GlobalFoundries Inc.

Thank you for standing by and welcome to the Global Foundries Inc. second quarter fiscal year 2026 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Chow, Head of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and welcome to Global Foundries' second quarter 2026 earnings call. On the call with me today are Tim Breen, CEO, and Sam Franklin, CFO. A short while ago, we released GF's second quarter 2026 financial results, which are available on our website at investors.gf.com along with today's accompanying slide presentation. This call is being recorded and replay will be made available on our investor relations webpage. During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are made available in today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may, or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today, as well as risks and uncertainties described in our SEC filings. including in sections under the caption risk factors in our annual report on form 20F and in any current reports on form 6K furnished with the SEC. In terms of upcoming events, we will be participating in a fireside chat at the Goldman Sachs Communicopia and Technology Conference in San Francisco on September 8th. We will begin today's call with Tim providing a summary update on the business environment and technologies, followed by Sam, who will provide details on our second quarter results and third quarter guidance. We will then open the call for questions with Tim and Sam. We request that you please limit your questions to one with one follow-up. I'll now turn the call over to Tim.

Thank you, Eric, and welcome everyone to our second quarter 2026 earnings call. GF delivered strong results in the second quarter, with revenue and non-IFRS profitability metrics at or above the high end of our guidance ranges. The team continued its rigorous execution, ramping critical technology corridors where we see accelerating customer demand and the opportunity to create and capture value. In particular, our comms infrastructure and data center end market delivered over 60% year-over-year growth in Q2. were all driven by continued demand for optical networking applications across our silicon photonics and silicon germanium platforms. This marked one of the fastest quarters of year over year revenue growth for an end market in our company history. We believe our value proposition has never been more in demand. Our differentiated technology portfolio and resilient global manufacturing footprint continue to strengthen our position with customers. We are seeing meaningful momentum as we execute our strategy and drive towards the long-term targets we shared at this year's Investor Day. Let me now update you on three key developments in the quarter that are accelerating our strategic path. One, quantum technology solutions. Two, optical networking and power opportunities in the AI data center. And three, IP software and custom silicon. Starting with quantum. A paradigm shift that will define the next chapter of high-performance computing over the coming decade and beyond. In May, we launched Quantum Technology Solutions, a new dedicated team and set of capabilities within GF that will enable the quantum industry to move from prototypes to high-volume production. Just as CPUs, GPUs, and AI ASICs define today's compute paradigm, we believe quantum processor units, or QPUs, will be an essential part of tomorrow's. Advanced semiconductor manufacturing built securely here in the U.S. will be essential for the scaling of this technology. Establishing the right production capability is now the critical enabler. The ability to manufacture and integrate complex quantum devices with consistency, yield, and scale. This is precisely where GF wins. Our quantum strategy is qubit agnostic, meaning our manufacturing platforms are expected to support a broad range of leading modalities, including superconducting, trapped ion, photonic, topological, and spin. Our proven platforms like FDX provide the cryogenic CMOS foundation, and we are extending our advanced packaging capabilities into the cryogenic regime to enable the 3D heterogeneous integration that these systems require. As highlighted in our recent announcements, we are working closely with eight of the world's leading quantum computing players, including partnerships with Psi Quantum, Quantinium, and Quantum Motion, as well as new endorsements from the quantum arms of large hyperscalers. Since launching just three months ago, we have already embarked on four new customer-specific quantum engagements with accelerating commercial momentum ahead. Advancing our quantum capabilities is anchored by an expected $375 million grant from the U.S. Department of Commerce to accelerate the research, development, and build out of quantum manufacturing capacity in the U.S. This critical partnership with the U.S. government underscores why quantum is not only a business opportunity, but also a national priority. We are only in the early stages of the nascent quantum opportunity. Over the next one to three years, we expect to generate quantum-related revenue largely through engineering engagements with customers reported within our technology services revenue. As customer platforms qualify and move into volume production, we expect quantum-related revenue from manufacturing services to ramp towards the end of the decade. Ultimately, our early momentum and customer proof points in this emerging area perfectly encapsulate the outsized value GF provides a strongly differentiated technology, deep customer partnerships, and a global secure manufacturing footprint. Let me turn to AI Data Center, where we continue to build momentum through new customer design wins and increasing engagement across the ecosystem. In the second quarter alone, we secured seven new optical networking design wins with customers across both pluggable transceiver suppliers, as well as major hyperscaler and networking players. Silicon Photonics and Silicon Germanium each play critical roles in optical networking systems and, combined with data center power, represent three high-quality long-term secular growth drivers which underscore our conviction in the ability to grow in the data center for years to come. I will walk through an update on each of these. For Silicon Photonics, let's start with pluggables, which contributes the vast majority of our Silicon Photonics revenue today. Thanks to our differentiated technology, and Advanced 300mm Photonics Manufacturing Footprint, we are actively engaged with four of the top five obstacle transceiver players. Given our strong capabilities and robust capacity ramp, we now expect our silicon photonics revenue, as reported within the comms infrastructure and data center end market, to more than double in 2026 compared with the year prior. Beyond just this year, we are progressing well on our multi-year roadmap to advance the enablement of modules delivering 1.6T, 3.2T and beyond. High volume manufacturing of our 200 gig per lane technology is underway. We have already demonstrated 400 gig capability and solutions for even greater bandwidth are in development. In addition to our robust pluggable offerings today, we see significant customer interest in our scale platform. The industry's first OCI MSA compatible