Rumors of GlobalFoundries’ plans to buy Taiwan’s UMC send the latter’s share price soaring by 13%

Since Donald Trump came to power in the United States, his drive to locally manufacture key products has galvanized business talks of all kinds. GlobalFoundries is reportedly considering acquiring Taiwanese rival UMC to diversify its manufacturing base overall.

Image source: UMC

At least, the Japanese publication Nikkei Asian Review began discussing the rumors yesterday, citing the participation in the negotiations of not only representatives of both companies, but also some officials on both sides of the ocean. According to sources, the idea of ​​close cooperation between GlobalFoundries and UMC began to be discussed a couple of years ago. Each of the companies controls about 5% of the world market for contract chip manufacturing services in monetary terms, and their merger would create a major player in the mature lithography segment. Considering that mature technological processes account for up to 70% of the world’s chip production volumes, the strategic importance of this deal would be difficult to dispute.

The geographic distribution of spheres of influence in the mature lithography sector as of 2023 was as follows: Taiwan covered 44% of the world market demand, followed by China with 31%, and the US accounted for only 5%. It is noteworthy that the nominally American company GlobalFoundries, in terms of capital, is still controlled by investors from the UAE. UMC is the oldest Taiwanese contract chip manufacturer, founded in 1980, but the later TSMC was able to achieve world leadership in terms of both lithography technology and revenue.

Attempts to lure UMC to American soil began under Biden, but the Taiwanese company refused to build factories in the US, citing too high operating costs. Only Intel partially succeeded in this, having agreed with UMC to adapt the latter’s 12-nm technology in such a way as to establish the production of corresponding chips on Intel’s free production lines in the US as a tenant. The partners will begin producing chips under this scheme in 2027.

UMC has manufacturing facilities in Taiwan, Singapore, China, and Japan. GlobalFoundries also has a facility in Singapore, and the company also owns factories in Germany that it inherited from AMD. In addition, GlobalFoundries has several facilities in New York State, which allows it to be considered an American chip maker. A potential alliance between the two companies also makes sense in terms of countering the expansion of Chinese competitors. Last year, China-based SMIC displaced UMC from third place in the ranking of the largest contract chip makers in the world by revenue.

It is important to understand that the deal between GlobalFoundries and UMC would inevitably require approval from antitrust authorities in various regions, including China. The latter government has already blocked the deal for the American corporation Intel to buy the Israeli contract chip manufacturer Tower Semiconductor, so from this point of view, there is no point in having illusions about China’s loyalty to such ideas.

Representatives of GlobalFoundries declined to comment on the Nikkei publication, and UMC CFO Chitung Liu said that his company is not currently involved in merger talks and will not comment on rumors about other companies’ possible participation. UMC tries to maintain good relations with the authorities of the countries where it operates. Notably, GlobalFoundries shares barely reacted to rumors about the upcoming merger with UMC, while the latter’s securities rose by almost 13% at the time.