Malta, New York-based GlobalFoundries looks set to join the 2021 capital raising boom, filing on Oct. 4 for an initial public offering (IPO) to capitalize on the insatiable demand for semiconductor makers amid a pandemic-driven global chip shortage.

Key Takeaways

  • GlobalFoundries filed for a Nasdaq-listed IPO amid 2021's capital raising boom and global chip shortage.
  • GlobalFoundries intends to maintain majority ownership once going public.
  • The chipmaker has optimized its product lines and plans to spend $1.4 billion boosting output by building new plants in the United States and Singapore.
  • Net revenue nudged just over $3 billion to grow 13% year over year in the first six months of 2021.
  • The company's decision to raise capital sends a strong message that it isn't interested in a merger or acquisition amid the current demand for semiconductors.

According to its prospectus filing, the Abu Dhabi-owned company plans to raise up to $1 billion; however, the placeholder figure will likely change when it finalizes the terms of the IPO. In August, Reuters reported that the chip manufacturer could seek a valuation of around $25 billion.

GlobalFoundries also makes it clear to investors that it intends to maintain majority ownership once going public. "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," the prospectus reads.

The chipmaker, which eyes a Nasdaq listing under the ticker "GFS," has assigned Morgan Stanley (MS), Bank of America Corporation (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), and Credit Suisse Group AG (CS) as lead underwriters for the IPO. GlobalFoundries initially targeted a late 2022, early 2023 listing date but moved the timeframe forward to take advantage of the current investor demand for capital raisings, people familiar with the matter said.

An underwriter is any party that evaluates and assumes another party's risk for a fee, which often takes the form of a commission, premium, spread, or interest.

The timing of the IPO also coincides with a pandemic-induced worldwide shortage of semiconductors used to power everything from laptops to automotive electrics, which has pushed the Philadelphia Stock Exchange Semiconductor Index (SOX) up 14% so far this year. By comparison, the tech-laden Nasdaq Composite (IXIC) has gained 12.4% over the same period, while the blue-chip Dow Jones Industrial Average (DJIA) has added 12.71%. "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," GlobalFoundries said in the filing.

To meet demand, the company has optimized its product lines and plans to spend $1.4 billion boosting output by building new plants in the United States and Singapore. Currently, GlobalFoundries has two factories in New York State, one in Burlington, Vermont, and one each in Singapore and Germany. The company—which manufacturers chips for contact payment devices, electric vehicle (EV) batteries, and other specialized electronic equipment—fills orders for fellow chipmakers QUALCOMM Incorporated (QCOM), Broadcom Inc. (AVGO), Samsung Electronics Co., Ltd. (005930.KS), and Advanced Micro Devices, Inc. (AMD). The latter spun out GlobalFoundries in a 2008 deal that gave ownership to Mubadala Investment Co., Abu Dhabi's sovereign wealth fund. The chip manufacturer's top 10 customers account for around 75% of total revenues, per CNBC.

Although the company's net sales have floundered in recent years—in part due to the divestment of a division and a revenue reporting adjustment—net revenue nudged just over $3 billion to grow 13% year over year in the first six months of 2021. Furthermore, while the chipmaker posted a net loss of $301 million, the figure narrowed substantially from a $534 million loss in the corresponding year-ago period.

Divestment is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company. Also known as divestiture, divestment is effectively the opposite of an investment and is usually done when that subsidiary asset or division is not performing up to expectations.

The company's decision to raise capital sends a strong message that it isn't interested in a merger or acquisition amid the current demand for chips. In July, The Wall Street Journal reported that semiconductor bellwether Intel Corporation (INTC) considered making a $30 billion bid for GlobalFoundries. However, it's understood that GlobalFoundries backed away from a potential tie-up with Intel over concerns that a deal could harm relations with its other customers.