GlobalFoundries CEO: We’ll run out of semiconductor chip capability by 2023

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

Now GlobalFoundries must convince public market investors that the company is riding a wave of increasing demand for all kinds of microchips that won’t fizzle out after pandemic-related supply problems subside, and that it can increase profitability even if it spends billions on a capital-intensive business .

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

Automotive companies and household appliance manufacturers have been fighting for months to get enough chips for building products, now the problem is spreading to electronics manufacturers and their suppliers. For example, Apple said it will miss out on more than $ 6 billion in sales this holiday season due to a lack of chips. Intel also attributed its lower CPU sales to bottlenecks in power supplies and network chips.

But the scarcity doesn’t apply to the most advanced chips using the latest manufacturing methods. Instead, there are bottlenecks in so-called “legacy nodes” or semiconductors that use older technologies to perform functions such as power management, connection to displays or enabling wireless connections.

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

“This is where most of the shortage is because too little investment has been made,” said Caulfield. “To me, we’re happy that the bigger companies can serve this single-digit nanometer market, and we’ll be the best at our differentiated technology.”

The profitability in the foundry business is linked to the utilization or the utilization of the foundry factories around the clock. GlobalFoundries had an 84% usage rate in 2020, but Caulfield said this was related to slowdowns early in the pandemic.

“I would say we can’t do enough since August 2020. Every day we try to get as much out as we can. I would say we’re over 100%,” said Caulfield, adding that the company’s wafers were the capacities sold out by the end of 2023.

According to Caulfield, GlobalFoundries made a strategic decision in 2018 to stop developing the cutting edge chip manufacturing technologies that foundries like TSMC and Samsung are investing in and instead focus on less advanced but still important semiconductors for its customers.

Foundries have low-margin business models and are faced with high personnel, equipment and raw material costs. In its prospectus, GlobalFoundries stated that it had a gross margin of just under 11% in the first half of 2021.

Of the $ 2.6 billion GlobalFoundries raised in public markets, $ 1.5 billion will be spent on investments to increase capacity to meet demand, Caulfield said. It operates plants in the USA, Germany and Singapore.

GlobalFoundries stock closed 1.3% below its debut price of $ 47 on Thursday before rising over 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 spun off its manufacturing 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 continue to support the maker.

“In the next five to six years, call it in a very orderly and transparent way, [Mubadala will] take out some of their property to balance, “Caulfield said.

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