TAIPEI -- Top U.S. contract chipmaker Globalfoundries is betting the trend for semiconductor "onshoring" will help it win over clients and investors as the loss-making company prepares for an initial public offering in New York.
Major economies, including the U.S. and Japan, are pushing to build up their domestic semiconductor supply chains while also demanding global chipmakers resolve the unprecedented chip shortage that has forced automakers around the world to cut production.
In its application to list on the Nasdaq, filed on Monday U.S. time, Globalfoundries said it aims to raise about $1 billion. That figure is just preliminary, however, and is expected to change after the IPO is finalized. It is far smaller than $6 billion that the chipmaker says it will spend to expand capacity.
Owned by Abu Dhabi's state-owned fund Mubadala and headquartered in New York, Globalfoundries operates production facilities in the U.S., Germany and Singapore. It is the world's fourth-largest contract chip player after Taiwan Semiconductor Manufacturing Co., Samsung Electronics and United Microelectronics Corp.
While its peers are enjoying robust profits, however, Globalfoundries has logged net losses for at least the three years since 2018. To differentiate itself, the company has been promoting itself as the only "scaled pure-play foundry with a global footprint that is not based in China or Taiwan." This could help mitigate geopolitical risks for clients and provide greater supply chain certainty, the company said in its prospectus, adding that 77% of the world's contract chipmaking by revenue as of 2020 was centered on Taiwan and China, citing data from research company Gartner.
"These [chipmaking concentration] trends have not only created trade imbalances and disputes but have also exposed global supply chains to significant risks, including geopolitical risks," Globalfoundries said in the prospectus. "The U.S. and European governments are increasingly focused on developing a semiconductor supply chain that is less dependent on manufacturing based in Taiwan or China."
The chipmaker put particular emphasis on Taiwan, home to the world's most valuable chip company, TSMC, describing it as "a resource-constrained island susceptible to natural disasters and geopolitical tension," exposing "global supply chains to significant risk."
The White House in June said an overconcentration of advanced chip production in Asia posed a threat to global supply chains, and the U.S. Commerce Department recently demanded that key chipmakers hand over confidential data, including on sales, raw materials, equipment purchase statuses and client information, in an attempt to address the nearly yearlong global chip shortage.
Globalfoundries said it has about 200 customers, while its major clients include top mobile chip developers Qualcomm and MediaTek, as well as NXP, Advanced Micro Devices, Murata and Samsung, according to the prospectus. Its top 10 customers accounted for about 61% of the company's wafer shipments. The company in its current form was founded in 2019 when Mubadala bought AMD's manufacturing site in Germany. At the time, its only client was AMD, the company said.
Globalfoundries' net revenue for the six months ended June 30 was $3.04 billion, growing nearly 13% from a year earlier, but net loss in the same period was $301 million, though narrowing from $534 million a year earlier, its prospectus showed. It also disclosed for the first time that it had a net loss of more than $5 billion from 2018 through 2020.
Industry leader TSMC reported a net income of $17.6 billion with revenue of $45.51 billion for 2020, while China's top contract chipmaker Semiconductor Manufacturing International Corp., which was blacklisted by the U.S. last September, reported a net profit of $716 million on revenue of $3.91 billion for 2020.
The IPO application comes after Globalfoundries said it will spend $6 billion to expand its manufacturing capacities in Singapore, the U.S. and Germany, though it warned that the new investment will not bear fruit until 2023. The chipmaker also said it will double automotive chip output for 2021 from a year ago.
In the prospectus, it warned that failing to raise enough capital through the IPO could force the company to curtail its expansion plans or delay capital investment, which could "materially and adversely affect our results of operations, financial condition, business and prospects."
Globalfoundries CEO Tom Caulfield recently said the industry will have to double its production capacity in the next eight to 10 years to tackle the chip shortage and growing government concerns over supply chain security.
Globalfoundries dropped out of the race against TSMC, Samsung and Intel to develop cutting-edge chip technology in 2018, the same year it canceled plans to build its first production site in China. The company was also forced to cut its relations with one of its then key clients, Huawei Technologies' chip design unit HiSilicon, in 2018 when Washington in effect banned exports of U.S. technology to the Chinese company, citing national security risks.
TSMC, Samsung, and Intel are also increasing their global manufacturing footprints and capacity. The Taiwanese contract chipmaker is building a $12 billion advanced chip production plant in Arizona, while Samsung has filed an application to spend $17 billion constructing new production facilities in Texas, where the South Korean chipmaker already has a manufacturing facility. Intel also just broken ground on its $20 billion chip project in Arizona.
Dale Gai, research director with Counterpoint who specializes in the semiconductor industry, told Nikkei Asia that based on financial performance alone, Globalfoundries is not as attractive as its peers. On the other hand, the chipmaker did show investors that its earnings are significantly improving. Gai also said the company's product portfolio stands out from those of its rivals, and it has good visibility in terms of demand for the next two years thanks to some long-term contracts it has secured.
"It's also showing investors that it has diversifying production bases and would be safer in terms of geopolitical uncertainties than its Asia peers," Gai said. "However, the diversification comes with a cost -- that also means Globalfoundries would need to make a greater effort to catch up with those peers in terms of operation and management efficiencies. At the end of the day, if Globalfoundries wants to go public, it still needs a better cost-structure to lock in more investors."