DuPont’s latest spin-off, Qnity, soars with demand from Nvidia and AI

The latest DuPont Co. spin-off, Qnity, supplies Nvidia, the world’s most valuable company, and other Big Tech giants with high-tech materials to make the high-speed and artificial-intelligence systems that have drawn billions in new investments and sparked the data center building boom.

Though DuPont is a larger company, Qnity, which started trading Nov. 1, is worth more on the stock market, a sign that investors expect its Big Tech customers — chipmakers like AMD and electronics giants like Samsung — will buy Qnity’s Kalrez sealants, Pyralux adhesives, and other products.

And they expect it will do so faster than DuPont can boost sales to its remaining brands such as Tyvek and Corian.

With expected sales of $7 billion next year, DuPont has a stock market value of about $16 billion. Qnity, with sales expected to approach $5 billion, is worth $20 billion. Both companies are profitable, but Qnity’s margins are bigger.

Based a five-minute walk from DuPont headquarters in suburban Wilmington, Del., Qnity was given away to DuPont shareholders — one share for each two DuPont shares. The company employs around 10,000 at 39 factories and 17 labs worldwide, including 1,300 in the Wilmington area.

It was the latest in a string of sales and spin-offs that have cut DuPont sales from $62 billion in 2017 — after Edward Breen of New Hope, now DuPont’s executive chairman, took over with a mandate to cut costs and boost shareholder payouts — down to an expected $7 billion next year.

Qnity’s price quickly spiked from an initial $70 a share to around $100 in early November trading, and stock analysts predict it will go higher on relentless demand for AI and high-speed computer chips.

The company’s name (pronounced CUE-nitty) was “inspired” by the letter Q’s role in electrical notation. It trades as Q on the New York Stock Exchange.

Q is “the symbol for electrical charge and unity,” Qnity CEO Jon Kemp said in a meeting with DuPont investors.

Qnity’s profit margin before financial expenses is a robust 30%, but analysts warn the chip business might not stay so profitable.

“Wafer starts,” a count of how many new silicon pieces are being used to build new chips, rose roughly 5% this year. Qnity is growing faster than the industry because some of its products are in special demand, “fueled by the adoption of leading-edge technologies for AI applications,” Kemp told the investors earlier this year.

Qnity’s “AI-driven technology ramps” include densely layered circuit boards that allow more computing power in a smaller space and barriers to keep data centers from overheating. The company also sells to aerospace, and military equipment and vehicle makers.

At an August investor meeting, JPMorgan analyst Steve Tusa noted the soon-to-be-spun-off company’s reliance on AI growth. He asked whether the global slump in consumer electronics demand was likely to end, broadening the company’s growth prospects.

Kemp, in response, acknowledged that consumer demand had been “weak,” noting that “all of the growth for the last several quarters is really coming from AI-driven applications.”

DuPont has sold or spun off many of its once-familiar products in recent years.

In August, DuPont agreed to sell its Aramids fiber business, which includes Kevlar bulletproofing, to a private equity-backed firm for $1.8 billion. The company sold its remaining nylon lines and other polymer businesses for $11 billion in 2022.

DuPont still makes Tyvek house and medical wraps, Corian counters, Molykote lubricants, FilmTec membranes, and medical-device packaging systems, automotive battery and aerospace parts, as well as water, gas, and mining products.

In all, it’s a radical reduction from the 1950s, when DuPont was the most valuable company in the world, and owned major stakes in General Motors and other customers, or in the 1990s, when DuPont owned oil giant Conoco and attempted a drug-making joint venture with Merck.

DuPont was dropped from the Dow Jones 30 industrial stock index in 2017. It remains one of the S&P 500 stocks, a list Qnity has also joined.

The Qnity spin-off is just the latest in the dismemberment that began before Breen joined DuPont and became chief executive and chairman in 2015. Breen, who similarly broke apart the former Tyco International in the 2000s, came to DuPont at a time when some investors were discontented with low profit growth.

As CEO, Breen led a merger with Dow Chemical, enacted in 2017. He gutted central staff including a large part of the company’s research establishment, then broke up DowDuPont into three successors, and kept selling or spinning off business groups.

The result is a string of DuPont successor companies, most still based in the Wilmington area.

They include Corteva Agrisciences, a 2019 combination of DuPont and Dow pesticide lines and genetically engineered seeds with offices at the old DuPont headquarters. The company expects more than $17 billion in sales this year.

Corteva, whose U.S. operations are mostly in the Midwest, announced this month that it was moving corporate offices from the suburban Wilmington office park that also houses DuPont and Qnity to the former DuPont headquarters complex in central Wilmington.

Another global leader in pesticides, Philadelphia-based FMC, owns some former DuPont products and the company’s Newark, Del., research farm.

In 2020, DuPont sold its food and biosciences business to a smaller company, IFF, for $7.3 billion. Both companies had plants in the Philadelphia area.

In 2015, before Breen joined DuPont, it spun off a group of its old chemical businesses, calling it Chemours. It has joined DuPont in settling some of the long-running chemical pollution claims for damages related to Teflon and other former DuPont products.

In 2013, DuPont sold its automotive paints group, Axalta, to private-equity giant Carlyle Group. Carlyle took Axalta public the next year, making three times what it paid DuPont for the South Philly-based company.

Axalta and Corteva shares have roughly doubled in value since DuPont spun them off, though the S&P 500 index is up more. DuPont itself trades at about the same price it was worth just before the Dow merger in 2017. Axalta and Chemours shares are also roughly flat since they went public.

With its stock rising robustly in its first weeks of trading, thanks to investor faith that digital demand will keep going up, Qnity has given shareholders more to celebrate — so far.