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Smart phones opened up the need for semiconductors: CEO

Thomas Caulfield, GlobalFoundries CEO joins the Yahoo Finance Live panel to discuss the global chip shortage.

Video Transcript

AKIKO FUJITA: Well, Chinese EV maker Nio says it is halting production at one of its plants for five days because of a chip shortage. It is just the latest car-maker to see disruptions from a global semiconductor shortfall. And it comes as the Biden administration looks to beef up US manufacturing to avoid future headwinds. Let's bring in somebody who's very familiar with the space. We've got Thomas Caulfield who is GlobalFoundries' CEO.

Tom, it's good to talk to you. Certainly something that-- this is the disruption that we've seen across sectors, not just among car makers. You're quite familiar with the space right now. I'm curious what things look like on the demand side from where you stand and to what extent you're able to meet it.

THOMAS CAULFIELD: Yeah, maybe a little context. First of all, thanks for having me on the show. You know, this is a story that's been over a decade and a half in the making. The semiconductor industry was by and large, up until 15 years ago, a compute-centric industry and peripheral chips around the central processing unit. And then the advent of the smartphone really opened up the pervasiveness of the need for semiconductors in everything we do. Gave birth to the Internet of Things. And so we find ourselves where demand really surged. And it was the COVID-19 pandemic that really had us relying on our digital infrastructure that really accelerated the adoption of technology.

And so the pervasive nature of our industry is about 70% of the semiconductor market. The, kind of, the bleeding edge which you hear a lot about is about 30% of the market. A lot of good investments-- solid manufacturing investments to make sure chips were available for that bleeding edge-- but underinvestment in capacity for the bigger part of that market, the 70%. And it's the confluence of that supply story and demand story that really was accelerated because of COVID-19. And that intersection point was bound to happen of supply not meeting demand, but it happen sooner.

AKIKO FUJITA: Tom, of course, this also comes at a time when we've seen semiconductor makers increasingly go fabless outsourcing production. And it's interesting to see how GlobalFoundries came about as a spin-off of AMD so they had the manufacturing side separate. Do you think we're going to see the pendulum swing back. We saw that big announcement from Intel and their investments in manufacturing chips. What kind of opportunities does this provide for GlobalFoundries?

THOMAS CAULFIELD: Well, you're absolutely right. This industry-- the semi industry foundry segment's been growing faster than the regular industry. And that's because companies that were product companies in the beginning made their own chips but didn't have the scale to continue to make the chips. And the birth of GF was when AMD got to a point that they didn't have the scale to be both a product company and a manufacturing company and GF was born. What you'll see is more and more companies will probably want to leverage outside manufacturing to do their products because you need scale to do this. And so I think what you'll see continuously as the semi industry grows and accelerates, the foundry industry will continue to accelerate. And it's important for us to maintain our investments.

And to your point, Intel's announcement to become a foundry, they're joining the club here. And what's really important about them coming out and doing foundry, they're going to be leaders in that 30% of bleeding edge technology and complementing GF in that 70%. And the fact that they're doing that segment of the market is really important because with them in there it'll take some of the supply chain risk that we see today for security supply concentration coming from one region of the world. They'll give a broader view of how to source that technology.

ZACK GUZMAN: Yeah, and we saw that $20 billion announcement for Intel saying that they would be moving into that fab space. But when you think about it, maybe, the how we got here and the reliance on so few chip manufacturers and couple it with the national security concerns and maybe our abilities here in the US to do so- and manufacture these things, I mean, talk to me about what needs to change since it sounds like it's going to be a few years before this issue is fixed with the production capacities in place now. What needs to change from maybe a government standpoint in trying to help alleviate?

THOMAS CAULFIELD: Yeah, very good. You're right. It doesn't get fixed overnight. If today a company decided to put more manufacturing capacity on and wrote the check for that investment, capacity doesn't really have any impact for about 12 months. The equipment needs to be ordered, installed. The product needs to be built. I think what you're seeing is the US responding to the fact that in the semiconductor industry, really good representation-- 50% of that semi industry, that half a trillion dollar semiconductor industry-- is represented by US-headquartered companies. That's great for the US. But only 12% of semiconductors for that same industry are manufactured in the US.

And so the Chips Act that you probably heard about that was passed earlier this year and now waiting to be funded is going after that imbalance that 50% of companies in the semiconductor industry are representing the US, only 12% is manufactured. And once that bill is funded, companies like GF will accelerate our capacity expansion. You know, I'm talking to you today from one of our most largest facilities in the capital region upstate New York. We've put over $15 billion in the ground here for this facility and we're ready to go and invest even more heavily with partnerships with the US government with this new version of a industrial policy to make sure that manufacturing can be done competitively in the US.

AKIKO FUJITA: And Tom, on the policy side, we've heard the Biden administration talk about adding potential sweeteners-- tax incentives-- to bring manufacturing back home. You're talking about your factory in New York. New York, one of those states, as well as Arizona, many other states, that have already offered up incentives to build out manufacturing of chips. To what extent can a federal policy accelerate that even further?

THOMAS CAULFIELD: So let me give the, probably, the poster child for public partnerships-- of private-public partnerships to create manufacturing capacity. We're in this region because the state of New York decided to invest roughly a billion dollars 10 years ago for GF to go invest about $4 billion to create 1,200 jobs and make a manufacturing facility. Fast forward to where we are today 10 years later, New York state funded their part of a billion, GF put another $15 billion in, and we have 3,000 jobs. And so it's not about just creating the manufacturing capability and creating manufacturing jobs, which are great, it's also about creating economic returns.

So investing in manufacturing in public-private partnerships does two things. It creates economic activity in creating jobs. It also creates a level playing field where other nations of the world have industrial policies that attract manufacturing with those types of investments. And we've seen that as we have a global footprint and we manufacture in Singapore, Germany, and the US.

ZACK GUZMAN: Well, one thing is for certain, as you said. It's going to take a while to get this issue figured out and fixed, but we'll be chatting with you. Hopefully you'll come back on and talk to us about the progress there. GlobalFoundries CEO Thomas Caulfield, appreciate you joining us once again.