By Chua Hian Hou

There's no getting away from the fact that home-grown chipmaker Chartered Semiconductor Manufacturing was a financial drag on many of its shareholders' portfolios, with some investors losing 98 cents for every dollar they put into the former stock-market darling.

And as a business, the company has been lacklustre, in the red as often as it turned a profit.

Despite this, it would be grossly unfair to dismiss it as a failure.

Without Chartered, Singapore's $37.3 billion-a-year semiconductor industry, employing 40,000 workers, would probably be significantly smaller - if there was one to begin with.

Indeed, it was pivotal to Singapore's efforts to grow a then non-existent semiconductor industry in the 1980s to one responsible for 11 per cent of the world's chips last year.

First though, the news: Last month, a cash-rich Middle East fund put in a $5.6 billion offer to buy Chartered, the world's third- biggest chipmaker.

The company's majority stakeholder, Temasek Holdings, had agreed to the bid. With Temasek's 62 per cent stake in the bag, Advanced Technology Investment Company (Atic), which is owned by the Abu Dhabi government, is only 13 per cent short of the 75 per cent shareholder approval it needs to proceed.

Shareholders will get to vote on whether the company will remain in Singapore hands or not, likely some time next month after the company sorts out pending necessary legal approvals.

In industry parlance, Chartered is a semiconductor foundry. It gets blueprints for the computer chips that power mobile phones and game consoles, and makes them from silvery discs of silicon in its wafer fabrication plants, or fabs, from these designs.

Before companies like Chartered came about, most electronics companies like Texas Instruments and STMicroelectronics designed and made their own chips via wholly owned-and-operated wafer fabs.

Pioneers of the foundry business, like Taiwan Semiconductor Manufacturing Company (TSMC) founder Morris Chang, decided to turn the model on its head in the early 1980s.

His company, the world's biggest and most successful semiconductor foundry today, would make chips for electronics companies hesitant to venture into the capital-intensive business of setting up wafer fabs to make chips.

This would allow 'fabless' companies to focus on R&D and marketing their finished products. Meanwhile, foundries could specialise in manufacturing and take in orders from multiple customers, allowing them to enjoy economies of scale.

This model looked good and it is clear that at a policy level, the semiconductor sector was deemed strategic to Singapore's interests.

But in the light of the billion-dollar investment required to set up a foundry, few private-sector companies were keen to do this.

And so Chartered was born.

Set up in 1988, the Singapore Technologies spin-off was Singapore's first foundry. It remains today the biggest player here and its six fabs employ some 6,000 workers.

Chartered has been described in some quarters as a loss-leader and perhaps, the description is not without merit.

The loss-leader concept is a well-known strategy in the retail sector. Think supermarkets selling heavily subsidised groceries to draw shoppers in, in the hope that shoppers will buy other items and generate an overall profit for the outlet, or a mobile operator giving handsets away to entice customers to sign up for long and pricey contracts.

Certainly, there was a chance Chartered would make money and there were some years it did make good money. In the foundry business though, both size and technology matters. And while it had successfully narrowed the technology gap between itself and market leaders like TSMC over the years, it remained too small to take on TSMC, which alone has a 49 per cent share of the global foundry business.

Over and above the profit motive though, the overriding goal was to boost the semiconductor sector's viability.

And a foundry is well placed to do this since it sits smack in the middle of the production chain.

The fab would sign up fabless chip companies as customers, and these would hopefully be encouraged to set up shop here as well, to be closer to the site of a company making its chips.

Because of its size, a foundry would also spur the creation of a supporting ecosystem - companies supplying manufacturing equipment and raw materials like silicon, and those that assemble and test the finished products and train engineers.

Once Singapore has fabless companies (customers) and an underlying ecosystem in place, other players including other foundries would come to Singapore - as Chartered's arch-rivals, TSMC and United Microelectronics Corporation (UMC), subsequently did.

Over time, the vibrant semiconductor sector had also set the stage for new investments, like Norwegian energy giant Renewable Energy Corporation's $3 billion solar panel plant, the world's biggest such plant. The manufacturing process for solar panels employs a process that is an essentially less complex version of that used to make semiconductor chips.

Not all of this is due to Chartered, of course.

Nevertheless, it is clear Chartered had a significant role in growing this industry to what it is today.

And while it remains a question mark whether Temasek, and by extension, Singapore, made or lost money from the money pumped over the years into Chartered, it is probably safe to say that Singapore owes Chartered a debt.

This article was first published in The Straits Times.