Q4 2021 Globalfoundries Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the global Foundries, we view, our fourth quarter 2021, and full year results at this.

Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Global Foundries Review of 4th Quarter 2021 and 4-Year Results.

Speaker 1: at this time all participants are in listen-only mode after the speaker's presentation there will be a question and answer session to ask the questions on this session you will need to press start and one on your telephone if you require any further assistance please press start and zero i would now like to turn the conference over to your speaker for today Sukina Ghash vice president of corporate development and investor relations you may be

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 will need to press Star then one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the conference over to your speaker for today <unk>, Vice President of corporate development and Investor Relations you may have.

Begin.

Speaker 2: Thank you, operator. Good afternoon, everyone, and welcome to Global Foundry's fourth quarter and full year 2021 earnings call. On the call with me today are Tom Caufield, CEO , and Dave Reader, CFO . A short while ago, we released GF's fourth quarter and full year 2021 financial results press release, which is available on our website at investors.gf.com. Along with today's company slide presentation.

Thank you operator, and good afternoon, everyone and welcome to global foundries fourth quarter and full year 2021 earnings call on the call with me today are Tom coffee CEO , Andy Reader CFO Sean.

A short while ago, we released GFS fourth quarter and full year 2021 financial results press release.

Is available on our website at investors <unk> Dot com.

With today's accompanying slide presentation.

Speaker 2: This call is being recorded and a replay will be made available on our investor relations web page.

This call is being recorded and a replay will be made available on our investor Relations Web page.

During this call we will present, both <unk> and adjusted non <unk> financial measures.

Speaker 2: During this call, we will present both IFRS and adjusted non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for adjusted non-IFRS measures are available in today's press release and accompanying slides.

Most directly comparable <unk> measures in reconciliation for adjusted non <unk> measures are available in today's press release and accompanying slides.

Speaker 2: 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. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we undertake no obligation to update any forward-looking statements we make today.

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 in May you should not place undue reliance on forward looking statements actual results may differ materially from these forward looking statements and we undertake no obligation to update any forward looking statements we make.

Today.

Speaker 2: For more information about factors that may cause actual results to defer maturity 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 the sections under the caption, risk factors in our final prospectus filed with SEC on October 29, 2021 in connection with our IPO.

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 the sections under the caption risk factors in our final prospectus filed with the SEC on October 29 2021.

<unk> with our IPO.

Speaker 2: We will begin today's call with Tom providing a summary update on our end markets, capacity expansion and technologies, following which they will provide details on our fourth quarter and full year financial results and also provide first quarter guidance.

We will begin today's call with Tom providing a summary update on our end markets capacity expansion and technologies falling which Dave will provide details on our fourth quarter and full year financial results and also provide first quarter guidance.

Speaker 2: We will then open the call for questions. We request that you please limit your questions to one with one follow-up. I will now turn the call over to Tom for a follow-up.

We will then open the call for questions. We request that you. Please limit your questions to one with one follow up.

I will now turn the call over to Tom for his prepared remarks.

Speaker 3: Thank you Suki. Welcome everyone to our fourth quarter and full year 2021 earnings call.

Thank you <unk>.

Welcome everyone to our fourth quarter and full year 2021 earnings call.

I'd like to start by reflecting on last year.

Speaker 3: I'd like to start by reflecting on last year. By any measure, 2021 was an outstanding year for GEA.

By any measure 2021 was an outstanding year for Ges.

Speaker 3: We drove an acceleration of our business plan by capitalizing on the vital role we play in the semiconductor supply chain.

Drove an acceleration of our business plan by capitalizing on the vital role we play in the semiconductor supply chain.

Speaker 3: We created, defined and implemented a new economic model for our industry. And we used it to increase visibility and support our customer success with over 30 significant long-term agreement.

We created defined and implemented a new economic model for our industry and we used it to increase visibility and support our customer success with over 30 significant long term agreement.

Speaker 3: With the entire world focused on our industry, we've played and continued to play an important role by articulating the importance of semiconductor manufacturing and redefining innovation for our industry.

With the entire world focused on our industry, we played and continue to play an important role.

Articulating the importance of semiconductor manufacturing and redefining innovation for our industry.

Speaker 3: Finally, we took GF Public, which was the culmination of over a decade of work to build an at-scale global semiconductor manufacturer with strong technological differentiation and driving meaningful earnings growth.

Finally, we took <unk> public which was the culmination of over a decade of work to build an at scale global semiconductor manufacturer with strong technological differentiation and driving meaningful earnings growth.

Through strategic partnerships with our customers. We believe we have positioned our business for sustained growth over the next three years to four years with a trajectory to deliver accelerated profitability.

Speaker 3: Through strategic partnerships with our customers, we believe we have positioned our business for sustained growth over the next three to four years, with our trajectory to deliver accelerated profitability.

Speaker 3: We are well positioned to execute on our plan to deliver a more than 50% output increase exiting 2023 compared to 2020 by adding capacity in Maltan, New York, Dresden, Germany, and Insiting of Plays.

We are well positioned to execute on our plan to deliver a more than 50% output increase.

Increase.

Exiting 2023, compared to 2020 by adding capacity and multi New York Dresden.

Dresden, Germany.

Singapore.

Speaker 3: We are continuing to execute on our plan to mix up our 200 millimeter facilities in Burlington and Singapore with differentiated single source SOI, SIGI, and

We are continuing to execute on our plan to mix up our 200 millimeter facilities and Burlington in Singapore with differentiated single source.

Soi.

Siggi and feature Rich Cmos technologies.

We expect that all of this combined will result in it.

Speaker 3: We expect that all of this combined will result in consistent execution from GS.

And consistent execution from <unk> that will enable us to achieve our long term.

Speaker 3: that will enable us to achieve our long-term, sustainable financial model. That is investing 20% of revenue on CAPEX to deliver consistent growth while generating strong free cash flow and as a result, delivering meaningful shareholder value. Now, moving on to our fourth quarter.

Stable financial model that is investing 20% of revenue on capex to deliver consistent growth.

Generating strong free cash flow and as a result, delivering meaningful shareholder value.

Now moving on to our fourth quarter.

Speaker 3: We are pleased to report a quarter of strong top line and profitability growth, demonstrating the continued momentum of our strategy.

We are pleased to report a quarter of strong top line and profitability growth demonstrating the continued momentum of our strategy fourth quarter revenue grew 9% quarter on quarter, driven by higher wafer output higher asps.

Speaker 3: Fourth quarter revenue grew 9% quarter on quarter driven by higher wafer output, higher ASPs, and increased non-wafer revenue.

And increased non wafer revenue.

Speaker 3: Fourth quarter, adjusted earnings per share came in at 18 cents. Now, Dave will provide more details on the financials in just a moment. But first, let me give a summary of the fourth quarter revenue buyer, NMark.

Fourth quarter adjusted earnings per share came in at 18.

Now Dave will provide more details on the financials in just a moment, but first let me give a summary of the fourth quarter revenue by end markets.

Speaker 3: First, in our smart mobile device and market.

First in our smart smart mobile device end market.

Speaker 3: which comprised about forty eight percent of fourth quarter revenue we achieved strong year-over-year quarterly growth of roughly twenty four percent

Which comprised about 48% of fourth quarter revenue, we achieved strong year over year quarterly growth of roughly 24%.

Speaker 3: Growth was driven by a combination of higher ASPs that are mixed and higher shipments as we started to rev customer designs in new applications.

Both was driven by a combination of higher asp's better mix and higher shipments as we started to ramp customer designs and new applications.

Speaker 3: For the full year, our smart mobile device N market grew roughly 38% over 2020. GF growth in this N market outpaced smartphone industry growth due to our industry leading solutions and new connectivity standards such as sub-6 gigahertz 5G and Wi-Fi 6 and 6E.

For the full year, our smart mobile device end market grew roughly 38% over 2020.

<unk> growth in this end market outpace small smartphone industry growth.

Due to our industry, leading solutions and new connectivity standards, such as sub six gigahertz, <unk> and Wi Fi six and <unk>.

Speaker 3: These new standards are driving the need for GF's high performance RFS OI technology.

These new standards are driving the need for <unk> high performance RF Soi technologies in.

Speaker 3: In addition, in 2021, GF entered the large and growing Wi-Fi 660 SOT and SELIO Trans-Seed Remarkets with long-term customer agreements that will expand our market share

In addition in 2021.

<unk> entered the large and growing Wi Fi 660, <unk> and cellular transceiver markets with long term customer agreements that will expand our market share significantly.

We are also seeing strong traction in areas such as near field communication display and image sensing. One example is the increased attach rates for NFC authentication and Android Android smartphones. Other examples include specialty power applications that prolong battery life, a <unk> handset and <unk>.

Speaker 3: We are also seeing strong traction in areas such as near field communication, display and image sensing. One example is the increased detachment for NSE off-intication in Android Smartphone.

Speaker 3: Other examples include specialty power applications that prolong battery life of 5G handsets, and image sensing processors, which power image sensors and cameras. The market for these processes is expected to grow over 25% in 2022.

CECI processors, which power image sensors and cameras the market for these processes is expected to grow over 25% in 2022.

Speaker 3: Lastly, our long-term agreement, agreements covering the smart mobile device end market with our key customers are providing us with long-term visibility for secular growth over the next few years.

Lastly, our long term agreement agreements covering the smart mobile device end market with our key customers are providing us with long term visibility for secular growth over the next few years.

Speaker 3: Next, our communications infrastructure and data center end market, which constituted approximately 16% of fourth quarter revenue, so that sequential growth in the quarter of 7% due to customer share gains in the data center end market.

Next our communications infrastructure and data center end market.

Which constituted approximately 16% of fourth quarter revenue saw sequential growth in the quarter of 7% due to customers' share gains in the data center end market.

Over the course of 2021, we secured a multiyear long term agreement with a tier one wireless infrastructure customer for our advanced <unk> technology, and a multi year LTA with a tier one enterprise networking customer.

Speaker 3: Over the course of 2021, we secured a multi-year long-term agreement with a Tier 1 wireless infrastructure customer for our advanced SIGGI technology, and a multi-year LTA with a Tier 1 enterprise networking cost.

Speaker 3: In addition, we establish ourselves as the industry leader in Silicon Flutonics, our monolithic and hybrid solution.

In addition, we establish ourselves as the industry leader in Silicon Photonics are monolithic and hybrid solution.

Speaker 3: garnered over 500 million in new design wins in the year. And Silicon Botanics revenue almost tripled in 2021, and we expected to more than double again in 2022. We expect continued growth in communications infrastructure and data center, this end market throughout the year, and anticipate double digit year-over-year growth in 2022, driven by strong demand for 5G infrastructure and optical device.

And over 500 million in new design wins in the year and Silicon Photonics revenue almost tripled in 2021, and we expect it to more than double again in 2022.

We expect continued growth in communications infrastructure and data center. This end market throughout the year and anticipate double digit year over year growth in 2022.

Driven by strong demand for <unk> infrastructure and optical devices.

Speaker 3: Moving on to our home and industrial IoT and market, fourth quarter revenue was roughly 14% of the total and grew approximately 20% year-over-year. We saw strong sequential growth in this end market fueled by the transition from WI-55 to WI-56 for wireless connectivity in IoT applications and an increase in contactless transactions.

Moving on to our home and industrial Iot end market fourth quarter revenue was roughly 14% of the total and grew approximately 20% year over year.

We saw strong sequential growth in this end market fueled by the transition from Wi Fi 5 million Wi Fi six for wireless connectivity and Iot applications and an increase in contactless transactions.

Speaker 3: We are seeing strong growth demand for wireless connectivity for consumer, industrial asset tracking and audio products, which are backed by multi-year LTAs that we have signed with leading customers.

We're seeing strong growth demand for wireless connectivity for consumer industrial asset tracking and audio products, which are backed by multi year LTA is that we have signed with leading customers.

We expect this end market to be our fastest growing market. This year driven by our strong portfolio of differentiated wireless connectivity edge compute and power management technologies.

Speaker 3: We expect this end market to be our fastest growing market this year, driven by our strong portfolio of differentiated, wireless connectivity, edge compute and power management technology.

Speaker 3: Touching next on automotive, revenue in this end market was approximately 5% of our total fourth quarter revenue, but it more than doubled from a year ago.

Touching next on automotive revenue in this end market was approximately 5% of.

Our total fourth quarter revenue, but it more than doubled from a year ago.

Speaker 3: The strong year-over-year revenue growth was driven by a ramp of new designs for ADAS, safety applications, and infotainment that have been in development and qualification over the past few years.

The strong year over year revenue growth was driven by a ramp of new designs for Adas.

Safety applications in infotainment that have been in development and qualification over the past few years.

Speaker 3: Adjusting for a sizable capacity axis fee in their quarter, automotive quarterly sequential growth would have been roughly 13%.

Adjusting for a sizable capacity access fee in the third quarter automotive quarterly sequential growth would have been roughly 13%.

Speaker 3: 2021 also marked key partnership announcements with Ford, BMW and Bosch. We are very excited about our strong traction in the automotive and market and anticipate double-digit growth for this market in 2022. We have a number of customers in the 4D radar space and in battery management for EVs that will begin to ramp in 2023, fueling our growth beyond traditional auto applications into new automotive growth applications.

2021 also marked key partnership announcements with Ford BMW and Bosch, we are very excited about our strong traction in the automotive end market and anticipate double digit growth for this market in 2022, we have a number of customers in the <unk> radar space and in battery management for EV.

That will begin to ramp in 2023, fueling our growth beyond traditional auto applications into new automotive grip growth applications.

And our computer end market revenue was roughly 6% of total and declined year over year as expected.

Speaker 3: In our compute end market, revenue is roughly 6% of total and decline your rear as expected.