solution for near and co-packaged optics. We currently have seven active engagements with leading companies on our scale platform and customer feedback on the merits of our technology and manufacturing capabilities has been very positive. We are already delivering tangible results for our customers today, having taped out a scale related design win in Q2 and we expect to take out another in Q3. Specifically for near-packaged optics, we see NPO as an important application and exciting opportunity ahead of the broader adoption of co-packaged solutions. Because near and co-packaged optics are built on a common photonic IC and because many components of GF scale solution support both near and co-packaged optics, our customers benefit from the same underlying platform. As a result, we expect GF to benefit from the silicon photonics opportunity Regardless of the rate and pace of various form factor adoptions by our customers. As we increase investments into our silicon photonics capabilities, the importance of government partnerships continues to grow. Last week, GS entered into a letter of intent with the U.S. Department of Commerce for a $300 million award to accelerate the development of next generation silicon photonics technologies in the U.S. The funding will support advanced optical materials, modulated technologies, and packaging innovations that will enable next generation near and co-packaged optics architectures, building directly on GS scale platform. The endorsement from our partners across the industry has reinforced our strategic conviction, including the world's top XPU providers, hyperscalers, AI connectivity leaders, and ecosystem partners. We are pleased to take a central role in advancing optical innovation and development in the US and believe this recognition validates the strategic importance of silicon photonics, the excellent relationship we enjoy with our partners and GS leadership in these technologies. Another driver of data center momentum is high performance silicon germanium, which powers the analog and mixed signal electronics at the heart of optical interconnects for AI and cloud infrastructure. Our differentiated SIGI platform delivers the bandwidth, signal integrity and Power Efficiency required for increasingly demanding optical networking applications, making it strongly complementary to our silicon photonics portfolio. During the quarter, we secured multiple new SIGI, TIA and driver design wins across networking customers. Demand for SIGI remains strong and we are oversubscribed throughout 2027. We are actively expanding capacity in our Vermont facility to support this demand. We believe CIGIE represents another key growth opportunity for GF. Combined with our leadership in silicon photonics, GF offers a uniquely differentiated set of technologies that help address the bandwidth, power efficiency, and signal integrity requirements of next generation AI systems. The momentum we are seeing today reinforces our belief that we will be a key leader in optical networking for years to come. The third strong opportunity we see in the AI data center relates to power. In July, we closed the strategic acqui-hire of the custom power team from Photion Technologies in Europe, bringing an experienced design team focused on integrated voltage regulators, or IVRs. Together with our BCD, GaN, and integrated inductor capabilities, IVR further strengthens our roadmap depth in power technologies and expands our serviceable market in one of the fastest growing opportunities within AI data centers. Our goal is to help enable a new power architecture for AI infrastructure, one that brings power conversion closer to the processor and addresses the increasing efficiency, power density, bandwidth, high current, and transient response requirements of next-generation XPUs. As AI workloads continue to scale, XPUs are consuming more power than ever before, increasing the need for solutions that can reduce power losses and deliver higher performance with an increasingly constrained thermal and physical footprints. Closed in Q2, this transaction brings new differentiated IVR technology, specialized engineering talent, and additional R&D capabilities that strongly complement our power portfolio, allowing us to capture a larger share of the growing power opportunity in AI data centers. Finally, moving to another key element of our long-term strategy, our IP, software, and custom silicon capabilities. In June, we completed our previously announced acquisition of Synopsys Arc Processor IP Solutions Business, an important milestone in advancing our strategy in physical AI and a notable step change in expanding GF's serviceable addressable market. As a recap, the strategic rationale is multifold. As AI increasingly moves beyond the data center into the physical world around us, It is transforming automotive, industrial automation, robotics, and intelligent edge devices. In that context, customers are looking for partners that can help them navigate the growing complexity of software, compute architectures, and semiconductor design. Together with MIPS, this acquisition bolsters GF's capabilities across RISC-V processor IP, software development tools, and custom silicon design. enabling us to support customers from architecture and software through high volume silicon production. We acquired a broad set of CPU, DSP, NPU and broader RISC-V technologies, as well as a proven software development toolkit and application-specific processor design capabilities. With over 150 patents, 300 existing customers and 400 R&D engineers around the world, This acquisition meaningfully expands our ecosystem reach and depth. Importantly, we are already seeing significant strategic benefits from our acquisition. By combining MIPS and Synopsys Arc under one roof, we are engaging with more customers earlier in the design cycle, shaping application-specific compute architectures and creating deeper, longer-lasting customer partnerships. To accelerate customer enablement, we are increasing investment in a number of R&D initiatives, These are focused high return programs that position us to capitalize on expanding opportunities while helping our customers innovate faster. Over time, we believe this creates a pathway to greater custom silicon opportunities and enabling physical AI customers to run their AI inference workloads on GF and MIPS based processing platforms. In summary, we made meaningful progress across several strategic growth areas this quarter. We delivered a record quarter for design wins across both communications infrastructure and data center and smart mobile devices in differentiated areas such as display backplanes for AI glasses, PIMX for premium smartphones, and smart power stage gate drivers for data center power. Our differentiated capabilities are helping customers solve increasingly complex challenges while positioning GF as a trusted technology partner. We are making critical investments and integrating strategic acquisitions that strengthen our competitive position, diversify our growth drivers, and provide a durable foundation for long-term profitable growth. I am proud of the team's diligent execution this quarter and excited about the opportunities ahead. I'll now pass the call over to Sam for a deeper dive on second quarter 2026 financials.

