysts differed on how the acquisition would affect Advanced Micro Devices (AMD - Analyst Report), which had earlier united with ATIC to form Globalfoundries. Although Chartered and Globalfoundries will continue to operate as separate entities, increased scale of operations could result in cost synergies. Since AMD includes Globalfoundries in its consolidated results, the deal could shorten its road to profitability.

The deal would also open up Globalfoundries to several big customers, such as Microsoft Corp. (MSFT - Analyst Report), Broadcom Corp. (BRCM - Analyst Report), Marvell Technology Group (MRVL - Snapshot Report) and Texas Instruments (TXN - Analyst Report). Its end market exposure would rise with the addition of communications and gaming to the computing and select consumer space.

Opinions are divided on whether the acquisition would bring significant technology enhancements. While the deal should bring some benefit in general, we don’t expect it to be adequate to overcome competition. The foundry space is dominated by Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics (UMC - Analyst Report), which together serve around two-thirds of the total market.

While TSMC has strong customer relationships with the likes of Intel Corp. (INTC - Analyst Report), Qualcomm (QCOM - Analyst Report), NetLogic Microsystems (NETL - Snapshot Report) and NVIDIA Corp. (NVDA - Analyst Report), which have brought it to the number one position, UMC is the most commonly selected second source.

AMD management reconfirmed that there would be no breach of the x86 licensing agreement with Intel. They also expressed optimism regarding probable cost benefits from superior scale of operations.