Speaker 3: As we have mentioned previously, the PC market we served, we served in the past, will continue to decline as our customers transition their products to single digit nanometer. We continue to forecast your year to decline in this end market in 2022. However, we've been focusing our investments on solutions that play to our strengths in mixed signal and power that complement and work side by side with these single digit nanometer processors.

As we have mentioned previously the PC market. We serve we served in the past will continue to decline as our customers transition their products to single digit nanometer, we continue to forecast year over year decline in this end market. In 2022. However, we have been focusing our investments on solutions that play to our strength and mixed signal and power.

That complement and work side by side with the single digit nanometer processor designed for instance, we secured a multi year LTA with the tier one producer to manufacturer controller Ics for this end market, we expect to see stabilization in the second half of 2022 from ramps of these new high margin customer designs.

Speaker 3: For instance, we secure it a multi-year LTA with a Tier 1 producer to manufacture controller ICs for the send market. We expect to see stabilization in the second half of 2022 from ramps of these new high margin customer designs in this end market.

In this end market.

Speaker 3: Next I would like to provide a brief update on our ongoing capacity expansion.

Next I would like to provide a brief update on our ongoing capacity expansions.

Speaker 3: For 2022, our plan is to increase capacity by high single digits, primarily driven by the expansion plans underway in Dresden.

For 2022, our plan is to increase capacity by high single digits, primarily driven by the expansion plans underway interested.

All of this expansion and capacities to support of customer demand for our differentiated technologies, such as 22 MTX.

Speaker 3: All of this expansion incapacities the support of customer demand for differentiated technologies such as 22FDX.

Speaker 3: Image sensor processor on 28 and 49 meter technologies.

Image sensor processor on 20% and 40 nanometer technologies.

Speaker 3: and BCD light and embedded non-volatile memory technology.

And BCD light and embedded non volatile memory technologies.

Speaker 3: Also, construction of our phase one module expansion in Singapore remains on track. With equipment slayed to go into that facility in the second half of 2022, to support for first production outs in the first half of 2023.

Also construction of our phase one module expansion in Singapore remains on track with.

With equipment slated to go into that facility in the second half of 2022 to support for first production out in the first half of 2023.

Speaker 3: We are working closely and hand in hand with our construction contractors and our equipment suppliers to maintain our capacity expansion schedules. All of our expansion investments are backed with customer long-term capacity reservation agreements and significant prepayments. Further, the majority of this expansion investment is in support of single-source business.

We are working closely and hand in hand, with our construction contractors and equipment suppliers to maintain our capacity expansion schedules.

All of our expansion investments are back with customer long term capacity reservation agreements and significant prepayment further the majority of this expansion.

Investment is in support of single source business.

In addition to our ongoing capacity expansion, we continue to make solid progress enhancing our differentiated technologies.

Speaker 3: In addition to our ongoing capacity expansion, we continue to make solid progress in enhancing our differentiated technology.

Speaker 3: For example, in 2021, we had 19 new technology qualifications for reduction of our customer product.

For example in 2021, we had 19, new technology qualification for production of our customer products.

These include qualifications for image sensor automotive RF Soi.

Speaker 3: These include qualifications for image sensor, automotive, RFS-OI, ultra low power BCD-

<unk> low power BCD power management products.

Speaker 3: We aggressively started development and then qualified and ramped our 12 low power RF technology in 2021. We added six new feature groups to our proprietary FDX platform, such as resistive RAM, automotive grade, capable, and next generation RF.

We aggressively started development and qualified and ramped our 12 low power RF technology in 2021, we added six new feature groups to our proprietary <unk> platform, such as resistive Ram automotive grade capable.

And next generation RF.

Speaker 3: and sampled early customer circuits on our GAN power and RF and power amplifier technologies. For 2022, we are in track to almost double the number of technology qualifications from last year for all our customers, covering silicon flotonics, FDX, BCD, and silicon's germanium HBD technology.

And sampled early customer circuits on our Gan power and RF and power amplifier technologies for 2022, we're on track to almost double the number of technology qualifications from last year.

For all our customers covering silicon photonics MTX.

D and silicon germanium HPT technology.

Speaker 3: Now, before I hand the discussion over to David, let me add a few thoughts on the overall industry supply, again, supply demand dynamics. And they could pass to being added to address the shortfall of supply to today's demand and growing need. Our speech was effectively drawn out first. Give Hospital Association David

Now.

Before I hand, the discussion over to David Let me add a few thoughts on the overall industry supply again supply demand dynamics and the capacity being added to address the shortfall of supply to today's demand and growing need.

Speaker 3: We spent a lot of time in thoughtful analysis of this very important topic.

We spent a lot of time in thoughtful analysis of this very important topic.

Speaker 3: So let me start with our spam. This is 12 nanometer in above.

So let me start with our Sam.

This is 12 nanometer and above.

Speaker 3: Now this stand is growing in the mid to high single digits in unit.

Now this Sam is growing in the mid to high single digits in units.

Speaker 3: That's 300 millimeter equivalent wafer, and that growth is over the next five years. It's important to note we're talking about unit growth in this imbalance and not ASP.

That's 300 millimeter equivalent wafers and that growth is over the next five years.

It is important to note we're talking about unit growth in this imbalance and not asp's.

Conservatively, we believe the short fall in industry supply to our Sam today is in the mid to high single digit range. This is offset.

Speaker 3: Conservatively, we believe the short fall in industry supply to our SAM today is in the mid to high single digit range. This is offset.

Speaker 3: I'm sorry, this is off a base of industry-wide capacity of approximately 15 million waivers per year.

I am sorry, this is off a base of industry wide capacity of approximately 15 million wafers per year.

Speaker 3: So let's compare today's supply shortfall and the demand growth to the announced capacity additions in our family. So let's compare today's supply shortfall and the demand growth to the announced capacity additions in our family.

So, let's compare today's supply shortfall and the demand growth.

To the announced capacity additions in our Sam.

Based on announced fab expansions.

Speaker 3: both those fabs being tooled or presently under construction. Supply will grow around 4% over the next five years.

Those fabs being tools are presently under construction supply will grow around 4% over the next five years.

If we exclude China based foundries that number drops from 4% to two 5% over the next five years.

Speaker 3: If we exclude China-based boundaries, that number drops from 4% to 2.5% over the next five years.

Speaker 3: So based on this analysis, and our customers continued interest in investing for long-term future capacity, we believe we're making the right long-term investments that will enable us to almost double our revenue while delivering a necessary return on invested capital for business.

So based on this analysis and our customers continued interest in investing for long term future capacity. We believe we are making the right long term investments that will enable us to almost double our revenue.

While delivering the necessary return on invested capital for our business.

In summary, we ended 2021 on a strong note and business momentum we are seeing robust growth from our customers in the end markets. We serve we are prudently and in partnership expanding our capacity to service their needs and making great progress in accelerating our differentiated technology for the future.

Speaker 3: In summary, we ended 2021 on a strong note and business woman. We are seeing robust growth from our customers and the end markets we serve. We are prudently and in partnership expanding our capacity to service their needs and making great progress in accelerating our differentiated technologies for the future.

Speaker 3: With that, let me turn the call over to Dave to provide the financial details for the fourth quarter and also provide you our guidance for the first quarter. Over you, Dave.

With that let me turn the call over to Dave to provide the financial details for the fourth quarter and also provide you our guidance for the first quarter over to you David.

Thank you Tom now onto our fourth quarter and full year 2021 results our fourth quarter results exceeded the high end of the financial range, we provided in our last earnings call.

Speaker 4: Thank you, Tom. Now onto our fourth quarter and full year 2021 results. Our fourth quarter results exceeded the high end of the financial range we provided in our last earnings.

Speaker 4: Fourth quarter revenue was approximately 1.85 billion, which increased 9% sequentially, driven by higher wafer shipments, ASPs, and non-wafer revenue. We shipped approximately 622,300 millimeter equivalent waifers in the quarter, and increased of about 2% on a sequential base.

Fourth quarter revenue was approximately $1 85 billion, which increased 9% sequentially driven by higher wafer shipments asps and non wafer revenue.

We shipped approximately 622300 millimeter equivalent wafers in the quarter, an increase of about 2% on a sequential basis.

Speaker 4: ASP per wafer increased approximately 3% sequentially driven by ramping LTAs with better pricing and overall very constructive transactional pricing environment and continued improvement in product mix.

ASP per wafer increased approximately 3% sequentially driven by ramping LTA is with better pricing and overall very constructive transactional pricing environment and continued improvement in product mix.

Speaker 4: Wafor Revenue from our end markets accounted for approximately 89% of total revenue. Non-Wafor Revenue, which includes revenue from reticles, non-recurring engineering, expedite fees and other items, accounted for approximately 11% of total revenue for the fourth quarter, consistent with our expectation of approximately 10% of total revenue.

Deferred revenue from our end markets accounted for approximately 89% of total revenue.

Non wafer revenue, which includes revenue from radicals nonrecurring engineering expedite fees and other items accounted for approximately 11% of total revenue for the fourth quarter consistent with our expectation of approximately 10% of total revenue.

Speaker 4: For the full year, revenue came in at approximately $6.6 billion, representing a 36% year-over-year

For the full year revenue came in at approximately $6 6 billion.

Representing a 36% year over year increase as expected all of our end markets grew meaningfully except for the year over year reduction in personal compute which declined as planned as we remix our business to more differentiated solutions.

Speaker 4: As expected, all of our end markets grew meaningfully, except for the year-over-year reduction in personal compute, which declined as planned as we remix our business to more differentiated salutes.

Speaker 4: For the remainder of the call, including first quarter guidance, I will reference adjusted metrics, which exclude stock-based compences.

For the remainder of the call, including first quarter guidance, I will reference adjusted metrics, which exclude stock based compensation.

Speaker 4: For the fourth quarter, we delivered a just a gross profit of $397 million, which translates into approximately 21.5% adjusted gross marks.

For the fourth quarter, we delivered adjusted gross profit of $397 million, which translates into approximately 21, 5% adjusted gross margin. The 346 basis points sequential improvement was primarily driven by better fixed cost absorption higher asps and improved mix.

Speaker 4: The 346 basis point sequential improvement was primarily driven by better fixed cost absorption, higher ASPs and improved mix.

Speaker 4: Full year 2021, adjusted gross margins were approximately 16%. A significant improvement from the prior year.

Full year 2021, adjusted gross margins were approximately 16% a significant improvement from the prior year.

Similar to Q3 operating expenses for the fourth quarter represented 13, 8% of revenue.

Speaker 4: Similar to Q3, operating expenses for the fourth quarter represented 13.8% of revenue. R&D represented 121 million or 6.6% of quarterly revenue and S-GNA was 7.2% at 133 million.

R&D represented 121 million or six 6% of quarterly revenue and SG&A was seven 2% at $133 million.

Speaker 4: Total operating expenses of $254 million excludes $43 million of stock-based copy.

Total operating expenses of $254 million excludes $43 million of stock based compensation.

Speaker 4: GF delivered operating profit of approximately $142 million for the quarter, which translates into 8% adjusted operating margin. 291 basis points higher than the high end of our guide.

GFS delivered operating profit of approximately $142 million for the quarter, which translates into 8% adjusted operating margin 291 basis points higher than the high end of our guidance.

Speaker 4: For the full year, we delivered operating profit of 160.8 million, also a significant improvement from the prior year.

For the full year, we delivered operating profit of $168 million also a significant improvement from the prior year.

Speaker 4: Fourth quarter net interest expense with approximately 26 million and we incurred a tax expense of approximately 26 million in the

Fourth quarter net interest expense was approximately $26 million and we incurred a tax expense of approximately $26 million in the quarter we.

Speaker 4: We delivered fourth quarter adjusted net income of approximately 98 million on a deluded share count of 540 million, resulting in earnings of 18 cents per share.

We delivered fourth quarter adjusted net income of approximately $98 million on a diluted share count of 540 million, resulting in earnings of <unk> 18 per share for.

Speaker 4: For the full year, we ended with an adjusted net loss of 26.

For the full year, we ended with an adjusted net loss of $26 million.

We delivered record fourth quarter, adjusted EBITDA of approximately $584 million.

Speaker 4: We delivered record fourth quarter adjusted EBITDA of approximately 584 million. Adjusted EBITDA grew 79 million sequentially on 147 million of incremental revenue growth, representing approximately 54% fault.

Adjusted EBITDA grew $79 million sequentially on $147 million of incremental revenue growth, representing approximately 54% fall through.

Speaker 4: For the full year, we delivered adjusted EBIDA of 1.85 billion and increase of approximately 90% over the prior year. Let me now provide some key balance.

For the full year, we delivered adjusted EBITDA of $1 85 billion, an increase of approximately 90% over the prior year.

Let me now provide some key balance sheet and cash flow metrics cash flow from operations for the quarter was approximately 1.15 billion and included approximately $800 million of customer prepayments and capacity access fees.

Speaker 4: Cash flow from operations for the quarter was approximately 1.15 billion and included approximately 800 million of customer prepayments and capacity x.

Speaker 4: Gross CapEx for the quarter was about 650 million or roughly 35% of rev.

Gross capex for the quarter was about $650 million or roughly 35% of revenue.

Speaker 4: We ended fourth quarter and the year with approximately three billion in cash and cash equivalents an increase of more than two billion dollars from the prior year.

We ended fourth quarter and the year with approximately $3 billion in cash and cash equivalents, an increase of more than $2 billion from the prior year.

Next let me provide you with our outlook for the first quarter.

Speaker 4: Next, let me provide you with our outlook for the first quarter. We expect revenue to be between 1.88 and 1.92 billion. We expect adjusted gross profit to be between 409 and 437 million. We expect adjusted operating profit to be between 164 and 202 million. Excluding share-based compensation for the first quarter, we expect total op-EX to decrease approximately $15 million sequentially.