Thank you, Tim. For the remainder of the call, including guidance other than revenue cash flow and net interest income, I will reference non-IFRS metrics. GF delivered strong results in the second quarter, with revenue and non-IFRS gross margin exceeding the high end of our guidance ranges. Thanks to the efforts from our teams around the world to improve structural costs, raise manufacturing productivity, and accelerate growth in value-accretive secular end markets, We grew our gross margin by nearly 500 basis points year over year. Not only did this represent a second quarter record, we delivered on our expectation to reach approximately 30% gross margin well before the end of 2026. Driven by a richer mix of revenue, this quarter's results demonstrated a meaningful step forward towards our long-term objectives to achieve structurally higher margins and profitability. Now onto the results. We delivered second quarter revenue of $1.786 billion, up 9% sequentially and 6% year over year. We shipped approximately 625,000 300mm equivalent wafers in the quarter, up 8% sequentially and 8% from the prior year period. Revenue from manufacturing services accounted for approximately 89% of total revenue. Revenue from technology services which includes revenue from IP, licensing, software, reticles, non-recurring engineering, expedite fees and other items accounted for approximately 11% of total revenue for the second quarter. Following the acquisitions of MIPS and the Synopsys Arc IP business, we expect revenue contribution of approximately $100 to $120 million towards our full year 2026 technology services revenue. up from our prior expectation of 60 to 100 million as these acquisitions continue to drive new opportunities with our customers. In addition, driven by strong conversion of our design wind pipeline and an expanding scope of partnerships with customers, we expect sustained momentum in our revenue contribution from technology services. As a result, we expect technology services revenue towards the high end of the 10 to 12% range of total revenue in 2026 with a gross margin profile significantly higher than our corporate targets. Let me now provide an update on our revenue and outlook by end market. Communications infrastructure and data center represented approximately 16% of second quarter total revenue. Revenue increased 20% sequentially and 62% year over year. This marked the seventh consecutive quarter of double digit percentage year over year growth for communications infrastructure and data center. and the fastest quarterly year-on-year growth since 2022. Within this end market, we saw strong customer demand for our silicon photonics and silicon germanium offerings. In both of these high margin technologies, we're ramping capacity and making the necessary investments to unlock increases in demand indicated by our customers. Beyond optical networking, We saw strong double-digit year-over-year growth in applications across both wireless infrastructure and storage. Given the accelerating demand outlook from our customers, we now expect to achieve full-year 2026 revenue growth in the range of 50% to 60% for our communications infrastructure and data center and market, up from our prior expectations of high 30s percentage year-over-year growth, which we believe is an early indication of the long-term growth opportunities ahead for GF in this end market. Beyond the growth opportunities across silicon photonics and SIGI outlined by Tim, we also closed a first-of-a-kind design win for smart power stage gate drivers on our BCD platform. We see this as just one notable step forward in the rapidly evolving market for data center power applications. Automotive represented approximately 19% of second quarter total revenue. Automotive revenue decreased 13% sequentially and 10% year over year, principally driven by customer led shipment timings. However, for the full year, we continue to expect low double digit percentage revenue growth for our automotive end market with a higher weighting towards the fourth quarter. As automotive semiconductor content continues to grow, we're encouraged by our design win momentum with customers and the long-term growth opportunities these present. In the second quarter, we secured a significant automotive power design win for 5V and 10V power management integrated circuits built on our BCD platform. In addition, we also taped out an ADAS radar built on our FDX platform for Bosch. A notable milestone and the culmination of years of close partnership. These highlights reflect the strong momentum we continue to see across automotive power, processing, sensing, and safety applications. Smart mobile devices represented approximately 36% of second quarter total revenue. Revenue increased 15% sequentially and decreased 6% from the prior year period, As noted by peers and customers across the industry, 2026 smart mobile handset forecasts have reduced meaningfully over the last quarter, principally due to the continued impact from memory pricing and associated shortages. As a result, we currently expect smart mobile devices to decline by a low teens percentage year over year in 2026. Customer design momentum for new generations of smart mobile devices continues to be positive. In the second quarter, We secured a notable design win on GF's BCD platform with MediaTek, further validating our expanding power platform. This marked GF's first-ever power management integrated circuit design win with our long-standing customer. In addition, we continued to strengthen our position with next-generation augmented reality wearables at a leading hyperscaler, winning a new design for micro-LED display backplanes. Finally, home and industrial IoT represented approximately 19% of second quarter total revenue. Revenue increased 30% sequentially and 10% year-over-year. In the second quarter, IoT revenue growth marked the fastest year-over-year growth since 2022, driven by a breadth of demand for applications across AI-enabled image processing, healthcare wearables, and next-generation MCUs for edge AI computes. As inventory normalizes, customer demand signals improve, and the next generation of production ramps commence in the second half of the year, we expect our revenue for the home and industrial IoT and market to grow in the range of 10% to 15% in 2026, up notably from our prior expectations for mid-single-digit percentage growth. In the second quarter, we secured three strategic chiplet design wins with Lockheed Martin on our FinFET and FTX platforms, creating a foundational aerospace and defense chiplet ecosystem that further extends GF leadership as a trusted US foundry. We also expanded our relationship with Microchip with a meaningful design win on our FinFET platform, another notable proof