The federal government will privatize a publicly owned semiconductor plant that technology executives and investors say could be key to Canada’s AI hardware ambitions. 

Industry Minister Mélanie Joly announced Monday that the National Research Council plans to convert its Canadian Photonics Fabrication Centre (CPFC) into a commercial entity that can take on private-sector capital. The Ottawa-based plant is one of only three independent facilities in the world that manufactures compound semiconductors, light-based components that help move information around data centres.

The spinout will “expand the development of critical technologies,” Joly said in a statement.

Tech firms and policymakers in the capital have long pushed for the CPFC to go commercial. They say the facility could become a production hub or “foundry” for compound semiconductors, serving many different hardware firms. Taiwan Semiconductor Manufacturing (TSMC) has become one of the world’s most valuable companies by doing the same thing for silicon-based chips. 

The CPFC “can be a real foundry and be an anchor player,” said Hamid Arabzadeh, CEO of Ottawa-based Ranovus. The company buys parts from the CPFC for its optical technology, which moves information between AI chips in data centres. As a commercial operation, it could become “an anchor Canadian source for lasers in the world,” Arabzadeh said. He added that possible markets beyond data centres include radar, sensors and autonomous vehicles.

CPFC clients have said the facility can’t offer the same contract terms as a purely commercial plant, forcing them to either secure additional suppliers or move their business elsewhere as they grow. Private capital could help the plant address those issues, expand capacity and enter new product lines, they say.

“Canada is one of the few countries that can go from ground to chip,” said Kelly Daize, executive director of the Kanata North Business Association, citing domestic deposits of critical minerals used in semiconductors, as well as manufacturing facilities. She added that “building a sovereign semiconductor supply chain is essential” to meet rising global demand for photonics from the AI, quantum and defence sectors. 

While the CPFC is located in Ottawa’s northeast, many firms to the west in Kanata already use the plant, and the association has pushed for the spinout and provided input to the business case for commercialization that the council commissioned. 

“With what we’re seeing with the AI boom, it feels like the perfect opportunity for Canada to lean into our strengths in photonics,” said Jenna Sudds, the member of Parliament for Kanata, who has also advocated for CPFC to be spun out. 

By combining the facility with local technology design centres, the region can “dramatically shorten innovation cycles, moving from concept to fabrication faster,” said Terry Matthews, chair of investment firm Wesley Clover International and founder of telecom equipment company Mitel. Matthews added the move would help the region compete internationally.

Potential buyers and backers are already lining up. Ranovus is interested in taking the facility over or taking a stake, and has discussed the project with investors, Arabzadeh said. He estimated it would cost a few hundred million dollars to scale up the CPFC and make it more globally competitive. Ottawa has yet to release terms of the spin-out process, or disclose financial information that would inform a bid. 

U.S. private equity funds have previously shown interest in investing in the CPFC. The government’s spin-out process will require Canadian control over the facility once it is privatized, according to Sudds. “It’s top of the list to ensure it remains a sovereign asset.” 

Matthews similarly said it’s critical that Canadian-owned firms “have the opportunity to invest in and help shape this facility, ensuring it is built, scaled, and operated in Canada for long-term national advantage.”

The council opened the CPFC in May 2005, buying much of its equipment and infrastructure from telecom equipment firm Nortel, which was headed for bankruptcy. The federal government has added some capital funding over the years, including $90 million in February 2022 to pay for a new building and reactors.