Semiconductor maker GlobalFoundries Inc. today confirmed it’s heading for an initial public offering of stock.

The company said in a filing with the U.S. Securities and Exchange Commission that it plans to list its shares on the Nasdaq exchange. Its current owner, Abu Dhabi’s sovereign wealth fund Mubadala Investment Co., will still have “substantial control” over the company after the offering.

GlobalFoundries is said to be the world’s third-largest semiconductor foundry. The company manufactures computer chips designed by its customers for various devices, including personal computers and smartphones as well as battery power management touch display drivers and contactless payment machines. It was founded in 2008 when Mubadala purchased Advanced Micro Devices Inc.’s manufacturing plant in Dresden, Germany.

The company has some big-name customers, with the likes of Samsung Electronics, Qualcomm Inc., Broadcom Inc., and AMD all using its foundries. The IPO prospectus reveals that its top 10 customers account for about three-quarters of its revenue.

The contract chipmaking business is widely expected to expand. Intel Corp. earlier this year announced plans to get into the game and open up its fabs to other companies. Intel reportedly held initial talks with GlobalFoundries about buying its factories too, but nothing came of them.

With the COVID-19 pandemic leading to supply chain problems that have resulted in computer chips becoming incredibly scarce in many industries, the industry would certainly seem to be a safe bet for investors.

“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, with total industry revenue expected to double over the next eight to ten years,” GlobalFoundries said in its prospectus.

GlobalFoundries currently operates three manufacturing plants in the U.S. and one in Singapore, in addition to its German plant. However, one of its U.S. plants, located in East Fishkill, New York, is due to be sold.

In an April interview with CNBC, GlobalFoundries Chief Executive Tom Caulfield said the company is planning to invest $1.4 billion in new chip factories this year, and will probably double that amount in 2022.

Analyst Charles King of Pund-IT Inc. told SiliconANGLE the IPO seems to be designed to help finance those future expansion plans. But he said investors will exercise caution over the offering, given that Mubdala intends to retain a controlling interest. “How many will buy into Mubdala’s continuing control of GloalFoundries is anyone’s guess, but the continuing semiconductor shortage could make the company an attractive target for some investors and companies,” he said.

Investors will likely scrutinize GlobalFoundries’ books very carefully before committing to the company. Last year its revenue fell 17%, to $4.85 billion. The company’s filing provides two reasons why that happened. First, it said it divested a business that was acquired for more than $391 million in 2019, and second, it altered contractual terms with most of its customers, changing how and when it recognizes revenue.

The books from the first half of 2021, therefore, look much healthier, showing revenue growth of 13% from the previous year, to just over $3 billion.

Investors will also be aware the foundry business is relatively low-margin, with high costs for labor, keeping the plants up and running, and buying equipment and raw materials.

“GlobalFoundries has typically occupied the lower end, and lower margin, of the semiconductor market,” King said. “That is a position it seems likely to retain since its original strategy to enter the enterprise chip market, via it’s acquisition of IBM’s fab business and facilities, failed.”

GlobalFoundries’ gross margin for the first six months of the year, which is remaining revenue after accounting for the cost of goods sold, rose 11%, reversing a negative margin the previous year. Net losses for the six-month period came to $301 million, down from $534 million the year before.

GlobalFoundries is considered to be a “foreign issuer” because it was incorporated in the Cayman Islands, meaning it’s exempt from Nasdaq rules over the makeup of its board of directors.

Details not yet known include how much money GlobalFoundries intends to raise from the IPO. It’s also not clear what level of ownership Mubadala will retain.

Photo: GlobalFoundries