The new terms revolve around when the tool makers get paid and responsibility during the warehousing period. I won't get into specifics as that could identify the people that gave me the information.
TSMC and the 90/10 rule is typical in the industry.
The issue is one of ownership and who takes title to the equipment and when....
Normally when it leaves the loading dock of the tool maker, title passes and the clock starts ticking on the first 90% (be it 30, 60 or 90 days etc
So tool makers typically expect payment within 30 days of ship.
In the GF case the tools are in a sort of limbo where they have left the loading dock of the tool maker but are not destined to the fab so GF is not taking ownership and does not assume payment liability (unless tool makers can work out some other alternative). This is further re-enforced by the fact that GF wants tool makers to pay for the storage (as if the equipment is still the property of the tool makers).
Terms are usually set in the PO process which occured in most cases many months ago, so to getting thrown a curveball when you are 9 months pregnant and told you are not getting paid and you add insult to injury and have to pay for storage, the tool makers aren't happy.
In some cases , tool makers may miss their revenue targets for the December quarter cause it was too late in the quarter (end of December) to make changes or ship to other customers. Though they could technically not ship the tools or take them back, in most cases they are customized and would incur significant cost to re-configure and re-ship etc; . So they are probably better off letting the tools sit in a warehouse and hope the delay isn't too long.
Though putting tools in a "buffer" if the loading dock gets jammed up makes sense, this is far beyond that. Normally the construction of a fab is a highly choreographed affair with tool deliveries scheduled down to the hour in terms of specific schedule.; litho, process control, etch, dep & thermal bays etc;. Putting the tools in an off site storage first is not the way its done at TSMC, Samsung or Intel etc;. What is going on at GF is way out the the ordinary.
Even though tool makers are mostly public companies , their contracts are private for competitive reasons. AMAT wouldn't want TSMC to see the deal it gave Intel and vice versa. So this is not part of normal SEC transparency.
Corrections and Amplifications;
1) I have worked in the semiconductor industry for over 25 years, primarily from a financial perspective. I have done over $6B in transaction for semi companies (more than the next several professionals put together) including the initial public offerings of ASML, Sandisk and SMIC to name a few, among many others. I have also raised billions of dollars in follow on offerings. Over the last 8 years I have been a consultant to semiconductor and equipment companies and have been directly responsible for biz dev, marketing and some commercial contract negotiation. I am not some dumb wall street MBA. I came from a tech background with a BSEE and BSCS. So if I am not a semiconductor "professional" then it sounds like only those with doctorates in plasma physics, who have worked for Intel for 30+ years would qualify.
2) I received no email from Daniel, only a request from him to connect on Linked In , which I accepted and a request from Daniel to be added to my Newsletter list, which I did. My email address is
rmaire@semiconductoradvisors.com . I also own the website semiconductorequipment.com but don't use that email except to send the newsletter.
3) I am not affiliated in any way with Velocity Semiconductor Equipment, they receive my newsletter and sometimes repost excerpts. So I don't have anything to sell through them. I do consulting and my newsletter which investors pay for.
4) "GlobalFoundries" is the trademark and "Global Foundries" is the commonly used name of the company. Its like saying I misspelled "IBM" by saying "International Business Machines". I suppose my using the common moniker "GloFo" is a really bad spelling mistake that exposes my stupidity........
5) I get my information direct from the parties involved and verify from multiple sources. I do not take as gospel the carefully spun statement of a PR "flack" whose sole job is to put the most positive spin on the company. If a meteor hit a fab the PR person would probably say it was planned that way.
6) I have nothing to gain by being negative on GF. I live in New York and want to see it succeed as I think its great and a welcome addition. I do have a responsibility for bringing the truth to my subscribers who use the information to make critical investment decisions. Shipping tools to a warehouse which impacts revenue recognition is a big deal and needs to be brought out to the open. Its a big no-no that can cause jail time if improperly accounted for.
I was also responsible for breaking the news about ASML and IBM and revealing the truth about what the tests really meant when 99% of investors and 99% of dumb wall street analysts thought that the carefully leaked , partial information was that the tools were in real production making 700 wafers a day rather than the fact the no wafers were actually harmed in the "simulation". ASML's valuation went up by billions of dollars that day based on false assumptions and lack of information and transparency.
Hope that all this information can be used to correct some misconceptions and untruths.
Robert