We expect revenue to be between $1 88, and $1 92 billion. We expect adjusted gross profit to be between 409 and $437 million. We expect adjusted operating profit to be between 164 and 202 million.

Excluding share based compensation for the first quarter, we expect total opex to decrease approximately $15 million sequentially.

At the midpoint of our first quarter guidance, we expect share based compensation to be approximately $60 million of which 25 million is in cost of goods sold and $35 million in opex we.

Speaker 4: At the midpoint of our first quarter guidance, we expect share-based compensation to be approximately $60 million of which 25 million is in cost of goods sold and 35 million in up.

Speaker 4: We expect net interest expense for the quarter to be approximately 29 million and tax and other expenses to be roughly 9.

We expect net interest expense for the quarter to be approximately $29 million and tax and other expenses to be roughly $19 million. We expect adjusted net income to be between 117 and $153 million.

Speaker 4: We expect adjusted net income to be between 117 and 153 million dollars.

Speaker 4: On a fully diluted basis of approximately 560 million shares, we expect adjusted earnings per share for the first quarter to be between 21 and 27 cents.

On a fully diluted basis of approximately 560 million shares we expect adjusted earnings per share for the first quarter to be between 'twenty, one and 'twenty seven.

Speaker 4: For the first quarter, we expected just the EBIDA to be between 580 and 620 million.

For the first quarter, we expect adjusted EBITDA to be between $580 million and $620 million for 2022, we expect total gross capex to be approximately $4 5 billion.

Speaker 4: For 2022, we expect total gross capex to be approximately $4.5 billion as we continue to invest in partnership with our customers to deliver the capacity necessary to support our contracts. So, 2021 and summary, we executed the plan.

As we continue to invest in partnership with our customers to deliver the capacity network necessary to support our contracts.

2021 in summary, we executed the plan.

Speaker 4: We delivered progressively better financials quarter to quarter throughout the year. We secured 30 long-term customer agreements with more than $3.2 billion of customer funding and access fees and prepayments. And we executed on our CAPEX investment roadmap that delivers growth and competitive return on investments.

We delivered progressively better financials quarter to quarter throughout the year, we secured 30 long term customer agreements with more than $3 $2 billion of customer funding and access fees and prepayments and we executed on our Capex investment roadmap that delivers growth and competitive return on invested capital.

Speaker 4: We are excited about our prospects in 2022 and we fully expect to continue our methodical execute.

We are excited about our prospects in 2022, and we fully expect to continue our methodical execution with that let's open up the call for Q&A operator.

Speaker 4: With that, let's open up the call for Q&A, operator.

Speaker 1: Thank you, ladies and gentlemen. As a reminder to ask the question, you will need to press star then one on your telephone. We ask that you limit yourself to one question and one follow.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

Ask that you limit yourself to one question and one follow up.

To withdraw your question Christa.

Speaker 1: to withdraw your question, press the penalty. Again, let's start one to ask the question and one question and one follow-up. Please stand by while we compile the Q&A roster.

Again, Thats star one to ask a question at one question and one follow up please standby, while we compile the Q&A roster.

Speaker 1: Our first question comes from the line of John Pitchford with Credit Swift, Yaline and Soul.

Our first question comes from the line of John Pitzer with Credit Suisse. Your line is open.

Hey, guys. Good afternoon. Thanks for letting me ask the question Tom I was wondering if could talk a little bit about kind of the ASP progression you see for calendar year 'twenty, two youre kind of in the envious position of being supply limited you did a good job on the call kind of talking about.

Speaker 5: Hey guys, good afternoon. Thanks for letting me ask the question. Tom, I want to talk a little bit about kind of the ASP progression you see for calendar year 22. You're kind of in the envious position of being supply limited. You did a good job on the call kind of talking about the growth in way for outs through the balance of the year. How do you think about ASPs and how are you navigating kind of getting paid for value, not taking advantage of the cyclical environment and still maintaining those long

The growth in wafer out through the balance of the year. How you think about Asps and how are you navigating kind of getting paid for value not taking advantage of the cyclical environment and still maintaining those long term customer relations.

Speaker 3: Look, John , as we talked to in the road show in our last call, it was important for us to be very balanced in this. We wanted to make sure we aired an aside of more certainty along our range when we signed these long-term agreements, because we're adding capacity. We wanted to make sure our customers we equally committed to that capacity. And so we balanced that certainty of our business with ASP growth. So data give you a little bit more details, but this is the year really those ASPs we need to give our

John as we talked on the road show in our last call. It was important for us to be very balanced in this we wanted to make sure we are going to side of more certainty longer range. When we signed these long term agreements because we were adding capacity we wanted to make sure our customers weekly committed to that capacity and so we balanced that certainty of our business with ASP.

So David can give you a little bit more details, but this is the year really those asps.

Our chance for our customers too.

Speaker 3: transfer our customers to pass or deal with those ASP increases the way they chose to do it in 2022.

Capacity deal with those ASP increases the way they chose to do it in 2022.

Speaker 3: Until roughly this is about a high single digit number of growth of ASPs at the enterprise level for the year this year. Done in a way that was very methodical in partnership with our customers as we used their balance sheet and our...

Until roughly this is.

High single digit kind of number of growth of Asp's.

At the enterprise level for the for the year. This year done in a way that was very methodical in partnership with our customers as we use their balance sheet and our Oh.

Speaker 3: and in partnership to go create that capacity for this growth we're talking about. David, I'm glad you're here today.

And in.

Partnership to go create that capacity for this growth were talking about David anything you'd add to that.

Speaker 4: Yeah, hey John , from a volume perspective, you know what we've talked about is we're gonna grow capacity in the high single digits year over year from 21 to 22. And then ASPs, as Tom mentioned, those ASPs will actually grow about 10% year over year versus high single digits. So volume up about high single digits year over year, ASPs up in the 10% range year over year.

Yes, Hey, John .

From a volume perspective, what we've talked about is we're going to grow capacity in the high single digits year over year from 'twenty, one to 'twenty, two and then Asps.

As Tom mentioned as Asps will actually grow about 10% year over year.

Versus high single digit so volume up about high single digits year over year Asps up in the 10% range year over year.

Speaker 5: That's helpful. Yeah, just on my follow up, there's still some skeptics out there relative to the longer term financial model you put out on the roadshow. I was just hoping you'd go through some details of kind of the expected margin progression, you know, exiting the March quarter for the balance of the year. And maybe you can touch on it by geo because I know there's some distinct differences amongst Singapore, Malta and Dresden.

That's helpful. Jim.

Yes, just on my follow up there's still some skeptics out there relative to the longer term financial.

The model you put out on the road show and I was just hoping you could go through some details.

Kind of the expected margin progression you know exiting the March quarter for the balance of the year and Dave maybe you can touch on it by Geo because I know theres some distinct differences amongst Singapore, multi dresden as capacity ramps.

Speaker 4: Sure. Maybe I'll answer the first part of that and then Thomas, if you have anything to add, you can chime in.

Sure, maybe maybe I'll answer the first part of that and then Tom If you have anything to add you can chime in.

Speaker 4: to build upon it. You know, John , we talked to really about three things that were happening to drive our margins. We talked about this discipline, capex, and partnership investment that would lead to normalization of depreciation, as well as improve fixed cost absorption. We've talked about the constructive pricing environment.

To build upon it.

John We've talked really about three things that were happening to drive our margins. We talked about this disciplined capex and partnership investment that would lead to normalization of depreciation as well as improved fixed cost absorption, we've talked about the constructive constructive pricing environment and our increasing percentage of singles.

Speaker 4: and our increasing percentage of single-source business driven by the differentiation in our business as being something that helps capture margin. And of course, we talked about the mixing up of our business through accretive markets that we target.

<unk> business driven by the differentiation in our business as being something that helps capture margin and then of course, we talked about the mixing up our business through accretive markets that we target and so with those three points as a backdrop. Let me let me talk about the geographic regions and the individual factory, so let's start with Singapore for Singapore.

Speaker 4: And so with those three points as a backdrop, let me talk about the geographic regions and the individual factories. So let's start with Singapore first. Singapore is our largest campus. It services about 45% of our total capacity. Singapore is already at our long-term financial model.

As our largest campus.

Services about 45% of our total capacity Singapore is already at our long term financial model. So in 2021, Singapore is is at our long term model and thats without that 10% kind of year over year enterprise ASP.

Speaker 4: So in 2021, Singapore is at our long-term model, and that's without that 10% kind of year-over-year enterprise ASP increase that we talked about in your prior question.

Increase that we talked about in your prior question.

Speaker 4: Dresden, which is about 20% of our total capacity, but of course growing, Dresden, as we...

Dresden, which is about 20% of our total capacity but of course growing.

Dresden as we scale that fixed cost footprint through additional tooling, we get the benefit of that fixed cost absorption. So that fixed cost absorption as we almost triple the total output of that facility plus the improved pricing that gets us to our long term financial metrics.

Speaker 4: scale that fixed cost footprint through additional tooling. We get the benefit of that fixed cost absorption. So that fixed cost absorption as we almost triple the total output of that facility plus the improved pricing, that gets us to our long term financial metrics.

Speaker 4: And then that finally we've got, we've got mortar.

Then finally, we've got we've got Malta and Malta It has.

Speaker 4: In Malta, it has a similar fixed cost absorption challenge, big footprint but wasn't tooled. We'll get that fully tooled around the mid year of 2023. So kind of exiting 23 will be at our entitled fixed cost absorption. And then it has a little bit of depreciation that has to roll off.

Similar fixed cost absorption challenge big footprint, but wasn't tool, we will get that fully tooled around the mid year 2023, so kind of exiting 'twenty three will be at our entitled fixed cost absorption and then it has a little bit of depreciation that has to roll off throughout 2024, and then the first half of <unk>.

Speaker 4: throughout 2024 and then the first half of 25 so it won't quite be to that long-term model until you know late 24 early 25

Five so it won't quite be to that long term model until late 2004 early 'twenty, five, but Singapore will be their Dresden will be there.

Speaker 4: But Singapore will be there, Dresden will be there.

Burlington is in a very similar situation as Dresden, and then of course I just described them all but Tom anything you'd add I think it's good to put it in that concise manner as the depreciation dimension. This we invested heavily in the earlier so the company and that depreciation rolls off. So that's one lever the second lever is remixing and the ASP that will drive our profitability and then the third one is we have.

Speaker 3: Burlington is in a very similar situation as dressed in and of course I just described a lot of the Tom anything you did I think it's it's good to put it in that concise manner. You know, there's a depreciation dimension this week We invested heavily in the early years for the company and that depreciation rolls off so that's one lever the second

Speaker 3: remixing and the ASP that will drive our profitability. And the third one is we have a huge fixed cost and the more we can leverage that cost for efficiency. You know, any one of these, I could get some skepticism, but the three, the, you know, the, the, the, the combination of those three really give us our roadmap to this path, the profitability and it's always good, David, as you like to say, proof point, our Singapore facilities already at our longterm model. Perfect, guys, thanks.

A huge fixed cost and the more we can leverage that cost for efficiencies.

Are these I could get some skepticism three.

The combination of those three really gives us a roadmap to this path to profitability and it's always good David would you like to say proof point, our Singapore facilities already hit our long term model.

Perfect guys. Thank you I appreciate it.

Thank you.

Our next question comes from the line of Harlan sur with Jpmorgan. Your line is open.

Speaker 1: An expression comes from the line of Hollard's third with JP Morgan. Yolanda's old.

Good afternoon, and congratulations on the stellar execution demand environment stepping into this year looks quite strong across your end markets. The team is anticipating.

Speaker 3: Good afternoon and congratulations on the strong education. The man environment stepping into this year looks quite strong across your end markets. The team is anticipating strong revenue growth as you're based on your shipment and your ASP outlook in your prepared remarks or answered to one of the questions. Looks like you guys are going to grow revenues in the sort of high teens percentage range this year. Almost sort of rank order, which of your segments are going to be driving the strongest growth this year? of here I like you.

<unk> revenue growth this year I think.

Based on your shipment and ASP outlook in your prepared remarks and answers to one of the questions. It looks like you guys are going to grow revenues in the sort of high teens percentage range. This year.

Sort of rank order, which of your segments are going to be July being the strongest growth this year.

David I'll, let you start and I'll add some commentary as to why.

Sure.

Speaker 4: Sure. Well, Arlan, it's a smaller part of our business, but we've talked a lot about automotive. So, you know, the automotive business we're expecting, expecting to be kind of lumpy quarter to quarter, but on an annual basis year over year 22 versus 21, we're continuing to expect strong growth from the automotive business.

<unk>, it's a smaller part of our business, but we've talked a lot about automotive.

So the automotive business, we're expecting you expect it to be kind of lumpy quarter to quarter, but on an annual basis year over year 22 versus 21, we're continuing to expect strong growth from the automotive business.

Speaker 4: The IoT business that's home and industrial IoT business, that's another business for us that grew nicely in 2021. And we actually expect it to grow even faster in 2022 and become a bigger part of our total portfolio. And so that's a business that for us, we're seeing just a lot of traction in the home and IoT business, industrial IoT.

On the Iot business, that's home and industrial Iot business, that's another business for us.

That grew nicely in 2021, and we actually expect it to grow even faster in 2022 and become a bigger part of our total portfolio.

So that's a business that for us we're seeing just a lot of traction in the home and Iot business industrial Iot business.

Speaker 4: Smart mobile devices, you know, it's, you know, not quite half of our business.

Mobile devices.

Not quite half of our business.

Speaker 4: but certainly around that range and that business will kind of grow at our enterprise average. So I think, you know, in terms of the real highlight, the automotive portion growing from a smaller base to a more sizable portion of our business, the home and industrial IoT, having nice growth, smart mobile devices growing at enterprise average. And, you know, communications, infrastructure and data center also growing, but probably highlight the first two automotive in the home and industrial.

