💾 Can GlobalFoundries Stand Tall Amidst Uncertainty?

Supply woes hit Apple; Wyndham past pre-covid levels.

Hey Global Investor! Here’s what you need to know before the US markets open.

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S&P 500 (Thursday’s Close) 4,596.42 +44.74 (0.98%)

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💾 GlobalFoundries: Chips Ahoy!?

Abu Dhabi-controlled chipmaker GlobalFoundries (GFS) made a tepid debut on Wall Street. The IPO comes a couple of months after the company staved off a $30B takeover bid from Intel Corp. (INTC). Weighing the global chip shortage and issues with profitability, investors chose caution over-exuberance. (Tweet This)

Manufacturing Mojo

Advanced Micro Devices (AMD) spun off its chip manufacturing business into a new entity in March 2009. Abu Dhabi’s Sovereign Wealth Fund Mubadala acquired a controlling stake in the newly spun-off company. By 2012 AMD had completely exited GlobalFoundries.

The company owned ten fabrication plants across Germany, Singapore, and the United States in the next three years. In 2017, it announced a $10B fabrication plant in China in response to demand for semiconductors. The growing trade tensions between the US and China forced GlobalFoundries to abandon these plans.

In 2014, IBM paid $1.5B – yes, you read that right! – and handed over its microelectronics business and two fabrication plants to GlobalFoundries. As part of the deal, the latter had agreed to manufacture IBM’s most advanced chips used in high-end servers and supercomputers for the next decade.

However, in June this year, IBM sued GlobalFoundries, citing quality problems and products generally not satisfying IBM’s needs. IBM is seeking $2.5B in damages.

GlobalFoundries is the fourth-largest semiconductor manufacturer, producing over 7% of the chips in a ~$90B market. It makes radio-frequency communication chips for 5G automotive and other specialized semiconductors and counts AMD and Broadcom among its customers. 

Hobnobbing With Well-Heeled Investors

In the process of bolstering its chip manufacturing business, Intel tried to acquire GlobalFoundries in July this year for $30B. However, GlobalFoundries ignored these overtures and promptly made a  confidential IPO filing in August, effectively thwarting Intel’s plans.

So why did GlobalFoundries spurn Intel? The company was worried its key customers, direct competitors to Intel would take an exception and jump ship. Former owner AMD for instance! Further, there was the specter of antitrust scrutiny from the Biden administration, given the stature of the players involved.

GlobalFoundries shares were priced at $47 apiece yesterday, raising $2.6B. The IPO valued the company at $26B. Mubadala, which holds a 100% stake in the company, sold 22M shares in the IPO.

Other key IPO investors included marquee names such as BlackRock, Fidelity, Columbia Management Investment Advisors, and Qualcomm. Mubadala will continue to hold an 89.4% stake in GlobalFoundries, after the IPO.

In the first half of 2021, revenue rose 13% Y-o-Y to $3B. Net loss for the same period narrowed to $301M from $534M a year earlier. The company has also made substantial changes to its customer contracts, changing how and when it recognizes revenue on its books.

While the lack of profitability, along with litigation issues and the global chip shortage, has been somewhat of a dampener, the fact that the company’s majority investor has very deep pockets is a confidence-building measure in itself. That probably was what kept the shares from falling further on the day of debut!

Market Reaction
GFS ended at $46.40, down 1.28% on its trading debut.

Company Snapshot 📈

GFS $46.40 -0.60 (1.28%)

Newsworthy 📰

Danger: Apple results hit by supply chain woes, Cook says holiday quarter impact will be worse (AAPL -3.53%)

Commentary: Business for Wyndham Hotels & Resorts is ‘absolutely stronger’ than pre-Covid, CEO says (WH +4.33%)

Memorable: Ford shatters Wall Street’s earnings expectations, raises guidance for the year on new vehicle demand (F +8.63%)

Later Today 🕒

  • ExxonMobil Corp. Earnings (XOM)
  • Chevron Corp. Earnings (CVX)
  • AbbVie Inc. Earnings (ABBV)
  • Carter’s Inc. Earnings (CRI)
  • United States Cellular Corp. Earnings (USM)
  • Cowen Inc. Earnings (COWN)

Today’s Market Terminology: Spread

It refers to the difference between the bid and the ask prices of an equity share. You may perceive it as the difference between the amount at which you would like to buy and the amount at which you would like to sell a stock

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