point for the growth of our embedded compute and edge AI offerings. Moving now to other key financial performance metrics in the quarter. In the second quarter, we delivered gross profit of $534 million, which translates into approximately 29.9% gross margin, above the high end of the guidance range and up 470 basis points year over year. A richer mix of manufacturing and technology services revenue, structural improvements in manufacturing costs, and Improved Utilization all contributed to favorable year-over-year margin expansion. R&D for the quarter was $144 million and SG&A was $92 million. Total operating expenses of $236 million were up 16% quarter-over-quarter and represented approximately 13% of total revenue. We delivered operating profit of $298 million for the quarter at an operating margin of 16.7% above the midpoint of our guided range and up 140 basis points from the prior year period. Second quarter net interest income was $9 million. Other expense was $12 million and we incurred tax expense of $39 million in the quarter. We delivered second quarter net income of approximately $256 million, an increase of approximately $22 million from the prior year period. Diluted earnings of $0.46 per share was at the high end of the guidance range based on a fully diluted share count of approximately 556 million shares. Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations in the second quarter was $405 million. Second quarter capex net of proceeds from government grants was $408 million, or roughly 23% of revenue. Adjusted free cash flow for the quarter was negative $3 million, as indicated in our prior quarter's guidance. At the end of the second quarter, our combined total of cash, cash equivalents, and marketable securities stood at approximately $3.3 billion. Our total debt was $1.1 billion and we also have a $1 billion revolving credit facility which remains undrawn. On July 14th, we paid GF's first-ever quarterly cash dividend of $0.12 per share, an important milestone that reflects both the progress we have made in strengthening the business and our confidence in its future cash-generating capacity. Supported by a strong balance sheet and disciplined capital allocation framework, Thank you for joining us today. to shareholders of record as of September 23rd, 2026. In addition, approximately $100 million remains under the share repurchase authorization approved by our Board of Directors, and we expect to be flexible with the deployment of the remaining authorized amount. Next, let me provide you with our outlook for the third quarter of 2026. We expect total GF revenue to be $1.885 billion, plus or minus 25 million. We expect gross margin to be approximately 30.5% plus or minus 100 basis points, which at the midpoint reflects approximately 450 basis points of year-over-year expansion. Excluding share-based compensation, we expect total operating expenses to be 260 million plus or minus 10 million. We expect operating margin in the range of 16.7% plus or minus 170 basis points. At the midpoint of our guidance, we expect share-based compensation to be approximately 76 million, of which roughly 18 million is related to cost of goods sold. We expect net interest and other income for the quarter to be between 3 million and 11 million, and income tax expense to be between 28 million and 52 million. Based on a fully diluted share count of approximately 556 million shares, We expect diluted earnings per share for the third quarter to be $0.51 plus or minus $0.05. Now let me provide an update on some broader financial drivers as we evolve the mix of our business and aim to deliver the growth model set out at our recent Investor Day. With respect to pricing, we're encouraged by the improving industry dynamics as well as the evolving mix of our business towards highly accretive technologies. In addition to these positive mix shifts, in the second quarter, we implemented pricing increases in partnership with our customers across several technology corridors. Following the satisfactory conclusion of these customer conversations, we expect the pricing adjustments to be reflected in revenue commencing in 2027. The magnitude of these pricing increases varies by end market and technology and contemplates the differentiated value we provide, the ongoing supply and demand dynamics, and the inflationary absorption across our industry in recent years. Conversations with our customers have been very constructive and we'll continue to assess pricing for 2027 through the second half of 2026. With respect to operating expenses, consistent with the strategic updates we set out at our investor day in May, we believe that R&D will rise as a percentage of revenue as we integrate recent acquisitions and accelerate our R&D capabilities to support key growth opportunities. We've strengthened our portfolio capabilities through the acquisitions of the Synopsys Arc IP business in June, as well as the IVR business from Fotion Technologies in early July, adding critical R&D, IP, and engineering resources. Following these acquisitions, we now expect quarterly operating expenses in the second half of 2026 to be consistent with our third quarter guidance as we accelerate critical R&D investments while ramping talent and capabilities intended to support key growth opportunities across the AI data center, physical AI, quantum computing, and advanced packaging. These timely and necessary investments are targeted to accelerate our technology roadmap, deepen our customer engagements, and expand future growth opportunities in the years ahead. Moving now to tax, where we expect an effective tax rate in the mid-teens percentage range for the full year of 2026. principally due to the expected geographical mix of wafers shipped in the second half of this year. Finally, for the full year 2026, we continue to expect an adjusted free cash flow margin of approximately 10%. In conclusion, I'd like to thank our global teams for their continued commitment and diligent execution towards our strategic goals. GF drove another quarter of meaningful year over year margin expansion and achieved new second quarter records across a range of growth and profitability metrics. Our strategic initiatives and investments executed over the last year are demonstrating good momentum across the end markets that we serve. And the continued mix shift in our business is driving improved diversification across our end market portfolio. Looking ahead, We intend to continue executing towards a richer mix of business, targeting continued structural cost improvements and improved manufacturing productivity, all of which we believe are forming a strong foundation for increasing shareholder value in the years ahead. With that, let's open the call to Q&A. Operator?

