Chip maker backed by Mubadala set for new era after Nasdaq IPO

GlobalFoundries, the world’s third-largest semiconductor manufacturer, owned by Abu Dhabi’s Mubadala Investment Company, is set for a US initial public offering that could value the company in the region of more than $25 billion.

The listing in New York, expected by the end of the month - itself a landmark transaction for a company backed by a sovereign wealth fund from the Middle East - would bookend a remarkable journey for what began as the acquisition of Advanced Micro Devices' semiconductor manufacturing assets by Mubadala, in March 2009.

GlobalFoundries’ IPO also comes at a time when businesses worldwide are dealing with a shortage of semiconductors – an important component used in products from smartphones to automobiles. The shortage has upended the production lines of various tech companies and car manufacturers that rely on chips to run their sensors and other electronic functions within devices.

Industry experts attributed the shortage to a sharp rise in demand and Covid-induced supply chain disruptions.

“Demand has outstripped supply across most of the semiconductor industry,” GlobalFoundries said in its IPO prospectus that was filed with the Securities and Exchange Commission on October 4.

“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 10 years,” it added.

While shortages are expected to continue easing through the end of this year, Massachusetts-based researcher International Data Corporation expects the industry to normalise and balance by mid-next year with the potential for overcapacity in 2023 as larger scale capacity expansions begin to come online towards the end of 2022.

Global chip sales are forecast to surge 8.4 per cent this year from last year's total of $433bn, according to the Semiconductor Industry Association. This is up from 5.1 per cent growth witnessed in 2020.

Growth is driven by smartphones, notebooks, widespread 5G rollout, servers, automotive, smart home, gaming, wearables and wi-fi access points, with increased memory pricing.

Earlier this year, GlobalFoundries said it was co-investing $4bn in a new plant in Singapore to plug the global shortage of semiconductors. The plant will be financed through its own investments and those of government and long-term customers, chief executive Thomas Caulfield said at the time.

It is also planning to spend $1bn in both the US and Germany to expand manufacturing capacity over the next two years.

In March, GlobalFoundries said it planned to invest $1.4bn in 2021 to expand its manufacturing capacity across Singapore, Europe and the US. This network gives it a unique geographical spread and allows it to position itself as having limited exposure to China compared to its peers.

Other semiconductor manufacturers also intend to capitalise on future demand growth sparked by growing digitisation after the onset of the Covid-19 pandemic.

In March, Intel said it will invest $20bn to expand its manufacturing facilities as it expects chip shortages to spill over into next year.

In the same month, Taiwan's TSMC unveiled plans to invest $100bn over the next three years to increase its production capacity.

In October 2014, GlobalFoundries acquired International Business Machines’ microelectronics division with manufacturing facilities in New York and Vermont, in a deal which added to its global footprint and advanced manufacturing sites in the US, Germany and Singapore.

Last year, it shipped nearly 2 million 300-milimetre semiconductor wafers.

In 2009, at the time of the AMD divestment, the company was comprised of manufacturing facilities in Dresden, Germany, with a planned mega-fab to be constructed in New York. A semiconductor foundry, commonly called a fab, refers to a factory where devices like integrated circuits are manufactured.

In September 2009, Singapore’s Chartered Semiconductor - the third-largest foundry by revenue at the time - was acquired and its fabrication facilities were integrated into GlobalFoundries. This acquisition formed the basis for GlobalFoundries Singapore manufacturing hub.

“With this level of market presence and capability, our technologies are found across most semiconductor end markets in devices used on a daily basis,” the company said.

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In April, GlobalFoundries moved its headquarters from Santa Clara, California, to Malta, New York, which is home to its most advanced facility – Fab 8.

This decision was taken as the company positioned itself for “growth, strengthens partnerships with customers and recruits new talent”. It will fuel its commitment to “address the soaring global chip demand, with a focus on semiconductor manufacturing innovation”.

GlobalFoundries has invested more than $15bn in its Fab 8 facility over the last decade to support innovation and manufacturing capacity. In 2021, the company is doubling its planned investment to expand global capacity, with $500m targeted for Malta alone.

GlobalFoundries’ differentiated platforms are well-positioned in five key growth markets - smart mobile devices, home and industrial internet of things, communications infrastructure and data centres, automotive and personal computing.

The company said it is working towards redefining innovation and semiconductor manufacturing.

“We believe that semiconductor manufacturing innovation is about making chips smarter, not just smaller. That’s why we work hand in hand with our customers, collaborating to develop and manufacture feature-rich solutions that provide the leadership performance vital to many growing markets.”

Its chips enable specific features such as touchscreens, streaming movies and secure pay, and “new generations of these chips will require greater security and lower power consumption even as they enable our customers to push the envelope of innovation”, the company said.

Currently, there are only five foundries of significant scale – TSMC, Samsung, GlobalFoundries, Semiconductor Manufacturing International Corporation and United Microelectronics Corporation.

Collectively, these five entities accounted for the vast majority of worldwide foundry sale in 2020, according to Gartner. Nearly 77 per cent of foundry revenue last year was from chips manufactured in Taiwan or China, with SMIC, TSMC and UMC accounting for approximately 72 per cent of the total revenue.

“These trends have not only created trade imbalances and disputes but have also exposed global supply chains to significant risks, including geopolitical risks. The US and European governments are increasingly focused on developing a semiconductor supply chain that is less dependent on manufacturing based in Taiwan or China,” GlobalFoundries said in its prospectus.

However, running semiconductor foundries is fundamentally a low-margin business, with high costs related to equipment, labour and raw materials.

Net revenue at GlobalFoundries dropped last year by more than 16.5 per cent to $4.9bn after falling nearly 6.2 per cent in 2019. One of the key reasons behind the drop was the company’s decision to divest Avera Semiconductor business in 2019 that brought in $391 million in 2019 and $402m in 2018.

In the first half of this year, the company’s sales jumped by 13 per cent on an annualised basis to nearly $3.04bn.