GLOBALFOUNDRIES Q3 2026 Earnings Call Transcript

GLOBALFOUNDRIES (NASDAQ:GFS) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

GLOBALFOUNDRIES reported strong Q3 2026 results with revenue of $1.899 billion, up 13% year-over-year, and record non-IFRS gross margin, driven by high-value technology applications.

Strategic initiatives included major partnerships with Marvell, Monolithic Power, TSMC, and a U.S.-Japan fab expansion, enhancing capacity and positioning the company for long-term growth.

The company expects to triple its silicon photonics capacity in 2027, with a revenue run rate target of $1 billion by the end of 2027, driven by strong customer demand.

Automotive and IoT sectors saw significant growth, while smart mobile device revenue decreased, contributing to a more diversified revenue base.

Q4 2026 guidance anticipates $2 billion in revenue with a slight increase in gross margin and operating margin, supported by positive pricing dynamics and strategic investments.

GLOBALFOUNDRIES plans a $4 billion capex for 2027, supported by customer prepayments and government grants, to address robust demand in silicon photonics and other key areas.

Management highlighted the company’s improved market positioning and confidence in achieving long-term financial targets set during their Investor Day.

Full Transcript

Eric Chow (Senior Director, Investor Relations & Market Intelligence)

Along with today’s accompanying slide presentation. This call is being recorded and a 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 issue 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 20-F and in any current reports on Form 6-K furnished with the SEC. In terms of upcoming events, we will be participating in a fireside chat at the UBS Global Technology and AI Conference in Scottsdale, Arizona on December 1st. 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 third quarter results and fourth 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.

Tim Breen

Thank you, Eric, and welcome everyone to our third quarter 2026 earnings call. GLOBALFOUNDRIES delivered strong results in the third quarter with revenue and non-IFRS profitability metrics at the high end of our guidance ranges. We delivered record non-IFRS gross margin, which demonstrates the meaningful progress we are making to enhance the mix of our business by ramping our differentiated technologies in high-value, high-growth applications. Our communications infrastructure and data center end market saw record levels of growth, led by accelerating demand in optical networking across our silicon photonics and silicon germanium platforms. We also delivered strong growth in automotive and home and industrial IoT, reflecting broad-based secular momentum across our key markets.

Thanks to the accelerated growth across several end markets, the proportion of revenue outside of smart mobile devices was the highest level in our company’s history and is driving a richer, more diversified, more resilient revenue base. Thanks to the team’s excellent efforts and execution, we are ahead of plans to deliver the strategic and financial targets we set out at our Investor Day earlier in the year. We will look back at 2026 as being a pivotal year for GF. In recent weeks, we have made several significant announcements that meaningfully advance our strategy, support our financial objectives, and reinforce our foundation for durable long-term growth.

We are proud to have announced a significant number of new customer and investment partnerships, such as our agreements with Marvell to accelerate capacity for our industry-leading high-performance SiGe, with Monolithic Power for critical power management solutions, with TSMC to establish the U.S.-based supply of silicon interposers for the CoWoS ecosystem, and the landmark U.S.-Japan fab expansion plan that will transform our Malta, New York site.

These milestones firmly position GF as a diversified, holistic technology provider critical to governments and partners around the world. Let me cover these areas in more detail, beginning with our strong investment partnerships announced last month. The U.S.-Japan Initiative provides a new and innovative model for GF to expand our critical U.S. semiconductor manufacturing capacity at accretive economic returns. This initiative will unlock substantial capacity growth, support significant future customer demand, and bring the scale of our U.S. operations in Malta, New York to mega-fab level.

The unique and innovative partnership structure allows GF to expand capacity faster without investing capital, with an economic model that is accretive to our long-range plans. Through a robust structure of technology, construction, and operations fees, cost reimbursements, and EBITDA sharing, the initiative is designed to generate the profit per wafer comparable to if we had built and owned the capacity ourselves. As another indicator of our deepening partnership with the U.S. government, GF reached an agreement with the U.S. Department of Commerce to reallocate US$955 million of our existing CHIPS and Science Act award to accelerate investments at our Malta, New York and Burlington, Vermont facilities. The amended award will accelerate capex and R&D investments in our highest-value, differentiated technologies that our customers demand, such as silicon photonics, silicon germanium, and advanced packaging, including the first U.S.-based source of silicon interposers.

In recognition of the growing role that GF is playing in the U.S. semiconductor ecosystem, a separate agreement will be entered into to issue 4% equity to the U.S. government, which provides a vehicle for the American people to share in GLOBALFOUNDRIES’ future success. Combined with previous announcements, IPROSA Quantum silicon photonics and advanced packaging investments, we anticipate the total equity ownership of the U.S. government to be approximately 7% when all agreements are finalized.

Having attained a meaningful position in GF, our Board of Directors and our U.S. government partners do not plan on any further government equity position beyond these announced equity stakes. In summary, this landmark agreement represents a strong vote of confidence in GF and underscores our critical role in advancing U.S. semiconductor leadership. Let me now turn to our significant and expanding opportunity in the AI data center. We see significant momentum with customers for our optical networking solutions, where customers value GF’s unique combination of high-performance photonic devices, advanced fiber coupling, RF integration, and advanced packaging. Backed by more than a decade of investment and substantial cleanroom space within our modern, highly automated 300-millimeter footprint, GF can deliver differentiated performance and scale capacity rapidly as customer demand grows.