Certainly around that range in that business will kind of grow at our enterprise average. So I think in terms of the real highlights the automotive portion growing from a smaller base too.

Two a more sizable portion of our business the home and industrial Iot, having nice growth smart mobile devices growing at enterprise out average in <unk>.

Communications infrastructure and data center also growing.

We highlight the first two automotive in home and industrial Iot.

Speaker 6: Yeah, I'll just have a little bit on the smart mode with the device and David you pointed out it.

Yeah, I'll, just add a little bit on the smart mobile device, David you pointed out.

Speaker 6: where you percent of our revenue this year. Hand sets are not growing at high single digits next year, but our revenue is gonna have robust growth and what does that mean? It means we're winning more pockets within them. As the industry goes to 5G, that's a real franchise for us in the front-end module. We're building our, and growing our business in image-censor processes. So more pockets, more content. So hand sets don't have to grow at the rate our business goes as we win more of the silicon content inside that smart mobile device.

48% of our revenue this year handsets are not growing at high single digits next year.

But our revenue is going to have robust growth and what does that mean it means we're winning more sockets within it.

As the industry goes to <unk> Thats, a real franchise for us.

Front end module.

We're building our in growing our business and image sensor processors, so more sockets more content. So handsets don't have to grow with the radar business grows as we win more of the silicon content inside that smart mobile devices.

Speaker 3: appreciate the insights there. And so from my follow up, you know, with the House passing the American CompitSAC, which includes the $52 billion chipsac and a similar version to the one that was passed by the Senate last year. So the bill now needs to be reconciled agreed upon by Congress, signed by President Biden. You guys have a strong government relations team. Do you have an updated view on timelines for...

I appreciate the insights there and so but for my follow up with the house passing the American compete stock, which includes the 52 billion chips.

And a similar version to the one that was passed by the Senate last year. So the bill now needs to be reconciled agreed upon by Congress signed by President by it and you guys have a strong government relations team do you have an updated view on timelines for potential appropriations of subsidy dollars.

Speaker 3: potential appropriations of subsidy dollars. And then maybe over the next three years, how much CAPEX are you allocating to your US staffs primarily, Bolta? I just want to get some idea on how much of the US CAPEX spend could be supported by Chipsac funding.

Maybe over the next three years, how much capex are you allocating to the U S stops primarily volatile just wanted to get some idea on how much of the U S. Capex spend could be supported by chipset funding.

So let's take the first part of that.

Yes.

Speaker 6: Yeah, our our our our our context in Washington It's been a very forthright and and one thing I love about it is you know Doesn't matter what side of the aisle you ride everybody knows it funding the chips bill creating more security around the Civic inductive supply chain US is a paramount importance and you're right It's going to go to conference now with it rationalization these two bills will be passed into law

Our contacts in Washington is.

Very forthright in and one thing I love about it is.

Doesn't matter, which side of the Eylea right everybody knows that funding the chips fell creating more security around the semiconductor supply chain use is of Paramount importance and youre right. Its going to go to conference now with the rationalization of these two bills will be passed into law and the timing for that is it's going to be some time, if it's going to be meaningful.

Speaker 6: And the timing for that is, you know, it's going to be some time if it's going to be meaningful before the first half of this year is over. Right? We have to be in that time.

First half of this year is over we have to be in that timeframe.

Speaker 6: And $53 billion, $52 billion, $37 billion of building to add capacity is meaningful. As far as our plans are, we don't invest because there's a government incentive or co-investment. We invest first and foremost in partnership with our customers that this certainty that the demand and we're building our differentiated technologies with a customer in mind. So they participate in this.

And.

$50 $53 billion $52 billion $37 billion of billing to add capacity is meaningful.

As far as our plans are we don't think Thats just because there is a.

A government incentive or co investment, we invest first and foremost in partnership with our customers that this certainty the demand and we're building our differentiated technologies with a customer in mind, so they participate in that.

Speaker 6: We leverage the government support because we have to get the kinds of returns on investment that makes sense. And this is, you know, mid to high single digit returns. And so first we make sure the demand is there, the certainty is there, customer partnership, and then we make sure that we can achieve the capital model or they return on our capital investment to go make those...

We leveraged the government support because we have to get the kinds of returns on investment that makes sense and this is mid.

Mid to high single digit returns and so first we make sure. The demand is there the certainties their customer partnership and then we make sure that we can achieve.

I think the capital model or the return on our capital investment to go and make those.

Uh huh.

Speaker 6: to make the investment to make sure they have the right payback versus a business.

To make the investment to make sure that they have the right payback versus a business now having said that I think we will find a way to go.

Speaker 6: I haven't said that. I think we will find a way to expand our campus in Fab8 in New York in a meaningful way and we'll do that in partnership. What I found really encouraging today was Commerce Department actually started to ask for requests for information on how this money can be spent. So it looks like they're really starting to lean in and get ahead of the appropriations of this funding. So we'll keep a close eye on this as time unfolds here. Fab 850 silver d crowd?

Expand our campus.

And fabby multi new York in a meaningful way and we'll do that in partnership would I found really encouraging today was commerce department actually started to ask for request for information.

How this money can be spent so it looks like we're really starting to lean in and get ahead of the appropriations of this funding. So we'll keep a close eye on this.

As time unfolds here, David anything to add to that.

Speaker 4: Yeah, I think, you know, to speak to 2022, CapEx, Harlan, there's about $550 million that's going into investment in FAB8, primarily for FINFECT capacity. And then there's about $150 million, give or take a little bit that's going into Burlington to mix us up, primarily into SIGGI and some of the communications and infrastructure market. So those are the investments that we currently have contemplated for 2022. And none of them are dependent on this funding, the government support. That's right. TRUE

I think to speak to 2022, Capex Harlan there's about $550 million, that's going into investment in fab, primarily for Finfet capacity and then there is about $150 million give or take a little bit that's going into Burlington to mix us up primarily into into Siggi and some of the communications infrastructure market.

So those are those are the investments that we currently have contemplated for 2022 and none of them are dependent on this.

Funding from government support that's right.

Yes, great insights. Thank you.

Thank you.

Speaker 1: Next question comes from the line of Ross, the more we ditch a bank, your line is over.

Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Hi, guys. Thanks for letting me ask a question congrats on the strong results Tom I wanted to go back to one of the topics you hit on in the preamble about the supply coming on and how fast the industry needed to grow the.

Speaker 4: I think some of me asking questions and graphs on the strong results. Time I want to go back to one of the topics you hit on in the preamble about the supply coming on and how fast the industry needed to grow. The supply to meet up to the demand and that disconnect. If I look at the broad-based lagging edge companies, whether they're IDMs or FAB-like companies, their spending is exploding. Texas Instruments talked about it last week.

The supply to meet up to the demand and that disconnect. If I look at kind of the broad based lagging edge companies, whether they are idms or fab light companies Theyre spending is exploding, Texas instruments talked about it last week. So as those companies are spending two to three times their 10 year average rate do you.

Speaker 4: So as those companies are spending two, three times their 10-year average rate, do you view that as more of an endorsement of the growth of the industry, or are you in any way scared that that supply could lead to pricing declines, pressure on your customers? I know you have a long-term agreement, but just wondering how you reconcile these companies that aren't necessarily your customers also spending so aggressively.

That is more of an endorsement of the growth of the industry or are you in any way scared that that supply could lead to pricing declines pressure on your customers. I know you have a long term agreements, but just wondering how you reconcile these.

Is that aren't necessarily your customers also spending so aggressively.

Speaker 6: Yeah, remember they have to grow their business too. In our industry, you don't grow if you don't make more product, right? And so TI has been very disciplined in how they make capital expansions and they got to a point where they needed to maybe spend a little bit more because they needed new facilities, not just expanding existing footprints. But you...

Remember they have to grow their business too in our industry. You don't grow if you don't make more product and so <unk> been very disciplined in how they make capital expansions and they've got to a point, where they needed to maybe spend a little bit more because they needed new facilities, not just expanding existing footprints.

I think more to that your first part of that which is really as an endorsement for where this industry needs to go.

Speaker 6: I think more to the first part of that, which is really an endorsement for where this industry needs to go. It took 50 years to become a half a trillion dollar industry, call it eight, 10 years, it's gonna double. And the economic model to go create that first 50 years is not the one that's gonna get us to where we wanna go as an industry. And for us, it's to make sure that we are creating differentiated solutions for our cuts.

It took 50 years to become a half a trillion dollar industry call. It 810 years its going to double.

And the economic model to go create that first 50 years is not the one that's going to get us to where we want to go as an industry and for US it's to make sure that we are creating differentiated solutions for our customers that our customers are equally committed to that capacity and that we are building. It for them. We're not just building it and saying we're going to build a head and have and then go and try to sell.

Speaker 6: that our customers are equally committed to that capacity and that we're building it for them. We're not just building it in shame, we're gonna build ahead and go and try to sell the capacity. We're doing it in very orderly and orderly fashion.

The capacity, we're doing it in a very orderly and orderly fashion.

Speaker 6: And I'll tell you, we talk a lot about the long term agreements that we signed last year.

We talked a lot about the long term agreements that we signed last year.

Speaker 6: In fourth quarter, we started to sit down with our customers to think about the future beyond 2024. We bring all this capacity on to see what's next with additional capacity would they like to add?

And fourth quarter, we started to sit down with our customers to think about the future beyond 2024, we bring all of this capacity on what's next with additional capacity would they like to add.

With us and those conversations are going well and we expect this year to be doing more of the same to continue to grow the capacity, but fundamentally doing it in a partnership mode, where our customers hand in hand are committed to the capacity, we're putting on for them.

Speaker 6: with us and those conversations are going well and we expect this year to be doing more of the same to continue to grow the capacity but fundamentally doing it in a partnership mode where our customers hand in hand are committed to the capacity we're putting on for this.

Speaker 7: thanks for that color i think i thought david one for you on the gross margin side of things just wanted to uh... to get a little bit more color on what was the surprise to you versus your guidance in in the fourth quarter and then as we're thinking about the linearity of the year i know there's some some steps when depreciation falls off in those sorts of things any sort of color on how you see this year progressing uh... quarter by quarter uh... in the gross margin

Thanks for that color I guess as my follow up David one for you on the gross margin side of things just wanted to get a little bit more color on what was the surprise to you versus your guidance in the fourth quarter and then as we're thinking about the linearity of the year I know, there's some some steps one depreciation falls off and those sorts of things any sort of color on how you see.

This year progressing.

By quarter end.

The gross margin line.

Speaker 4: Sure. Well, with respect to fourth quarter, you know, and the improvement to our guidance that we delivered. I think there were two things. One, I think the pricing and some of the expedite.

Sure.

With respect to fourth quarter.

The improvement to our guidance that we delivered I think there were two things.

One I think the pricing and some of the Expedites.

Speaker 4: and some of this pricing associated with that was was a little stronger than we expected and then of course fixed cost absorption

And some of this pricing associated with that was it was a little stronger than we expected and then of course fixed cost absorption is.

Speaker 4: is a very, very powerful tool as an engine for accretion, for a fixed asset business. And so we got better fixed cost absorption and we got a little bit better ASP and premium pricing in the fourth quarter and that really led to the upside. I think for guidance for the full year, I think I'll stick Pat to what we gave you for the full year with 10%. Just

<unk> is a very very powerful tool.

Tool as an engine for accretion for a fixed asset business and so we got we got better fixed cost absorption and we got a little bit better asps and premium pricing in the fourth quarter and that really led to the upside.

For guidance for <unk> for the full year, I think I'll stick Pat to what we gave you for the full year with 10%.

Speaker 4: ASP increases year over year, but with respect to the to the first quarter

ASP increases year over year, but but with respect to the first quarter.

Speaker 4: It's about two-thirds ASP, one-third volume driven. When you think about the improvement, quarter over quarter, Q1 to Q4. And so what that means is that the ASPs are coming online a little faster than the fixed cost absorption would expand gross margins. So still getting the benefit of both, right? Is that volume still scales? You're still getting the benefit of that fixed cost absorption and the footprint.

It's about two thirds asps, one third volume driven when you think about the improvement quarter over quarter Q1 to Q4, and so what that means is that the asps are coming online a little faster than the fixed cost absorption would expand gross margins. So still getting the benefit of both right is that volume is still <unk>.

Scale is youre still getting the benefit of that fixed cost absorption in the footprint.

Speaker 4: But ASP is coming online a little bit faster than the fixed cost absorption. Does that make sense?

But asps coming online a little bit faster than the fixed cost absorption so that makes sense yes.

Yes. Thank you.

Thanks, Ross Thank you.

Speaker 1: Unexpressing comes from a line of Chris Sangley with City, he'll line up though.

Our next question comes from the line of Chris Danley with Citi. Your line is open.

Speaker 7: Okay, thanks guys. One more pricing question. So you sketched out the strokes on 22, but I would imagine you're booking in the 23. Any first take or first reads on the pricing environment for 2023, can we expect it to be a double that just again next year?

Okay. Thanks, guys.

One more pricing question.

Sketched out the strokes on 'twenty, two but I would imagine youre booking into 'twenty three.

He first first take her first reads on the pricing environment for 2023 can we expect it to be up double digits again next year.

Yes, I think.

Speaker 4: Yeah, I think, you know, look, I think we're gonna guide one quarter at a time and then try to give you some color and context for the year that we're in. I think as a high level response, I think I'd say that we remain in a very constructive business environment. And so we're very encouraged by the environment that we're currently in, Tom, anything. Yeah, and I think for us, to be able to create the capacity our customers need.

Look I think we're going to guide one quarter at a time and then try to give you some color and context.

For the year that we're in I think is a high level response, I think I'd say that we remain in a very constructive business environment and so we're very we're very encouraged by the environment that we're currently in Tom anything Matt, Yeah, and I think I think for us.