Certainly. And our first question comes from the line of Chris Caso from Wolf Research. Your question, please.

Yes, thank you. Good morning. I guess the first question is about the Common Data Center growth and some of the capacity expansion that's occurring in that segment. And I know while it's growing strongly, your capacity constrained. Can you help us with, to the extent you can, timing and magnitude of that capacity expansion? You know, when does additional capacity come online? And I did also notice that you received, I think it was the $300 million CHIPS Act grant for the silicon photonics expansion. Can you speak to how that helps to defray some of the net capex for that?

Yeah, thank you, Chris. So I'll kick us off on that. So in terms of capacity, as you say, demand has been strengthening across basically all data center applications. We're feeling that very strongly in the optical networking space that particularly pulls on silicon photonics and silicon germanium. But we're also seeing it in other parts of the business starting to pick up, including areas like power. Thank you very much. to be able to get basically wafers out through the back half of this year and even further into 2027. So we feel good about the ability to meet that growth with additional capacity expansion. Maybe I'll turn to the $300 million partnership with the U.S. government. We couldn't be more excited about this. I think it's really important to bear in mind that the shift to optical networking is very much a secular shift, and we see this only at the very early innings. of Penetrating the Data Center. We've spoken in the past about 70% of data center links being optical by 2030. I think every piece of evidence today points to that being perhaps even conservative relative to what's happening, including the penetration, not just to scale out, but also scale up networking. And so look, we're very excited about the prospects of optical networking and within that silicon photonics, but a lot of what that will require is higher performance technologies in the future. And so what we announced Really have three components. Continuous innovation at the peak level, right? So improve modulator technology so we can go to 400 gig per lane and beyond. New materials, at some point we will introduce new materials into the system. Think about barium titanate, thin film lithium niobate. Think about indium phosphide, all areas of Thank you for joining us. for both those applications using our scale solution also requires continued capability and capacity. So that partnership allows us to accelerate that, and we're very grateful to have the U.S. government as a strong, let's say, partner in our corner supporting that innovation happen right here in the U.S.

I do, thanks. A follow-up I'll ask on gross margins, and can you speak to... What's the driver of the gross margin expansion as you go into the third quarter in terms of utilization mix and pricing? And perhaps give us some color on the trajectory of gross margins into next year, particularly in light of some of your comments with regard to pricing.

Yeah, very happy to, Chris. And look, I will start by saying that Thank you very much. Thank you very much. Thank you for joining us. Mix has been a big and continues to be a big driver of that. And the way to think about Mix is twofold. It's Mix from a manufacturing services point of view, and it's Mix from a technology services point of view as well. You know, both of those have been encouraging tailwinds for us, particularly when you look at, you know, the relative strength and growth within some of those end markets, which I touched on around, you know, comms infrared data center being highly accretive to those targets. You take our Thank you very much. A big driver as well. Utilization, we were in the second quarter sort of high 80s from a utilization point of view. So we still feel we've got a good amount of our existing capacity to be able to grow into and see positive margin movements over time. and frankly all of that is against some of the benefits we had in the year ago period. We had things like liquidated damages in early 2025 which have fallen out. So again, it sort of reflects the strong growth we've seen from a margin point of view. We bumped up on that 30% target margin that we said we were looking to solve for at the exit of 2026. In our second quarter, we're above that. in the third quarter guidance. So expectation now for the full year is that we should be at about 30 points of gross margin for the full year rather than just that exit target that we had at the beginning of the year. Hope that helps, Chris.

It does. Thank you.

Thank you. And our next question comes from the line of Chris Sink from TD Cowan. Your question, please.

Hi, thanks for taking my question and congrats on the nice results. I just wanted to first follow up on the Silicon Photonics CID year-over-year growth almost doubling from your prior outlook. I'm just kind of curious what changed in the last three months that the outlook has been revised almost materially higher and any color you can give on your pick solutions compared to your two competing foundries. Then I had a quick follow-up on Quantum too.

Yeah, great. Thank you very much, Krish. Look, photonics remains a very strong driver for us. I think every customer meeting is all about what more can we do, how much faster can we go. There is clearly strong demand today. And by the way, in a market like this, we don't just validate that demand with our direct customers. We spend time throughout the ecosystem, including with the big hyperscalers. And you've seen many of them are supporting a lot of what we're doing here in the U.S. and around the world. So we're validating the demand, and we believe it's very important. Real Today and Durable going forward. That's giving us confidence to continue to invest. We'll increase our investments in photonics capacity. And as I mentioned earlier, there's nothing our factories love more than being challenged to get more output literally every single week You know, we're calling in from Malta, New York right now, and the factory is hard at work producing more wafers every day for these oversold corridors. So I think very strong conviction about continuing to grow silicon photonics. But yet we're still at the very beginning of this and that those growth targets we set for, you know, kind of end of 28 and through 2030. I'd say today we are very much on track and potentially ahead of those targets in terms of our silicon photonics growth.

Very helpful, Tim. And then a quick follow-up on Quantum. You recently got a $375 million grant. Can you talk a little bit about the opportunity set there and where are we in the Quantum commercialization curve? And have you seen more interest or share gains given IONQ's recently closed acquisition of Skywater? Thank you.

