GlobalFoundries Q3 Earnings

By Patrick Moorhead - November 14, 2023

The Six Five team discusses GlobalFoundries Q3 Earnings.

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Daniel Newman: Yeah, so GlobalFoundries had a, again, it’s kind of like a tale of two quarters right now and why do I say that? Because you’ve got are companies beating what the street expected from them and then it’s are they growing on a year-over-year basis? And what we’ve got right now is a lot of companies are beating the expectations. The bars have been neutralized over the last year as expectations from the street and company’s guidances have settled a little bit. But having said that, the ability to operate strategically against a tougher macro … Let’s be really clear, and we talk about this I feel like almost every week, but for being in a growth period in the economy, this is the worst feeling growth period I’ve ever been part of. I just don’t really believe it. I just want to be candid. I don’t believe that we’re growing.

I think it’s pseudoscience, it’s hacked calculus, it’s spin, it’s a lot of things. And I think that you’re seeing that in the earnings this quarter. On a year-over-year basis, the semi companies are almost all shrinking on a revenue basis. Now, on a beating their expectations, they’re all performing a little better. So that’s a combination of product and business diversification, that’s operational excellence. And GlobalFoundries is a really interesting company because they tend to stand up a little bit better against the market and against those expectations really for two reasons. One is they’re not heavily tied to this kind of PC device cycle that has been hampering so many companies. They do have some business in that space, but it’s certainly not outsized as part of their revenue. And the second part of it is they have so many long-term agreements that they have built what I would call a hedge, like a fuel hedge almost, where they are locked in with their customers.

So unfortunately that doesn’t leave them the grounds to charge 1000% on a piece of hardware or a piece of silicon just because they have it and someone needs it. But at the same time, it also gives them a sense of stability when the markets are downward. And that’s enabled the company to hit its target, to be very close to its EBITDA expectations and to be able to guide at or above the expectations. And so that’s really what’s kind of going on there. If you look at the business as a whole, 11% down on revenue, 16% down on EBITDA, they’re down 10% on wafer shipments. So this is the true revenue trend. When you look at it over like four or five quarters, they were doing over 2 billion a year ago and now they’re back under that. So you do see that there is a bit of an inflection here that their stability of the long-term agreements and diversification isn’t fully offsetting the fact that the market is consolidating and parts of the industry are slowing.

And by the way, we’ve seen industrials hit Lattice, we’ve seen industrials hit other Silicon labs and other companies. GlobalFoundries is not immune to that particular part of the market cycle either. The company did see itself expand, it had a new expansion in Malaysia, it did win new contracts from the Department of Defense, I believe it was. And they are doing a good job of what I would say sort of maintaining their margin, but they are seeing some margin contraction, which was something that unfortunately nobody likes to see. What’s probably the best news is they’ve really kept their revenue diversified. They are still seeing a good chunk of their revenue tied to the mobile market, Pat, which in my opinion is slowly showing maybe some comebacks slowly and Qualcomm’s numbers were maybe the best reflection and that’s China based. Is China coming back?

But otherwise across the board they have a pretty good revenue mix. They have five different segments, if you can count Nonway for six and they don’t have half their revenue tied up in any of them. So good, but a little bit heavily leaning on smart mobile and they saw that actually increase a little bit on a year-over-year basis. So Pat, I think Tom and the team are doing a good job. Tom Caulfield, CEO and the team, good, not a great result. But again, I think the stability of their long-term approach and the stability of their diversification got them through another quarter that the street can feel, like I said, good, but not necessarily great about.

Patrick Moorhead: Yeah, it was good analysis there, Dan, and I like to at times like this, look to see if something was inflicted by the company, by a competitor or by the market. And this is clearly the lack of growth is indicative. If I look at the end market breakdown, smart mobile devices down 18%, and even though the supply chain is getting better for smartphones as we saw with companies like Apple and Qualcomm, that doesn’t mean that we’re back to the boom days. We’re far from it. 5G infrastructure way down. So comms infrastructure and data center is down 58%. Now there’s also things like server infrastructure in there that is actually getting a lot better. But I think my likely takeaway is that the decline in 5G infrastructure outweighed any growth that we saw in the data center. You had mentioned Lattice, and if I look at everybody that’s in consumer and industrial IOT, it’s down. Unless you, let’s say, separate automotive out of there.

And not every automotive was up, but GlobalFoundries was we saw on semiconductor way down in automotive, we did see Lattice up. So it’s not every vendor that’s involved in this. Consumer IOT has been down been down forever. And it’s directly related to consumer sentiment, which is pretty much in the toilet right now. And they’re not going to buy as many smart speakers, smart displays, things like that. Doorbells. It’s looked at more as a nice to have as a have to have. And I think the home IOT market’s going to have to see, again, an increase in consumer sentiment, an improvement in the economy. And then on the industrial side, I think we need to chew through some of that inventory that was sitting there that, if you recall, we were trying to make up for on the industrial IOT, and we couldn’t roll out Web 4.0 implementations because we’re missing a key piece of silicon for that.

Yeah, and we covered their customer and their developer event. They made a big announcement there with 95 WSOI. And again, SOI is silicone insulator, which is a substrate that’s different from, let’s say, bulk or what we’ve seen in glass and has very, very good performance per watt characteristic. And that’s one way or one reason that GlobalFoundries is so good here. Sorry, 9SW, not 90 WRFS SOI. We covered it when we covered their event and highly recommend that you go after it.

Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.