To be able to create the capacity our customers need.

Speaker 6: ASP is part of the equation that closed those returns we need. So the story that we got to continue to write and develop.

Asps as part of the equation that close those returns we need.

That's the story that we can continue that.

Right and developed here.

Speaker 8: Right, and for my follow up, just a competitive question. So both of your main competitors in Taiwan have announced increases in CAPEX. They're gonna focus a little more on the...

Great and for my follow up just a competitive question. So both of your main competitors in Taiwan have announced increases in Capex are going to focus a little more on the on the trailing edge and then you also have a major semiconductor company here in the U S.

Speaker 8: on the trailing edge and then you also have a major semi-canoptic company here in the US with their, I guess, their latest announcement of getting into Foundry. Has this changed the conversation with the customers at all? Is this making you guys a little bit more worried about potential capacity issues down the road or no change to the business environment we talked to the customers internally?

With their I guess their latest.

Announcement of getting into foundry has this changed the conversation with the customers at all just makes you guys a little bit more worried about.

Potential capacity issues down the road or no change to the business environment, when you talk to the customers or internally.

Speaker 6: I think you have to segment three levels of investment.

I think you have to segment three levels of investment.

Speaker 6: for capital expansion. There's a whole memory dimension to this. Clearly doesn't, doesn't, it compliments the logic part of the industry, but doesn't compete at all. And then there's the segment for,

Capital expansion Theres, a whole memory dimension to this clearly doesn't does it complements the logic part of the industry, but it doesn't compete at all and then there is the segment for.

Speaker 6: Some like to call it, you know, leading edge, we call it single digit nanometer. This is the smallest fastest transistors, feeds data centers. It represents...

So I'd like to call it.

Leading edge, we call. It single digit nanometer. This is the smallest fastest transistors feeds data centers represent 25% of the market, but it's highly capital intensive <unk> see a lot of dollars being important to that there are now three competitors in that space as Intel has declared they wont be foundry and serve that market.

Speaker 6: 25% of the market, but it's highly capital intensive. So you see a lot of dollars being important to that. There are now three competitors in that space as Intel has declared they want to be foundry and serve that market.

Speaker 6: You know, for us, an Intel entering a market just validates once again how important semiconductor manufacturing is and important is...

For us.

Until entering this market validates once again, how important semiconductor manufacturing is and.

An important it is to.

Speaker 6: not only the industry but the world economy. But we don't see them as competitors as they are in that market segment that we choose not to serve.

Not only the industry, but to the world economy, but we don't see them as competitors there in that market segment that we choose not to serve.

Speaker 6: The other capacity is being put on. I spoke about in the in the in the in the service will mark mark at least serve. We we tracked it very closely. We watched where we're shovels are going to ground where capacity is being added. We we gave the statistics around that. We don't see a lot of.

The other capacity that's being put on I spoke about in this.

In the servicing market we serve.

We track that very closely we watch where shovels and go on the ground where capacity is being added we gave you. The statistics around that we don't see a lot of of capacity going in beyond with natural demand growth that's going on anything youre seeing rational capacity expansion, making sure that we don't over built for this industry.

Speaker 6: of capacity going in beyond with the natural demand growth. That's going on, I think you're saying, rational capacity expansion, making sure that we don't over build for this industry. And that's something we'll watch very closely. And again, we will not add capacity if we don't know we have somebody who's going to be.

And that's something we'll watch very closely and again, we will not add capacity if we.

We don't know we have somebody who is going to be.

Speaker 4: You know, committed to that capacity that we put on. David, anything you'd add to that? Yeah, I think I just add that, you know, again, as a proof point, you know, our...

Committed to that capacity that we've put on David anything you'd add to that yeah. I think I'd just add that again is a proof point.

Speaker 4: We signed five new LTAs in the fourth quarter. And we continue to have customers engage with us on wanting to secure long-term supply. So, you know, from all the signals that we see, it looks like we are currently in a supply, demand imbalance.

We signed five new <unk> in the fourth quarter, and we continue to have customers engage with us on wanting to secure long term supply. So from all the signals that we see it looks like we are currently in a supply demand imbalance. It looks like things are getting a little bit better, but I think.

Speaker 4: Looks like things are getting a little bit better, but I think based on what we see, we believe it's gonna last for an extended period of time and it looks like our customers.

Based on what we see we believe it's going to last for an extended period of time and it looks like our customers I believe that as well and so we're going to do is we're going to in a very disciplined and methodical way. We are going to continue to execute our plan and as we execute our plan we're going to look at the headlights that we have.

Speaker 4: I believe that as well. And so what we're gonna do is we're gonna, in a very disciplined methodical way, we are going to continue to execute our plan. And as we execute our plan, we're gonna look at the headlights that we have and of course correct accordingly if we see anything different.

And course, correct accordingly, if we see anything different than that.

Alright, thanks, guys.

Sure.

Speaker 1: Thank you. Our next question comes from the line of marked lipocuses, with different.

Thank you. Our next question comes from the line of Mark Smith.

With Jefferies I'm.

I'm sorry your line is open.

Speaker 4: That's okay a lot of people mispronounce my name. It's Mark Lutossus from Jeffries. Thank you for taking my question When you listen to the earnings calls the semi-KF equipment companies you hear many of them discuss missing expectations Because they're not getting enough components

That's okay a lot of people Mispronounce My name is Mark <unk> from Jefferies. Thank you for taking my question when you listen to the earnings call is the semi cap equipment companies do you hear many of them discuss missing expectations, because they're not getting enough components, given you're capacity constrained and it seems the big.

Speaker 4: Given your capacity constraints, and it seems the biggest risk to your ability to hit your growth potential and meet your customer commitments is your ability to get that capital equipment. Well, what are your conversations? I know you've talked about this in your script a little bit, but maybe you can peel one layer of that onion. What are the conversations with the semi-caps suppliers going like right now? I imagine you're listening to the same calls that we are too. Yeah, we listen to that all the time.

<unk> risk to your ability to hit your growth potential and meet your customer commitments is your ability to get that capital equipment. What are your conversations like I know Tom you talked about this in your script, a little bit, but maybe you can peel one layer of that onion, what are the conversations with the <unk>.

Semi cap suppliers going like right now I imagine youre listening at the same cost that we are too.

Listen I had a follow up thanks.

Speaker 6: We was the same calls and we were on calls with them. Look, I think fundamentally we started the plan, our capacity expansion at the end of 2020 and early 2021, where the lead times and booking of the swatts was a lot less competitive.

We used the same causing Ron calls with them look I think fundamentally.

We started the plan our capacity expansion at the end of 2020, and early 2021, where the lead times and booking of the slots was a lot less competitive and so it's kind of a little bit first in first out and so we're not seeing huge swings in our delivery of equipment. They are all manageable within the buffers.

Speaker 6: And so, it's kind of a little bit first in first out. And so we're not seeing huge swings in our delivery of equipment. They're all manageable within the buffers we put in our schedules, their plus or minus weeks of delivery. We've balanced our capacity. I think for us timing was our friend on this one and we got our orders in early.

We put in our schedules, there plus or minus weeks of delivery, we balance to add our capacity I think for US timing was was our friend on this one and we got our orders in early I get no one's immune from from daily battles with the worldwide supply chain, whether it's chemicals can make wafers or components to make tools, we're all dealing with that as best we can.

Speaker 6: I get no one's immune from daily battles with worldwide supply chains, whether it's chemicals to make wafers or components to make tools. We're all dealing with that as best we can. But for us on the equipment side, we have a pretty good line of sight of the equipment we need to add to create this capacity.

But for us on the equipment side.

We have a pretty good line of sight of the equipment, we need to add to create this capacity and we got our we got our orders in early plants receives early I guess.

Speaker 6: And we got our orders in early. I plan to receive early.

Speaker 4: Got your best help on a follow-up if I may. You know, given that there is such a shortage of semi-conductor manufacturing capacity worldwide and you know, many industries outside of semis are losing billions of dollars in revenues because they can't get enough semi-conductor components. It seems that...

Got you that's helpful and a follow up if I may.

Given that there is such a shortage of semi conductor manufacturing capacity worldwide.

Many industries.

Outside of Smbs are losing billions of dollars in revenues because they can't get enough semiconductor components it seems that.

Speaker 4: prioritizing the semi-cap equipment players for chips would might be a way to alleviate you know the world focus on the semi-canotor industry right now and i guess i'm wondering

<unk> tightening the semi cap equipment players for chips with might be a way to alleviate.

The world focus on the semiconductor industry right now and I guess I'm wondering.

Speaker 4: Is there like an industry association that you guys get together and say, hey, one way that we can solve this problem together is to prioritize that vertical market to send me cap players and help them get...

Is there like a an industry Association do you guys get together and say hey.

One way that we can solve this problem together.

To prioritize that.

Vertical markets semi cap players to help them get.

Speaker 4: equipment to us and we can make more chips. Is that something that goes on, or is this a, they kind of get put into the queue like everybody else does?

Equipment to us and we can make more chips is that something that goes on or is this a.

They kind of get put into the Q like everybody else does.

Speaker 6: Well, look, if it's going on, we're not part of those conversations. This is a very complex business.

Well look if it is going on we're not part of those conversations this is a very complex business.

Speaker 6: You know, you could be adding one tool to a existing factory that all of a sudden gives you 3% more ounce because it was a pinch point tool. You could be doing a green field and very complicated mix and match of configurations and tools and type of tools. I don't even know if that's possible what you're talking about. I think the point here is for everybody to plan their business, understand the markets they want to serve, create the capacity, and you could serve those markets.

You could be adding one tool to our existing factory that all of a sudden gives you 3% more hours because it was a pinch point tool you could be doing a greenfield and very complicated mix and match of of configurations to tools and type of tools I don't even know if that's possible what youre talking about I think the point here is for everybody to plan their business understand the markets they want to create the capacity to serve.

Those markets and then.

Speaker 6: And then work in partnership mode, not only with your customers, but your suppliers to go back to those plans. I think that's a tried-in-to-hoo business objective and methodology, and that's what we try to do.

In partnership mode, not only with your customers what youre suppliers to go execute those plans I think that's a tried and true.

<unk> objective and methodology and that's what we tried to do.

Gotcha very helpful. Thank you.

Thank you.

Our next question comes from the line of Chris Caso with Raymond James Your line is open.

Speaker 1: Our next question comes from the line of Chris Casio with Raymond James. Your line is open.

Speaker 5: Yes, thank you. Good evening. Tom, I'd like to come back to some of your opening remarks.

Yes. Thank you good evening.

Tom I would like to come back to some of your opening remarks on your view of the supply demand balance of the industry you spoke about that as a high single digit shortfall.

Speaker 8: on your view of the supply demand balance for the industry. You spoke about that as a high single digit shortfall. When do you think the industry gets back into balance? It sounds like you think we make some progress from here, but wondering as you look at your analysis, at what point do you think that the industry catches up and we get back to what was thought to be normal supply conditions?

When do you think the industry gets back into balance.

It sounds like you think we will make some progress from here, but wondering as you look at your analysis at what point do you think that the industry catches up and we get back to what was thought to be normal supply conditions.

Speaker 6: Yeah. I think the problem we have is we have this big offset to begin with and we have something that's growing.

Yes.

I think.

The problem. We have is we have this big offset to begin with and we have something thats growing.

Speaker 6: And we think of it, we either have a mismatch or a matched. If there's a range, we started...

And we think of it we either have a mismatch or matched it is a range we started.

Speaker 6: with a really big mismatch, it's gotten better.

Mid last year with a really big mismatch, it's gotten better.

Speaker 6: But again, I think it really comes down to how fast can we add to pass? We just talked about equipments, requires and lead times going out. How fast can we add to pass? Well, the man continues to grow back to an industry that will double in eight to ten years.

But again I think it really comes down to how fast can we add capacity, we just talked about equipment suppliers and lead times going out how fast can we add capacity while demand continues to grow back to an industry that will double in eight to 10 years and so for me the way I.

Speaker 6: And so for me, the way I think about this, short of some kind of big macroeconomic event that will slow down all economies, including our industry, I think for the better part of the next five years, we'll be chasing, you know, to put capacity on, not demand, and doing everything we can to get a better balance.

About this short of some kind of big macroeconomic event that will slowdown all economies, including our industry I think for the better part of the next five years, we'll be chasing to put capacity on not demand and doing everything we can to get a better balance it doesn't mean.

Speaker 6: It doesn't mean it doesn't get better, but it doesn't mean it gets fixed when we're in a position where we have more supplies than we know what to do.

It doesn't get better, but it doesn't mean it gets fixed and we're in a position where we have more supply than we know what to do.

Yeah.

Speaker 8: God, thank you. As a follow-up, David, there was very good leverage on fall through from the incremental revenue. I think you spoke about 54% of the incremental revenue fell through. Is that a reasonable expectation going forward and I'd suspect some of the ASP gains, which might not be even every quarter, might have some influence on that?

Got it thank you.

A follow up David.

There was very good leverage.

On fall through from the incremental revenue I think you spoke about 54% of the incremental incremental revenue fell through.

A reasonable expectation going forward and I suspect some of the ASP.

Gains, which might not be even every quarter it might have some influence on that.

Speaker 4: That's correct. Look, I think I mentioned 54% for the EBITDA fall through. I think if you did the map on the on the gross margin, you'd get something that's more, you know, slightly higher than 60%. I think from a fall through perspective, somewhere, you know, in that mid 50s to low 60s range is a good fall.

That's correct look I think I mentioned, 54% for the EBITDA fall through I think if you did the math on the on the gross margin you would get something thats more slightly higher than 60%.

From a from a fall through perspective somewhere in that mid <unk> to low <unk> range is a good fall through restaurant.

Speaker 4: Again, taking advantage of the ASPs and the fixed cost absorption that we talked about earlier.

