There is a lot of fluff in the almost 300 page Global Foundries (GFS – Proposed) F-1 that we mentioned yesterday, but disclosure is a good thing when you are trying to attract a group of high quality investors that (hopefully) will scrutinize every line of the document and make sure they are able to evaluate a true risk level for the company.  That said, it seems that the media discovered that Global Foundries had previously failed to mention (why would they?) that in 2017 the company and the government of Chengdu had agreed on a project to build a wafer fab which was eventually cancelled and has reserved $34m for potential compensation.  As it turns out Global Foundries had disclosed the project and its cancellation, but the circumstances were a bit more complex than the F-1 paragraph might describe. 
In 2016 GFS and the government of Chongqing signed an MOU to form a JV to set up a local wafer fab however only a short time later GFS reported a large financial loss, which put the project on hold, eventually being cancelled.  But all was not lost as Chongqing’s neighbor, the city of Chengdu, decided to reestablish the project, but this time in Chengdu.  In 2017 GFS announced it would invest $10b in a 12” fab that was to be the largest in China, but by mid-year 2018 GFS announced layoffs across the company and the plant’s recruitment program was halted, and by October the entire project was cancelled by GFS.  In early 2019 all of the purchased equipment was removed and employees were told to seek other employment. 
“Due to a variety of factors, including unanticipated market conditions, the manufacturing operations did not proceed as planned and the parties have been working to wind-down operations of the JV,” is how the F-1 described it, however it seems that the nationalistic conflicts between China and the US were an underlying cause of the project’s abandonment, along with AMD (AMD) moving its foundry business to TSM (TSM) when GFS cancelled the development of manufacturing processes for 7nm and below.  In April of this year GFS received a claim from the Chengdu government that it should share in the losses incurred in the project and negotiations continue to date, hence the $34m provision.  The fab was built but never put into operation, and now that the company is looking for US investors, it becomes increasingly clear that trade relations between the US and China had considerable influence over the final decision made last year.  JOHO.

Global Foundries (pvt), formed when Mubadala Investment Company, the investment arm of the United Arab Emirates purchased certain semiconductor assets from Advanced Micro Devices (AMD) in 2009 and combined it with the assets of Singapore-based Chartered Semiconductor (pvt), is considered the 3rd largest foundry globally.  The F-1 was filed with the SEC yesterday and while the filing gives no indication as to the size or value of the offering, the fund is expected to value Global Foundries at ~$30b US, not surprising considering the current state of the semiconductor space.  GFS is the proposed symbol. 
Global Foundries, which operates five foundries, one each in Malta and East Fishkill[1], New York, one in Burlington, Vermont, one in Singapore, and one in Dresden, Germany, competes with Taiwan Semiconductor (TSM), United Microelectronics (UMC), and Semiconductor Manufacturing International  aka SMIC (688981.CH), employing ~15,000 workers with ~46% in North America.  The company has a considerable number of long-term supply agreements, most of which were signed this year (see table below), however the company has been operating under an IFRS yearly loss since 2011 and under non-IFRS measurement just turned positive on a gross margin basis during the first six months of this year, albeit still at an operating loss.  As there have been a number of financial adjustments over the last few years, investors should look at the financials carefully to better understand the sales and earnings capabilities of the company.


[1] East Fishkill fab is currently part of ON Semiconductor, with the transfer to be completed by the end of 2022.

​[1] 300mm equivalents, kwpa
[1] Excludes Fab 7 Module which is under construction. ~450 kwpa expected.