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IBM teams up with Singapore's Chartered

Big Blue and Chartered Semiconductor, looking to take some of the sting out of manufacturing costs, form an alliance to jointly develop chip technology and share factory capacity.

IBM and Chartered Semiconductor have formed an alliance to jointly develop chipmaking technology and share factory capacity, the latest deal designed to take some of the sting out of manufacturing costs.

Under the deal, IBM Microelectronics and Singapore's Chartered, a foundry that makes chips on behalf of companies that don't have their own factories, will jointly develop manufacturing processes for 90-nanometer chips and 65-nanometer chips on 300-millimeter wafers.

Additionally, the two companies will serve as an overflow factory for the other. Chartered customers will be able to get their chips produced in IBM's East Fishkill, N.Y., manufacturing facility, while IBM customers in the future will be able to get chips made at a Chartered facility under construction in Singapore. Tools will be created to ensure that customers can move easily between the two manufacturing sites.

The motive for the deal boils down to money--or rather the lack of it. Cutting-edge production plants--manufacturing 90-nanometer chips on the new, larger 300-millimeter wafers--cost around $2 billion to construct. Rising equipment costs will drive that price tag up in the next couple of years to $3 billion, according to Hector Ruiz, CEO of Advanced Micro Devices.

Instead of building factories on their own, companies are teaming up with other semiconductor manufacturers to build plants or are outsourcing production entirely to foundries. AMD, for example, is jointly building a factory and developing manufacturing techniques with Chartered rival United Microelectronics Corp.

"It is becoming almost impossible for the small semiconductor makers to afford these 300-millimeter" production facilities, said Brian Halla, CEO of National Semiconductor, who defined smaller semiconductor makers as all but Intel and one or two other manufacturers.

IBM and Chartered's deal in some respects represents a trend within a trend. Both companies serve as foundries for outsourcing production and both are helping to cut costs for other companies that can't afford to build their own factories.

The deal, in fact, will help Chartered financially by letting it defer starting production at its new facility until late in the third quarter of 2004, the company said. The factory was slated to begin production next year. Chartered customers that need the most advanced manufacturing technologies will now be able to get them made at IBM's East Fishkill, N.Y., facility.

"This agreement is intended to help our customers by making our advanced technologies more readily available for use in their applications," John Kelly, senior vice president of the IBM Technology Group, said in a statement.

Fruits of the alliance will emerge in the third quarter of 2003, when Chartered customers will likely gain the ability to have 90-nanometer chips made in IBM's facilities. In the fourth quarter of 2003, the two companies will clarify their plans for 65-nanometer manufacturing. Chips with components measuring 65 nanometers will likely emerge in late 2005.

Financial terms of the deal were not disclosed.