Again, taking advantage of the asps in that fixed cost absorption that we talked about earlier.

Right. Thank you.

Thanks, guys. Thank you.

Our next question comes from the line of Joe Moore with Morgan Stanley . Your line is open.

Speaker 1: An expression comes from the line of Joe Moore with Morgan Stanley . The line is open.

Great. Thank you I Wonder if you could talk about the.

Speaker 4: Great, thank you. I wonder if you could talk about the 4.5 billion of CAPEX. And what would that, how much would that increase your way for FAP capacity when fully deployed? I understand it doesn't get fully deployed this year, but can you just give us a ballpark estimate of that number and what it means for your overall way for growth. And then can you talk a little bit about CAPEX in 2023 directionally?

The $4 5 billion of Capex.

And what would that how much would that increase your wafer fab capacity when fully deployed I understand it doesn't get fully deployed this year, but can you just give us a ballpark estimate.

That number and what it means for your overall wafer growth and then can you talk a little bit about capex in 2023 Directionally.

Speaker 4: Sure, Joe. You know, look, what we talked about kind of in the road show, as well as a little bit on the prior call, what we talked about taking our wafer capacity from 2020, from about 2 million waifers to north of 3 million waifers, as we're exiting 2023 from a run rate perspective. And again, that's with that fully ramp, Singapore facility that's currently under construction today.

Sure Jeff.

Well, we talked about kind of in the roadshow as well as a little bit on the on the prior call.

We talked about taking our wafer capacity from 2020 from about 2 million wafers to north of 3 million wafers as we're exiting 2023 from a run rate perspective again, that's what that fully ramped Singapore facility that is currently under construction today and so if you look at the 'twenty one numbers.

Speaker 4: And so if you look at the 21 numbers, we delivered roughly 2.4 million wafers in 2021, rounding up slightly there. And so we're not quite halfway there, right, to get to more than 3 million wafers per year. And so the $4.5 billion investment this year, again, that's our investments in coordination with our customers as well as some partnerships with governments.

We delivered roughly $2 4 million wafers in 2021 rounding up slightly there.

And so so we're we're not quite halfway there right to get some more than 3 million wafers per year, and so the $4 $5 billion investment. This year again, that's our investments in coordination with our with our customers as well as some partnerships with governments.

Speaker 4: That helps take us a good portion of the way to that 3 million wafers. So, directionally 2023 will decline from what we're spending in 2022. I'm not going to give a lot more color than that other than it's not significant changes from maybe what was talked about in the roach you go.

That helps take us a good a good portion of the way through that 3 million wafers. So so directionally 2023 will decline.

From what we're spending in 2022.

Going to give a lot more color than that other than it's not significant changes from maybe what was talked about in the roadshow.

Speaker 4: And then ultimately, we talked about 2024 being at our long-term model or approaching our long-term model of 20% capital intensity.

And then ultimately we talked about 2020 for being at our long term model are approaching our long term model of 20% capital intensity.

Okay, Great and then if I could follow up on the.

Speaker 9: sort of government policy angle, you talked about maybe benefit to your spending in Malta. So you thought of, you know, you guys spending money in Germany or Singapore obviously does a lot to give the US supply chain conviction on their ability to procure if there's, you know, any tensions in Asia, things like that. Any chance you could get subsidies for spending outside of the US.

Sort of.

Government policy angle, you talked about maybe benefit to your spending in Malta is there any thought of you guys spending money in Germany or Singapore.

Obviously, it does a lot to give the U S supply chain conviction on your ability to procure if there is any tensions in Asia and things like that.

Any chance you could get subsidies for spending outside of the U S.

Well first I think our global footprint is one of our competitive strengths because of supply chain.

Speaker 6: Well, first I think our global footprint is one of our competitive strengths. Because it's supply chain, risk and mitigation, you spread your risk around the world and you don't have it so highly counted.

Risks and mitigation.

De risk around the world and you don't have it so highly concentrated.

Speaker 6: the Singapore facility that we're building right now, it's a phase one expansion of a three phase, has significant support from the ECB and the supply. We've taken a partnership.

The Singapore facility that we're building right now it's a phase one expansion of a three phase has significant support from the ECB.

We've taken a partnership.

Partnerships.

Speaker 6: money from the in co-investment with the the if-type program in our Dresden facility over the years. In fact today the European Union came out with a with a bill they want to start debating that's about $43 billion to go that's comparable to the chips bill in the U.S.

Money from.

Co investment with the if cut program and our Dresden facility over the years.

In fact today.

The European Union came out let's say.

Bill do you want to start debating thats about $43 billion to go that's comparable to the chips bill in the us so.

Speaker 6: So we're always going to look for opportunities to increase the scale of our global footprint and do it again back with the right economics that makes sense.

So we're always going to look for opportunities to increase the scale of our global footprint and do it again back with the right economics that makes sense.

Speaker 6: I think one thing I could promise you is you're not going to see us co-green field. We're not going to go in the middle of some location that doesn't have an ecosystem or scale. We'll always add on to existing facilities because you have faster time to market. You have better capital efficiency and better leverage.

One thing I can promise you is youre not going to see US go Greenfield, we're not going to go into the middle of the.

Some location that doesn't have an ecosystem or scale will always add on to existing facilities. Because you have faster time to market you have better capital efficiency and better leverage and so we will always look for opportunities to leverage our competitive advantage by having a global footprint and look to add capacity when it makes sense and all three.

Speaker 6: And so we'll always look for opportunities to leverage our competitive advantage by having a global footprint and look to add capacity when it makes sense in all three continents we operate on. Would you have anything to say today? No, I think that's all said.

Continents, we operate on would you add anything to that.

I think I think that's well said.

Thank you.

Thanks, Joe.

Sure.

Speaker 2: Thank you for taking my questions. Congrats on the good momentum following the IPO. I just want to have a better understanding.

Thank you. Our next question comes from the line of Roger Gill with Needham <unk> Company.

Okay.

Thank you for taking my question congrats on the good momentum following the IPO.

Just wanted to get a better understanding.

Speaker 5: of your revenue mixed by region and how that may change over time to 2024. And then you briefly spoke about it. But is your European presence, you know, court your strategy, or will you invest more heavily in the US, you know, Asia in the long term?

Of your revenue mix by region, and how that May change over time through 2024.

You briefly spoke about it but is your European presence core to your strategy or will you invest more heavily in the U S.

Asia and the long term.

Yes, so in terms of our revenue mix about two thirds of our revenue is from the U S.

Speaker 4: Yeah, so in terms of our revenue mix, about two thirds of our revenue is from the US.

Speaker 4: about 15% or so plus or minus a little bit is from Europe .

15% or so plus or minus a little bit is from Europe .

Speaker 4: And then China is high single digits around that 10% range. And then the rest of the world makes up the rest of that revenue.

And then China is.

Is it high single digits.

Around that 10% range and then the rest of the world makes up the rest of that revenue.

Speaker 4: We're incredibly pleased with our geographic footprint from a manufacturing perspective. We think that it's a real strength of ours. We think it appeals to customers and all of the regions that I just mentioned.

We're incredibly pleased with our geographic footprint from a manufacturing perspective, we think that it's a it's a real strength of ours, we think it appeals to customers and all of the regions that I just mentioned and as we as we spend this capex in partnership with our customers.

Speaker 4: And as we spend this cat-back in partnership with our customers, as well as local governments.

Well as local governments.

Speaker 4: It's really enabling that fixed cost absorption and the gross margin expansion that we've spoken about on this call. How many things you did? Yeah, just think about what this global footprint does when you think of supply chain security. There are a number of part numbers for our customers. One design.

It's really enabling that fixed cost absorption and the gross margin expansion that we've spoken about on this call on anything you did just think about with this global footprint. When you think of supply chain security. There are a number of part numbers for our customers one design.

Speaker 6: That's sourced continents away. We can build it in our Fab7 facility in Singapore or our Fab1 facility. It's dual qualified. It's built in supply chain, geographical risk mitigation without any real cost, just to qualifying two sites instead of one site, the same design, same process well. And our customers see this in a world where there's a lot of concentration, a lot more geopolitical tensions that having that flexibility starting to create real value.

That source.

Continents away, we can build in our fab seven facility in Singapore, Our fab one facility. It's still qualified it's built in supply chain.

Geographical.

Risk mitigation without any real cost to qualifying two sites instead of one sites. The same design same process flow and our customers see this in a world where there's a lot of concentration a lot more geopolitical tensions that having that.

That flexibility is starting to create real value for our customers.

Speaker 5: Thank you for that. And from my follow up of your 20 million plus in commitment.

Hey, Thank you for that and for my follow up of your <unk>.

$20 billion plus in commitments.

Speaker 5: How much of that is based on tech that is ramped versus developing? And what would be the impact be if the process is yield later than expected? Thanks.

Much of that is based on tech that has ramped versus developing.

And what would be the impact be if the processes yield later than expected.

Speaker 6: Well, the vast vast majority that is already in production and it's adding more capacity to continue to build on things we've already been built.

Well the vast vast majority of that is already in production and it's adding more capacity to continue to build on things we've already been building.

Speaker 6: So this is not an R&D exercise. This is a manufacturing execution.

So this is not a.

R&D exercise this is a manufacturing execution exercise.

Thank you.

Speaker 1: Our next question comes from the line of Matt Bryson with Wet Bush, Elon.

Our next question comes from the line of Matt Robison with Wedbush. Your line is open.

Speaker 10: Thanks for taking my quick question and congrats on a great quarter. I hear people talk about shrink and semi as they often focus on HBC or automotive and the electrification of autos. You don't hear very often people talking about home industrial IoT being fast.

Thanks for taking my question and congrats on a great quarter.

When I hear people talking about shrinking so that means they often focus on HBC or automotive and the electrification of autos you don't hear very often people talking about home industrial Iot being the fastest growing segment for them I guess.

Speaker 10: I guess when you're looking at that strength moving forward.

When you're looking at that strength moving forward do you see that was more market driven or.

Speaker 10: You see that as more market driven or I'm guessing at least a portion of the strength.

At least a portion of the strength is specific.

Speaker 10: specific to global foundries with some of your technologies like FDX fitting well with requirements of that space and allowing you to take some share. And if that assumption is correct, am I right in thinking that the faster growth in that space ends up with that being a higher margin or

To globalfoundries with some of your technologies like MTX fitting well with the requirements of that space.

And allowing you to take some share and if that assumption is correct am I right in thinking that the faster growth in that space.

Ends up without being a higher margin.

Being higher margin growth for you guys. Thanks.

Speaker 6: Let's talk first, IOT market.

Let's talk first Iot market.

Speaker 6: As we sat there in 2021, we had shipped 10 billion IOT devices as an industry. We did that in 10 years.

As we sat there in 2021.

Chip 10 billion.

Iot devices as an industry and we did that in 10 years. It took 40 years for Pcs to ship 10 billion units and it took 40 years for.

Speaker 6: for PCs to ship 10 billion units and it took 40 years for handsets to actually ship that kind of line.

For handsets to actually ship that kind of volume.

Speaker 6: And that IOT growth is going to be 30 billion units over the next three to five years, depending on your outline. So IOT, everything connected to pervasive deployment of semiconductors.

And that Iot growth is going to be 30 units over the next three to five years depending on your.

Your outlook, so Iot everything connected the perfect pervasive deployment of semiconductors.

Speaker 6: Everything needs to be connected. I was sitting in the dentist's office today, given a way of blender and the biggest feature on the blender is that it's wireless connected. Whoever thought they needed there, their blender connected to the internet. So I think this is a growth market. IoT and connectivity of everything is a growing market. And you're, you're, you're, you're, you're, you're me, the exact point. We have differentiated ourselves.

Everything needs to be connected I was sitting in the dentist office today, given away a blender and the biggest feature on the of lenders that its wireless connected whoever thought they needed their their blender connected to the internet. So I think this is a growth market Iot and connected connectivity of everything is a growing market.

You made the exact point, we have differentiated ourselves with things that are connected and especially when they are not tethered. The number one number two and number three priority is power management, you need battery life, we make applications with the non tethered cameras that need.

Speaker 6: For things that are connected, and especially when they're not tethered, the number one, number two and number three priority is power management. You need battery life. We make applications with non-tethered cameras that need to do image recognition and image processing at the edge for two years on two AA batteries. And there's very few technologies that can deliver that. And yet they need to be connected enough.

To do image recognition and image processing at the edge for two years on to double a batteries and there's very few technologies that can deliver that and yet they need to be connected in all the time and so Iot net net Iot is a growing market. It's one of the fastest growing markets and it's already been one of the fastest growing markets and we have key differ.

Speaker 6: And so IoT, NetNet IoT is a growing market. It's one of the fastest growing markets, and sorry, been one of the fastest growing markets. And we have key different shape technology in that space. David Wujet.

<unk> technology in that space, David would you add to that.

Speaker 4: Yeah, you know, I look at this space and I look at how diverse it is, right? I mean, if you were to talk about the major kind of sub-stegment underneath home and industrial IoT, you've got, you know, control and compute and wireless connectivity and human machine interface and, of course, power management, right? And those are, those are all areas, as Tom mentioned, as he described in that two-year, you know, life with AA batteries.

Yes.

I look at this space and I look at how diverse it is right. I mean, if you were to talk about the major kind of sub segments underneath home and industrial Iot, you've got control in compute and wireless connectivity and human machine interface and of course power management right and those are those are all areas as Tom mentioned as he described in that two year.

Life.

With double a batteries.

Speaker 4: This is an area where we have some real differentiation on our technology and so we have a purpose-built platform that enables us to compete very effectively in the home and industrial IoT space and we're very happy with our position. And to the kind of second part of your question, if you will, it is a creative business for us. And so it was a battleground that we targeted during our strategic pivot a couple of years ago and we're very pleased with our progress in this segment.

