Globalfoundries has grown to be the No. 2 pure-play foundry. Now it is contemplating an IPO. That could mean investor Abu Dhabi wants out.
Globalfoundries is only a little over three years old, but is already the world's second largest pure-play foundry, with estimated annual sales of about $4.5 billion in 2012. All seems to be going well.
The company was initially formed by bringing together the manufacturing capabilities of a somewhat distressed processor manufacturing company Advanced Micro Devices, that was looking to go fabless, and the oil riches of the Gulf state of Abu Dhabi. Back in 2008, Abu Dhabi had a plan.
The billions of dollars Abu Dhabi has provided – an investment in adapting the emirate to a post oil-economy world – that has allowed Globalfoundries (Milpitas, Calif.) to make such rapid progress. But it now seems that the time of easy money – and we are talking of well in excess of $10 billion – could be coming to an end.
With talk of a future IPO of shares, Globalfoundries is entering a new phase of its existence and a reading of the runes suggests a significant change of heart in Abu Dhabi government circles. The announcement of a goal for Globalfoundries to be profitable by 2015 and a potential IPO suggests Globalfoundries' parent - the sovereign wealth investment vehicle Advanced Technology Investment Co. – wants to stop handing out cash and indeed is looking to reduce and, possibly, to eventually eliminate its stake in the chip maker.
At the same time, there was no explicit mention at the time we reported on the expected IPO that of a now-moot plan to build a wafer fab in Abu Dhabi. That was expected to cost another $6 billion to $8 billion. The apparent abandonment of the Abu Dhabi fab plan suggests that the numbers aren't adding up for the wealthy emirate. Without a Middle Eastern manufacturing and technology infrastructure as an end-goal, it is hard to see how Abu Dhabi would justify continued involvement in Globalfoundries.
Mike Noonen, Globalfoundries' executive vice president of worldwide marketing and sales, emphasized that profitability is the first step, and that step would allow Globalfoundries to take "control of our own destiny."
That could be another way of saying that, after 2015, Globalfoundries may have to fund future wafer fabs from profits, which will be no easy matter. Already, United Microelectronics Corp. (UMC), the previous No. 2 foundry, with annual revenues similar to Globalfoundries', is considering whether it can afford to keep up with the semiconductor race to smaller geometries.
If a company is strategic to a nation's or a region's interest, steps can be taken to reduce the cost of capital for that company, making spending decisions much easier.
But without a manufacturing foothold in Abu Dhabi, Globalfoundries looks set to be a global company that will have no one place to call home. That could be a significant disadvantage against formidable rivals like Taiwan Semiconductor Manufacturing Co., Samsung or Intel.
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