The GlobalFoundries Inc. IPO is going to go live soon by the third-largest semiconductor foundry in the world. It is going to be a US-based IPO. The GlobalFoundries Inc IPO is being offered when the Abu Dhabi-based business is trying to boost its investments in the manufacturing sites in the nation. In the prospectus given for GlobalFoundries Inc. IPO to the Securities and Exchange Commission, the company said that a United Arab Emirates investment fund, Mubadala, will list the shares on the Nasdaq and have large control after the offering. The investment fund presently has complete ownership of the firm. The firm is third in the market for semiconductor fabrication. It is behind Samsung and Taiwan Semiconductor Manufacturing (TSMC).
The firm has more than a couple of US plants. These include one in Burlington, Vermont, and a couple in New York State. There is also a plant in Singapore and another in Germany. One of the sites in New York is situated in East Fishkill. It was bought by ON Semiconductor a few years ago and will be written off the firm's books next year. Half a year ago, the company shifted its headquarters to Malta, New York, California, from Santa Clara. The headquarters is the location of its most advanced facility. CEO Tom Caufield is a native New Yorker. He has said that the firm wants to invest nearly $1.5 billion in chip factories this year. He will double its investment by the following year.
With the onset of the coronavirus pandemic, demand has increased for electronics such as game consoles, monitors, and laptops. This has led to a shortage in supply and underlines the requirement for greater capacity. Buyers also want electric vehicles. This has put greater stress on the supply chain. GlobalFoundries said, "Although the supply-demand imbalance is expected to improve over the medium-term, the semiconductor industry will require a significant increase in investment to keep up with demand, with total industry revenue expected to double over the next eight to ten years."
The company was created nearly 13 years ago. This was when a division of Mubadala bought AMD's manufacturing operations in Dresden, Germany. The firm's biggest customers are AMD, Samsung, Broadcom, and Qualcomm. As a group, its top customers account for nearly three-quarters of its revenue. The company develops chips that its users' designed for use in touch display drivers, battery power management, contactless payments, and several other purposes. Intel said six months ago that it aims to compete in the market and become a foundry for other firms. It is going to invest nearly $20 billion in plants in the country.
The company has its corporate headquarters in the US. But it is seen as a foreign issuer because its incorporation has been done in the Cayman Islands by Mubadala. This shows that the firm is exempt from some Nasdaq rules that apply to US firms. This includes having over a majority of the board seats occupied by independent directors and taking shareholder approval for several equity compensation agreements. The firm has not said how much cash it will raise or how much Mubadala will have after the offering. Whatever the ownership level, investors will have to accept the risk of buying into a firm that Abu Dhabi controls. GlobalFoundries said, "Mubadala will continue to have substantial control after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control, and otherwise affect the prevailing market price of our ordinary shares."
Revenue at the firm has decreased in the previous year to $4.85 billion. This was a drop of 17%. But the firm said that there were a couple of major reasons for the decrease. The firm divested a company that gave $391 million a few years ago. More widely, the firm shifted contractual terms with most of its buyers. It modified when and how it recognized revenue. In the initial part of this year, revenue increased by 13% to over $3 billion a year earlier. Running foundries is a low-margin business. There are high costs associated with buying raw materials and equipment, running plants, and paying labor. For the initial part of this year, the firm had a gross margin or the revenue left after factoring in the cost of goods sold, nearly 11%. This is a reversal from a negative margin a year before. The net loss for six months was only $301 million compared to $534 million a year earlier.
GlobalFoundries Inc IPO is boosted by skyrocketing chip demand
In the latest filing, the firm has said that it expects the third-quarter revenue to come in at about $1.7 billion. This is at the higher end of expectations. This shows a 56% increase from a year before. The revenue of the firm has been decreasing over the past four years. But over the past year, the firm's growth increased as global demand for chips skyrocketed and has impacted the US economy. The firm has been consolidating the product lines and announced plans to increase its base in Singapore and the United States with new factories. It is going to build a second factory near its Malta, New York, headquarters. It is going to spend $1 billion to increase the output.
GlobalFoundries Inc IPO is playing up the China angle
A lot has been said that many fabrication capacities are either in China or Taiwan, which poses a risk for US national security if there are outright hostilities between the nations. The firm mentions this in the filing. They say that they are the only US-based chip foundry with an international footprint. The company said, "We have limited exposure to China relative to our competition, as we do not maintain any fab operations in the country and have a diversified customer base with less than 10% of total sales in 2020 originating in China. These trends have not only created trade imbalances and disputes. However, they have also exposed global supply chains to significant risks, including geopolitical risks."
The company's rivals in the foundry space are Taiwan's United Microelectronics, China's Semiconductor Manufacturing International Corp., South Korea's Samsung, and TSMC. The firm has said that more than 70% of silicon wafer sales by revenue went to China or Taiwan. This means UMC, TSMC, and SMIC combined. Kevin Krewell of TIRIAS Research said, "GlobalFoundries has established a solid global foundry business with a differentiated offering," said Krewell. "It plans to build a profitable business with investments from key customers to reach its capacity. The company is also important for global semiconductor supply chain diversity in process technology and geographic fab locations, including the US. The IPO should provide funds for further expansion."
A decline of semiconductor chips worldwide has forced the world's biggest chip makers to increase global production after the coronavirus pandemic that led to manufacturing delays. Credit Suisse, Citigroup, JP Morgan, BofA Securities, and Morgan Stanley are the main underwriters for the GlobalFoundries Inc IPO.