GlobalFoundries Inc.

but it looks like you had a headwind from working capital. So I'm wondering, you gave us some of the pieces here, the depreciation, and it looks like you're underfunding depreciation expense again, so that's a tailwind. What happens with working capital? Do you expect that to still be a headwind again this year, or does that become a source of cash? do you expect to maintain this kind of high-level free cash flow in 2025? And I had a follow-up. Thank you.

Sure, Mark. Yeah, the short answer is yes, we do expect to continue to have strong performance in free cash flow, and that's driven by strong performance in the business coupled with a capital-efficient strategy that we have at the moment where we're leveraging some of the prior installed base of investment for the company and we're able to deliver what our customers need with modest CapEx experience. We did about $625 million in net CapEx in 2024 and indicated in our prepared comments roughly $700 million in 2025. Working capital should be fairly normalized for the year. We did experience a nice benefit in inventory of roughly $200 million in the fourth quarter. That helped our result for the year. And yes, we expect to generate similar amounts of free cash flow in 2025 as what we just posted for 2024.

Okay, thank you. That's very helpful. And then a follow-up, John, also for you, I think, the impairment charge, can you describe what was written down? I understand that this is part of what you're doing at Malta, but if you could just give a little bit more color on that. And then does this, does that write down, does that also help your depreciation expense as you look into this year? Thank you.

Yeah, Mark, certainly. Yeah, this fundamentally relates to the diversification of the multi-fab and the essential technologies that we're offering there. We indicated this in the prepared comments, but if you really look at the 22 FTX, 40 nanometer, what we're doing in advanced packaging and photonics, these are new essential technologies that we're adding onshore here in the multi-fab. And that speaks very much to our global manufacturing footprint and how critical it is, particularly in today's environment, that we're able to have fungible, consistent essential technologies globally at each of our locations in the world. So that's really what's behind that. And as part of that diversification strategy, we felt it appropriate to analyze the legacy investments in the Malta Fab. And based on that, we did a comprehensive analysis in the fourth quarter and determined that In order to right-size the carrying value of the Malta Fab, it was appropriate to incur this roughly $900 million impairment charge. And yes, to your question, Mark, that is included in the 15% decline in DNA costs, although it's not the majority. The majority of that is coming from simply the natural runoff of the depreciation schedule for Malta. Gotcha. Very helpful. Thank you very much.

One moment for our next question. Our next question will be coming from Krish Sankar of TD Cohen. Your line is open, Krish.

Hi, thanks for taking my question. Congrats, Tim. And Tom, I had two questions. First one, you said you expect revenue growth in calendar 25. Within that, how to think about AFP versus vapor volumes this year and then add a follow-up?

Yeah, let me start on that. And I think I'll pass over to Neal. Look, in a phrase, we have a constructive response pricing environment. Why? You know, when in the marketplace our customers need differentiated solutions, that's when they come to us. When we talk to them in our engagements, it's centered around what features we can add, what kind of unique customization and enablement that they could bring to maximize the performance in the marketplace. So our first priority when we think about, you know, capture and value is how do we go and leverage the range of technology platforms we have So now we bring great solutions to our customers, but to maximize our profitability. So let me give you a little insight on that. The range of complexity of our technologies is somewhere in the order of 2X in process steps, depending on what platform we're talking about. So when we think about ASP, it's not really a good indicator of value capture, which is the whole ASP is about. It's really about us maximizing the leverage of the breadth of our portfolio to win business that our customers need our solutions for. I think this is evident by the fact that we continue to have 90% of our design wins on single source opportunities because we bring these different differentiation across a broad range of platforms and end markets. You know, maybe a couple examples on some of that differentiation.

Yeah, no, you answered it very well, Tom. I mean, for GF, you know, pricing continues to be very constructive, and it really is due to Our strategy and focus on essential chip technologies, you know, I mentioned on the last earning calls, we are not competing with bulk CMOS, you know, at all. 90% of our design wins are in highly differentiated sole source technologies. And whether that's RF, whether that's 22FDX, you know, low power, high performance, you or whether that's any of our 40 nanometer, 20 nanometer, ESF-free type of technologies for automotive, that allows us to have a very constructive pricing environment where we continue to be able to differentiate and help our customers develop superior products. And when they develop superior products, they're also able to pay us a better price and thereby a better margin for GF. Got it. That's very helpful.

And then, Tom, I had a follow-up for you. I'm kind of curious about the impact of China. There are some concerns in terms of the incremental capacity coming from there. On the flip side, there are also some restrictions that could curtail their expansion. So I'm kind of curious how to think about opportunities and threat from the region for global foundries.

