The 3rd largest chip maker in the world IPOs today. No-brainer investment right? Demand keeps outstripping supply; the Economist expects the chip shortage to last well into 2023. But analysts are calling the IPO a “cry for help.” Here’s what you need to know.
The Story of GlobalFoundries
In 2008, AMD executives announced a new strategy. They were going fabless. They spun out their semiconductor manufacturing business. That is the company IPO’ing today: $GFS GlobalFoundries. It worked out for AMD. The stock is up 22x. But what about GFS?
PHASE 1 – The Doug Groose era.
CEO from 2009-2011. The company started out with 1 Fab in Dresden, Germany serving AMD. It quickly snagged additional, huge customers: ARM Broadcom Qualcomm This allowed it to form a second fab in New York.
Things were looking good. With momentum rising, in 2010 they merged with Chartered Semiconductor. This brought the company: 6 more fabs in Singapore (!) 150 more customers Including many automative companies.
PHASE 2 – The Ajit Manocha era.
CEO from 2011-2014. The company fully divested from AMD and partnered with Samsung on 14nm manufacturing, continuing to try to push towards advanced nodes.
PHASE 3 – The Sanjay Jha era.
CEO from 2014-2018. The company acquired IBM’s Microelectronics business. It also ramped its Malta Fab. It kept pushing to try and compete with TSMC and Samsung at the high end. Its owner, the Abu Dhabi wealth fund, kept funding investments.
PHASE 4 – The Tom Caulfield era.
CEO from 2018-present. Abu Dhabi was done with the investments. Tom repositioned the company. His first order of business was to ditch the plans for 7nm. Instead of focusing on leading edge, GFS now focuses on specialized.
Current Market Position
Today, the firm specializes in 7 types of chips that can be broadly thought of as radio-frequency communications chips for 5G & automotive GFS is the leader in 3:
- RF Silicon-on-Insulator
- Fully Depleted Silicon-on-Insulator solutions (FDX)
- Silicon Germanium (SiGe)
Broadly, you can understand GFS to focus on Pervasive semiconductors instead of process-centric compute semiconductors, which require bleeding-edge transistor scaling (7, 5, 3nm) This focus has led GFS to be the world’s third-largest foundry by revenue behind TSMC & Samsung (!).
IPO Analysis
So why do analysts call the IPO “a cry for help?”
1. The company is hemorrhaging money, having lost nearly half a billion dollars during the first half of 2021:
2. It has not been growing revenue the past three years, although it did in the first half of 2021:
Does the company have any hope? The argument is:
- It is in large and growing markets like smart mobile devices, home & industrial IOT, comms & data center.
- With demand continuing to outstrip supply, the company can turn a profit.
What do you think? Many investors are betting on senate democrats and Biden to include economic incentives that will benefit an American headquartered fab.
Sources: S-1, Fabricated Knowledge, Semiwiki
