Inc. plans to build two new chip plants with the backing of as much as $21 billion from the Japanese government, part of an arrangement that also includes the US taking a 4% stake in the company.

Under an agreement announced Wednesday, GlobalFoundries will operate factories at its site in upstate New York that are jointly owned by the US and Japan. The facilities will be funded with money from Japan’s pledge to invest $550 billion in the US.

The factories will make so-called essential chips, the vital yet less sophisticated semiconductors used in vehicles, industrial equipment and communications gear. The components are in high demand as electronics get woven into all manner of products, and chipmakers have been racing to keep up.

The artificial intelligence boom also has hurt supply because the industry has focused its resources on more advanced chips such as Nvidia Corp.’s AI accelerators. The GlobalFoundries agreement is meant to boost American production of essential chips and reduce dependence on East Asian suppliers — addressing a national security concern for the US.

Under a broader arrangement with GlobalFoundries, the US Commerce Department will take a roughly 4% equity stake in the company, “further enabling the American public to share in GF’s growth.”GlobalFoundries will get to redirect funds from a previous US Chips and Science Act grant to invest in honing its manufacturing abilities. That includes advancing its work in fields such as silicon photonics, chip packaging and silicon germanium.

The company will operate the factories in the same way it runs its current facilities, which serve customers such as Apple Inc. and Japanese firms including Renesas Electronics Corp.

Profits will be divided among the owners and GlobalFoundries, following an approach laid out in last year’s US trade deal with Japan. That pact capped tariffs on Japan at 15% in exchange for a pledge by the country to invest in US projects by the end of President Donald Trump’s term.

For GlobalFoundries, the arrangement will help the company meet surging demand for its products, Chief Executive Officer Tim Breen said in an interview.

“We need to respond to what our customers need,” he said. “Right now, the whole industry is in short supply.”The company has already begun work on the first plant, located by GlobalFoundries’ home base in Malta, New York. It expects to have the factory up and running in 2029. The second will go ahead as quickly as possible after the initial plant is completed. But that will depend in part on future demand, Breen said.

“Of course, it will be market-dependent,” he said. “We’re not going to do it if the market isn’t there, but every indicator I see today is flashing green around market demand.”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 a project if it lacks commercial viability or carries excessive risk. Terms of the deal stipulate that profits from the investments will be shared 90-10 in Washington’s favor once Japan recoups its principal and accrued interest.

The first investments included $36 billion in US oil, gas and critical minerals projects earlier this year and $73 billion in nuclear power projects and natural gas power plants. The deal involving GlobalFoundries will be Japan’s first foray into US semiconductor manufacturing. Japanese Trade Minister Ryosei Akazawa said in September that discussions about artificial intelligence and chip investments will carry “very significant weight” in the trade deal’s implementation.

GlobalFoundries is part of a relatively small group of US-based companies that still manufacture chips domestically. Intel Corp., another business in that category, is also backed by the US government. Under an unconventional deal brokered last year by the White House, the federal government is now one of Intel’s biggest investors.

Though GlobalFoundries is headquartered in Malta, nearly three-quarters of its shares are owned by Mubadala Investment Company, the sovereign wealth fund of the United Arab Emirates.

As a chip foundry, GlobalFoundries allows customers to outsource their manufacturing to its factories. While it bowed out of the market for the most advanced and expensive production — needed to make products such as Nvidia’s AI processors — it’s a major supplier of less complex but still important electronic components.

Everything from home appliances to space hardware is becoming increasingly digitized, requiring more chips. And high-end semiconductors such as AI accelerators need supporting components to regulate power and convert various signals into data.

But GlobalFoundries’ less advanced production means it doesn’t make the processors or memory chips that have seen demand explode in the past year.

The company, which was created via a spinoff of the plants of Advanced Micro Devices Inc. and acquisitions of other facilities around the world, has taken a more conservative approach to spending on its factory network. That’s made it profitable but often resulted in anemic top-line growth.

Its annual budget for new plants and equipment was less than $1 billion last year. Taiwan Semiconductor Manufacturing Co., the biggest chip foundry, spent more than $40 billion.

The US-Japan deal gives GlobalFoundries a chance to expand in a smart way, Breen said.

“It’s actually a pretty exciting win-win in terms of the economics of it,” he said.