Our competitive advantages are translating into strong design momentum and robust customer demand. We are actively engaged with more than 50 silicon photonics customers, including 7 of the top 10 optical transceiver suppliers, with active designs slotted to ramp in 2027 and 2028 to scale across, scale out, and scale up networks. In 2026, we expect to deliver half a billion dollars of revenue from silicon photonics, and on the back of the strength of customer demand, order visibility, and our capacity growth plans, we now expect to exit 2027 at an annualized silicon photonics revenue run rate of approximately US$1 billion, a full year ahead of prior expectations. To support the ramping demand for optical networking in 2028 and beyond, we plan to approximately triple our silicon photonics capacity over the course of next year, which Sam will cover in more detail.

In addition to silicon photonics, silicon germanium is another important and complementary driver of GF’s growth in optical networking. Our SiGe technology enables high-speed optical transceivers through transmit drivers and receive amplifiers, key interface elements between the electrical and optical domains. Customer demand for our SiGe technology continues to increase beyond current capacity, and supported by customer prepayments, we are accelerating our capacity investments to ensure that we can meet this demand.

Our recently announced multi-year strategic partnership with Marvell will help support significant SiGe capacity expansion in our Burlington fab to enable next-generation optical solutions. Together with the reallocated U.S. government funding from our prior CHIPS grant awards, this gives us additional resources and strong customer alignment to scale a highly differentiated platform meaningfully accretive to GF’s long-term margin targets. Lastly, advanced packaging is another key enabler of our AI data center strategy. Under our 5-year, US$2 billion manufacturing agreement with TSMC, GF will establish a U.S.-based supply of silicon interposers for the CoWoS ecosystem, with volume production expected to ramp at our Malta site in the first half of 2028 and with a framework to expand the agreement over time. The economics of this arrangement are attractive for GF, and the strategic benefits are clear.

This agreement establishes a new multi-year revenue stream for GF with gross margins above our long-term targets and with co-investment from TSMC that will help fund the necessary capital associated with this project. The silicon interposers are yet another way GF can serve growing AI and high-performance computing infrastructure demand. By combining GF’s trusted U.S. manufacturing capabilities with the leading advanced packaging ecosystem globally, we are expanding into another essential layer of AI infrastructure and supporting the tighter integration of compute, memory, and connectivity.

We believe we are in the early innings of GF’s AI data center opportunity, underpinned by the critical needs of our customers for higher bandwidth connectivity, tighter integration of compute and memory, greater power efficiency, and secure, scalable supply. The result for GF is more avenues to win greater content and value in each system and a clear path to growth and a structurally richer business mix. Let me turn to physical AI as well as the meaningful progress we are making across IP, software, and custom silicon, or ISC. GF’s physical AI opportunity spans a wide variety of applications across connectivity, compute, power, actuation, and sensing, and our IP, software, and custom silicon capabilities unlock even more ways for GF to win. We believe the deployment of intelligence into vehicles, factories, robots, drones, satellites, medical devices, and other edge systems represents a significant and long-duration demand vector for GF.

Together with the Synopsys ARC processor IP business we acquired earlier this year, MIPS expands our role into that of a holistic technology partner servicing a broader set of customers with our custom silicon platforms. MIPS recently announced three physical AI-native reference platforms focusing on compute, AI inference, and real-time control, and we are now working with several customers designing systems focused on physical AI, leveraging our expanded capabilities.

The combination of RISC-V compute and AI IP, design capability, and AI-native platforms based on GF’s broad manufacturing capabilities puts us in a unique position to accelerate share gain in this area. Just over one year after we initially acquired MIPS, we are very encouraged by the strong customer traction which is now driving several platform-level wins. During the third quarter alone, we secured custom silicon design wins that total nearly $1 billion of lifetime revenue. These included platform wins for a radar system-on-chip and a RISC-V-based processor core designed for real-time control. In addition, we secured a win with a leading provider of high-performance data center computing solutions to design their custom board management controller system-on-chip, integrating our processor technology with third-party IP.

We also secured a notable aerospace and defense win to support the engine control processor for a leading global aerospace and propulsion company. Ultimately, these wins demonstrate how GF can capture more opportunities and support our customers across the semiconductor value chain, deepen our relationships with industry partners, and convert initial design engagements into concrete, long-duration growth opportunities. In summary, the multifaceted progress we demonstrated this quarter shows our strategy in action. We are scaling differentiated technologies into high-growth AI markets and driving meaningful customer value. With our capabilities in IP, software, and custom silicon, we are transforming GF into a more diversified, more durable, and more profitable business propelled by the defining megatrends of our time. I’ll now pass the call over to Sam for a deeper dive on third quarter 2026 financials.

Sam Franklin (Chief Financial Officer)

Thank you, Tim. For the remainder of the call, including guidance other than revenue, cash flow, and net interest income, I’ll reference non-IFRS metrics. The third quarter was a significant milestone for GLOBALFOUNDRIES, not only for the continued progression in our profitability metrics, but also for the continued mix shift in our portfolio. For the first time in our history, more than two-thirds of our Q3 revenue came from outside smart mobile devices, a record for GLOBALFOUNDRIES and further evidence of our increasingly diversified and margin-accretive mix.

We delivered record non-IFRS gross margin while continuing to fund the strategic investments that will drive GLOBALFOUNDRIES’ next phase of growth. Our strategic decisions are already enhancing our earnings power, and we believe that we’re only in the early innings of this evolution. Now onto the results. We delivered third quarter revenue of 1.899 billion, up 6% sequentially and 13% year over year. We shipped approximately 647,300 millimeter equivalent wafers in the quarter, up 4% sequentially and 7% from the prior year period. Revenue from manufacturing services accounted for approximately 88% 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 12% of total revenue for the third quarter.