Yeah, so thank you for that question. I mean, Quantum is extremely exciting and there's a few reasons behind that. I think one is talking to now basically all the players in the sector. Everyone is facing the same kind of transition. This is not a can I prove it in a lab discussion. This is can I scale to high volume manufacturing. And so the conversations we have and in our announcement we had both dedicated quantum players but also hyperscalers and others comment and support that initiative. The conversations are similar because it's all about transitioning to that high volume scale and cracking different problems that they've proven at lab scale but need to prove now as they transition to high volume. Since that announcement, we've launched four significant new engagements with a subset of the players that are supporting us in that announcement. And we see that ramp continuing. Those engagements have some common features. For example, some of the stuff we're doing around cryogenic CMOS for readout, ICs for different modalities. That's very exciting because it builds on existing platforms that we have. But also there are those who have very specific requirements. And That's where also I'm quite excited about the technology benefits of us investing in quantum. And so I'll give you an example. A couple of, actually more than two, three or four players are doing things linked to the photonics side in their quantum solution. That has excellent read across for us in our long-term silicon photonics roadmap. So think of that as very synergetic with what we're doing in that space. And so quantum is actually reinvigorating a number of our long-term technology roadmaps and so on.

Thanks a lot. You're very helpful.

Thank you. And our next question comes from the line of Carl Ackerman from BMP Purpose. Your question, please.

Yes. Good morning, Tim and Sam. Thank you for having me on the call. Two, if I may. Tim, you spoke about the three pillars of growth, including photonics, quantum, IP, and custom silicon. Could you speak to the revenue and OPEX contribution of the ARC and Photon Technologies IVR team in the September outlook? and also if you zoom out, could you double click on the rationale for these deals and maybe any early customer design engagements you've seen to date?

Yeah, so let's, I'll talk about rationale and then I'll let Sam comment on how we're thinking about revenue for this year. So we've been very focused in our acquisition strategy on identifying capabilities that our customers value and that links to our manufacturing roadmap, but also links to what they tell us around gaps that the industry today is not meeting. So let me take kind of the MIPS and synopsis story first and I'll come back to Fotion, both very exciting in their own ways. Customer feedback on MIPS and then ARC has been excellent. I spend a lot of time personally with customers, especially since we've closed the ARC deal. And by the way, with that came 300 customers. Some of those were not GF customers before, so it gives us also new customers to engage with on those roadmaps. And these are very strategic discussions because these are about future architectures for their processor solutions. How can they add AI at the edge? How can they do on-device inference in the automotive space, the industrial space, the robotic space? and so it's bringing some really interesting discussions to bear and it allows us as GF to engage much earlier in that design conversation than we would if it was just a conversation about you know manufacturing capacity and manufacturing process technology. It has another benefit which is that it's also giving us very very early input into our manufacturing roadmap and so now you have this let's say symbiosis internally that we have an internal customer for what we're doing that is actually challenging us to push performance of next generation technologies particularly in our CMOS Thank you very much. To talk briefly about IVR and Fotion, we've had the chance to work with the Fotion team for many years now as the IVR category has started to become more and more important. The way you should think about that is IVR is to power, what CPO is to photonics. Think about how do you build a much more wafer-level integrated solution to deliver power closer to the chip and to be able to do things that today exist in much more traditional power modules, much more like the industrial and automotive power modules of today. This is moving to a much more wafer-level solution that is higher and higher performance. That is essential for next generation data center power, given how hungry these XPUs, TPUs, CPUs are all for power. Photion team, very engaged with a number of our existing customers. So it's a very natural transition to bring that team on board, accelerate those engagements. And again, early feedback from the likes of existing kind of Fabless and IDMs, but also hyperscalers who are engaged there. Very, very positive bringing that capability into GF.

Carl, maybe if I just jump on the second part of your question as it relates to some of the financial profile and for all the reasons that Tim outlined, these investments are incremental, they're strategic, and actually in the case of the MIPS acquisition as well as the ArchiveP business from Synopsys, they are revenue generative. From day one, at the outside of this year, we expected that we'd be seeing about 60 to 100 million of incremental revenue through from that MIPS acquisition during the course of 2026. That remains the expectation. But what's changed over the course of the last quarter is that we closed the acquisition of the Synopsys Archive P business. Thank you very much. As it relates to the R&D and the fall through ultimately through to EPS, look, these are R&D intensive businesses. They're also highly accretive from a gross margin point of view. Overall, we expect that the increase in OPEX and particularly the acceleration from an R&D point of view to largely be covered by that incremental revenue we see coming through from both of those acquisitions. So we feel quite good about it from that perspective.

Very clear. For my follow-up, if I may, could you discuss what portion of those seven customers on your scale platform are working on NPO or near package optics? And I guess, how should we think about the timing of your NPO opportunity? Thank you.

