GlobalFoundries, the world’s third largest semiconductor foundry, is on the way to a US IPO as the Abu-Dhabi-owned company increases investments in its US manufacturing facilities.
In its prospectus, filed with the SEC on Monday, GlobalFoundries said Mubadala, a United Arab Emirates government investment fund, will list its shares on the Nasdaq and “will continue to have significant control after this offering.” Mubadala currently owns 100% of the company.
GlobalFoundries is the third largest semiconductor manufacturing market after Taiwan Semiconductor Manufacturing (TSMC) and Samsung. The company has three plants in the United States – two in New York State and one in Burlington, Vermont – as well as one plant in Germany and another in Singapore. One of the New York locations in East Fishkill was bought by ON Semiconductor in 2019 and will be carried over from GlobalFoundries’ books next year.
In April, GlobalFoundries relocated its headquarters from Santa Clara, California to Malta, New York, where its state-of-the-art facility is located. CEO Tom Caulfield, a native of New York City, told CNBC this month that the company plans to invest $ 1.4 billion in chip factories in 2021 and is likely to double its investments over the next year.
GlobalFoundries was founded in 2008 when a division of Mubadala acquired AMD’s manufacturing operations in Dresden, Germany, and counts chipmakers Qualcomm, Broadcom, Samsung and AMD among its largest customers. As a group, the top 10 customers account for almost three quarters of sales.
GlobalFoundries makes chips designed by its customers for contactless payments, touch display drivers for battery power management, and many other uses. Intel announced in March that it would compete in the market and become a foundry for other companies that is expected to invest $ 20 billion in US equipment.
With the outbreak of the Covid-19 pandemic last year, demand for electronics such as laptops, monitors and game consoles increased, leading to a supply shortage and underscoring the need for more capacity. Meanwhile, consumers are flocking to electric vehicles, adding further strain to the supply chain.
“While the supply and demand imbalance is expected to improve in the medium term, the semiconductor industry will need a significant increase in investment to keep pace with demand, with total industry revenue expected to double over the next eight to ten years,” said GlobalFoundries says in its prospectus.
GlobalFoundries’ sales fell 17% to $ 4.85 billion last year, but the company cited two main reasons for the decline. GlobalFoundries sold a business that grossed $ 391 million in 2019, and generally speaking, the company changed the terms of the contract with most of its customers, changing how and when it records sales.
In the first half of 2021, revenue rose 13% year over year to just over $ 3 billion.
Operating foundries is an inherently low margin business with high costs of labor, running plants, and purchasing equipment and raw materials. For the first half of this year, GlobalFoundries posted gross margin, or revenue remaining after cost of sales, of nearly 11%, a reversal from a negative margin last year. The net loss for the six month period decreased from $ 534 million to $ 301 million.
While GlobalFoundries is based in the United States, it is considered a “foreign issuer” since it was founded by Mubadala in the Cayman Islands. That means the company is exempt from certain Nasdaq rules that apply to U.S. companies, such as filling most of its board seats with independent directors and getting shareholder approval for some stock-compensation agreements.
GlobalFoundries didn’t say how much money it plans to raise or how much Mubadala will control after the offer. Regardless of the ownership rate, investors must take the risk of buying into an Abu Dhabi-controlled company.
“Mubadala will continue to have material control after this offering that could limit your ability to influence the outcome of important transactions, including a change of control, and otherwise affect the prevailing market price of our common stock,” said GlobalFoundries in the Risk Factors in the prospectus.
SEE: GlobalFoundries plans to increase production to address the chip shortage