As we continue to invest in a broader range of capabilities for our customers, we expect technology services revenue will represent approximately 12% of total revenue in 2026, which is at the upper end of the range we indicated, and with a gross margin profile that continues to be above our long-term target beyond 2026. We expect that the growth of revenue from technology services associated with IP licensing and software, combined with strong momentum in customer design wins and tape-outs, will be important drivers of GLOBALFOUNDRIES’ revenue growth and gross margin appreciation.

Let me now provide an update on our revenue and outlook by end markets. Communications infrastructure and data center represented approximately 17% of third quarter total revenue. Revenue increased 14% sequentially and 81% year over year, driven by robust growth in optical networking, which includes silicon photonics and silicon germanium. Not only did Q3 represent record year-over-year growth for this end market, it also marked the eighth consecutive quarter of double-digit percentage year-over-year growth for communications infrastructure and data center.

With accelerating customer demand and improved manufacturing productivity, our expectation is that revenue from communications infrastructure and data center will grow in the range of 60% to 70% in 2026. Furthermore, our design win momentum across this end market has continued to strengthen. In the third quarter we secured design wins for both silicon photonics and SiGe at a new optical transceiver customer. For hyperscaler demand in data center power, we taped out a smart power stage gate driver on our BCD platform and secured a design win on our 650-volt GaN platform.

Automotive represented approximately 19% of third quarter total revenue. Automotive revenue increased 11% sequentially and 20% year over year. Consistent with our prior commentary, our expectation is that automotive revenue will grow low double-digit percentage in 2026, marking another strong year of growth for this end market, and GLOBALFOUNDRIES continues to win with our customers to support the expansion of automotive semiconductor content. Smart mobile devices represented approximately 32% of third quarter total revenue, the lowest proportion in our history and a step forward to our long-term strategic goal to enhance the diversification of mix. Revenue decreased 5% sequentially and 19% from the prior year period. Consistent with the commentary from our customers, we continue to expect smart mobile devices to decline by a low-teens percentage year over year in 2026. We continue to have a skew towards the premium end of the smart mobile market and we expect to largely track the broader demand dynamics as the market adjusts to the challenges associated with memory-related supply constraints.

The long-term demand indicators continue to be positive. In the third quarter we secured new design wins across form factors spanning both smartphones and smart glasses. These included additional content wins in mobile power and a first-ever design win for fuel gauge ICs in premium-tier handsets. Customer engagement continues to be strong for GLOBALFOUNDRIES’ differentiated and high-performance RF, power, audio, display, and imaging capabilities to service the demand for smart and connected mobile devices.

Finally, home and industrial IoT represented approximately 20% of third quarter total revenue. Revenue increased 16% sequentially and 49% year over year on broad-based strength across connectivity, tracking, and sensing applications as workloads for edge AI applications continue to grow. Alongside the requirement for Bluetooth, wireless, cellular, and power management components to perform at higher standards, we have seen strong traction with our customers in this end market for GLOBALFOUNDRIES’ highly differentiated platforms.

As a result, we continue to expect home and industrial IoT to grow in the range of 10% to 15% in 2026. Looking ahead to the future growth opportunities, the design win momentum has continued. In the third quarter we taped out next-generation cellular IoT and Bluetooth products on our FDX platform for wireless connectivity. We’re encouraged by the momentum we’re seeing across the end markets we serve and believe this keeps us on track with the strategic diversification objectives that we set out during our Investor Day this year.

Moving now to other key financial performance metrics in the quarter. In the third quarter we delivered gross profit of 597 million, which translates into approximately 31.4% gross margin, up 540 basis points year over year. Q3 gross margin achieved a company record and was at the high end of our guidance range. R&D for the quarter was 164 million and SG&A was 93 million. Total operating expenses of 257 million represented approximately 14% of total revenue and were up 9% quarter over quarter, reflecting recent acquisitions.

We delivered operating profit of 340 million for the quarter at an operating margin of 17.9%, at the high end of our guided range and up 250 basis points from the prior year period. Third quarter net interest income was 9 million and other expense was 6 million, and we incurred tax expense of 45 million in the quarter. We delivered third quarter net income of approximately 298 million, an increase of approximately 66 million from the prior year period.

Diluted earnings of $0.53 per share was at the high end of the guidance range based on a fully diluted share count of approximately 558 million shares. Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations in the third quarter was 341 million. Third quarter CapEx, net of proceeds from government grants, was 205 million, or roughly 11% of revenue. Adjusted free cash flow for the quarter was 136 million. Free cash flow in the third quarter benefited from approximately 150 million of customer prepayments and government grants received at the end of the third quarter.

Our combined total of cash and cash equivalents and marketable securities stood at approximately 3.2 billion. Our total debt was 1.1 billion, and we also have a 1.5 billion revolving credit facility, which remains undrawn. On October 9th, we paid a quarterly cash dividend of $0.12 per share. On October 27th, the board of directors approved a dividend of $0.12 per share payable on January 14th, 2027 to shareholders of record as of December 22nd, 2026.

In the third quarter we also repurchased $100 million of our shares. Let me now provide you with our outlook for the fourth quarter of 2026. We expect total GLOBALFOUNDRIES revenue to be $2 billion, plus or minus 25 million. We expect gross margin to be approximately 31.5%, plus or minus 100 basis points, which at the midpoint reflects approximately 250 basis points of year-over-year expansion. Excluding share-based compensation, we expect total operating expenses to be 235 million, plus or minus 10 million. We expect operating margin to be in the range of 19.8%, plus or minus 170 basis points.