Yeah, maybe just to take a step back. And I think there's obviously, you know, a year ago, the industry wasn't talking a lot about NPO. Now it's talking a lot about it. I think the reason is that Thank you very much. in the data center. Obviously, as you get more into scale-up networking, that's where you need to move to smaller form factors like NPO and CPO to really address all of those linkages within a scale-up network. So we think all of those will continue to exist. Scale supports NPO and CPO, so a lot of the dimensions that go into Putting a scale solution together, an EIC bonded to a PIC with a micro-optic with a fiber-attached unit are necessary for both NPO and for CPO. Fundamentally, the mechanical difference is that the NPO is bonded to the board, whereas the CPO sits within the package, right? And there are differences, therefore, to, let's say, more the things like the SERDI's architecture, as I mentioned, but less to the mechanics of how things are done. So look, we see very good momentum on NPO. I'd say the scale engagements we have cut across both. And actually, I'd say even many of the customers are doing both because they have both an NPO that they're ramping sooner and a CPO that they're ramping a little bit later. We still maintain the view that 27 will see the beginning of NPO ramp and 28 will see the beginning of CPO ramp. And that's been quite consistent over the last few quarters.

Thank you. Thank you. And our next question comes in the line of Mehdi Hosseini from Sessho Khanna International Group. Your question, please.

Yes, thanks for taking my question. I also have a couple of follow-ups on common infrastructure. Tim, can you help me understand What is the contribution of SEGI into your overall optical revenue mix? And as we migrate to NPO and assuming the PIC itself becomes a catalyst, to what extent should I expect some synergy between a CIFO and SEGI? And I do have a follow-up.

Yeah, it's a great question. And let me talk about CIGIE just for a little bit since you picked it out. Just to wind the clock back, right, how do we have such an important position in CIGIE? IBM Microelectronics, I think, is on record for inventing CIGIE. IBM Microelectronics is part of GF today. And so we've had team members building CIGIE solutions for a long time now. And so that's always been an important part of our portfolio. What you're seeing in CIGIE is that the acceleration is driven by, let's say, two trends happening at the same time. One is Thank you very much. and also incrementally also breaking out the drivers and doing them in high performance analog solutions like SIGGY. And so in a way what we're seeing in our SIGGY business is actually growth driven by both the switch to optical but also the increased bandwidth requirements within those optical solutions. That's driving significant growth within the space. Just to give you a dimension, our SICCI business is actually larger than our silicon photonic business today. So it's actually a meaningful part of our data center business overall. And, you know, like silicon photonics has very strong growth trajectories because it serves the same underlying trend and perhaps with even that multiplier effect playing out even more so as we're expanding, you know, the performance of those pluggable technologies. You'll also find high-performance analog solutions in near and co-packaged optics as well. So those will also have components of those depending on the architecture. Our SIGI solutions, we build them today in Burlington, Vermont. We're expanding capacity there. That's part of what is also increasing our output within 26 and definitely into 27. But we're also qualifying 300mm SIGI in Singapore, which will bring additional capacity, the economics of 300mm, which obviously is very good, but also higher performance. And so as you move to new platforms, you improve your FT, your Fmax performance. And so we think we can continue that great tradition started by IBM of leading the industry in terms of OSIGI solutions for the market.

Okay, great. I feel like we could spend an hour just focusing on optical, but I'm going to move on. Within a comm infrastructure, there's also satellite comm and SpaceX had their first quarterly call last night. So help us understand, right now we're just focused on a transceiver and optical solution, but I see there's also synergy. So what kind of a substrate is used for satellite comm and Remind us, from an analyst's day, how Satcom can also drive double-digit growth here. Hopefully, I'm in line with my assumptions.

Yeah, so Satcom continues to be a strong growth business for us, and the reasons for that, I think, are fairly clear. The transition to, you know, LEO deployment, you know, really driven by SpaceX originally and a couple of other players now ramping as well. It's very clear to see, and as a consumer, once you take a flight and you Starlink on the flight, you kind of don't want to go back to how it used to be. So I think it's clear why those solutions are taking effect. Remember, you're beaming a signal 300 miles into space, a signal that normally would have gone two or three miles to a base station or a cell tower. And so you need higher performance RF, you need beamforming, you need other kind of wireless technologies. These are very core strength areas for GF. Some of those technologies are in SOI today. Some of them have SOI-like characteristics but are done without SOI as well. And we're seeing more and more trajectory of new RF technologies playing into SATCOM going forward. Even areas like RFGAN we think will play a very important role in SATCOM going forward because you're not just increasing the number of units deployed, but you're talking about faster and faster bandwidth. And by the way, this is not just for consumers. You're hearing about industrial deployment, corporate deployment. and so on. And dare I say, when you put data centers in space, you're going to need a lot more bandwidth to bring that capability back to Earth for people to use. So I think very strong secular driver of growth for us. Obviously, we're starting from a relatively small base compared to other markets, given this is relatively new, but we definitely see it growing very well long term.

Thank you.

Thank you. And our next question comes from the line, Timothy O'Curry. from UBS. Your question, please.

Thanks a lot. So, Sam, I had a multi-part question. So, the segment guidance implies like December is up sort of in the 10% range. So, my question is, A, is that right? And then, can you give us any sense for September of how the guidance shakes out by segment, even if you just give qualitative comments on that?

Yeah, happy to, Tim, and you're right in terms of your overall inference. We said that certainly for the remaining part of this year, just given some of the dynamics around mobile, we think that's sort of download teams for the full year. Meanwhile, automotive, despite having Thank you for joining us. Thank you very much. Thank you for joining us. Implied Pickup into the fourth quarter. And then, look, as it relates to some of the dynamics within 3Q and 4Q, it's largely consistent with, I think, what we're expecting to see from a trend perspective and what I just outlined on the end market split as well.

