Conference Call to Review Third Quarter of Fiscal Year 2026 Financial Results - GLOBALFOUNDRIES INC

Explicit Guidance:

• FY2026 Revenue: Expected to close the year at $2.0 billion (+/- $25 million) in Q4. Full-year 2026 revenue growth expected to be driven by a mix shift, though no explicit full-year top-line guidance number is provided in the text beyond the Q4 run rate.
• Q4 FY2026 Non-IFRS Financials:
  • Gross Margin: ~31.5% (+/- 100 bps), reflecting ~250 bps YoY expansion.
  • Operating Expenses: ~$235 million (+/- $10 million); excluding share-based compensation (SBC), non-IFRS OpEx guidance not explicitly quantified but implied to be lower.
  • Operating Margin: 19.8% (+/- 170 bps).
  • Earnings Per Share (EPS): $0.59 (+/- $0.05) based on a fully diluted share count of ~575 million.
  • Tax Expense: $44 million to $68 million.
• FY2026 Full Year Projections:
  • Effective Tax Rate: Mid-teens percentage range (non-IFRS).
  • Free Cash Flow (FCF) Margin: Approximately 10%.
• FY2027 Outlook:
  • Net CapEx: Approximately $4 billion for the manufacturing footprint.
  • Share Count: Expected to reach ~600 million shares (fully diluted) commencing 2027, following equity issuances to the U.S. government.
  • Revenue Mix: Silicon Photonics revenue expected to exit 2027 at an annualized run rate of ~$1 billion (up from $0.5 billion in 2026).
• Dividends: Quarterly dividend of $0.12/share declared on Oct 27, payable Jan 14, 2027 (record date Dec 22, 2026).
• Buybacks: Repurchased $100 million in shares during Q3; no specific forward-looking buyback volume guidance provided, though the company maintains a strong balance sheet.

Business-Segment Outlook:

• Communications Infrastructure & Data Center: Expected to grow 60%–70% in 2026. The segment represents ~17% of Q3 revenue; demand is accelerating in optical networking (Silicon Photonics and SiGe).
• Automotive: Expected to grow low double-digit percentage in 2026. Continued design wins in radar, BCD, and GAN platforms; long-term growth target remains "low double-digit."
• Smart Mobile Devices (SMD): Expected to decline low teens percentage year-over-year in 2026. This segment represented 32% of Q3 revenue (lowest in history); company tracking broader market dynamics and memory supply constraints.
• Home and Industrial IoT: Expected to grow 10%–15% in 2026. Driven by edge AI, connectivity, tracking, and sensing applications.
• Technology Services (IP, Licensing, Software): Expected to represent ~12% of total revenue in 2026 (upper end of prior range). Beyond 2026, this segment is viewed as a key driver for revenue growth and gross margin appreciation.
• Silicon Photonics: Revenue guidance raised to exit 2027 at ~$1B run rate, a year ahead of prior expectations. Capacity expected to triple in 2028 to support demand.
• Silicon Germanium (SiGe): Demand exceeds current capacity; accelerating capacity investments in Burlington fab via partnership with Marvell.
• Advanced Packaging (Silicon Interposers): Volume production ramping at Malta site in H1 2028 under a $2B agreement with TSMC; gross margins expected to be above long-term targets.
• Physical AI/Custom Silicon: Secured nearly $1 billion in lifetime custom silicon design wins in Q3 alone; strong traction in radar, RISC-V processors, and aerospace/defense.

Market and Competitive Outlook:

• Optical Networking Demand: "Skyrocketing" demand as optical links replace copper in data centers. Design wins active with >50 Silicon Photonics customers (including 7 of top 10 optical transceiver suppliers).
• Pricing Trends: Blended Average Selling Price (ASP) growth observed in Q3 (up ~2.5% QoQ, ~5% YoY); first YoY ASP improvement since 2023. Expected ~10% uplift in blended ASP mix for 2027.
• Utilization: Q3 utilization in the "high 80s"; headroom remains for improvement as capacity investments scale in 2027.
• Supply Constraints: Capacity for SiGe and Silicon Photonics currently "sold out" through 2027, increasingly booked out to 2028, with customers seeking assurance through 2029.
• Competition: Confident competitive position in photonics vs. TSMC, Cooke, STMicro, and UMC due to scalable 300mm footprint and existing capacity expansion capabilities.

