We are sold out for semiconductor chip capacity until 2023

Semiconductor maker GlobalFoundries debuted on Nasdaq this week worth over $ 25 billion as it became increasingly clear that a global chip shortage could continue through 2023 or later.

Now GlobalFoundries needs to convince public market investors that the company is riding a wave of increased demand for all kinds of microchips that will not dwindle to pandemic-related supply problems, and that it can increase profitability even if it spends billions on a capital-intensive Corporation.

“I think for most of the next five to 10 years, we’re going to be chasing supply, not demand,” GlobalFoundries CEO Tom Caulfield said in an interview with CNBC. GlobalFoundries’ customers include Qualcomm, MediaTek, NXP Semiconductors and Qorvo.

Car companies and manufacturers of household appliances have been struggling for several months to get enough chips for construction products, and now the problem is spreading to electronics manufacturers and their suppliers. Apple, for example, said it will miss out on more than $ 6 billion in sales this holiday season due to chip shortages. Intel also owed its lower CPU sales to lack of power supply and network chips.

But the shortage is not for the most advanced chips that use the latest manufacturing methods. Instead, there is the lack of what are often called “legacy nodes,” or semiconductors that use older technology to perform functions such as power management, connecting to monitors, or activating wireless connections.

These are the kind of chips that GlobalFoundries, a third-party silicon wafer foundry, specializes in making for its customers, Caulfield explained.

“That’s where the biggest part of the shortage is because there has been underinvestment in it,” Caulfield said. “For me, we are happy to let the larger companies serve the single-digit nanometer market in a way, and we want to be the very best in our differentiated technology.”

The profitability of the foundry business is linked to the utilization, or the rate at which the foundry’s factories operate around the clock. GlobalFoundries had an utilization rate of 84% by 2020, but Caulfield said it was related to slowdowns in the early pandemic.

“I would say that since August 2020 we can not earn enough. Every day we try to squeeze out as much as we can. I would say we are over 100%,” Caulfield said, adding that the company’s wafer capacity was sold out by the end of 2023.

Caulfield said GlobalFoundries made a strategic decision in 2018 to stop developing the innovative chip manufacturing technologies that foundries like TSMC and Samsung invest in, and instead focus on less advanced but still essential semiconductors for its customers.

Foundries have low business models and face high costs for labor, equipment and raw materials. In its prospectus, GlobalFoundries said it recorded a gross margin of close to 11% in the first half of 2021.

Of the $ 2.6 billion GlobalFoundries raised in the public markets, $ 1.5 billion will be spent on capital expenditures to increase capacity to meet demand, Caulfield said. It operates factories in the United States, Germany and Singapore.

GlobalFoundries shares closed 1.3% lower on Thursday, below its $ 47 debut price, before rising above 5% on Friday to close at $ 48.74.

The company is still over 85% owned by Mubadala, the United Arab Emirates’ state investment fund. Mubadala took control of the company when AMD broke its production arm, which became GlobalFoundries, and focused on chip design in 2008.

Caulfield said Mubadala will reduce its stake in GlobalFoundries in the coming years, but will still continue to support the manufacturer.

“Over the next few years, call it five to six years, in a very orderly and transparent way, [Mubadala will] take some of their ownership out to be more balanced, “Caulfield said.

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