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Abu Dhabi-controlled GlobalFoundries files for IPO amid chip shortage

GlobalFoundries, the world’s third-largest semiconductor foundry, is headed for a U.S. IPO, as the Abu-Dhabi-owned company bolsters investments in its U.S. manufacturing sites.

In its prospectus filed with the SEC on Monday, GlobalFoundries said Mubadala, a United Arab Emirates state investment fund, will list its shares on the Nasdaq and “continue to have substantial control after this offering.” Mubadala currently owns 100% of the company.

GlobalFoundries is third in the market for semiconductor fabrication, behind Taiwan Semiconductor Manufacturing (TSMC) and Samsung. The company has three U.S. plants — two in New York State and one in Burlington, Vermont — as well as a plant in Germany and another in Singapore. One of the New York sites, located in East Fishkill, was purchased by ON Semiconductor in 2019 and will be transferred off GlobalFoundries’ books next year.

In April, GlobalFoundries moved its headquarters from Santa Clara, California, to Malta, New York, home to its most advanced facility. CEO Tom Caulfield, a native New Yorker, told CNBC that month that the company plans to invest $1.4 billion in chip factories in 2021 and will likely double its investment next year.

Formed in 2008, when a division of Mubadala purchased AMD’s manufacturing operations in Dresden, Germany, GlobalFoundries counts chipmakers Qualcomm, Broadcom, Samsung and AMD among its largest customers. As a group, its top 10 customers account for close to three-quarters of revenue.

GlobalFoundries manufactures chips designed by its customers for use in contactless payments, battery power management touch display drivers and many other purposes. Intel announced in March that it plans to compete in the market and become a foundry for other companies, expecting to invest $20 billion in U.S. plants.

With the onset of the Covid-19 pandemic last year, demand surged for electronics like laptops, monitors and game consoles, leading to a supply shortage and underscoring the need for more capacity. Meanwhile, consumers are flocking to electric vehicles, further stressing the supply chain.

“Although the supply-demand imbalance is expected to improve over the medium-term, the semiconductor industry will require a significant increase in investment to keep up with demand, with total industry revenue expected to double over the next eight to ten years,” GlobalFoundries said in its prospectus.

Revenue at GlobalFoundries dropped last year by 17% to $4.85 billion, but the company highlighted two main reasons for the decline. GlobalFoundries divested a business that brought in $391 million in 2019, and more broadly the company shifted contractual terms with most of its customers, changing how and when it recognizes revenue.

In the first half of 2021, revenue climbed 13% from a year earlier to just over $3 billion.

Operating foundries is an inherently low-margin business, with high costs associated with labor, running plants and buying equipment and raw materials. For the first half of this year, GlobalFoundries recorded a gross margin, or the revenue left after accounting for the cost of goods sold, of close to 11%, a reversal from a negative margin a year earlier. Its net loss for the six-month period narrowed to $301 million from $534 million.

While GlobalFoundries has its corporate headquarters in the U.S., it’s considered a “foreign issuer” because it was incorporated in the Cayman Islands by Mubadala. That means the company is exempt from certain Nasdaq rules that apply to U.S. companies, like having most of its board seats occupied by independent directors and seeking shareholder approval for some equity compensation agreements.

GlobalFoundries hasn’t said how much money it plans to raise or how much Mubadala will control after the offering. Whatever the ownership level, investors will have to stomach the risk of buying into a company controlled by Abu Dhabi.

“Mubadala will continue to have substantial control after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control, and otherwise affect the prevailing market price of our ordinary shares,” GlobalFoundries said in the risk factors of the prospectus.

WATCH: GlobalFoundries plans to increase production to address chip shortage

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