Abu Dhabi: Building a new industry

Ongoing developments in Abu Dhabi’s nascent microchip industry, such as plans for a major production plant and big investments by state-owned firms in cutting edge technologies, indicate a bright future for the sector.

In mid-September, the Abu Dhabi government-owned Advanced Technology Investment Company (ATIC) announced plans to invest between $6bn and $7bn building a semi-conductor manufacturing facility in the capital. The 12-inch wafer fabrication facility, the industry’s most sophisticated, is expected to begin production by 2015. It will be the first microchip factory in the Middle East.

The long-term aim of building the plant is to turn the emirate into a centre for semiconductor production. Such high-tech operations are an important plank in the government’s wider diversification strategy for building a sustainable economy.

Abu Dhabi is well suited to host such a facility due to its geographic location, which allows it to act as a trade conduit between East and West. In addition, the semiconductor business is capital intensive and in a post-crisis environment, there are not many countries with the deep pockets necessary for such an investment.

Finally, unlike other areas of the technology manufacturing industry, the semiconductor business is not labour intensive. For the emirate, which has a relatively small population, this is a good strategic fit.

There are various reasons for Abu Dhabi to encourage the growth of high-tech industry. According to technology research firm IC Insights, the semiconductor foundry industry will be worth $26.8bn in 2010.

Furthermore, the need for technology related products is growing rapidly in emerging markets such as India and China. Being well connected onto the global technology market can only be good for the greater economy.

Though 2015 is the completion date for the plant, plans for its development are gaining momentum. The company has chosen the location for its 3-sq-km facility, which will be near Abu Dhabi International Airport.

ATIC has been busy making investments in related fields, beginning with the establishment of GlobalFoundries in March 2009. The company became the world’s first full-service semi-conductor foundry when AMD, the second-largest chip maker globally, joined with ATIC in the joint venture. Also in 2009, the Abu Dhabi government-owned investor purchased Singapore’s Chartered Semiconductor in a deal worth $1.8bn.

“Right now, the focus is on GlobalFoundries. As you look at 2011, you will see that perspective start to broaden. You’ll see complementary kinds of investments in the technology ecosystem in 2011 and beyond,” an ATIC spokesperson recently told local press.

In early September, ATIC was part of a consortium that invested in Smooth-Stone, a US-based company that designs microchips involved in server computing. ATIC parted with $9.5m for a 19% stake in the start up. What makes Smooth-Stone’s microchips so attractive is their low power consumption but high computing performance.

According to the technology research firm IDC, the worldwide server market was worth $10.4bn in the first quarter of 2010. As this market is expected to grow exponentially, such an investment could prove very lucrative in the future.

Abu Dhabi’s focus is firmly on putting the necessary building blocks in place so the emirate can one day be at the confluence of technology and innovation, which will include education and skills training. This should also give other aspects of the economy a welcome fillip in the short term, before the first chip is even produced.

 

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