US and Japan Finalize Semiconductor Cooperation: GlobalFoundries (GFS.US) to Build Two Chip Plants in New York, Japan to Contribute Up to $21 Billion

GlobalFoundries (GFS.US) plans to build two new chip plants in New York State, with the Japanese government providing up to $21 billion in funding support. As part of the agreement, the US government will also receive approximately 4% equity in GlobalFoundries. As of press time, GlobalFoundries rose 4.4% in premarket trading. Under the agreement announced on Wednesday, GlobalFoundries will operate factories jointly owned by the United States and Japan at its existing campus in upstate New York. Construction funding for these plants will come from Japan's pledge to invest $550 billion in the United States. These plants will produce so-called "foundational chips," critical but relatively less advanced semiconductors used in automobiles, industrial equipment, and communications devices. As electronics permeate all kinds of products, demand for such chips is strong, and chipmakers have been racing to meet market demand. The AI boom has also exacerbated supply tightness, as industry resources concentrate on more advanced chips, such as NVIDIA Corporation's AI accelerators. GlobalFoundries' agreement aims to boost US foundational chip production and reduce dependence on East Asian suppliers in response to US national security concerns. **US Commerce Department to Take 4% Stake; GlobalFoundries Can Reallocate CHIPS Act Funds** Under a broader arrangement with GlobalFoundries, the US Commerce Department will receive approximately 4% equity in the company, "further allowing the American public to share in GlobalFoundries' growth." GlobalFoundries will be able to reallocate funds from previous US CHIPS and Science Act grants to invest in expanding manufacturing capacity, including advancing work in areas such as silicon photonics, chip packaging, and silicon germanium. GlobalFoundries will operate these new plants in the same manner as its existing factories. Its existing factories serve customers including Apple Inc. and Japan's Renesas Electronics, among others. Profits will be distributed between the owners and GlobalFoundries, following the approach outlined in last year's US-Japan trade agreement. That agreement set a 15% tariff ceiling on Japanese goods exported to the United States in exchange for Japan's pledge to invest in US projects before the end of President Trump's term. **GlobalFoundries CEO: Industry-Wide Supply Shortage, Need to Respond to Customer Demand** GlobalFoundries CEO Tim Breen said in an interview that the arrangement will help the company meet surging demand for its products. "We need to respond to our customers' needs," he said. "Right now, the entire industry is in a state of supply shortage." GlobalFoundries has already begun construction on the first plant, located near its headquarters in Malta, New York. The company expects the plant to begin production in 2029. The second plant will be advanced as soon as possible after the first is completed, but this depends to some extent on future demand, Breen said. "Of course, it depends on the market," he said. "If there's no demand in the market, we won't do it, but all the indicators I see today point to strong market demand." **US-Japan Framework: Japan's First Investment in US Semiconductor Manufacturing** Under the US-Japan framework, the Trump administration selects projects based on recommendations from an investment committee led by Commerce Secretary Howard Lutnick. Japan can decline if a project lacks commercial viability or is too risky. The terms of the agreement stipulate that after Japan recovers its principal and accrued interest, profits will be distributed 90-10 in favor of the United States. Earlier this year, Japan invested $36 billion in US oil, natural gas, and critical minerals projects, and $73 billion in nuclear power projects and natural gas power plants. The GlobalFoundries deal will be Japan's first foray into US semiconductor manufacturing. Japanese Trade Minister Ryosei Akazawa said in September that discussions on AI and chip investment will carry "very significant weight" in the implementation of the trade agreement. **GlobalFoundries Positioning: Not Chasing the Most Advanced Nodes, Prudent Capital Expenditure** GlobalFoundries is one of the few companies still manufacturing chips on US soil. Another such company, Intel Corporation, also has US government support. Under an unconventional agreement brokered by the White House last year, the US federal government is now one of Intel Corporation's largest investors. Although GlobalFoundries is headquartered in Malta, nearly three-quarters of its shares are held by Abu Dhabi sovereign wealth fund Mubadala Investment Company. As a chip foundry, GlobalFoundries takes on chip manufacturing business outsourced by customers. While it has exited the market for the most advanced and expensive chip productionsuch as the chips needed for NVIDIA Corporation's AI processorsit remains a major supplier of less complex but equally important electronic components. From household appliances to aerospace hardware, everything is becoming increasingly digital, and demand for chips is rising accordingly. High-end semiconductors such as AI accelerators also require supporting components to regulate power and convert various signals into data. But GlobalFoundries' production technology is relatively behind, meaning it cannot produce the processors or memory chips whose demand has surged over the past year. GlobalFoundries was created through the spinoff of AMD's factories and the acquisition of other facilities worldwide, and it has taken a more conservative approach to spending on its factory network. This has made it profitable but has often led to lackluster revenue growth. Last year, its annual budget for new plants and equipment was less than $1 billion. By contrast, the world's largest chip foundry, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, spent more than $40 billion. Breen said the US-Japan agreement gives GlobalFoundries an opportunity to expand in a sensible way. "From an economic standpoint, this is actually a rather exciting win-win situation," he said.