• Allocation of manufacturing capacity to diversify footprint targeted to markets such as automotive and premium smart mobile applications.
• Higher volumes and ramp-up of GF’s designs at key customers to drive sequential growth.
• Premium smart mobile applications and automotive segment to drive QoQ growth in 2024.

GlobalFoundries’ (GF) revenue fell 16% YoY in Q1 2024 to reach $1.5 billion, hurt by weak demand in the Communications Infrastructure and Data Centre, and lower-end Consumer and Home Electronics segments. Revenue was also constrained by weak global macroeconomic conditions, geopolitical instability and elevated inventory levels. However, the decline in revenue was limited by higher ASPs, premium tier mix growth, continued content growth and value capture in 5G RF front-end content along with strong growth in the Automotive segment.

Commenting on GF’s funding and innovation, CEO Thomas Caulfield said, “As pockets of the semiconductor industry begin to emerge from the inventory correction, GlobalFoundries is driving foundry innovation and differentiation for customers across their essential end-markets.”

Caulfield further added that GF has received awards from both the US Department of Commerce and New York State to expand manufacturing capability in the US, which will complement the company’s unique global capacity offering.

Senior Analyst Ashwath Rao said, “The funding will help expand GF’s existing fab by adding critical technologies and will be utilized to construct a new facility to meet customer demand for US-made essential chips across a broad range of markets and applications including automotive, aerospace, defense, and AI. Further, the investments will aid GF in modernizing and expanding its manufacturing capacity and leverage the site’s existing infrastructure and ecosystem, enabling a fast and efficient path from construction to production.”

Caulfield added, “GF has accelerated diversification in the last five to six years and made sure each global site has a diversification not just having a global footprint but also a broad range of technologies so that customers can source globally and locally and ensure GFs facilities stay full. The rate and pace of new LTAs have slowed down in certain end markets as customers are working through inventory in the channels.”

Rao added, “Prioritizing diversification of the manufacturing footprint through accelerated transfer of technology will offer customers more choices across multiple markets and enable broader market participation. Enabling customers to source globally and locally will help GF facilities to remain fully utilized, driving revenue growth in the long-term. LTAs are an important feature of GF’s business model which provides a level of certainty of both supply and demand, durability, and greater visibility and profitability in a difficult market backdrop.”

In the long term, infrastructure changes in the data center, especially the increased adoption of silicon photonics solutions for GPUs, NPUs, and CPUs will drive substantial growth in communications and data center revenues. With power delivery for data centers becoming important, GF’s 12 nm and BCD technology and the addition of GaN manufacturing into the fab’s capabilities will further boost the company’s leadership competencies in making chips for high-power applications driving revenue growth in the long-term.

Source: GlobalFoundries, Counterpoint Research

Results Summary:

Revenue Highlights:

• GF’s revenue fell by 16% YoY in Q1 2024 dragged down by uncertainty in the global market along with high inventory levels in the IoT and Automotive segments. Meanwhile, the inventory level of Smart Mobile Devices has been stabilizing.
• GF shipped 0.46 million wafers (300mm Equivalent) in Q1 2024.
• Automotive revenue grew 48% YoY due to higher volumes and ramp up of GF’s designs at key customers.
• Automotive accounted for 17% of GF’s total revenue in Q1 and the growth is likely to continue in 2024.
• Automotive and Smart Mobile Devices revenue accounted for more than 60% of the total revenue.
• Reduced inventory levels seen in Smart Mobile Devices, Automotive, and IoT inventory are still higher than normal.

Segment-wise Updates:

• Smart Mobile Devices:
  • Smart Mobile Devices revenue declined by 2% YoY. This was offset by the increasing demand for premium smartphones and moderating inventory levels. The segment is expected to see a pick-up in demand in H2 2024.
  • Higher ASPs, premium tier mix along with increasing value capture in the 5G RF front-end system, as well as imaging and display application limited the revenue decline in the segment.
• Communications Infrastructure and Data Center
  • Communications and Data Center saw the biggest decline in revenue, down 66% YoY. It accounted for 8% of the total revenue during the quarter.
  • The transition to GenAI across sectors will increase the demand for high bandwidth communication and efficient power conversion systems driving revenue growth.
• Home and IoT
  • Home and Industrial IoT saw a decline of 19% YoY, as the industry is reeling under the pressure of excess inventory, and an uncertain macroeconomic environment.
  • Within IoT, the Aerospace and Defense segment performed well which limited the revenue decline.
• Automotive:
  • The Automotive segment was the primary growth driver during the quarter, rising 48% YoY, driven by strong growth in volumes, ASP, and dynamics mix as semiconductor content and features increased across the vehicle architecture, including the increased adoption of connected cars.
  • The growth of processing, sensors and power management is expected to contribute to revenue growth in the segment.
  • Revenue growth in the Automotive end-market is expected to continue throughout 2024.

Key Developments, Q1 2024:

• Key design wins in 40 nm image sensor processor technology and 130 nm BCD power platforms for critical ADAS, motor controllers, and sensor applications at auto-grade standards is expected to drive revenue growth.
• 22FDX mmWave technology for smartphone connectivity has ramped to volume production and design wins with OLED display driver makers ramping in 2024.
• Received $1.5 billion from the Department of Commerce as part of the US CHIPS and Science Act in addition to over $600 million proposed by New York State under its Green CHIPS program.

Long-term Agreements:

• Closed key design wins for 40 Image Sensor Processing (ISP) technologies and 130 PCD power platforms for ADAS, MCU and sensor applications for the automotive segment.
• Closed key design win for 22 FDX+ Platform which will be useful for high-speed wireless interfaces for IoT platforms.
• Design win for 130 NSX platforms which will support ground terminal infrastructure for satellite communications.
• Extended one of the largest LTAs with Infineon in Q1 2024 for automotive grade 40 nm microcontrollers.

CapEx:

• CapEx for Q1 2024 was $0.23 billion. GF’s CapEx for full-year 2024 is expected to be around $700 million.

 Outlook 2024:

• Challenges in terms of macroeconomic conditions, geopolitical uncertainties, and inventory normalization remain. A slower rate of inventory reduction will persist through 2024.
• Automotive demand is likely to moderate in 2024 while FY revenue will see YoY growth in 2024.
• Growth in Home and IoT to be flat with demand picking up in Q4 2024.
• Smart Mobile Devices inventory will begin to normalize through H1 2024 with demand picking up in H2 2024.
• Inventory in the IoT segment is expected remain elevated in H1 2024 and will likely bounce back in H2 2024. Speed, security and inference at the edge will drive the next-gen analog and mixed-signal technology.
• Communication, Infrastructure and Data Center segment to remain constrained in 2024 due to sustained node migration to single-digit nanometres processors.
• Smart mobile devices, automotive, aerospace and defense to perform better in 2024.