GLOBALFOUNDRIES(GFS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q3 2024 was $1.739 billion, representing a 7% sequential growth and a 6% year-over-year decline [10][35] - Non-IFRS gross margin was 24.7%, exceeding the mid-point of the guidance range [17] - Non-IFRS diluted earnings per share were$ 0.41, surpassing the high end of the guidance range [17] - Year-to-date non-IFRS adjusted free cash flow was $779 million, with expectations of approximately 3x growth compared to 2023 [19] - Q4 2024 revenue guidance is between$ 1.8 billion and $1.85 billion, with gross profit expected to be between$ 432 million and $481 million [50] Business Line Performance - Smart mobile devices accounted for 50% of Q3 revenue, with a 14% sequential increase and an 11% year-over-year increase [37] - Home and industrial IoT markets represented 18% of Q3 revenue, with a 4% sequential increase but a 25% year-over-year decline [39] - Automotive segment accounted for 15% of Q3 revenue, with a 5% sequential decline and a 16% year-over-year decline, but expected to grow high-single-digits for 2024 [41] - Communications infrastructure and data center segment represented 7% of Q3 revenue, with a 14% sequential decline and a 15% year-over-year decline [42] Market Performance - Automotive remains a key growth driver, with high-single-digit revenue growth expected for 2024 despite short-term demand dynamics [23][41] - Smart mobile devices returned to year-over-year revenue growth in Q3, with demand expected to normalize in 2024 [25][38] - IoT end market saw a 4% sequential revenue growth but is down on a full-year basis due to elevated inventory levels [28] - Communications infrastructure and data center segment is expected to see growth opportunities in power, connectivity, and optical networking [43] Strategic Direction and Industry Competition - The company is focused on diversifying its product portfolio and customer base, with 90% of year-to-date design wins being sole-source opportunities [12][13] - A key design win with NXP on the 22FDX platform highlights the company's focus on power and performance solutions [14] - The company is expanding its global manufacturing footprint, particularly in Malta, New York, to support customer demand across the U.S., Europe, and Asia [15][16] - Silicon photonics and power management are identified as key growth areas, with partnerships in optical networking and power solutions [31][32] Management Commentary on Operating Environment and Future Outlook - The company expects sequential growth throughout 2024, with Q1 being the low point for revenue [10] - Management is optimistic about long-term growth opportunities, particularly in automotive and smart mobile devices, despite near-term demand challenges [23][25] - The company is well-positioned to capitalize on industry recovery, with a focus on improving factory utilization and cost recovery initiatives [64][65] Other Important Information - The company shipped approximately 549,300 millimeter equivalent wafers in Q3, up 6% sequentially but down 5% year-over-year [36] - Non-wafer revenue, including reticles and non-recurring engineering, accounted for 10% of total revenue in Q3 [36] - The company has a$ 1 billion revolving credit facility, which remains undrawn [49] Q&A Session Summary Question: How does the company reconcile its strong performance with the weakness of its customers? [56] - The company attributes its performance to the breadth of its end markets, particularly smart mobile devices and automotive, which are growing despite industry challenges [57][58] - For 2025, the company expects growth, with Q1 2025 projected to show year-over-year growth, albeit with high seasonal cyclicality [60][61] Question: What are the gross margin trends and expectations for 2025? [62] - Gross margin benefits from underutilization charges are expected to decrease, but overall margins are expected to improve with industry recovery and higher utilization [64][65] Question: What are the pricing trends and expectations for 2025? [67] - The company expects pricing to remain stable, with opportunities for better pricing in 2025 due to inflation and the shift away from long-term agreements [69][70] Question: What are the demand trends in the smart mobile segment? [71] - The company is seeing growth in China, particularly in 5G low and mid-tier phones, with design wins on 8SW, 9SW SOI, and RF GaN platforms [73][74] Question: What is the impact of customer underutilization payments on gross margin? [75] - The impact of underutilization payments is expected to decrease, with minimal effect on gross margin in the first half of 2025 [76][77] Question: How does the company balance geographic diversification with local production trends in China? [78] - The company sees strong demand from Chinese fabless companies for global supply, with a strategy to support both local and global needs [80][81][82] Question: What are the key design wins and their expected contributions? [85] - The company is focused on converting design wins into revenue, with a strong pipeline in automotive, IoT, and smart mobile devices [85][86] Question: What are the capital allocation plans given the strong cash flow? [107] - The company is considering various capital allocation strategies, including share repurchases, dividends, and reducing leverage, while also exploring accretive M&A opportunities [109][110][112] Question: What is the outlook for silicon photonics and compound semiconductors? [115] - Silicon photonics and SiGe are expected to be significant revenue drivers, particularly in high-performance analog applications [116][117] Question: What is the nature of the partnership with NXP and the role of LTAs? [122] - The partnership with NXP is strategic, with LTAs providing certainty in volume, pricing, and duration, particularly in long-tail markets like automotive [122][123][125] Question: How does the company reconcile its Q4 guidance with weak smartphone trends? [128] - The company expects IoT and infrastructure declines to offset growth in other segments, with strong performance in RF and design wins supporting smart mobile devices [129][130] Question: What are the gross margin expectations excluding prepayment impacts? [131] - Gross margin is expected to improve with higher factory utilization and cost recovery initiatives, supported by a favorable business mix [131]