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GlobalFoundries IPO raises $2.6B amid intense worldwide chip demand

GlobalFoundries IPO raises $2.6B amid intense worldwide chip demand

GlobalFoundries, the world’s fourth-largest contract chipmaker, raised $2.6 billion with its initial public offering on the NASDAQ. The firm’s debut ranked as the third-biggest American IPO of the year, which established its value at $25 billion.

The corporation’s secured a massive capital infusion by going public during a period of extremely high demand for its services. In the first half of 2021, it improved its revenue by 13 percent and is on track to a $6 billion year. The foundry intends to invest the proceeds of its IPO into expanding its production capacity worldwide.

Why GlobalFoundries Went Public This Year

On the surface, GlobalFoundries’ decision to go public this year is a surprise.

The chipmaker has never generated a profit for its primary stakeholder, Mubadala Investment Company, since its founding in 2009. It struggled to make money in the face of high research and development costs and intense competition from overseas rivals. Plus, its annual revenue plunged after it stopped pursuing advanced manufacturing processes in 2018, effectively bowing out of the industrywide transistor miniaturization race.

However, GlobalFoundries reached a turning point amid the digitalization wave that followed the coronavirus outbreak.

Manufacturers snapped up large quantities of microelectronics to enable learning, work, recreation in quarantine. That development prompted a widespread spike in demand for chips which were in short supply due to pandemic-related productions shutdowns. GlobalFoundries’ customers, including AMD, Amazon, Apple, Qualcomm, and Broadcom, increased their orders to meet the spike in demand.

In response, the contract chipmaker announced it would spend $1.4 billion to boost the output at its fabs in Singapore, Germany, and the United States. Also, it broke ground on a $4 billion Singaporean fab in June that will commence operations in 2023.

The foundry also re-examined its plans to launch an IPO in late 2022 or early 2023. It believes the heightened interest in semiconductors will remain consistent, and it needs more capacity to capitalize on the opportunity. Accordingly, it went public sooner than planned to acquire the money necessary to expand its manufacturing footprint.

As of this writing, the contract manufacturer has not outlined its long-term roadmap. But it is on course to reach the middle of this decade in a very strong financial position.

GlobalFoundries’ Success and Its Impact on the Industry

One factor that likely clinched Mubadala’s decision to launch GlobalFoundries IPO in 2021 is its recent contract with AMD.

The firm inked a $1.6 billion wafer supply agreement with the semiconductor company that will run through 2024. Its legacy nodes will provide the chipmaker will die for its leading-edge EPYC and Milan chips. Contract chipmakers need their production lines filled for their factories to be profitable. GlobalFoundries will keep its plants’ utilization rates high thanks to the AMD prepaid deal and other recent contracts.

CEO Thomas Caulfield said the corporation’s wafer capacity is fully booked through 2023 in a recent interview. The executive’s disclosure has significant and mixed implications for the microelectronics industry.

On the one hand, GlobalFoundries should generate significant stable income from its existing factories. The firm’s new fabs will likely have large orders waiting for them as soon as they go online. In addition, its customers, including NXP Semiconductors, MediaTek, and Qorvo, will have greater support from an important production partner.

However, on the other hand, the foundry service provider’s booking schedule means it has no incentive to reduce its fees. Consequently, its customers will not have room to cut their prices in the immediate future. The firm specializes in making feature semiconductors, a market segment leading providers TSMC, Samsung, and Intel are not actively pursuing.

In other words, GlobalFoundries’ success will help alleviate the availability problems that have plagued the component industry since last year. But its growth will normalize higher than usual component costs for OEMs, CMs, and EMS providers.

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