And maybe, Tim, if I can just add, if we zoom out for a second and think about kind of are we seeing more and more traction in those end markets, I think We haven't spoken a lot about design wins across the board, but we continue to see record design win momentum entering into 2026. versus 25. So again, that traction remains really strong. I think the other thing that's very important, we've worked very hard to make our manufacturing footprint as flexible as possible because there are always going to be perturbations between different end markets in terms of timing. You see obviously a very strong story in the data center. You see mobile is obviously going in a different direction given the memory shortage. We've been able to reuse capacity very well this year to enable us to capture some of those upsides given the flexibility of our manufacturing footprint.

Great, thanks. And then just as a quick follow-up, so on SIFO, we do hear about some competitors are getting aggressive in going after that business as well, and the customer base is fairly concentrated. So how to think about that? Can customers multi-source across different suppliers? How feasible is that? Thanks.

Yeah, I think the fact that there's competition is a sign that there's strong support for this secular trend. And I think that's not a bad thing from our point of view. What I can say is customers are also coming to us and saying, I don't have enough secured. I need to secure more. And how can I help? And some of that is also mitigating geopolitical risk that they see as well. And look, our strategy in any platform is try to work as broadly as we can across the industry so that we're not betting on The success of player A over player B, but we're mitigated if different people win different sockets. Actually, we have more than 40 customers today in SIFO, and that, of course, includes some early-stage companies, but some of those early-stage companies are really doing great things in terms of ramping new solutions. So I don't think we have a customer concentration concern at this stage, and you're going to see even new entrants. Look at all of the, let's say, I would say smaller fabulous companies that historically were saying, Copper will last for a long time. All of them, to a T, have done a photonics strategy, made a photonics acquisition, and are entering into that space quite aggressively. So I don't think we have a customer concentration concern, and I just think we have durable demand. And like I mentioned earlier, our conversations with the hyperscalers are very helpful to vet what they see as an end consumer of those applications. And again, that reinforces the durability of the demand.

Okay, thank you.

Thank you. And our next question comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please.

Yeah, good morning. Thank you for squeezing me in. I guess first question on CID, you know, implicit in your guide is roughly an exit rate of 350 million for this segment. And so I'm curious, you know, based on, you know, what you see today in terms of design wins, how do you see kind of the growth into calendar 27? I know you don't want to give specific guidance, but, you know, should we be thinking about, you know, very strong growth off of that kind of new level, or is there kind of a digested period?

Yeah, happy to tell you that, CJ. You're kind of getting to the right rough numbers going out of this year. The commentary that we provided as part of our Investor Day and Analyst Day a couple of months ago still stands as we see the opportunities for comms and for data center. Obviously, it's expected to come in stronger during 2026, but there was a good reason we indicated that 30 plus percentage year-over-year growth that we're targeting through our long-term model, that the plus is sort of tied into what Tim said earlier around some of the The growth that we're seeing in demand, the increases that we're making to support that demand into our capacity, and just the continued ramp in customer expansion as well. So, look, I would still stand by our long-term model that we shared a couple months back in terms of that 30-plus point percentage growth going into 2027 and beyond.

See, Jamie, if I can add. Very helpful. Demand is clearly very strong, and so The question is more about the rates and pace of manufacturing productivity and capacity expansion. That's obviously a conversation we continue to have with customers. One of the advantages for us is that we can meaningfully inflect our capacity within our existing fab footprint. We don't need to build other fabs, and some of our other players in the industry are building other fabs, which obviously is a longer lead time to bring that capacity online. So we're bringing within our four walls. And just to give you a sense, if we think of our long-term plan, just take for photonics, We could 10x our photonics capacity within our current four walls plan on a global basis. And so we have a lot of flexibility about when we do that based on the demand and the partnerships we have with customers.

Very helpful. And then follow up on gross margins. You know, it sounds like the story here in calendar 26 is really all about mix. And so curious, given your commentary around selective price increases and how you're going to continue to look at that into calendar 27, How are you thinking about the prioritization of drivers between kind of mix pricing and utilization? And is there a framework for us to think about incremental gross margins from here?

Yeah, look, maybe I'll start with the mix point, CJ, because it remains the single biggest driver. And in actual fact, we're still at some of the early innings of those mix shifts that we talked about from a capacity point of view. Clearly, the demand has been pulling through well during the course of and many more. My point being is that MIX will continue to be a significant driver as we outlook within the model over the course of the next couple of years. And then really the two to three other factors I'd point to. One, yes, utilization, but somewhat impacted. If you think about where things are at from a cycle point of view, we've still got about 10 points of utilization to be able to grow into just with our installed capacity today. So that's one dynamic. And then the other is Thank you very much. Really across that range of metrics is where we see the opportunity to continue expanding margin and get towards that 40% exit run rate that we indicated in the 2028 timeframe. Then beyond that, to Tim's earlier comments, is where we expect to see continued ramps in custom silicon and activities under our IP software custom silicon business as well as the increased ramp from co-packaged optics and the broader silicon photonics offerings as well. So that's how we think about it over the next couple of years around some of those margin ramp drivers.

Thank you.

Thank you, Jay. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Eric Chow for any further remarks.

Thank you, Jonathan. Thank you, everyone, for joining today. We're very glad to see you, and we will see you at the Goldman Sachs Conference on September 8th. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.