Macro / Industry Outlook:

• Government & Regulatory Support: U.S. Department of Commerce reallocated $955 million in CHIPS awards to accelerate investments in Malta, NY, and Burlington. U.S. government equity stake expected to reach ~7% upon finalization of agreements (4% previously announced + new stake).
• CapEx Funding Structure: Approximately one-third of 2027 net CapEx expected to be supported by customer prepayments; additional offsets expected from Investment Tax Credits (ITC) and government grants.
• Supply Chain Localization: Strong secular tailwinds for U.S.-based semiconductor manufacturing due to government and customer demand for secure, domestic supply chains (e.g., U.S.-Japan Fab Expansion Plan).
• Inventory Levels: Smart mobile inventory levels not expected to be a major drag; high-end market performing well while low-end remains challenged.

Strategic Initiatives:

• U.S.-Japan Fab Expansion: New partnership model to expand Malta/New York capacity to "mega-fab" levels without GF capital investment; structure includes technology fees, construction/ops fees, and EBITDA sharing to generate profit per wafer comparable to owned capacity.
• TSMC Partnership: $2B agreement to supply silicon interposers for the COOS ecosystem; TSMC co-investment to fund necessary capital; volume ramp H1 2028.
• Marvell Partnership: Multi-year strategic agreement to expand SiGe capacity at Burlington fab.
• Monolithic Power Systems: Agreement to accelerate capacity for power management solutions.
• MIPS Acquisition Integration: Acquired Synopsys Arc Processor IP business; launching three physical AI-native reference platforms (compute, AI inference, real-time control); driving custom silicon wins.
• Capacity Expansion: Plan to triple silicon photonics capacity in 2028; $4B net CapEx in 2027 focused on photonics, SiGe, FDX, and advanced packaging within existing four walls.

Risks and Headwinds to Outlook:

• Execution Risk: Capacity ramping and tool installation timelines for 2027-2028 investments; ability to secure customer prepayments and close agreements in Q4 2026/early 2027.
• Market Volatility: Smart mobile market decline and potential broader economic slowdown could impact overall demand.
• Pricing/Utilization Balance: While pricing is recovering, margin targets (exit 2028 at 40%) rely on mix shift and utilization gains; pricing is viewed as a "far less impactful component" than mix and utilization.
• Technology Timelines: Success dependent on ramping next-generation technologies (NPO, CPO, interposers) and maintaining yield/productivity.
• Equity Issuance: Future share count dilution (~600M shares in 2027) contingent on timing of government equity closures.

Management Tone on the Future:

• Confidence: High confidence in "early innings" of the AI data center opportunity and the ability to achieve long-term financial targets (35% margin exit 2027, 40% exit 2028).
• Structural Confidence: Management views the margin trajectory and mix shift as "structural" and "durable," driven by strategic investments and partnerships rather than cyclical tailwinds.
• Accelerator Narrative: Emphasis on "accelerated growth" and being "ahead of plans" compared to prior investor day guidance.
• Strategic Shift: Tone reflects a successful transformation from a smart-mobile-heavy business to a diversified, high-value AI and infrastructure-focused semiconductor provider.

Miscellaneous:

• Upcoming Events: Fireside chat at the UBS global technology and AI conference in Scottsdale, Arizona, on December 1, 2026.
• Technology Roadmap: Continued investment in novel materials for 400 Gbps+ modulation; roadmap excludes discrete InP laser manufacturing but focuses on integration of InP into existing technologies.
• NPO/CPO Trends: Transition to Network-on-Chip (NPO) and Co-Packaged Optics (CPO) expected to further increase content per unit by requiring higher-performance photonics and more SiGe integration.