(Bloomberg) — The Pentagon plans to place as much as $2 billion in rush orders by early March for customized semiconductors used in weapons like the B-2 bomber before the production line for them is shut down.
GlobalFoundries Inc. has sold the factory in Fishkill, New York, that produces the specialized chips used in GPS-dependent systems, and the new owner won’t be making them.
The Defense Department is confronting its looming supply crunch amid a global shortage of the chips used in consumer items from mobile phones to autonomous vehicles, markets where GlobalFoundries is expanding its production. The Pentagon’s move “addresses a diminishing manufacturing capacity,” said Jessica Maxwell, a spokeswoman for the department’s acquisition office
Under a stopgap spending bill passed by Congress, an initial $885 million in orders would be placed by Dec. 15 with U.S. contractors dependent on the components so that they can contract a substantial share of the total with GlobalFoundries. That gives the company “enough time to process the requests and manufacture the parts before the production line shuts down,” Maxwell said via email.
A sign of the issue’s urgency: The $885 million was the only Pentagon-related exception that the White House budget office asked Congress to approve in its stopgap spending measure, which generally freezes spending at fiscal 2021 levels.
The remainder of the $2 billion in orders would need to be placed by March 3, in advance of the expected completion of the factory’s sale next December, according to a defense official who spoke on condition of anonymity. Chips take about three months to go from discs of silicon to finished products.
Destroyers, Bombs
Systems that use the semiconductors include the B-2 stealth bomber, the Army and Marine Corps Joint Tactical Light Vehicle, the Army’s wheeled Stryker vehicle, the Navy’s Arleigh Burke-class destroyer and the Air Force’s new Small Diameter Bomb II, according to the Air Force, which is overseeing the chip purchases.
GlobalFoundries’s $430 million sale of its specialized fabrication, or “Fab 10,” facility to On Semiconductor Corp. is driving these “end-of-life” orders, the company said in a statement. “For certain programs and technologies, we are meeting the DoD’s needs by manufacturing large volumes of chips sufficient for the lifetime of the program.”
“In other instances, we are partnering with the DoD to extend the lifecycle of certain technologies manufactured at Fab 10 by transitioning the manufacturing of their chips to other GF Fabs,” the company said.
The April 2019 announcement of the Fishkill facility transaction called for On Semiconductor to take full control of the facility — originally built by International Business Machines Corp. — and its workforce by about December 2022, subject to regulatory review.
The Air Force said in a statement that the “bulk buy” of the military’s specialized GPS code-compliant “Application Specific Integrated Circuits” is intended to cover multiple years “for use in various cards, receivers, and/or platforms based on service requirements.” The components are built to defense standards for specialized weight and power requirements.
In February, the Defense Department signed a new strategic agreement with GlobalFoundries to supply semiconductors starting in 2023 manufactured at another facility in Malta, New York — the home state of Senate Majority Leader Chuck Schumer who has been advocating for a robust and secure base of U.S. semiconductor suppliers. But that facility won’t produce the chips made at Fishkill.
GlobalFoundries operates manufacturing facilities in the U.S., Europe, and Asia, and it says as many as 250 companies are customers. The company is based in Santa Clara, California, but Mubadala Investment Co., the investment arm of the government of Abu Dhabi, owns 80% of the company.
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