GLOBALFOUNDRIES(GFS) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2024 increased sequentially to $1.632 billion, exceeding the midpoint of guidance, but decreased by 12% year-over-year due to lower shipments and utilization levels [12][24] - Non-IFRS gross margin was reported at 25.2%, above the midpoint of guidance [12][29] - Non-IFRS diluted earnings per share were$ 0.38, exceeding the high end of guidance [12][30] - Cash flow generation for the first half of 2024 was over $500 million, on track to achieve approximately three times the amount of 2023 non-IFRS adjusted free cash flow by the end of 2024 [13][33] Business Line Data and Key Metrics Changes - Smart mobile devices accounted for approximately 47% of total revenue, with a 12% sequential increase but a 3% decrease year-over-year [25] - Automotive revenue grew approximately 2% sequentially and 10% year-over-year, representing about 17% of total revenue [27] - Home and industrial IoT markets represented 18% of total revenue, with a 5% sequential decrease and a 28% year-over-year decline [26] - Communications infrastructure and data center segment revenue increased 28% sequentially but declined 27% year-over-year [28] Market Data and Key Metrics Changes - The demand outlook is improving across certain end markets, particularly in automotive and smart mobile devices, as channel inventory levels normalize [6][14] - The automotive sector is highlighted as a growth area, with significant revenue growth expected for 2024 [27] - The IoT market is experiencing high inventory levels, contributing to revenue declines, but long-term opportunities remain [18][26] Company Strategy and Development Direction - The acquisition of Tagore Technologies' gallium nitride power business aims to enhance capabilities in power applications and expand the serviceable addressable market by approximately$ 1.6 billion by 2030 [9][11] - The company is focused on modernizing manufacturing capabilities and investing in R&D to support GaN manufacturing capacity over the next two to three years [10][11] - Long-term strategy includes positioning for high-volume manufacturing of critical technologies in power applications and serving as a trusted manufacturing partner [11] Management's Comments on Operating Environment and Future Outlook - Management believes the first quarter of 2024 was the low point for revenue, with expectations for sequential growth in subsequent quarters [7][24] - The company is optimistic about the recovery in the automotive sector and anticipates growth in smart mobile devices as inventory levels normalize [14][45] - Management acknowledges macroeconomic factors affecting consumer spending, particularly in the US and China, which may impact future demand [38] Other Important Information - The company expects total revenue for Q3 2024 to be between $1.7 billion and$ 1.75 billion, with gross profit guidance between $391 million and$ 438 million [32] - CapEx for 2024 is maintained at approximately $700 million, focusing on innovation and differentiation rather than increasing overall capacity [33][64] Q&A Session Summary Question: Insights on customer conversations regarding inventory correction and demand - Management indicated that while some end markets are still working through inventory corrections, automotive remains a bright spot with meaningful growth opportunities [36][45] Question: Quality of earnings and cash flow expectations - The company noted that free cash flow is expected to remain strong due to previous investments in capacity and customer prepayments [40][41] Question: Revenue outlook for Q3 and Q4 - Management confirmed expectations for sequential revenue growth in Q3 and Q4, driven by recovery in smart mobile devices and continued strength in automotive [44][45] Question: Gross margin trends and factors affecting them - Management explained that low utilization rates are impacting gross margins, but improvements are expected as utilization increases [47][48] Question: Long-term agreements and customer interest - Management stated that long-term agreements remain important, especially in markets with long product cycles like automotive [67][69]