At the midpoint of our guidance, we expect share-based compensation to be approximately 68 million, of which roughly 16 million is related to cost of goods sold. We expect net interest and other income for the quarter to be between negative 5 million and 1 million, and income tax expense to be between 44 million and 68 million. Based on a fully diluted share count of approximately 575 million shares, which reflects the expected issuance of equity to the U.S. government, we expect diluted earnings per share to be $0.59, plus or minus $0.05.

Subject to the timing of the closures associated with the remaining equity issuances to the U.S. government, we expect that our fully diluted share count will be approximately 600 million shares commencing 2027. Now let me provide an update on some broader financial drivers, milestones, and outlook. With respect to pricing, the third quarter saw meaningful blended ASP growth both sequentially and year over year. This marked the first quarter of year-over-year blended pricing improvement since 2023 and is consistent with the commentary we provided on our last earnings call, especially as we execute the continued mix shift of our business. With respect to tax, we continue to expect a non-IFRS effective tax rate in the mid-teens percentage range for the full year 2026.

Net CapEx for 2026 is expected to be approximately 15% to 20% of revenue, which remains below our long-term model, and we continue to expect free cash flow margin of approximately 10% in 2026. Touching briefly on the CapEx outlook for the year ahead, we expect 2027 to represent a Year of Accelerated Investment for GLOBALFOUNDRIES. Throughout the second half of this year, our customers have substantially increased their demand for our differentiated solutions across critical technologies such as silicon photonics, silicon germanium, FDX, and advanced packaging. Importantly, we have the ability to grow our capacity quickly and efficiently within our existing four walls manufacturing footprint, resulting in a strong return on investment for new CapEx spending.

Robust demand and customer commitments form the foundation of our capacity investment principles. As these signals strengthen, we expect approximately one-third of our net CapEx in 2027 to be supported by customer prepayments for incremental capacity agreements. In parallel, we also expect to secure CapEx offsets from investment tax credits and government grant frameworks, including a proportion of the recently announced $955 million repurposing from our previously awarded CHIPS grants.

Against this backdrop of customer demand, prepayments, and government support, we now expect net CapEx investments of approximately 4 billion into our manufacturing footprint in 2027 while continuing to deliver our free cash generation targets. These critical investments will unlock capacity constraints, accelerate future growth, and continue to evolve our business into a more diversified, resilient, and accretive portfolio. Our third quarter results demonstrate that GLOBALFOUNDRIES’ strategy is translating into stronger financial performance. Importantly, we believe these improvements are structural. Our revenue mix continues to shift towards differentiated, high-value technologies and services, while our government and customer partnerships are enabling us to make capital-efficient investments to scale and accelerate key technologies with favorable economics. All of these drivers reinforce our confidence in the long-term financial targets we presented at our Investor Day.

GLOBALFOUNDRIES today is more diversified and better positioned to capture more value than it ever has been. In closing, I want to thank our employees around the world for their continued focus and execution. Their work made this quarter’s performance possible and gives us confidence in what GLOBALFOUNDRIES can achieve next. With that, let’s open the call to Q&A, operator.

OPERATOR

Certainly. And our first question for today comes from the line of CJ Muse from Cantor Fitzgerald. Your question please.

CJ Muse (Analyst at Cantor Fitzgerald)

Yeah, good morning. Thank you for taking the question. You know, I think one of the key themes from this call is you guys moving to a structurally richer business mix, particularly as I think about silicon photonics pulled in by a year. And so I’m curious, you laid out targets of exiting 27 at 35% gross margins, 40% exiting 28. You’re raising pricing starting January 1st. How, I guess is that portfolio of changes impacting your thinking about your gross margin trajectory into 27 and 28?

Sam Franklin (Chief Financial Officer)

Yeah, hey CJ, I’ll take that one and then Tim, probably overlay some of the strategic dynamics as well. Look, we’re really pleased with the margin trajectory and I think you’ve seen from us consistently this year near on 500 basis points of year-over-year margin growth. So if you go back to what we said we were going to do at the Investor Day back in May, we feel like we’re doing exactly that. Mix has been a key component of it. We’ve also seen some gradual tick up in utilization as well through this year.

But fundamentally it’s been driven by those strategic decisions that we’ve taken over the last couple of years. And technology services as a percentage of revenue clearly falls through as a richer mix and margin driver as well. That’s continued to grow during the course of this year. So, you know, on balance, we feel like we’re actually hitting that target and we’re well on track to the target that we set out in May. Remember, at the start of this year, we said we wanted to exit the fourth quarter of 2026 with a 30% gross margin handle. We were bumping up on that in our 2Q results, our 3Q results. Obviously, we’ve gone through that target we’re quite pleased with. Even where the guide is for fourth quarter, it shows about a point and a half of growth relative to that original target.

We had so very much feel at this point that we are on track to those gross margin goals that we set out earlier on this year. Obviously there’s still some way to bridge from, call it the 31.4 in 3Q up to the 40% that we want to exit the fourth quarter of 2028 with. But that mix dynamic and where we’re continuing to invest in those corridors, where we’re seeing very strong demand signals from customers is continuing to push us in the right direction as it relates to that margin accretion. So no change to the goals that we laid out just a few months ago. But maybe I’ll pass it to Tim for some of the other structural and strategic dynamics.

