Yahoo Finance GLOBALFOUNDRIES Inc (GFS) (Q1 2024) Earnings Call Transcript Highlights: Navigating Challenges ...
Revenue: $1.549 billion, a decrease of 16% year-over-year.
Gross Margin: 26.1%, exceeding guidance.
Net Income: $174 million, down from the previous year.
Earnings Per Share (EPS): Non-IFRS diluted EPS of $0.31, above guidance.
Free Cash Flow: $261 million for the quarter.
Operating Profit: $187 million, representing a 12.1% operating margin.
Wafer Shipments: Approximately 463,000 300-millimeter equivalent wafers, a 9% decrease year-over-year.
Average Selling Price (ASP): Declined approximately 6% year-over-year.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
GLOBALFOUNDRIES Inc (NASDAQ:GFS) exceeded the guidance ranges provided in the previous quarter, demonstrating strong financial performance.
The company reported a fourth consecutive quarter of positive non-IFRS free cash flow, highlighting disciplined capital deployment and strategic capacity expansion.
Revenue from the automotive sector grew significantly, with a 48% increase from the previous year, driven by higher volumes and increased semiconductor content in vehicles.
GFS is benefiting from government grants, including a proposed $1.5 billion funding from the U.S. CHIPS and Science Act, enhancing its manufacturing capacity and job creation in the U.S.
The company has diversified its technology offerings and manufacturing footprint, which includes accelerating the transfer of technologies like 22FDX and 28-nanometer high voltage into its U.S. facilities, broadening market participation and customer choice.
Negative Points
Certain end markets remain challenged due to macroeconomic conditions, with slower-than-anticipated rates of inventory reduction as the year began.
Revenue in the communications infrastructure and data center segment continued to show weakness, expected to remain challenged throughout 2024.
The company experienced a sequential decrease in revenue to $1.549 billion and a 16% year-over-year decline, primarily due to lower shipments and utilization levels.
Inventory levels in key end markets like IoT and automotive remain elevated, leading to adjustments in near-term volume requirements by some customers.
Despite positive indicators, inventories in the smart mobile devices market remain above normal levels, which could affect the pace of recovery and growth in this segment.
Q & A Highlights
Q: Tom, it seems your trends at GF are kind of bottoming about a quarter before some of the downstream customers in industrial and RF markets. Could you talk more to that contrast? What is helping you emerge from this roughly a quarter before? A: (Thomas H. Caulfield - GLOBALFOUNDRIES Inc. - President, CEO & Director) Good morning, Vivek. Yes, we're going to continue to grow quarter-on-quarter. Inventory levels in dollar amounts have come down, which is an important indicator. As inventory continues to decrease, we'll get closer to natural demand. For GF, we expect flat revenue in comms infrastructure and data center, while automotive and smart mobile devices, which represent over 60% of our Q1 revenue, are expected to grow sequentially quarter-on-quarter.
Q: For my follow-up, maybe one on gross margins. How much did Q1 gross margins benefit from some of the restructuring and underutilization payments? How much is that effect in your Q2 outlook? A: (John C. Hollister - GLOBALFOUNDRIES Inc. - CFO) In Q1, we saw some favorability that helped our gross margins, including better outcomes from customer volume adjustments than anticipated. For Q2, similar dynamics are at work with some planned customer payment adjustments, albeit not at the level of Q1. The guidance for Q2 is 100 basis points above Q1, and as loadings pick up, we expect improvement in gross margin over time.
Q: Regarding pricing, where has the pricing been for new contracts that you're signing today? A: (Thomas H. Caulfield - GLOBALFOUNDRIES Inc. - President, CEO & Director) The pricing environment remains constructive, and we see normalizing pricing flat year-on-year, '24 to '23. A significant fraction of our revenue is single source business, where price elasticity doesn't apply. Hence, differentiated business and a constructive environment help keep pricing stable.
Q: Can you provide insights into the automotive OEM partnerships and how these relationships are evolving, especially given the strategic importance of geographic diversification for these OEMs? A: (Niels Anderskouv - GLOBALFOUNDRIES Inc. - Chief Business Officer) LTAs remain a crucial part of our business model, providing certainty for both supply and demand. Discussions with automotive OEMs are ongoing and focus on aligning technology roadmaps and ensuring long-term supply. These relationships are strategic, emphasizing the importance of geographic diversification and long-term supply security.
Q: What are the expectations for new opportunities like silicon photonics in the data center segment? A: (Niels Anderskouv - GLOBALFOUNDRIES Inc. - Chief Business Officer) We're seeing early momentum for silicon photonics in the pluggable space and expect substantial growth in co-packaged silicon photonics, which will integrate more closely with GPUs, NPUs, and CPUs. This integration is crucial for enabling higher bandwidth and efficiency within data centers, with significant growth expected in the coming years.
Q: How should we think about D&A and OpEx in '24 versus '23? A: (John C. Hollister - GLOBALFOUNDRIES Inc. - CFO) D&A is expected to be roughly consistent year-over-year. We anticipate about $700 million in CapEx for the year, enabling significant growth in free cash flow. OpEx saw an uptick in Q1 due to normalization of credits received in Q4 2023, but we expect it to stabilize moving forward.
Q: With the CHIPS Act funding, how will GF manage the potential risk of overcapacity, especially given the current utilization rates and inventory levels? A: (Thomas H. Caulfield - GLOBALFOUNDRIES Inc. - President, CEO & Director) We are cautious not to build capacity ahead of its need. The CHIPS Act funding is about securing future growth options efficiently. We believe the semiconductor industry will continue to grow, and these funds help ensure we can meet future demand without prematurely expanding capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
