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IBM's chip business sale gets national security scrutiny

IBM's chip business sale gets national security scrutiny

IBM's plan to transfer its semiconductor manufacturing business to GlobalFoundries faces a government review over national security

IBM's plan to transfer its semiconductor manufacturing business to GlobalFoundries faces a government review over national security implications. It has the potential of being complicated because of IBM's role as a defense supplier.

GlobalFoundries is based in the U.S., but is owned by investors in Abu Dhabi, which is part of the United Arab Emirates (U.A.E.). IBM is paying the firm $1.5 billion to take over its semiconductor manufacturing operations. IBM says it isn't cutting back on R&D or its design of semiconductors, but will rely on GlobalFoundries for manufacturing.

IBM's semiconductor manufacturing unit work includes production of components used in defense systems and intelligence.

"We are in discussions with the U.S. government on the security-related issues, and we believe there are solutions that can address national security interests," Jason Gorss, GlobalFoundries spokesman, said in an email.

Gorss points to the fact that GlobalFoundries successfully completed a national security review by the government when it purchased AMD assets in 2008, "so we are familiar with the process." GlobalFoundries was created out that divestiture.

Because of the foreign ownership issue, the sale will be reviewed by the Committee on Foreign Investment (CFIUS), said Gorss.

Retired U.S. Army Brig. Gen. John Adams, who authored a report last year for an industry group about U.S. supply chain vulnerabilities and national security, said the sale "needs to be closely studied and scrutinized."

Adams said CFIUS will have to look at where the investors are. Some countries are more closely aligned with the U.S. than others, "and I don't want cast aspersions unnecessarily on Abu Dubai -- but they're not Canada," he said. "I think that the news that we may be selling part of our supply chain for semiconductors to a foreign investor is actually bad news."

Gorss points out that the U.A.E. has purchased some of the U.S.'s most sophisticated defense equipment, including F-16s and missile defense systems. The Congressional Research Service, in a report last month to lawmakers, said about 5,000 U.S. military personnel are stationed in U.A.E. and noted its role in extending the U.S.-led efforts against the Islamic State organization, or ISIS.

GlobalFoundries has manufacturing operations in New York, Germany, and Singapore and it would keep operating IBM's chip making operations in New York and Vermont once the sale is completed next year. It also plans to hire nearly all the workers. GlobalFoundries also has R&D, design, and customer support operations in the U.S., Singapore, China, Taiwan, Japan, Germany and the Netherlands.

Apart from the U.A.E.'s investment in the firm, U.S. officials have had long-standing concerns about foreign ownership of critical technology, including semiconductors.

In 2003, the U.S. Department of Defense called for a "Defense Trusted Integrated Circuit Strategy" that provides access "to trusted suppliers of critical microcircuits used in sensitive defense weapons, intelligence, and communications systems."

That led to a pilot program with the NSA and formation of the "Trusted Access Program Office" and then to "a contractual arrangement with the IBM Corp., for the manufacture of leading-edge microelectronic parts in a trusted environment," according to a Defense Department report released in July.

If the U.S. loses more of its industrial capacity, "we mortgage our ability to make national security decisions to investors who come from countries who have interests opposed to ours," said Adams.

To give an example of how extreme foreign dependences can go, one problem cited in Adam's report was the U.S. reliance on a Chinese firm as the sole source for a chemical needed to propel Hellfire air-to-surface missiles. Since that report, the U.S. has identified an American company that is scheduled now to begin production of this propellant component in the next few months. The U.S. is giving some tax incentives and other assistance to make that happen, said Adams.

The U.A.E., has seen its trade suffer because of the embargo with Iran. But the U.A.E is also viewed as a conduit for technology shipments to Iran that bypass the embargo.

In late 2007, Iran claimed to have built a small Linux supercomputer using 216 AMD Opteron chips. Imports of microprocessors and other technologies to Iran isn't allowed under the U.S. embargo.

The Iranian High Performance Computing Research Center (IHPCRC) research center included a series of photographs on its Web site showing workers assembling the supercomputer. The chips could not be identified in the photos, but the shipping boxes and the name of company and the initials U.A.E. on the boxes were visibile.

AMD said it has never authorized any shipment of its products to the U.A.E., and said so again in a response to an SEC query2009.

It's unclear how capable Iran's supercomputing capabilities are at this point; Iran's Amirkabir University of Technology, the home of the IHPCRC, had in 2010 a system with 4,600 CPUs, but it did not identify the processor maker.

After Computerworld published the initial story, Iran removed the photographs. The website of IHPCRC appears to have disappeared as well, replaced by a web page about acne medication.

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