Tim Breen

Yeah. Thank you. Thank you, Sam. C.J., I think the right way to think about this is, you know, we’re delivering what we said earlier this year, right? We’re winning in those secular growth markets and we’re winning with leading customers who, you know, in many cases are new to GLOBALFOUNDRIES. And so the announcements and then just this quarter, customers like NXP, customers like TSMC, expanded business with Marvell. By the way, the many others that supported our several announcements over the quarter just tell you kind of the breadth of engagement we have and that’s giving us a lot of confidence to bring those technologies to market, accelerate those ramps, accelerate the capacity investments and obviously unlock even more growth through the partnership we struck with the U.S. and Japan.

So look, it’s been a great period of accelerating our business model. And look, we’re very confident in the trajectory ahead.

CJ Muse (Analyst at Cantor Fitzgerald)

Thanks, Tim. I guess as a follow-up question, could you speak to, I guess your early look to Q1 seasonality? You know, if I look at it, the implied SMD, you know, you’re talking down 22% year on year for Q4 and down 40% from your prior peak. And at the same time CID is tracking 80% implied in Q4. So we’d love to hear how you’re thinking about the March quarter.

Sam Franklin (Chief Financial Officer)

Yes. Happy to give you a little bit of color, CJ. Obviously, just mindful that we’re only going to guide one quarter at a time. But the way you characterize it is the right way. And we think that relative to where we said earlier on this year, we’re broadly on track with several of those end markets. Right. We expected that mobile would be down in the low-teens percentage. No change for that for the full year 26. We expect that IoT would be in that 10 to 15% range.

Full year, again, no change. And automotive low double-digit percentage growth, that’s been a consistent theme for us. So really the step change has been the accelerated growth that we’re seeing in comms infrastructure and data center. And the way you thought about it for the fourth quarter is the right way. Looking out to 2027, obviously we’ll put more color on that when we get to the next quarter. But just going back to what we said as part of our Investor Day in May, look, I think the general trends are very constructive as it relates to automotive, IoT. Remember in that space we said low double-digit growth is our long-term goal for automotive and sort of mid-teens for IoT. Comms infrastructure and data center is where we think that there’s very strong momentum to continue growing.

The target that we put out previously in our long-term model was 30, 30-plus percentage points. You can infer from where we reported in Q3 and the direction of travel for Q4 that we’re seeing that continued momentum in that space. So I’d say that that is probably a tailwind going into 2027. And then look, mobile, we’ve been consistent on the commentary there and largely tracking where we see the rest of the market. So I don’t think any surprises on that front, but hopefully that gives you a little bit of color as we’re thinking about it for the full year and obviously be happy to give you more color on Q1 when we get to the next quarter.

CJ Muse (Analyst at Cantor Fitzgerald)

Very helpful. Thank you.

OPERATOR

Thank you. And our next question comes from the line. Your question, please.

Saj (Analyst)

Hey, thank you for taking my question and congrats, by the way, on the partnerships you’ve lined up this quarter. I think they say a lot about where GLOBALFOUNDRIES sits in the AI supply chain, Tim. I guess thanks for the color that customer prepayments will support roughly a third of 2027 net CapEx, I think I heard. And since May you’ve sort of talked about customers discussing advanced payments to secure FDX, silicon photonics and silicon germanium capacity.

And you’ve had CPO tape-outs in the first quarter and a scale tape-out in the second. So I guess even directionally could you give some color into how much of your 2027, 2028 SiPO and SiGe capacity is now under signed commitments? And are those agreements even reaching into 2029 as NPO and CPO potentially come in?

Tim Breen

Yeah. No. Thank you. Thank you, Saj. So I think the picture is as follows. The acceleration of optical communication is very clear and I think we’re still at the very early innings of that. As you see just optical links replacing copper in all aspects of the data center, just demand is truly skyrocketing. And so we’re having those discussions with our customers and lining up the supply they need. We are absolutely booked out through 27, increasingly booked out through 28, and the question for us is how fast we can add more capacity to meet their requirements in 28.

And many of them are seeking capacity assurance through 29 and even some cases beyond. And I think in every single case they’re willing to put their balance sheet to work to support us in those investments as well. So it’s a very constructive environment in terms of visibility, in terms of demand. And it’s really now down to us in terms of execution. Right. Installing tools, driving productivity. And that’s really what you’re seeing accelerate our own trajectory even within 26. We’re doing better than we expected based on our acceleration of investments and the ability to ramp those tools to production quickly. And that’s true across all those corridors you mentioned.

And I’d say increasing that will also be true in advanced packaging with some of the interposer work we’ve also announced.

Saj (Analyst)

Yeah, thank you for that. I guess interposer work is topical as well. And Sam, thank you for the color on the blended ASPs. I guess I’d like to build on CJ’s question on the margin drivers, particularly to help us price frame pricing. Specifically at the Investor Day, you were pretty clear that the bridge to the 40% exiting 28 doesn’t embed significant price increases from supply and demand. So now with ASPs, you know, up year over year for the first time since 2023, should we think of pricing as additive to that?

To the 40%, I mean, and then on the TSMC interposer agreement, you know, thanks for the color that, that margins sit above your long-term targets. And at roughly $400 million a year or about, you know, 4% of revenue against 28 consensus, is it fair to think of that as adding on the magnitude of, you know, 50 basis points to corporate gross margins at run rate alongside the 100 to 200 basis points from the U.S.-Japan program?

Sam Franklin (Chief Financial Officer)

A little bit to unpack there. So maybe I’ll start with the pricing point and then we can talk more broadly around margins. And look, it’s encouraging what we’ve seen in the third quarter, but also not surprising. We gave you color on this in prior quarterly earnings updates where we said we expected the second half of 2026 to be the point where we lapped some of those pricing headwinds, if you like, that we’ve seen over the course of the last few years.