This is an area, where we have some real differentiation in our technology and so we have a purpose built platform that enables us to compete very effectively in the home and industrial Iot space and we're very happy with our position and to that kind of second part of your question. If you will it is it accretive business for us and so it was a battleground that we talk.

<unk> during our strategic pivot a couple of years ago, and we're very pleased with our progress in this segment.

Do you have a follow up Matt.

No no follow up thank you.

Thank you.

Speaker 1: and I love thisedi

Our next question comes from the lineup.

Carr with Cowen and company your line is open.

Speaker 11: Hi, thanks for taking my question. I told them, Tom, on the first one is I understand that during a situation, today where the demand exceeds supply, and it is going to be like that for a while. So the big picture question is, there are couple of intensities high and the ASP of pricing is also very strong. So, simplisticly put, would capital declining for double-fondries imply that pricing growth or revenue is slowing? And then I'll follow up.

Yeah, Hi, Thanks for taking my question I had two of them Tom on the first one is I understand there's been a situation today, where the demand exceeds supply.

I know, there's going to be like that for a while so the big picture question is capital intensity is high.

Pricing was relatively strong.

Simplistically put capex declining with Globalfoundries.

Alright, good pricing growth of revenues slowing.

A follow up.

Speaker 6: I'll start and I'll handle the data. You know, as we're adding capacity, we're obviously adding top line. And so if you get to a percentage, a fixed percentage of your revenue that you deploy to CapEx and your revenue is growing, that means you could deploy more and more CapEx. Our sustainable model is set that we can grow, maintain our growth.

Look I'll start and I'll hand, it over to David.

We're adding capacity, we're obviously, adding top line and so if you get to a percentage of a fixed percentage of revenue that you deploy the capex and your revenues growing that means you could deploy more and more capex our sustainable model.

Is set that we can grow maintain our growth.

Speaker 6: through our capital investments with 20% of revenue. And so the key is for us over the next years as David talked about exiting 2023 to get that 1.5, 1.6, 6 growth in our output to grow that revenue so we could get to our sustainable model where we can not only fund our growth through capital investment but produce competitive free cash.

Through our capital investments with 20% of revenue and so the key is for us over the next years as David talked about exiting 2023.

That 1516 <unk> growth in our in our output to grow that revenue. So we could get to a sustainable model, where we can not only fund our growth through capital investment.

But produced.

Competitive free cash flows for our shareholders.

Speaker 4: Yeah, let me add onto that. The CAPEX in 2021 was approximately 1.8 billion. I mentioned in the prepared commentary that we're gonna spend about four and a half billion in 2022. And then of course we put the market marker out there that says our long-term model is to spend about 20% of revenue in CAPEX to continue to sustainably grow our business and that's kind of 2024 and beyond.

Yes, let me, let me add onto that.

Capex in 2021 was was approximately $1 8 billion I mentioned in the prepared commentary that we're going to spend about $4 5 billion in 2022, and then of course, we put the market marker out there that says our long term model is to spend about 20% of revenue in capex to continue to sustainably grow.

Our business and that is kind of 2024 and beyond and so capital intensity is high.

Speaker 4: So capital intensity is high. It was, you know, like I mentioned, 1.8 billion last year, 4.5 billion this year in 22. But, you know, those investments are made in partnership with our customers, you know, more than $3.2 billion.

Like I mentioned $1 $8 billion last year $4 $5 billion. This year in 'twenty two.

Those investments are made in partnership with our customers more than $3 $2 billion.

Speaker 4: customer funding and access fees as well as prepayments, as well as partnership with local governments. And so we've taken a very disciplined, methodical approach towards making these investments with profitability, with certainty of demand and with durability of end markets. And so we feel very, very good about these investments. And we don't look at investments just in a one year time horizon. These assets will last upwards of 20 years. To be more specific, at five years since, among what we've seen here lately, the

Customer funding and access fees as well as prepayments as well as partnership with local governments and so we've we've taken a very disciplined.

<unk> approach towards making these investments with profitability with certainty of demand and with durability of end markets and so we feel very very good about these investments and we don't look at investments just in a one year time horizon. These assets will last.

Orders of 20 years and so so we look at our investments very carefully very cautiously and we have a very disciplined approach to capex.

Speaker 4: So we look at our investments very carefully, very cautiously, and we have a very disciplined approach to cap.

Speaker 11: That is super helpful. Thanks for the comment, Dave. And then as a quick follow up, you know, someone asked this question on a equipment access. I just want to see, I've said some of the question in a different way. You know, you're going to spend $4.5 billion this year. CSMC spending $4.2 billion on mature nodes and UMC stepping up Catholic. Do you actually think, for me, equipment could be a bottleneck? Or how do you feel that, you know, you have enough access to equipment to meet the demand that you're seeing today?

Got it Super helpful. Thanks for that Tom and Dave and then as a quick follow up.

Someone asked the question on the <unk>.

I just wanted to say Hello.

One other question a different way.

To spend $4 5 billion this year TSMC spending $4 2 billion on mature nodes and UMC stepping up capex.

We actually think semi equipment could be a bottleneck how do you feel.

That.

Do you have enough access to equipment to meet the demand that youre seeing today. Thank you.

Speaker 6: We spoke a little bit about this before. We started to order for our growth at the tail end of 2020 and a lot of our orders were placed in the first half of 2021 before the capacity of our equipment manufacturers started to really get spoken.

Yes, we spoke a little bit about this before we started to order for our growth at the tail end of 2020 and a lot of orders were placed in the first half of 2021 before the capacity of our equipment manufacturers started to really get spoken for and so I think it was getting back to the maybe the good fortune, but the early planning of us get.

Speaker 6: And so I think it was again back to not maybe the good fortune, but the early planning of us getting our equipment orders in place so that we can build this capacity. I think the equipment industry needs to add capacity just like we do if they're gonna feed this growth. And I'm sure they have plans to go do some of this.

Our equipment orders in place that we can build this.

<unk> I think the equipment industry needs to add capacity just like we do if theyre going to feed this growth and I am sure. They have plans to go do some of that.

Speaker 6: It's no different for them. They need to add clean rooms that build tools and highly controlled environment. And so that capacity doesn't come on overnight and they'll need to plot their course for how they can enhance their ability to ship more tools on a quarterly basis. Hey, do you want to-

No different for them they need to add clean rooms that build tools in a highly controlled environment and so that capacity doesn't come on overnight and they'll need to plot their course for how they can.

Hence their ability to ship more tools on a quarterly basis.

Hey, good morning.

Take one last question please.

Thank you.

Speaker 1: I found a question comes from the line of David Aya with Bank of America.

Our final question comes from the line of Vivek Arya with Bank of America.

Your line is open.

Speaker 12: Thanks, I actually took quick questions. First, I just wanted to revisit this question about levers of content or pricing growth beyond this year.

Thanks, I had actually two quick questions first Tom I just wanted to revisit this question about the levers of content or pricing growth beyond this year conceptually what can help you drive higher price per wafer in the next few years is it proprietor.

Speaker 12: Conceptually, what can help you drive higher price per wafer in the next few years? Is it proprietary technology? Is it supply guarantee, location of supply or mix? Just conceptually, what can help you drive pricing higher in the future? Because there is a perception that the pricing strength that the industry is seeing is more a factor of the supply shortages and once those shortages go away, that pricing may not be a lever. So that's why I wanted to get to.

Proprietary technology is it supply guaranteed location of supplier mix just conceptually what can help you drive.

Pricing are higher in the future because there is a perception that the pricing strength that the industry is seeing is more a factor of the supply shortages and once those shortages go away at that pricing may not be a lever. So that's why I wanted to get your perspective.

Speaker 6: Yeah, I think for us, it's kind of back to our go-to-market strategy. We chose to be very in-market.

I think for US, it's kind of back to our go to market strategy.

Chose to be very end market.

Speaker 6: focus, not just automotive, but all the way down to a particular device and make sure that we, in our front end of our business, really understood what were the features, not feature features that really made the best winning product, the real differentiated.

Focus not just.

Automotive, but all the way down to a particular device and make sure that we and our front end of our business really understood. What were the features that feature features that really made the best winning product that real differentiated product.

Speaker 6: And we don't say you're differentiated on a node or not. It's how many features you add to create that full capability for an application. And for us, it's always going to focus on very strategically on Lewis.

And we don't say what your differentiated on a note or not it's how many features you add to create that full.

Capability for an application.

For us, it's we're always going to focus on.

Very good.

Strategically, we called battlegrounds that require real differentiation and make sure we have customer insight into the kind of differentiation you want make those investments and create single source differentiated business and then that capacity becomes very sticky it becomes very hand in hand with the applications. We won the bid.

Speaker 6: that require real differentiation. Make sure we have customer insight into the kind of differentiation they want. Make those investments.

Speaker 6: and create single source differentiated business. And then that capacity becomes very sticky. It becomes very hand in hand with the applications we've won the business.

Speaker 6: And so for us to continue to focus on differentiation, we play in a very large SAM, so we don't have to be all things to all markets. And we'll be very disciplined in making sure we participate in markets where differentiation matters.

And so for us to continue to focus on differentiation, we play in a very large Tam. So we don't have to be all things to all markets and we can be very disciplined in making sure we participate in markets, where differentiation matters, it's key to our customers and make sure we create in our innovation engine that type of different differentiation for our customers.

Speaker 6: our customers and make sure we create in our innovation engine that type of different differentiation for us.

Speaker 12: So maybe one follow up for Dave, if there are any US government incentives, Dave, I'm curious, how will they be reflected in your financials? For example, we have seen one large US IDM, already assume a net gap X and a net depreciation number based on some government incentives. So I'm curious, whenever those incentives come, how will they affect your financials?

Thanks, Tom and maybe one follow up for Dave If there are any U S government incentives, Dave I'm curious how will they be reflected in your financials. So for example, we have seen one large U S. IDM already assume a net capex and a net depreciation number based on some government incentives. So I'm curious.

Whenever those incentives.

How do they affect your financials.

Speaker 4: Sure. Well, I haven't really seen the mechanism yet, Vivek, with respect to how any of those incentives.

Sure.

Well I haven't really seen the mechanism yet vivek.

With respect to how any of those incentives.

Speaker 4: would flow into the company. So it's a little unclear to me at this point from a geographical perspective on the P&L, whether it would be a gross and then net off cat-backs, or whether it would come in through a different line. So I don't wanna speculate at this point. I've seen in other regions of the world, in GF and other companies for that matter, those benefits come in through different lines. And so I don't wanna speculate on that at this point. What I can tell you,

Would flow into the company. So it's a little unclear to me at this point from a geographical perspective on the P&L.

Whether it would be a gross and net off capex or whether it would come in through a different lines. So I don't want to I don't want to speculate at this point I've seen in other regions of the world in <unk> and other companies for that matter.

Those benefits come in through different lines, and so I don't want to speculate on that at this point.

What I can tell you is that with our geographical footprint and our diversification.

Speaker 4: is that with our geographical footprint and our diversification

Speaker 4: and with our ability to be differentiated in the marketplace and partner deeply with our customers. I'm just very encouraged by the environment that I see and I'm very encouraged by our customers willingness to partner with us to bring online this capacity and then to the extent that governments also want to participate in that partnership the more the better. So stay tuned on how that would flow geographically into the P&O. I understand. Thank you.

And with our ability to be differentiated in the marketplace and partner deeply with our customers I'm just very encouraged by the environment that I see and I am very encouraged by our customers' willingness to partner with us to bring online. This capacity and then to the extent that governments also want to participate in that partner.

Chip.

The more the better so stay tuned on on how that would flow geographically into the P&L.

Understood. Thank you.

Thank you.

I would now like to turn the call back over to Toby for closing remark.

Speaker 2: All right, thank you, Tomanda. Thank you everyone for your interest in GF and for joining us on the call. Please feel free to reach out with any questions. We look forward to speaking with you in the quarter.

Alright. Thank you. Thank you everyone for your interest in GFS and for joining US on this call. Please feel free to reach out with any questions and we look forward to speaking with you in the quarter.

Speaker 1: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Here we go...

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Global Foundry's Review of Fourth Quarter 2021 and Four-Year Resort.

Ladies and gentlemen, thank you for standing by and welcome to the global Foundries review.

Quarter, 2021, and full year results.

Speaker 1: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question in an answer session. To ask the question during this session, you will need to press start and one on your telephone. If you require any further assistance, please press start and zero. I will now like to tell the conference over to you speaker for today, so give me a guess, vice president of corporate development and investor relations. You may be-

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 will need to press Star then one on your telephone.

You require any further assistance. Please press star Zero I would now like to turn the conference over to your speaker for today.

Cash Vice President of corporate development and Investor Relations you may begin.

Speaker 2: Thank you operator and good afternoon everyone and welcome to Global Foundry's Fort Quarter and Fully Year 2021 Ernie's call. On the call with me today are Tom Coffee, CEO and D Reader, CFO . A short while ago we released GF's Fort Quarter and Fully Year 2021 financial results press release which is available on our website at investors.gf.com along with today's company slide presentation.

Thank you operator, and good afternoon, everyone and welcome to global foundries fourth quarter and full year 2021 earnings call on the call with me today are Tom Coffeyville, CEO and Dave <unk> CFO .

A short while ago, we released GFS fourth quarter and full year 2021 financial results press release, which is available on our website at investors <unk> Dot com.

Along with today's accompanying slide presentation.

Speaker 2: This call is being recorded and a replay will be made available on our Investor Relations webpage.

This call is being recorded and a replay will be made available on our investor Relations Web page.

Speaker 2: During this call, we will present both IFRS and adjusted non-IFRS financial measures. The most directly comparable IFRS measures and reconculations for adjusted non-IFRS measures are available in today's press release and a company slide.

During this call we will present, both <unk> and adjusted non <unk> financial measures.

