Globalfoundries IPO Shows Just How Tough The Chip-Making ...

In 2019, when the ON Semiconductor deal was done to sell off the East ... As the IPO prospective is coming out, Globalfoundries had revenue ... Latest [December13,2021] Intel’sComponentKeysforPushingMoore’sLaw Compute [December10,2021] DatacenterNetworksPushEthernetSwitchingToNewHighs Connect [December9,2021] FannieMaeMovesMoreMission-CriticalMortgageWorktoAWS Cloud [December9,2021] PureStorageTakesOnTier1StorageWithFlashArray//XL Store [December9,2021] MemorySnapshotsBringCheckpointingIntoThe21stCentury Store [December7,2021] Nasdaq’sCloudyOutlookforGlobalMarketTechnologies Cloud [December7,2021] HowCanGoingHybridBreakHPCCapacityConstraints? Sponsored [December6,2021] StackingUpAMDMI200VersusNvidiaA100ComputeEngines AI Searchfor: HomeComputeGlobalfoundriesIPOShowsJustHowToughTheChip-MakingBusinessIs Youwouldhavetolookfarandwidetofindatougherbusinesstobeinthanchipmanufacturing.WhichiswhythemanydozensofservermakerswhousedtomaketheirownCPUs–oftenmultipletypes–nolongerruntheirownfoundriesor,withtheexceptionofIBMandnowAmazonWebServices,nolongerexist.Infact,AWSisthefirstnewverticallyintegratedserverdesignerwehaveseenenterthemarketinalong,longtime–andevenJeffBezosisnotcrazyenoughtolaunchhisownchipfoundry. Itmayyetcometothat,andsomedayacompanylikeGlobalfoundriesmightevenhavefinancialsandabalancesheetthatwouldwarrantabiginvestmentfromaneo-oligarchlikeBezos,orevenanoutrightacquisition.ButiftheformF-1filingbyGlobalfoundriesthisweekannouncingitsintenttogopublicontheNASDAQstockmarketinNewYorkisanyindication,thatdayisgoingtobealongtimeoff.Atleastuntilthechipmaker–whichisanamalgamoftheoldAMDandIBMfoundrybusinesseswithsomeCharteredSemiconductortossedinforspiceandthenawholelotofIBMbonesremoved–showsmoreprofits. Beingprivatelyheldsinceitsfounding,withAMDandthegovernmentofAbuDhabiasitstwosoleshareholders,wenevergotalookinsidethecompany.AndtheF-1filingonlyshowsfinancialsforthepastthreeyears,soitisbynomeansacompletedataset.GlobalfoundrieswasspunoutofAMD,andthegovernmentofAbuDhabispentsome$23billionbuyingupCharteredandIBMMicroelectronicsandinvestinginfabcapacityasitpushedfrom28-nanometerprocessesdowntoaslowas12nanometersandthenhittheextremeultraviolet(EUV)lithographybarrierat7nanometersanddecidedtostop. Well,technically,IBMpaidGlobalfoundriestotakeitsfoundrybusinessin2015,andisnowsuingforbreachofcontract,tryingtoget$2.5billionincompensationanddamages.PartofthereasonbehindthatsuitisthatGlobalfoundries,inAugust2018,spikedits7-nanometerchip-etchingefforts.Ratherabruptly.ThatleftbothIBMandAMDtogosearchingforotherCPUchippartners.AMDwenttoTaiwanSemiconductorManufacturingCo.foritscores,butkeptGlobalfoundriesmakingthememoryandI/Ochipletforits“Rome”and“Milan”EPYCCPUs.IBMwenttoSamsungforits“Cirrus”Power10chip,whichfirstcameoutafewweeksagointhe“Denali”PowerE1080bigironmachineandwhichwillrampintosmallerboxesinthefirsthalfof2022. Atthetime,therewerethetwoonlyoptionsfor7-nanometerchipmanufacturing.Intelwasplaguedbydelaysinits10-nanometerprocessesandthenat7nanometersaswell,andthedifficultyofmakingmoneyonitsrelativelylowchipvolumes–BigBlueonlysellstensofthousandsofitsownPowerandzchipseveryyear–coupledwiththelossofthegameconsolecomputeandgraphicsbusinessestoAMDafewyearsback–prettymuchsealedthefateofIBMMicroelectronics.IBMdidnothavethecashorcustomerbasetobeacaptiveormerchantfoundry,oramixofthetwo. LookingatGlobalfoundriesnumbers,itisarguablethatitwillevermakeabuckhere,too–evenwithrampantchipshortagesandevenwithTSMCleavingitsrearunguardedonvintagefoundryprocesses.AndseeingthefinancialsthatithaspostedmakesitseemawholelotlesslikelythatIntelwilltrytobuyGlobalfoundries,whichwasarumorgoingaroundafewmonthsago. Andfrankly,wehavenoideaifIntelFoundryServiceswillmakeanymoneywhenandifInteleverbreaksoutitsfoundryfinancialsseparatefromitsfinishedchipfinancials.Wedon’tknowhowmuchofadragthefoundrybusinessisonSamsung,either,butsomeonehastomakethememoryandflashintheworld.TSMCseemstobemakingmoneyasapure-playfoundry,whichwetalkedaboutinAugust,withrevenuesup28percentinthesecondquarterendedinJuneto$13.32billionandnetincomeof$4.81billion,or36.1percentofrevenue.Thatissoftware-classprofiting,andthensome,withahard-core,capitallyintensehardwarebusiness.Amazing,really.Thisiswhathavingamonopolyonadvancedprocessescandoforachipmaker.Butithastakenalotofinvestmentsinresearch,development,andcapitalequipmenttogetthere,andthatiswhyTSMChasalmost$32billionincashinthebankrightnow,whichunfortunatelyisaboutenoughtobuildoneandahalfadvancedchipfabricationfacilities,orfabs. Evenwhenyouarerichatthisfoundrygame,youfeelpoor.Andthatisbecause,asGlobalfoundriespointsoutinitsF-1filing,amodernfoundrysupportingfive-nanometer-classchipmakingusingEUVtechnologiesisgoingtocostaround$20billion.Youhavetopushalotofwafersthroughthisfabtogetyourmoneyback,andsuccessinoneprocessgivesthecashtobesuccessful(eachfoundryhopes)inthenextprocess.Everyfabisabigbetonwhatvolumesmightbefiveyearsintothefuture,andeverygenerationalprocessimprovementisabetonanuncertainfuture,asIntelandGlobalfoundrieshavedemonstrated.Intelhadits10-nanometerand7-nanometerwoes,andGlobalfoundrieshadissueswith22-nanometerprocessesandthen14-nanometerprocesses(accordingtoBigBlue),andthenspikedbothits10-nanometerandthenits7-nanometereffortswhentheyprovedtoocostlyforthevolumesanticipated. Globalfoundrieshasverygoodreasonstoplayitconservatively.Itcannotaffordtoplaythegameanyotherway.That’swhyitsrecentinvestmentshavebeenmodest:$1billiontoexpanditsFab8facilityinMalta,NewYork,adding150,000wafersperyearofcapacityandanother$1billionfortheFab1facilityinDresden,Germany.ThatexpansioninFab8istobalancethecapacityitisgoingtolosewhenitsellsoftheFab10facilityinEastFishkill,NewYork,whichusedtobethemainfacilityforIBMMicroelectronicsandwhichGlobalfoundriesissellingofftoONSemiconductorfor$430million;thatdealwasannouncedin2019andshouldbecompletelypaidcompletelyoffbytheendof2022. GlobalfoundriesoperatesthreefoundriesinSingapore–Fab7,Fab7H,andGIGA+–andhasanewfabslatedtocomeonlineinthatislandnationin2023basedon300mmwafers.ThereisalsoaplantoaddanadditionalfabinNewYork.Allofthisfabbuildingwillbefundedthrough“public-privatepartnerships,”whichmeansthestateandfederalgovernmentsaregoingtokickin.Andgiventheinitialpublicoffering,itlookslikethegovernmentofAbuDhabiislookingtocashinonthesemiconductorshortageandcashoutofsomeofitsGlobalfoundriesstockratherthanpumptensofbillionsofdollarsintothecompanyandhopetocashoutbiggerlater.TheamountofsharesandthestrikingpricefortheIPOhavenotbeensetyet,buttongueshavebeenwaggingsincethesummerthatthechipmakerwasseekingavaluationofaround$25billion,andtheIPOwillbeasliceofthatvalue. IfGlobalfoundriesweremakingmoremoney,itwouldsurelybeeasiertogetahighervaluation.Butthetruth,welearnfromtheF-1filingwiththeUSSecuritiesandExchangeCommission,isthatthecompanyishemorragingmoney.Likemanystartupsfromthesameeraofthelate2000sstillare–wearethinkingofNutanixandPureStorageintheenterprisestoragespaceastwoprominentexamples. In2018,whichiswhenGlobalfoundrieswasshipping14-nanometerPower9and22-nanometerSystemz14mainframeprocessorstoIBMaswellas14-nanometer“Naples”EPYC7001CPUsand“Vega”and“Navi”RadeonGPUstoAMD,revenueswerejustatadunder$6.2billion.BbutbecauseofhighcostsofrunningthefabsandveryhighR&Dcosts(nearly$926.2million),lossescameinat$2.77billion. ThiswasthesameyearthatchiefexecutiveTomCaufielddida“strategicrepositioning”ofGlobalfoundries,anditsubsequentlysoldoffitscustomASICbusiness(whichwasabigchunkoftheIBMMicroelectronicsteam)toMarvellfor$650million(withapotential$90millionkicker),andsoldoffitsFab3EfacilityinSingaporetoVanguardSemiconductorforanundisclosedamount.Thisiswhenthe7-nanometerprocesswasspikedandGlobalfoundriessaiditwantedtorulethe12-nanometerandlargerprocessworldthatIntel,TSMC,andSamsungwerenotservingaswellastheymightiftheywerenottoobusytryingtodoadvancedprocessesallthetime.In2019,whentheONSemiconductordealwasdonetosellofftheEastFishkillFab10facility,revenuesfellby6.2percentto$5.81billionandgrosslossesincreasedabit,butnetlossesshrankto$1.37billionduetotherestructuringsandcuttingR&Dby37.1percent.In2020,whentheIBMPower9andSystemz15processorswerewindingdown(thelatterbeinga14-nanometermainframechipcompaniontothePower9)andAMDNaplessalesweredone,revenuesdroppedanother16.6percentto$4.85billion,andgrosslossesrosebyathirdbutbecauseoffurtherbelttighteningoutsidethefabs,netlossesweredownatinybitto$1.35billion. Anywayyoucutthis,Globalfoundriesneedstoboostrevenuesbackto2018levelsandnotdoanywhereasmuchinvestingtojusttreadwaterat12-nanometerandlargergeometries.Sothequestionbecomes:Isthereenoughrevenueinprocesssizesrangingfrom350nanometersto12nanometerstomayberakein$7billioninsalesandactuallycreateaprofitablecompanyhere?Andoursecondquestionis:CanGlobalfoundriesgetprofitableenough,andgetenoughsupport,tobecomealeading-edgefoundryagain,andthereforemakeitmoreinterestinginthedatacenter? Inthepasttwoyears,Globalfoundrieshasbeenabletogetahandfulofcustomerswhoarecommittedtoitsfabsforvariouskindsofdevices–asingle-sourceagreement,whichseemsdangerousinthesedays–andinregularvolumes,andtheymakeuseofabunchofdifferentprocessesinvarioustransistorgeometriesandchemistries,includingfullydepletedsilicon-oninsulator(developedbyIBMforPowerchipssolongago)andFinFETCMOSaswellassilicongermaniumandvarioussiliconphotonicschippery.AstheIPOprospectiveiscomingout,Globalfoundrieshadrevenuecommitmentsforsuchdealsof$19.5billion,with$10billionofthatrunningfrom2022through2023aloneand$2.5billioninadvancedpaymentsthatlockinproductiontimeandspaceinthefab. Single-sourcedbusinesscomprised61percentofwafershipmentvolumesin2020,upfrom41percentin2018–whichmeanscustomersaretrustingGlobalfoundriesforvintageandmatureprocessesthatareperfectlyfineforthechipstheyaremaking.Inthefirstsixmonthsof2021,thetoptencustomersatGlobalfoundrieswere:QualcommMediaTek,NXPSemiconductors,Qorvo,CirrusLogic,AMD,Skyworks,Murata,Samsung,andBroadcom.In2018,single-sourceagreementsrepresented69percentofdesignwins;in2020,ofthe350designwinsthatGlobalfoundrieshad,80percentweresingle-sourced. Onemightquipthatpeopledidn’tlearnfromtheexperienceofIBMandAMD.Buttheydid.Globalfoundriesdoesnotstrugglewithmatureprocesses–itisreallygoodatthat.Andmaybe,justmaybe,itwillpickupsome7-nanometerexperienceandusedequipmentwhileTSMC,Intel,andSamsungarechasing5-nanometer,3-nanometer,andheavenknowswhatelse.(-2nanometer,-5nanometer,-7nanometer?)Itcouldhappen.Strangerthingshave. SowheredoesGlobalfoundriesstandamongfoundries?Well,itneedsmoney.That’sobvious,andforwhateverreason,thegovernmentofAbuDhabiisawholelotlessenthusiasticofaboutbecomingasiliconpowerhousethanitwasin2009.Thisisahardbusiness,andittakesever-increasingfinancial,technical,andemotionalcommitmentthatfewhavethestomachfor.(SodoestheHPCbusinessandtheserverbusiness,tonametwoothers.)Thecompany’sfabskickedoutaroundtwomillion300mmwaferequivalentsformorethan200customersin2020,andisgrowingthatcustomerbaseandwafervolumeasfastasitcan.Whilethecompanyhasover10,000patents,thankstotheportfolioitgotfromAMDandIBM,itwillneedtomoveontosmallerprocessesatsomepointandthatmeanseitherdoingR&Dorbuyingit.Expertiseinchippackaginganddesignmightcomeinhandy,butitsoldthelatterofftoMarvell.Sometimes,youhavetoburnthefurnituretokeepfromfreezing. ItwillbeinterestingtoseewhatWallStreetdoeswiththisandhowmuchmoneyGlobalfoundriescanraise. 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