GLO Part 3: Silicon Semiconductors & Jumping Sand Dunes in the Arabian Desert

ATIC offices are located in the world’s first circular skyscraper.

In the final installment of our blog series on Tippie’s Global Learning Opportunity (GLO) trip to Dubai, we traveled to Abu Dhabi, the largest and most oil-rich of the seven emirates of the United Arab Emirates. 

As part of its strategy to diversify its economy, the Abu Dhabi government formed the Advanced Technology Investment Company (ATIC) to make investments in the technology sector.  Headquartered in the world’s first circular skyscraper, one of ATIC’s largest investments is a 100% ownership interest in GlobalFoundries, the world’s second largest semiconductor manufacturer.

GlobalFoundries was created through acquisition of several semiconductor manufacturers, including AMD, the second-largest supplier of microprocessors (behind Intel).  Semiconductor manufacturing requires large capital investments and a specialized infrastructure.  The industry has matured to a point where most tech companies design microchips themselves but outsource the manufacture to a handful of firms who operate on thin margins in a competitive industry.  As the industry consolidates, a handful of  specialized companies — like GlobalFoundries — remain.

We learned that the interplay between government and business in the United Arab Emirates results in a different corporate outlook than the typical U.S. public company.  Due to ATIC’s status as an investment arm of the Abu Dhabi government, company management takes a long term view of its investments. That means less focus on the next quarterly report to shareholders.  ATIC’s investment in GlobalFoundries was made with this kind of long-term view.

As of today, profit margins are far higher in semiconductor design than in semiconductor manufacturing.  Perhaps ATIC’s management has a 10, or 20, or 30-year vision of the industry with potential for higher margins.  With barriers to entry so high, one breakthrough technology or game-changing event could result in huge profits. Quick action could allow them to take advantage of these profits before new companies can enter the market.  It’s a luxury many U.S. public companies cannot afford, since bonuses and company report cards are predicated on last year’s results rather than a speculative R&D pipeline.

PM student Brent Wells and Full-time student Adam Plagge during the Desert Safari.

Due to ATIC’s status as a government-owned entity, its mandate includes the development of UAE’s technology sector in addition to generating profits.  Government plans include expanding local educational opportunities to obtain engineering degrees and other advanced skills necessary to compete globally in the industry and technology sector.  Even if GlobalFoundries doesn’t provide 10% returns year after year, if ATIC’s investments result in a new Silicon Valley of the Middle East, the investment will be a success.

From silicon semiconductors to sand dunes, the last day of our trip took us to the middle of the Arabian Desert for some camel riding and sand dune-jumping in a 4X4 (rollbar included).  It’s difficult to say which is a rougher ride between these two transportation options, but both were exhilarating – an experience that this group of Tippie students will always remember.

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Michael Thompson

About Michael Thompson

Michael Thompson is a second year Finance Academy student and a practicing business & public company lawyer with an Iowa City-based law firm.