GlobalFoundries' hot start as a public company - The Average Joe

    GlobalFoundries’ hot start as a public company

    Victor Lei — Head of Research

    December 2, 2021

    globalfoundries

    December 2, 2021

    GlobalFoundries (NASDAQ:GFS) — the semiconductor chip manufacturer reported its first earnings report as a public company — and investors are liking what they see…

    What’s the big deal? GlobalFoundries is the world’s third-largest semiconductor foundry. It’s also one of the few US foundries in an industry dominated by Asian competitors.

    What’s a foundry? In the semiconductor industry, there are:

    • Chip designers (i.e. Nvidia and AMD) — which designs computing chips and outsources production to contract manufacturers like GFS.
    • Foundries (i.e. GFS and Taiwan Semiconductor) — which operate chip manufacturing factories.

    The US is a leader at many things, but not in semiconductor manufacturing:

    • 12% of chips sold globally were made in the US in 2019 — down from 37% in 1990.
    • 92% of the world’s advanced computing chips are produced in Taiwan — the remaining 8% in South Korea.

    Bring it home: Global supply chain issues created a global shortage — highlighting America’s lack of chip manufacturing capacity. The US also sees it as a “national security risk” to leave production overseas.

    GFS went public in October — and is up 43% since. Its recent earnings report gave investors something to like:

    • Third-quarter sales grew 56% to $1.7B — with a surprise profit of $5M compared to a loss of $293M in the same period last year.
    • Most of GlobalFoundries capacity is booked through 2024 — according to Needham analyst, Ravjindra Gill.

    But GFS is barely breaking while the largest manufacturer in the industry — TSMC (NASDAQ:TSM) — generated massive 38% net margins. According to a research analyst at Georgetown University (via Wired), it costs 20-25% less to operate factories in Asia due to government subsidies.

    The catalyst: The Chips for America Act — which passed the Senate but is stuck in the House — would funnel $52B into the US semiconductor industry.

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