The Six Five team discusses GlobalFoundries’ latest earnings.

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Transcript:

Patrick Moorhead: GlobalFoundries. I am going to pick my own number on this. For those of you who might not be aware, GlobalFoundries is the largest international foundry out there defined by being in as many countries as they’re in. They’re not as big as TSMC, but they’re very focused on that.

So for the quarter, they beat on EPS, they met/beat on revenue. And the thing that’s weighing on the stock right now is a light guide. And it’s the first time in a long time I’ve even seen sequential declines from the company in revenue, gross margin percent and earnings percent. But listen, it’s everything the company told you before. I read the transcript and Tom basically said, “Hey, we anticipated that the first half in the first quarter would be the low point in revenue in the peak of the inventory cycle.” And basically, it happened, and the declines is exactly where you would expect. Smartphones, big dollar declines and the company is a big supplier of analog chips like RF that go into these phones, particularly on the Android side. PC’s – huge decline as a percent, but it’s not really a big dollar value. At some point, I’m pretty sure GlobalFoundries will take that out. That’s really historical based on the business that they used to do with AMD.

IoT, which currently combines consumer and commercial, that was down. And if I could guess, the biggest decline was on consumer and they probably didn’t have big declines in industrial. They were up exactly where you’d expect, automotive. I don’t know of a single automotive chip supplier or foundry that’s down. Now, I do think the automotive gravy train is likely going to slow down a little bit because I feel like we’re in a catch-up mode right now. And when I balance that across internal combustion engines, I look at the interest rates that are going sky-high that will disincent new buyers from coming into the market. That could be the last one to go, but it is good to see because the foundries are the canary in the freaking coal mine, how they did so well. Now, the final comment that I thought was positive, they signed five long-term agreements worth $1.4 billion in revenue and LTAs were an important thing. So they’re basically guaranteed revenue and you get guaranteed slots in the foundry. So overall, exactly what you would’ve expected from GlobalFoundries.

Daniel Newman: Yeah, I’ll hit this one pretty quickly, Pat. I mean, look, we knew smartphones would be down, we knew PCs would be down, we knew consumer IoT would be substantially down. What we’re sort of watching is the turn pivot for data center, automotive’s been rock solid. That’s got a lot more to do with the never caught up from the supply chain. And then of course, you’ve got an industry where vehicles are significantly more semiconductor intensive than they used to be. So every car is getting more and more chips in it. So even if we sell less volume, you’ll see the manufacturers, the semiconductor players in the automotive space all perform better. GlobalFoundries is unique, it handles a lot of the lagging process. So what a lot of people still don’t realize, and even though we’ve talked about it, God knows how many times on this show, Pat was, this was a big part of where the actual chip shortage became a problem.

And so, Global has benefited significantly from it throughout because they were always at capacity selling through every single chip they can manufacture. So we’ve finally sort of seen that come home to roost and that’s led to some year on your declines. But I think as you said, the company had a good handle on where it’s at. This sort of seems to match what we’re hearing from Qualcomm. Some of what we heard from Pat Gelsinger at Intel, some of what we heard from Lisa Su, we seem to be hovering around the bottom right now. And it seems that most feel that that inventory glut is starting to be sold off, that we’re starting to move directional into a next wave of increased revenue, which I think will have to be accelerated by all this AI momentum. And that’s one of the things I keep saying, all the AI that we want to embed in new phones and new PCs to support data center servers to make cars smarter is going to mean we’re going to have another wave of replacement cycles.

When you want to edge a new PC that’s going to be able to do edge inference, you’re going to see a new chip set that’s going to come into these devices over the next one or two years and then that’s going to create a forced upgrade cycle for people that want to be able to take advantage of new capabilities. So for a long time, there hasn’t been a new sort of got to have it capability. There was more of a, oops, we’re all going to work from home thing that led to a lot of PCs being bought. That’s just a for instance. But to do all this generative AI, we’re going to have data center buildouts to a pretty massive scale. Companies like GlobalFoundries have critical components to complete products.

And so, they will be along for the ride even though they’re not necessarily the one building on three or five nanometer technologies that everybody gets really excited about. So congratulations, I guess, to Global for surviving this really rough period of time for semiconductor companies. It seems that they were able to push their margins up a little bit, which is a good thing because when you sell less, you at least want to always try to make more.