GlobalFoundries – US Semiconductor Shortage Impact & Upcoming IPO – 21 October 2021

What’s the state of the foundry market? Could you summarise the major themes defining the conversation in the semiconductor manufacturing industry?

an you elaborate on the balance of supply and demand in the foundry market in terms of manufacturing capacity? You referenced a 2023 downturn. What is the pace of investment throughout the industry in terms of enabling manufacturing capacity? How do you expect that to come together over the next 18 months?

How was GlobalFoundries positioned during the recent period? You referenced a shortage in the trailing edge nodes, and the company has outlined a strategy to exclusively serve those trailing-edge-type nodes. Is it benefiting from capacity shortages, and how have you evaluated the company’s performance through this period? What are your performance expectations if we exit this part of the cycle?

Can you assess GlobalFoundries’ decision to remove itself from the leading-edge manufacturing processes, and thereby forgoing the investments needed to compete head-to-head with TSMC and other foundries at the leading edge? What are the knock-on implications of this strategy, for example in the go-to-market motion?

What’s your assessment of GlobalFoundaries’ competitiveness relative to players with wider footprints in low-cost locations, as well as the ability to leverage favourable pricing dynamics due to cost advantages? How should we think about its competitiveness vs UMC or SMIC, for example, or even the larger players such as TSMC and Samsung, as they compete for trailing-edge nodes?

Are you constructive on GlobalFoundries’ ability to take share in the foundry market? What do you think the key drivers of that will be? You referenced that the company has discussed differentiated technologies and processes, such as SiGe, as well as being well-positioned to access government funding. Are those the factors you’re monitoring to determine whether the company will drive share appreciation?

GlobalFoundries has talked about the divestitures and streamlining of its offering, driven by its strategy change announced a few years ago. To what extent do you consider the company nearing the end of this divestiture and streamlining process? To what extent is it still focused on offloading some of the non-core business or the non-focused areas of the business?

The prospectus indicated that over the last few years GlobalFoundries has experienced a significant revenue decline, with I believe USD 3bn in net sales declines. Can you discuss that? To what extent is that tied to the divestitures you talked about vs organic sales declines or organic declines in general?

You referenced that an important part of GlobalFoundries’ strategy is to drive sole-sourced business. Its prospectus indicated that about 70% of its revenue comes from its top 10 customers. What’s your confidence in its ability to expand the book of business with some of those players, especially given that some of the top customers have talked a lot about leading-edge processing nodes as a differentiation in their respective end markets?

What growth do you expect from the top 10 customers or from GlobalFoundaries’ larger customer cohort? How do you think about that book of business for the company in future? Is that a contracting business? Can you put a CAGR to those types of customers and the business you expect to come from them over time? How are you thinking about directional growth trends, especially the larger customer set and the ones that use leading-edge nodes?

Could you discuss GlobalFoundaries’ larger cast of smaller customers? You referenced the larger customers are very aligned with trends in the smartphone market. What’s the composition of the revenue in this customer set and what end markets is that revenue tied to? What are your expectations for the company’s ability to drive revenue growth with those customers, or expand the book of business with them?

You referenced a profitability delta between GlobalFoundaries’ top 10 customers, and some of the smaller ones. Can you quantify the delta and profitability across those customers? How should we assess the impact on margins as GlobalFoundries perhaps increasingly leverages these types of customers for growth?

What will GlobalFoundaries’ CAPEX requirements be to follow through on its current manufacturing footprint and strategy? What do you expect the company’s capital intensity to be over the next five years?

Can you assess GlobalFoundries’ planned IPO? Does it make sense, given the market environment? Can you provide your valuation?

Can you discuss the use of proceeds from the upcoming IPO? What are your expectations for these proceeds? What are the main strategic priorities over the next few years?

Can you discuss GlobalFoundaries’ management team and how you assess it and its ability? You referenced that flawless execution would be a key part of the company’s story, as well as the ability to get involved in the wider government subsidies across Europe and the US. How do you expect the management team to execute in the upcoming period? Is it the right management team to lead the company through this next 5-10 years?

You referenced a more constructive case for GlobalFoundries is driven by its ability to be considered US domestic manufacturing. How do you think about the company’s ability to access US government subsidies or otherwise be favourably impacted by government incentives and funding on a federal or state level? Would you ever expect it to become a leading-edge foundry again if incentives were right, given the geopolitical implications of keeping US manufacturing capacity at the leading edge?

How do you expect GlobalFoundries’ story to play out over the next three years? What do you think is most likely and what do you think in terms of the subsidies it may receive and its possible revenue growth?