Yeah, look, the best defense we have against the capacity build in the diversified space or central chip technology is our differentiation. It goes right back to that. We have to continue to out-innovate on what matters to our customers and move in our fair share of business and let others fight it out in the more commoditized part of this marketplace. But for China, I think it also gives us great opportunity besides the headwinds you point out about overcapacity. First, let's talk about what fabulous companies in China are telling us. They need diversification. In fact, they've coined the phrase diversification. and CNT, no China, no Taiwan in there, and plus one sourcing strategy. So what they need is a diversified platform or a diversified manufacturing footprint that GF offers to serve the markets outside of China. And the natural choice for them is GF. And so we'll see a lot of great engagements with the fabulous companies of China who want to become international players. On the other end of that, China for China, while we don't have any plans to build our own factory. That doesn't mean we don't have plays and opportunities working first with our customers and then with partners in China to bring very specific technology platform, very specific to products, so that they can have a China for China play. Now look, we'll do that, eyes wide open, making sure we protect our IP, our differentiation, But we need to do this in partnership with customers, first and foremost, and then people who are building factories in China.

I think somebody helpful.

One moment for our next question. Our next question will be coming from Ross Seymour of Deutsche Bank. Ross, your line is open.

Thanks for asking quick questions, and Tim, Tom, and Niels, congratulations on all your new roles. I guess following up the last question, one for you, I guess, probably Tom, your U.S. customers, any sort of change in behavior, new administration, maybe some other questions on the CHIPS Act, maybe the flip side of it, is it even greater importance on kind of U.S.-based manufacturing? Have you noticed anything from the design one perspective or just general behaviors that has changed due to this change in the administration?

Yeah, look, I think in the world of uncertainty, especially how are tariffs going to impact customers, the dialogues we're having with them is a little bit like we're not going to necessarily wait and see. We need to start becoming more diversified. We need to have the ability to to source from different regions. And I think it's just raising the height of importance of diversification of supply chain with customers. Now, they don't run out the next day and say, here's seven design wins. But the conversations we're having with customers, some with existing products, saying, hey, I'd like to start to multi-source that in other regions. Others saying, hey, I need a new supply for these types of applications. GF, let's start to talk about how you can we can leverage your footprint. So the short answer to your question is it's becoming real for customers now, and while it's in early days and starting with discussions, I can see this materially starting to change where we have the footprint the rest of the world is going to try to get, and so we're ahead of the curve on that. Niels, is there anything you want to add to that?

I just want to confirm a couple of examples. So you look at aerospace and defense, that's probably the most obvious one. you know, very strong traction with our two U.S. factories in Malta and Burlington. But you then move into COM infrastructure and data center, you know, very critical that silicon that is well understood where it's coming from, so also very focused on Malta and Burlington from that front. And then, of course, you're seeing automotive, and you're seeing the automotive players having a lot more focus on, especially the American automotive players, have more focus on where the silicon is coming from. So All of these trends are clearly building in the market space. I think the uncertainty that Tom is talking about and some of the news you read in the past few years have really built momentum on that front. So what we're doing from a strategic standpoint is we're positioning some of our most differentiated and advanced technologies into Malta and Burlington for that reason.

Again, Ross, this is John. You touched on the CHIPS angle. And just to add on, all of these trends and themes that Tom and Nils are referencing with respect to Malt and Bernican, are supported with our strong partnership with the CHIPS office. Perfect.

Thanks for that, John. I guess as my follow-up, the first quarter I know is seasonally volatile at times, and you did give some directional color for the full year for the whole company and even a little bit by segment. But versus the kind of down 14% at the midpoint sequentially, are there any large puts and takes? by various end markets? And if so, what's the cause of that if it's something more than seasonality? Thank you.

Yeah, Ross, it's John. It really is seasonality. There's not really any one single item there. The trend was not unexpected by us. It was a little more than we anticipated a quarter ago. But yeah, it's diversified across our various end markets based on seasonality. Thank you.

And one moment for our next question. Our next question will be coming from Harlan Sir of JP Morgan. Your line is open. Good morning.

Congratulations to Tom on your appointment to executive chair and temp to CEO. Appreciate all of the support over the past few years, guys. My first question, the impairment charge in the long-lived asset, which I assume is what took down your net PP&E by about 13% in Q4, the depreciation dropped by about $18 million quarter-on-quarter, which is about a 1% positive impact here, gross margins in Q4. Is that the right math? Some of that impairment could have been below the COGS line. Just trying to figure out the impact to depreciation on the takedown of PT&E in Q4.

Yeah, Harlan. The impairment charge was... implemented during the quarter, so there was some in-quarter effect. And, of course, that is continuing into the first quarter, and that will build some through the course of the year. Some of those benefits are inventory and then flow through later through the course. But you're generally thinking about it correctly.

I appreciate that. Again, as a part of the impairment charge on PP&E relating to Malta, I assume it's because the team is rolling in the year 22, 28, 40 nanometer technologies and capacity into Fabi. Can you guys just give us an update here? Are you already qualified in shipping these technologies out of Malta? If not, what's the timeline for starting to ship production wafers of these technologies?

Yeah, Harlan, you are right. It is very much related to the diversification of the Multifab. And as you indicated, it's bringing those essential chip technologies into Malta for production. And we're making a lot of progress. We are working our way through the final qualifications and have early customer engagement in Malta as well. So the project is continuing at pace here at GF. Great. Thank you.