And that was certainly the case in the third quarter. Quarter over quarter blended ASPs were up about 2.5% and for the year-over-year period they were up almost 5%. So we feel that across all of the end markets that we operate in now that pricing is a much more constructive dynamic. But obviously mix is a key component of that as well. We are servicing a richer mix of demand within the end market portfolio that we have. And so looking out to 2027, like I say, this combination of richer mix and blended ASP mix improvements points us towards probably about a 10% uplift in blended ASP and mix for 2027, which I think is consistent more broadly with the market. It’s consistent with what we said we were going to do as it relates to pricing actions as well that we took towards the end of the first half of 2026. So naturally that serves as a tailwind.

But I would say in the same way that we, when we’ve seen pricing going the other way in prior years, pricing is only one component from the margin perspective and it’s actually a far less impactful component than even the broader mix dynamics are concerned, the utilization, the depreciation, the productivity within our manufacturing footprint. So like I said to CJ, we’re not looking to change the targets that we put out there from the perspective of our gross margin accretion over the course of the next couple of years.

But you can infer that these decisions, these announcements that we’ve made over the course of the last couple of months really give us more clarity, more certainty on our ability to hit those targets. So I think no major change on that front, but we’re encouraged by the momentum. And naturally, as you would expect, the announcement for the silicon interposers for TSMC, when that starts to ramp in the first half of 2028, we would expect that to be margin accretive as well to our overall objective. So no change to the targets, greater visibility and we think a high degree of momentum to get to those targets.

Saj (Analyst)

Thank you, very helpful.

OPERATOR

Thank you. And our next question comes to the line, Jim Schneider from Goldman Sachs, your question please.

Jim Schneider (Analyst at Goldman Sachs)

Thanks for taking my question. Maybe just sort of building on the theme that’s been asked for the last few questions. Want to maybe clarify more tactically where you see the various moving parts of utilization, pricing and mix going into the first half of 2017. It seems like, if anything, mix is improving, pricing, as you said, is getting better. And then I guess the question is about utilization. And so do you think you’re going to be able to maintain sort of at least flattish utilization?

Because it seems like given everything that’s going on with the smartphone market and its relatively dilutive margins, that mix or gross margins could actually at least stay flat in the first half, if not go up.

Sam Franklin (Chief Financial Officer)

Happy to take that one, Jim, and look, I think I’ll echo what I said around some of the structural drivers that we see across those end markets. And naturally from a mobile point of view, we think we likely track that market. But the offset that we’re seeing in terms of mix benefits from the other end markets are a tailwind from our point of view going into next year. I will say that naturally there’s a degree of seasonality from the fourth quarter into the first quarter.

You can see that in prior years. But given some of the structural shifts that we’re seeing within those end markets, we do think that there should be a slightly less pronounced impact from a seasonality point of view, fourth quarter into the first quarter. And obviously I’ll give more color around that when we get to the next call, but hopefully that helps give you a little bit of insight from a tactical point of view. And then look, as it relates to 2027 more broadly and into 2028, like Tim said, and like I said, we think we’re increasing our visibility on getting to those objectives that we set out from a margin point of view and really have our eyes set on getting to that 40% gross margin. We think we’re making good progress towards that,

Tim Breen

Maybe. Jim, one comment I’ll add is about just thinking about utilization. It’s also about flexibility. We spent a lot of time over the last three years really investing in our manufacturing footprint to make it as flexible as possible so that we can respond. When one market is weaker and one market is stronger, we can respond and use that capacity across where there’s growth. Obviously there are always limitations to that, but that’s definitely a factor that’s helping us overall improve utilization this year and ticking up into next year as well.

Jim Schneider (Analyst at Goldman Sachs)

That’s fine, thank you. And then maybe just to clarify, on the smart mobile device market, clearly there’s been some correction there for all the reasons that we understand. But I just wanted to clarify, your outlook is unchanged on the full year, so can you maybe characterize where you think the downstream inventory levels stand with respect to component inventories in smart mobile devices and just kind of making sure you’re sort of aligned with inventory levels and you can go in terms of unit demand tracking from there.

Sam Franklin (Chief Financial Officer)

Thanks, Jim. I think the broader topic on SMD is just how the market is quite bifurcated. I think the high end is not that bad, all things considered. Obviously can weather the memory impacts much more. The low end is much, much worse. Our exposure is much more to the high end of the market. And I’d even say in this current environment, some of the capacity in the industry more broadly is being taken up by other end markets, which actually in turn leads mobile customers to come back to us and look for more supply to make sure they have enough to build what they need to build.

So I’d say overall we’re not seeing any kind of concerns from an inventory point of view. Like I said, overall we’re going to track the market going into 2027, but the situation’s perhaps not as bad as people might think.

Jim Schneider (Analyst at Goldman Sachs)

Thank you.

OPERATOR

Thank you. And our next question comes from the line of Mehdi Hosseini from Susquehanna International. Your question please.

Mehdi Hosseini (Analyst at Susquehanna International Group)

Yes, thanks for taking my question. I want to dive into communication infrastructure. And Tim, can you please update us on how you see the mix between SINFO and segi changing into 2027 and 2028. And I asked the question in this context because last time you highlighted that in 26 segi mix is higher than Sipo. And again, I want to see how that mix is changing over the next couple of years. And I do have a follow up.

