GlobalFoundries Fabs ‘Running White Hot,’ at Full Utilization, Says CEO
The chip shortage in the auto industry spurred many GlobalFoundries automotive customers to sign long-term agreements (LTAs) with the chipmaker “to ensure supply continuity for their new products that ramp over the next three to five years,” said CEO Tom Caulfield on a Q3 earnings call Tuesday, GF’s first since going public Oct. 28. “Semiconductor is going to become the defining line for differentiation in the automotive experience,” he said.
Automotive OEMs are becoming more “silicon-aware” amid the semiconductor crisis, typified by the agreement Ford signed last month with GF to collaborate on R&D for “feature-rich” chips (see 2111180016), said Caulfield. Automakers want to better understand the “supply-demand dynamics” in semiconductors, he said. “They want visibility to supply,” plus they seek to “influence the technology road maps for foundries so that the features that we create align with their needs,” he said. The LTAs assure them of enough “reserve capacity” so they can “build the vehicles they want,” he said.
The chipmaker’s “global installed capacity” will increase about 4% in Q4 from 3Q, and will be about 12% higher than in 2020's fourth quarter, said Caulfield. GF raised about $1.5 billion from its initial public offering, and “we are very well capitalized,” said Chief Financial Officer David Reeder. “We expect to use the majority of the proceeds from the IPO for our capacity expansion plans to meet robust customer demand.”
Despite the increased capacity, “we are still dealing with shortages of what we can supply to our key customers in 2022 and figuring out how we could produce more,” and with “the right balance,” said Caulfield. “There’s nothing that we see in the industry for 2022 that would suggest” an easing of customer demand, he said. He personally would “welcome” a softening of demand “just a little bit” to help close the “supply-demand gap for the industry” in 2022, he said.
GF’s facilities are “running white hot,” at full “100+%” utilization, said Caulfield. “We see that remaining for quite some time.” The fabs are “making as many wafers as possible,” he said. “Our customers are counting on us to do that. The capacity, every day, changes as we add more tools to create more capacity, and as soon as those tools are qualified and able to make more wafers, we will.”
Though the Chips Act is “working its way through” Congress, Caulfield is “still very positive” the legislation will “get funded,” said the CEO. “The best crystal ball I have is Q1 of next year,” he said. “I’d be pleasantly surprised if it got pulled into this year.”
GF is “a little bit north of $3 billion” in the “prepayments and access fees” it has collected from customers through the LTAs, said Reeder. It stands to gain more than $20 billion in forward revenue from the agreements, he said: “We’re very excited about the trajectory of the business.”
The LTAs are very important because of the “visibility” they bring the business, said Caulfield. “We always need to keep a certain amount of flexibility because some of our customers may need more than what they’ve signed up for, and so we can’t have 100% of our business in any given year signed to a long-term agreement.”
GF drew roughly half its Q3 revenue from its “smart mobile end market,” which increased 45% year over year, said Caulfield. Total revenue in the quarter of $1.7 billion was 4.9% higher than in Q2 and up 55.8% from the 2020 quarter. The “continued ramp” of GF’s “single-source” design wins in 5G RF front-end modules for mobile handsets helped drive the revenue increase in mobile, he said.
The wireless industry is still “in the early innings” of the 5G transition, “with market estimates of doubling of 5G handsets to nearly 500 million units this year,” said Caulfield. He views the “smart mobile device” as the “poster child for feature-rich technology like we make,” including components for secure pay transactions, audio functionality, power management and “the chips that control the touch screen,” he said.