And one moment for our next question. Our next question will be coming from Vivek Arya of Bank of America Securities. Your line is open, Vivek.

Thanks for taking my questions. For the first one, If I were to use sort of the sequential growth rates that we saw last year, I get to a full year sales growth of roughly 2%, right, or so, sort of what you're seeing in Q1. Is that a reasonable way to think about growth, or do you see any scenarios which can help you grow above seasonally in quarters this year?

Yeah, let me start out, Vivek. You know, we're really only giving the guidance one quarter at a time. The general trend of growth for the year and sequential growth from here is what we expect. The rate and pace of it, as we indicated, is going to depend on the recovery in the market as customers work through inventory and we get more clarity on the demand signal for the year. But, you know, that's the general trend that we see. I think that's well stated, John.

Yeah. Okay. And then on gross margins, I mean, you've given a very specific number, right, of 30% exiting the year. So is that supported if you are growing top line in this range? And then in that 30%, how much is the benefit, not just for that Q4, but also in Q1, of the lower depreciation expenses, the assumptions around wafer pricing, factory utilization, any impact of cancellation fees? So if you could just help us kind of bridge gross margins last year to how you are thinking about gross margins this year, right? What would be different this year in terms of those gross margin drivers when it comes to depreciation, when it comes to wafer pricing, factory utilization, and impact of any cancellation fees? Thank you.

Yeah, sure. John again here. So yeah, we indicated roughly 30% exit rate for the year based on the assumption of continued revenue growth sequentially through the course of this year at some level. And really, it is different drivers this year than what we had. The expectation for underutilization payments is really not as relevant now. It's really not a material amount of that and comprehended in the first quarter guidance. It's driven by other factors. And as you indicated, it's really around the utilization improving. and the structural optimization of our costs, both on cash input costs. Our team does a lot of good work to continue to assess and negotiate and push on continuous cost improvement on the cash side, as well as the roll-off of the depreciation costs based on the legacy investments that we have in the FABs, as well as the capital-efficient approach that we've had the last couple of years. We're benefiting from all of those trends. We indicated roughly 15% improvement in DNA cost that's on a base of roughly $1.6 billion in 2024. So, you know, framing that in dollars, it's about $250 million of improvement in the DNA cost profile for the company in 2025. So those are some of the key drivers for us as we expect, you know, continuous improvement in gross profit margin in 2025.

Let me... Pete, I'm sorry. No, look, I want to build a list on this. It's really about The three key themes are takeaways for GF where we sit today. It's about taking share, it's about growing profitability, and it's about growing free cash flow. Taking share, look, we will grow when this market comes about, but we will grow disproportionately because of the design wins we've been able to fill in our pipeline during this downturn. We're going to grow profitability because with the top line comes higher utilization rates. We're going to leverage the structural costs. that we've taken over the last two years, including the productivity improvements. And we're going to leverage the fact that these design wins we have on single-source business are richer mix costs. And then the last part is, look, we've invested already ahead for the long term. We have the footprint in place, call it $9 billion plus of revenue. So we could be very capital efficient going forward to grow. And so this allows us to leverage that footprint to grow free cash flow. So taking share, growing profitability, and growing free cash flow, that's the story of GS as we look forward.

And one moment for our next question. Our next question will be coming from Quinn Bolton of Needham & Company, LLC. Your line is open.

Hey, congrats, Tom, Tim, and Niels. Niels, I might have missed it, but you went through the growth outlook for each of the end markets. I may have missed it, but did you give us a sort of sense of what you thought the home and IoT business would do in 2025?

I didn't mention it earlier, but we do think that it bottomed out in 2024. We're starting to see green shoots across the customer base. You've read the same news and releases that came out this month. and you see some of the companies that are almost 100% focused on IoT, you're starting to see the revenue coming back. You're starting to see the inventory being drained. So I have a similar take on that, that IoT bottomed out last year and we're going to get back to growth this year.

Perfect. And then just, John, on the gross margin walk to 30% by the fourth quarter, Is there any sort of lift in ASP assumed in that? It looks like ASPs were sort of down sequentially in each of Q2, Q3, Q4 of 24. I'm wondering if you get a little bit of price and recovery just driven by mix in 2025. Thank you.

Yeah, Quince, we see a generally constructive pricing environment for the essential chip technology that we offer. As Neil's indicated, we're not operating in bulk CMOS per se. It's very specialized and differentiated for the markets we serve. So we see generally stable pricing. We have been selectively taking some price back in a few cases, but in general, There is a mix of price dynamics depending on the technology and application, but generally a stable environment for pricing. Thank you.

Tonya, we'll make this the last question.

Certainly. I would now like to hand the conference back to Sam Franklin for closing remarks.

Very good. All right. Thank you, Tonya. Thank you, everyone, for joining us on the call today. Just as a reminder, we will be at the Wolf Research Center. semiconductor conference tomorrow, and we'll also be participating in the Morgan Stanley TMT conference on the 4th of March. Look forward to seeing you there. Thank you very much for joining today.

Certainly. And this concludes today's conference call. Thank you for participating. You may now disconnect.