GlobalFoundries this week reported a 74% surge in sales in the fourth quarter, driven by strong demand for radio-frequency ICs, power-management ICs, microcontrollers, image sensors, and other chips amid the chip crunch.
The largest U.S.-based contract chip manufacturer, GlobalFoundries said that sales in the fourth quarter last year came to $1.85 billion, up from $1.06 billion a year ago. Demand for the legacy chips it builds for other companies is still outstripping its ability to supply them. Executives warned that there are no short-term fixes for the shortfall and it could take years for the industry to finally close the supply-demand gap.
The company's sales are expected to be $1.88 billion to $1.92 billion for the first quarter, ending in March.
GlobalFoundries is in the eye of a global chip shortage that has caused delivery delays and production snags in many sectors, including the auto industry, which has been ravaged by a scarcity of microcontrollers and other components for more than a year now.
The shortage has cascaded to other sectors such as consumer and medical devices, crimping supply and hiking costs. Most industry insiders warn that the shortage will likely not ease until the second half of 2022.
The global chip shortage is not affecting all components the same way. Intel, TSMC, and other giants are investing tens of billions of dollars to boost capacity for chips based on state-of-the-art nodes, such as 5 nm, which have largely remained abundant. But companies like Apple and Ford are unable to buy chips on lagging nodes, such as 40 and 90 nm, that handle chores such as managing power and driving displays.
Foundries tend to invest in these types of chips sparingly because they are closer to obsolescence. But under CEO Tom Caulfield, GlobalFoundries has pivoted out of the market for most advanced nodes and invested instead in specialty technologies such as 28-nm FD-SOI and 40-nm CMOS, which are ideal for ICs used in cars, smartphones, consumer goods such as wireless headphones, and on factory floors.
The deficiency of chips is also giving GlobalFoundries more power over prices. The company said that average prices for its wafers would increase by 10% this year even as it brings up production capacity.
GlobalFoundries plans to more than double its investment to boost production capacity. Company officials have set its budget for capital expenditures this year at $4.8 billion, compared to last year’s $1.8 billion.
The company said it is "well-positioned" to increase its output by more than 50% by the end of 2023 compared to 2020 levels. Executives said it increased its production capacity from 2 million to 2.4 million wafer starts in 2021. It is on target for 3 million wafers before 2024. Last year, GlobalFoundries announced plans to invest $1 billion to upgrade its most advanced plant in upstate New York, where it moved its headquarters last year.
It is also stepping up production at one of its other major manufacturing facilities in Dresden, Germany.
GlobalFoundries, which became a public company last year via an IPO, said its annual revenue was $6.6 billion in 2021, up 36% from a year ago, as companies scrambled to buy chips amid supply challenges.
Caulfield and his counterparts at other foundries are trying to translate the demand into long-term supply deals with customers that, in turn, share more binding long-term forecasts to help with capacity planning.
The company said it hammered out long-term supply deals with 30 customers last year. Together, they made more than $3.2 billion in prepayments, which GlobalFoundries plans to use to boost its chip output.
"We invest first and foremost in partnership with our customers [so] that there's certainty to demand and we're building our differentiated technologies with a customer in mind," Caulfield said. “We're building it for them. We're not just building it and saying, 'We're going to build ahead and then try to sell the capacity.'"
The company's customers include the U.S. Department of Defense and firms such as AMD, Broadcom, MediaTek, Qualcomm, Qorvo, and Skyworks.
Stung by the chip shortage, major car manufacturers are taking steps to untangle their supply chains and are even investing in more direct relationships with foundries to guarantee supply over the long term. Last year, GlobalFoundries said it had partnered with Ford to boost chip supplies for Ford's cars and the broader U.S. auto industry while leaving the door open to collaborate on research and development.
It is not alone in trying to boost production for differentiated, legacy chips. TSMC plans to spend up to $44 billion to boost its capacity this year and has reserved 10% to 20% of the total for specialty technologies.
GlobalFoundries said that it helped close the gap in supply and demand at legacy nodes by upgrading and expanding its factories. But company officials warned the industry is nowhere close to where it should be.
"I think for the better part of the next five years, we'll be chasing to put capacity on and doing everything we can to get a better balance," warned Caulfield. "That doesn't mean it doesn't get better. But it also doesn't mean that it gets fixed and we're in a position where we have more supply than we know what to do with."
He is also hoping for a slice of billions of dollars in federal subsidies for the semiconductor sector as the U.S. looks to regain its ability to manufacture chips that are vital to wide swaths of the economy.