Tim Breen

No, thanks, Mehdi. I think that the story I’d say is very simple. The optical transition is pulling both of them very strongly and I’d say SiGe is getting a particular pickup because of the transition to 200 gig per lane speeds. And I think that’s going to continue going forward. We’re sold out effectively of both. We’re adding capacity for both, we have an excellent roadmap for both and I think our strategy will continue to operate on that basis.

I think both are going to see very strong growth going into 27 and beyond. And like I say, customers are now willing to put their balance sheets to work to help us invest and add capacity again in both those end markets. So very strong. And you didn’t ask it, but I’ll answer anyway. The transition to technologies like NPO are going to accelerate that story even further because that requires even high performance photonics, but also extra SiGe content as well.

So those are tailwinds for the business going forward.

Mehdi Hosseini (Analyst at Susquehanna International Group)

I was actually going to follow up on NPO, which is kind of a black box in my opinion. NPO is more about integration, heterogeneous integration. You have PIC and EIC, which is quite different than discrete components associated with a pluggable transceiver. And my follow up question for you is how do you see GLOBALFOUNDRIES content changing from pluggable to. To NPO transceivers?

Tim Breen

Yeah, no, it’s a great question. I’d say overall the transition from pluggables to NPO and to CPO, by the way, which we still believe will continue to happen, all of that creates a growing content opportunity for us because obviously as you go forward in high performance, the PIC has to do more in different applications. You have more SiGe content in each of those applications. And then as you get closer to the XPU, you, you have some of the packaging components, be that fiber attached, guide to wafer bonding and so on, also play an important role.

So I’d say the opportunity increases as you get closer to the ultimate chip and therefore our investments in R&D, building the scale platform and others have really begun to pay off very well in terms of customer interest and traction for long term roadmap in those areas.

Mehdi Hosseini (Analyst at Susquehanna International Group)

Great, thank you,

OPERATOR

Thank you. And our next question comes from the line of Harlan Sur from J.P. Morgan. Your question please.

Harlan Sur (Analyst at J.P. Morgan)

Yeah, good morning. Thank you for taking my questions and a great job on the quarterly execution. June quarter utilization were in the high 80% range. Did that increase in the September quarter? Maybe towards the 90% range. That would imply the team still has another 8 to 10 percentage points of utilization increases ahead. If that’s the case, I mean by my calculations you still have roughly about 400 basis points of gross margin improvements in front of you just from utilizations.

Right. How much of that potentially gets unlocked in 2027 as manufacturing activity and utilizations continue to increase?

Sam Franklin (Chief Financial Officer)

Yeah. Hey Harlan, good morning. Maybe just to pick up on that, you’re right. Utilization in high 80s in the second quarter. Utilization in the third quarter was also in the high 80s. One of the reasons for that is, is that we’ve been investing capex through this year. We’ve been adding to the capacity which in effect adds to that denominator for the purposes of calculating utilization. So you’re right, we do still see utilization upside as an opportunity from a margin point of view.

But as you heard on the call, we’re going to be continuing to invest in that capacity and really sort of grow the overall corridors where we see strong demand so the able to expand margins from the mix point of view but also from a utilization point of view into 2027. So at this point headroom to certainly grow into from a utilization point of view. And we think we’re going to keep growing that denominator as we invest CAPEX dollars to grow our capacity.

Harlan Sur (Analyst at J.P. Morgan)

I appreciate that. And then for Tim, on the photonics front, lasers are also in place. Supplier, right. And high quality lasers, very, very tight supply situation. Marvell is paying a healthy premium to acquire Lumentum partly for their indium phosphide laser portfolio. The GF team has done a very good job in compound semiconductors. Silicon germanium you talk about quite a bit targeted for high quality TIAs and drivers is a good example. Indium phosphide lasers will also add to your sightful capabilities and portfolio.

Is the team considering adding indium phosphide manufacturing to your technology offerings?

Tim Breen

No, it’s a great, it’s a great question, Harlan. You’re definitely seeing a strong interest in that part of the value chain expressed by the transaction you mentioned, but also other investments that we’re hearing about in the industry. We’re focusing on integration of indium phosphide into our technologies. And I think part of the roadmap is about having integrated lasers, inside grid SOAs for future optical applications, by the way, just like we’re also investing in novel materials for future enhanced modulation to go to 400 gig per lane and beyond.

So part of our roadmap, we can invest at the silicon level, discrete laser manufacturing not on our current roadmap, but obviously we’ll continue to be open to opportunities going forward.

Harlan Sur (Analyst at J.P. Morgan)

Thank you.

OPERATOR

Thank you. And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question, please.

Joseph Moore (Analyst at Morgan Stanley)

Great, thank you. In the last cycle, it seemed like a lot of the focus on, you know, wafer securing was coming from automotive, and you had big automotive OEM deals that were working with GLOBALFOUNDRIES and, you know, obviously we had a shortage of cars that was driven by all of this. And as I look at things now, I mean, your automotive business is doing fine, but. But I worry about looking at all the capacity going to interposers and local photonics and AI.

These fabs are getting full. Do you think we could be looking at another capacity crunch in the automotive space? And I guess, how are you thinking about that and how are your customers thinking about that? Are you seeing people start to focus on those supply chains in the way that they did a couple of years ago?

Tim Breen

Yeah. Thank you, Joe. It doesn’t get as much of a limelight, but I think the sector continues to be advancing forward in terms of the automotive sector, that is, in terms of its thinking on supply security. We have a lot of conversations with automotive players, not just for the next 12 months, but the next kind of three to five years. And for a lot of them, they’re very keen also to see that geographic supply diversification as well. And that plays particularly well for us given our US footprint and our European footprint.

