Globalfoundries projects 2025 revenue growth with focus on automotive and photonics

Insights from the Earnings Call: GlobalFoundries Inc. (GFS) First Quarter 2025

Management View

CEO Timothy Breen emphasized that the financial outcomes for Q1 2025 aligned with the upper limit of projections for revenue, gross margin, and earnings per share (EPS). The expansion in revenue can be attributed primarily to strong performance from sectors such as automotive, communication networks, data centers, and Internet of Things (IoT) applications.
In the first quarter of 2025, the non-IFRS adjusted free cash flow amounted to $165 million, which corresponds to a free cash margin of 10%. The CEO stressed the company’s commitment to maintaining strict control over costs and enhancing free cash flow production.
Breen discussed the continuing geopolitical and trade instabilities, highlighting GF’s initiatives to broaden their sourcing approaches and lessen cost repercussions. He emphasized that enhancing geographical robustness within wafer fabrication has become more critical for customer satisfaction.
The Chief Business Officer, Niels Anderskouv, pointed out that 90% of the design victories across the past four quarters came from exclusive sourcing, highlighting the company’s unique technological solutions.
John Hollister, who serves as CFO, announced the first-quarter revenue at $1.585 billion, marking a rise of 2% compared to the previous year, along with achieving a gross margin of 23.9%.

Outlook

The management offered their outlook for Q2 2025, forecasting revenues between $1.65 billion and $1.7 billion, along with an expected gross margin ranging from 24% to 26%.
Hollister set the anticipated diluted earnings per share (EPS) for Q2 2025 at $0.36, with a margin of +/- $0.05.
The firm restated its objective to conclude 2025 with gross margins of around 30%. This target is underpinned by enhanced efficiency, ongoing reductions in operational costs, and an advantageous assortment of products.
Breen showed optimism about attaining a sustainable and measurable annual market growth of around 10% throughout the rest of the decade, fueled primarily by advancements in automotive technology, communication networks, and Internet of Things devices.

Financial Results

In Q1 of 2025, the company reported a net income of $189 million, corresponding to a diluted earnings per share (EPS) of $0.34. The cash generated from operating activities amounted to $331 million, whereas capital expenditures totaled $166 million.
Automotive revenues accounted for 19% of the total income and saw a 16% increase compared to the previous year.
Communication infrastructure and data center earnings made up 11% of overall revenue, showing a rise of 45% compared to the previous year.
The revenue from IoT increased by 6% compared to the previous year, even though the forecast for the latter part of the year was somewhat uncertain.
The income from smart mobile devices fell by 14% compared to the previous year, influenced by decreased underutilization payments.

Q&A

Mark Lipacis from Evercore ISI questioned Breen regarding the effect of tariffs on revenues and GF’s capability to offset these effects. Breen stated that although the immediate financial impact is slight, there is an increasing trend among customers towards production flexibility and expanding manufacturing within the U.S. over the longer term.
Vivek Arya from Bank of America Securities asked about the gross margin objectives. Hollister discussed factors such as improved efficiency, reductions in depreciation expenses, and an enhancing product mix. The firm anticipates that efficiency will increase from the 80% mark seen in Q1.
Ross Seymore from Deutsche Bank inquired about advancements in communication infrastructures and data centers. Breen addressed the robust demand for photonics and satellite communications, bolstered by the adoption of co-packaged optics and silicon photonics technologies.
CJ Muse from Cantor Fitzgerald sought clarification regarding automotive expansion. Anderskouv emphasized the progress in design wins for ADAS, radar technology, battery management systems, and various other automotive platforms.

Sentiment Analysis

Analysts expressed a guarded optimism, emphasizing the need for clearer insights into what's driving revenue growth and how tariffs might affect things. The discussions often revolved around expanding profit margins and assessing market performances at the endpoint.
The management kept an assured stance, often emphasizing long-term prospects and fundamental strengths.
In comparison to the prior quarter, the sentiment expressed by both analysts and company leadership indicated increasing optimism regarding potential revenue increases and enhanced market conditions.

Quarter-over-Quarter Comparison

The expansion of automotive revenues persisted, bolstered by steady design successes and higher component integration per car. Additionally, the prior quarter underscored automotive as a principal catalyst for growth.
The expansion of revenues from communication infrastructures and data centers picked up speed, particularly emphasizing advancements in photonics and satellite communications.
The sentiment regarding IoT has become somewhat more positive, as management observed that inventory levels have stabilized.
Management's assurance in meeting margin goals increased, supported by effective cost management and improved product mix.

Risks and Concerns

The management pointed out trade and tariff uncertainties as persistent risks, highlighting possible hikes in costs throughout the semiconductor supply chain.
Experts voiced worries regarding how tariffs might affect demand and increase expenses, particularly within markets focused on consumers.
The management emphasized various ways to mitigate risks, such as adopting multiple supply sources and utilizing production capabilities spread across different countries worldwide.

Final Takeaway

In the first quarter of 2025, GlobalFoundries announced robust financial outcomes, with both revenues and earnings per share aligning closely with their forecasts. They reaffirmed their dedication to expanding over the long term within critical sectors like automotive technology, photonic devices, and Internet of Things innovations. Meanwhile, they tackled challenges posed by global politics and disrupted supply chains. Their strategic emphasis on optimizing product mixes, managing costs efficiently, and boosting production efficiency has bolstered faith in reaching a 30 percent gross margin target before the close of the fiscal year.

Review the complete earnings call transcript here.