So I would expect continuous investment, more engagement, more direct business opportunities in auto as well. Many of them are doing that, both OEMs and Tier 1s. And that also plays, by the way, into our custom business, where a part of what we’ve announced in our prepared remarks was progress in things like custom radar, which is another area we’re developing further within the platform. So I’d say automotive continues to be in line with what we talked about at our investor day.

Strong, consistent growth opportunity and where GLOBALFOUNDRIES is really very well positioned to play across multiple technologies and with multiple end customers.

Sam Franklin (Chief Financial Officer)

Gerry, maybe just, you know, more broadly, as you think about some of the capex that we’ve guided to today for 2027, as you’d expect, a lot of that is going into both the silicon photonics data center applications. But we’re not leaving our other end markets behind. And automotive is a key component of that. So as we think about driving towards that low double-digit percentage growth, investing into some of our automotive capacity corridors across the footprint will also feature within that overall $4 billion net capex that we indicated for next year.

Gerry (Analyst)

Yeah, that’s helpful, thank you. And in terms of the OEMs, you mentioned that those relationships are direct. I mean, I feel like that’s what’s been unique about the last few years is that you’re getting automotive OEMs showing awareness of foundry supply chains and things. Is it still, I guess, are they emphasizing it enough, do you think? And is it still very much a focus on the geographic sourcing? Is that coming from the tier ones or is that coming from the OEMs?

Tim Breen

I think it’s both. And I think part of it also is increased differentiation. I mean, if you look at today’s car, the content growth has just tremendously increased over the last years and all of them have roadmaps to do more as you move to different architectures. Some of that’s linked to electrification, but some of it’s just linked to performance and feature sets of the cars. I think it’s also been led by the more kind of silicon-native OEMs. By the way, I would cite obviously Tesla, but I would also cite the Chinese players that are increasingly setting the tone globally for what the automotive industry needs to do in terms of performance.

So I just think you’ve got a much more aware end market and that creates a lot of opportunities for players like us.

OPERATOR

Great, thank you, thank you. And our next question comes from the line of Krish Sanker from TD Cowen. Your question please.

Krish Sanker (Analyst at TD Cowen)

Thanks for taking my question. I have two of them. First one, Tim or Sam. Can you give an update on the silicon photonics compute landscape? Obviously there is, you know, TSM, Coup, Tower, STMicro, now UNC and also along the same path. You know, I think the Marvell Momentum merger highlights one of the best aspects which people worry is like you could be into optical transceiver overbuild in 2028. I’m just kind of curious if you have any thoughts around that.

And I have a quick follow-up.

Tim Breen

Yeah, no, great, great questions, Krish. Look, overall it’s, you know, it’s great to see, you know, other players believing the same thing. We believe that the optical transition is just getting started and that’s why you’re obviously seeing people enter the space who previously weren’t very engaged in photonics. We’ve been doing this for 10 years. We’ve got a very strong technology roadmap and positioning today. We’ve also got a lot of investments beyond the PIC level into the packaging side, which I think will play more and more into those new applications we talked about earlier like NPO and CPO.

But I think perhaps even more important right now is you’ve got the scalable fab footprint to invest and grow with our customers without adding fab space for it, particularly for photonics and SiGe where they need that capacity rapidly. And that’s one thing they’re betting on in terms of coming to GLOBALFOUNDRIES for more of their capacity. So I think we feel very confident in our competitive position within that landscape. Look, I view the recent announcement, the Marvell Momentum announcement again as a pretty strong endorsement of that optical transition.

Both are, if you like, betting their future on optical, which I think is reassuring. Both, by the way, are close partners of GLOBALFOUNDRIES and would be public about that as well. So we think this is a great opportunity for all of us to do more, to innovate faster and to grow the business. So I think it’s a tailwind.

Krish Sanker (Analyst at TD Cowen)

Great. Thanks for that, Tim. And then a quick follow-up on the TSMC cohorts interpersonal agreement. It’s like a $2 billion manufacturing agreement. Is any of it flowing through capex next year and will the wafer supply there be dedicated to TSM for the first five years or do you have flexibility over that?

Tim Breen

Yeah, so it’s part of the capex that Sam has talked about. So definitely that’s included within the $4 billion number that he shared. Look, our strategy in interposer—interposer is a critical technology for all forms of high-performance compute where you’re integrating multiple die with HBM and so on. So we’ve had a roadmap for some time in that. The TSMC agreement stands on its own and that’s accretive in its own right. But we’re also engaging with a number of other customers for future interactions and these are getting increasingly sophisticated with integration of deep trench capacitors and so on.

So I think it’s actually a very interesting area that we’re spending R&D money and effort to actually build more for the future because it fills our sweet spot in terms of technology mix.

Krish Sanker (Analyst at TD Cowen)

Thank you, Tim.

OPERATOR

Thank you. And our next question comes from the line of Atef Malik from Citi. Your question please.

Atef Malik (Analyst at Citi)

Hi, thank you for taking my questions. You guys have been busy with the partnership announcements with TSMC, Marvell, Monotech Power. To what extent are these partnerships incremental to the long-term model shared at the investor day?

Tim Breen

I think Sam commented on that a bit earlier. The way I think about it, Atif, is that we set out only six months ago a set of strategic goals which I think are both appropriate for the business and very much strategically aligned with where we have a right to win. And these are evidence points that we are winning in those directions with those customers. So too early to update the numbers of our strategic goals. But as Sam said, all of these give us increased c