Most directly comparable <unk> measures in reconciliation for adjusted non <unk> measures are available in today's press release and accompanying slides.

Speaker 2: Certain statements that on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intent, anticipate, and make. You should not place undue reliance on forward-looking statements. As your results may defer materially from these forward-looking statements, and we undertake no obligation to update any forward-looking statements we make today.

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 in May you should not place undue reliance on forward looking statements actual results may differ materially from these forward looking statements and we undertake no 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 the sections under the caption risk factors in our final prospectus filed with the SEC on October 29 2021.

<unk> with our IPO.

Speaker 2: We will begin today's call with Tom providing a summary update on our end markets, capacity expansion and technologies, following which they will provide details on our foot quarter and full year financial results, and also provide first quarter guidance.

We will begin today's call with Tom providing a summary update on our end markets capacity expansion and technologies falling which Dave will provide details on our fourth quarter and full year financial results and also provide first quarter guidance.

Speaker 2: We will then open the call for questions. We request that you please limit your questions to one with one follow up. I will now turn the call over to Tom.

We will then open the call for questions.

Quest that you please limit your questions to one with one follow up.

I will now turn the call over to Tom for his prepared remarks. Thank.

Speaker 6: Thank you, Sukey. Welcome everyone to our fourth quarter and full year 2021 earnings call.

Thank you Susie.

Welcome everyone to our fourth quarter and full year 2021 earnings call.

Speaker 6: I'd like to start by reflecting on last year. For any measure, 2021 was an outstanding year for GIA.

I'd like to start by reflecting on last year, but.

By any measure 2021 was an outstanding year for <unk> with.

We drove an acceleration of our business plan by capitalizing on the vital role we play in the semiconductor supply chain.

Speaker 6: We created, defined and implemented a new economic model for our industry. And we used it to increase visibility and support our customer success with over 30 significant long-term agreement.

We created defined and implemented a new economic model for our industry and we used it to increase visibility and support our customer success with over 30 significant long term agreement.

With the entire world focused on our industry.

<unk> and continue to play an important role by articulating the importance of semiconductor manufacturing.

Redefining innovation for our industry.

Speaker 6: Finally, we took GF public, which was a culmination of over a decade of work to build an app scale global semiconductor manufacturer with strong technological differentiation and driving meaningful earnings growth.

Finally, we took <unk> public which was the culmination of over a decade of work to build an at scale global semiconductor manufacturer with strong technological differentiation and driving meaningful earnings growth.

Speaker 6: Through strategic partnerships with our customers, we believe we have positioned our business for sustained growth over the next three to four years, with our trajectory to deliver accelerated profitability.

Through strategic partnerships with our customers. We believe we have positioned our business for sustained growth over the next three years to four years with a trajectory to deliver accelerated profitability.

Speaker 6: We are well positioned to execute on our plan to deliver a more than 50% output increase exiting 2023 compared to 2020 by adding capacity in Maltan, New York, dressed in Germany and in Singapore.

We are well positioned to execute on our plan to deliver a more than 50% output increase.

Increase.

Exiting 2023, compared to 2020 by adding capacity and multi New York.

Dresden, Germany and Singapore.

Speaker 6: We are continuing to execute on our plan to mix up our 200 millimeter facilities in Burlington and Singapore with differentiated single source S-O-I, SIGI,

We are continuing to execute on our plan to mix up our 200 millimeter facilities and Burlington in Singapore with differentiated single source.

<unk>.

Siggi and feature Rich Cmos technologies, we expect that all of this combined will result in an.

Speaker 6: We expect that all of this combined will result in consistent execution from GF.

And consistent execution from <unk> that will enable us to achieve our long term.

Speaker 6: that will enable us to achieve our long-term, sustainable financial model. That is investing 20% of revenue on CAPEX to deliver consistent growth while generating strong free cash flow and as a result, delivering meaningful shareholder value. Now, moving on to our fourth quarter.

Sustainable financial model that is investing 20% of revenue on capex to deliver consistent growth.

While generating strong free cash flow and as a result, delivering meaningful shareholder value.

Now moving on to our fourth quarter.

Speaker 6: We are pleased to report a quarter of strong top line and profitability growth, demonstrating the continued momentum of our strategy.

We're pleased to report a quarter of strong top line and profitability growth demonstrating the continued momentum of our strategy fourth quarter revenue grew 9% quarter on quarter, driven by higher wafer output higher asps.

Speaker 6: Fourth quarter revenue grew 9% quarter on quarter driven by higher way for output, higher ASPs, and increased non-way for revenue.

And increased non wafer revenue.

Speaker 6: Fourth quarter, adjusted earnings per share came in at 18 cents. Now, Dave will provide more details on the financials in just a moment. But first, let me give a summary of the fourth quarter revenue buyer, and Mark.

Quarter adjusted earnings per share came in at 18.

Now Dave will provide more details on the financials in just a moment, but first let me give a summary of the fourth quarter revenue by end market.

Speaker 6: First, in our smart mobile device and market.

And our.

Mobile device end market.

Speaker 6: which comprised about forty eight percent of fourth quarter revenue we achieved strong year-over-year quarterly growth of roughly twenty four percent

Which comprised about 48% of fourth quarter revenue, we achieved strong year over year quarterly growth of roughly 24%.

Speaker 6: Growth was driven by a combination of higher ASPs that are mixed and higher shipments as we started to ramp customer designs in new applications.

Growth was driven by a combination of higher ASP better mix and higher shipments as we started to ramp customer designs and new applications.

Speaker 6: For the full year, our smart mobile device end market grew roughly 38% over 2020. GF growth in this end market outpaced smartphone industry growth due to our industry leading solutions in new connectivity standards such as sub six gigahertz 5G and Wi-Fi 6 and 6A.

For the full year, our smart mobile device end market grew roughly 38% over 2020.

<unk> growth in this end market outpace small.

Art phone industry growth.

Due to our industry, leading solutions and new connectivity standards, such as sub six gigahertz, <unk> and Wi Fi six and <unk>.

Speaker 6: These new standards are driving the need for GF's high performance RFS OI technology.

These new standards are driving the need for <unk> high performance RF Soi technologies in.

Speaker 6: In addition, in 2021, GF entered the large and growing Wi-Fi 660 SOSC and SELIO Trans-C Remarkets with long-term customer agreements that will expand our market share significant.

In addition in 2021.

<unk> entered the large and growing Wi Fi 660, Soc and failure transceiver markets with long term customer agreements that will expand our market share significantly well.

Speaker 6: We are also seeing strong traction in areas such as near field communication, display and image sensing. One example is the increased detacherates for NFC off-insication in Android Smartphone.

We're also seeing strong traction in areas such as near field communication display and image sensing. One example is the increased attach rates for NFC authentication and Android Android smartphones. Other examples include specialty power applications that prolong battery life, a <unk> handset and image.

Speaker 6: Other examples include specialty power applications that prolong battery life of 5G handsets, and image sensing processors, which power image sensors and cameras. The market for these processes is expected to grow over 25% in 2022.

Sensing processors, which power image sensors and cameras the market for these processes is expected to grow over 25% in 2022.

Speaker 6: Lastly, our long-term agreements covering the smart mobile device end market with our key customers are providing us with long-term visibility for secular growth over the next few years.

Lastly, our long term agreement agreements covering the smart mobile device end market with our key customers are providing us with long term visibility for secular growth over the next few years.

Speaker 6: Next, our communications infrastructure and data center end market, which constituted approximately 16% of fourth quarter revenue, so as the sequential growth in the quarter of 7% due to customer share gains in the data center end market.

Next our communications infrastructure and data center end market.

Which constituted approximately 16% of fourth quarter revenue saw sequential growth in the quarter of 7% due to customer share gains in the data center end market.

Speaker 6: Over the course of 2021, we secured a multi-year long-term agreement with a Tier 1 wireless infrastructure customer for our advanced SIGGI technology, and a multi-year LTA with a Tier 1 enterprise networking cost.

Over the course of 2021, we secured a multiyear long term agreement with a tier one wireless infrastructure customer for our advanced <unk> technology, and a multi year LTA with a tier one enterprise networking customer.

Speaker 6: In addition, we establish ourselves as the industry leader in Silicon Flutonics, our monolithic and hybrid solution.

In addition, we establish ourselves as the industry leader in Silicon photonics or <unk>.

Monolithic and hybrid solutions.

Speaker 6: garnered over 500 million in new design wins in the year. And Silicon Botanics revenue almost tripled in 2021, and we expected to more than double again in 2022. We expect continued growth in communications infrastructure and data center, this end market throughout the year, and anticipate double digit year-over-year growth in 2022, driven by strong demand for 5G infrastructure and optical device.

Turning it over $500 million in new design wins in the year and Silicon Photonics revenue almost tripled in 2021, and we expect it to more than double again in 2022.

We expect continued growth in communications infrastructure and data center. This end market throughout the year and anticipate double digit year over year growth in 2022.

Driven by strong demand for <unk> infrastructure and optical devices.

Speaker 6: Moving on to our home and industrial IoT and market, fourth quarter revenue was roughly 14% of the total and grew approximately 20% year-over-year. We saw strong sequential growth in the Sand Market fueled by the transition from WI-55 to WI-56 for wireless connectivity in IoT applications and an increase in contactless transactions.

Moving on to our home and industrial Iot end market fourth quarter revenue was roughly 14% of the total and grew approximately 20% year over year.

We saw strong sequential growth in this end market fueled by the transition from Wi Fi five to Wi Fi six for wireless connectivity and Iot applications and an increase in contactless transactions.

Speaker 6: We are seeing strong growth demand for wireless connectivity for consumer, industrial asset tracking, and audio products, which are backed by multi-year LTAs that we have signed with leading customers.

We're seeing strong growth demand for wireless connectivity for consumer industrial asset tracking and audio products, which are backed by multi year LTA is that we have signed with leading customers.

Speaker 6: We expect this end market to be our fastest growing market this year, driven by our strong portfolio of differentiated wireless connectivity, edge compute and power management technology.

We expect this end market to be our fastest growing market. This year driven by our strong portfolio of differentiated wireless connectivity edge compute and power management technologies.

Speaker 6: Touching next on automotive, revenue in this end market was approximately 5% of our total fourth quarter revenue, but it more than doubled from a year ago.

Touching next on automotive revenue in this end market was approximately 5% of.

Our total fourth quarter revenue, but it more than doubled from a year ago.

Speaker 6: The strong year-over-year revenue growth was driven by a ramp of new designs for ADAS, safety applications, and infotainment that have been in development and qualification over the past few years.

The strong year over year revenue growth was driven by a ramp of new designs for Adas safety applications in infotainment that have been in development and qualification over the past few years.

Speaker 6: Adjusting for a sizable capacity axis fee in their quarter, automotive quarterly sequential growth would have been roughly 13%.

Adjusting for a sizable capacity access fee in the third quarter automotive quarterly sequential growth would have been roughly 13%.

Speaker 6: 2021 also marked key partnership announcements with Ford, BMW, and Bosch. We are very excited about our strong traction in the automotive and market and anticipate double digit growth for this market in 2022. We have a number of customers in the 4D radar space and in battery management for EVs that will begin to ramp in 2023, fueling our growth beyond traditional auto applications into new automotive growth applications.

2021 also marked key partnership announcements with Ford BMW and Bosch, we are very excited about our strong traction in the automotive end market and anticipate double digit growth for this market in 2022, we have a number of customers in the <unk> radar space and in battery management for EV.

That will begin to ramp in 2023, fueling our growth beyond traditional auto applications into new automotive grip growth applications.

Speaker 6: In our compute end market, revenue is roughly 6% of total and declined your rear as expected.

And our computer end market revenue was roughly 6% of total and declined year over year as expected.

Speaker 6: As we have mentioned previously, the PC market we served, we served in the past, will continue to decline as our customers transition their products to single digit nanometer. We continue to forecast your year to decline in this end market in 2022. However, we've been focusing our investments on solutions that played our strengths in mixed signal and power that complement and work side by side with these single digit nanometer processors.

As we have mentioned previously the PC market. We serve we served in the past we will continue to decline as our customers transition their products to single digit nanometer, we continue to forecast year over year decline in this end market. In 2022. However, we have been focusing our investments on solutions that play to our strength in mixed signal and power.

The complement and work side by side with the single digit nanometer processor designs for instance, we secured a multi year LTA with the tier one producer to manufactured controller Ics for this end market, we expect to see stabilization in the second half of 2022 from ramps of these new high margin customer designs.

Speaker 6: For instance, we secured a multi-year LTA with a Tier 1 producer to manufacture controller ICs for the send market. We expect to see stabilization in the second half of 2022 from ramps of these new high margin customer designs in this end market.

In this end market.

Speaker 6: Next I would like to provide a brief update on our ongoing capacity expansion.

Next I would like to provide a brief update on our ongoing capacity expansions.

Speaker 6: For 2022, our plan is to increase capacity by high single digits, primarily driven by the expansion plans underway in residence.

For 2022, our plan is to increase capacity by high single digits, primarily driven by the expansion plans underway interested.

Speaker 6: All of this expansion incapacities the support of CusterDemand for differentiated technologies such as 22FDX.

All of this expansion and capacities to support of customer demand for our differentiated technologies, such as 22 MTX.

Speaker 6: Image sensor processor on 28 and 49 meter technologies.

Image sensor processor on 20% and 40 nanometer technologies.

Speaker 6: and BCD light and embedded non-volatile memory technology.

And BCD late and embedded non volatile memory technologies.

Speaker 6: Also, construction of our phase one module expansion in Singapore remains on track. With the equipment slayed to go into that facility in the second half of 2022, to support for first production outs in the first half of 2023.

Also construction of our phase one module expansion in Singapore remains on track.

With equipment slated to go into that facility in the second half of 2022 to support for first production out in the first half of 2023.

Speaker 6: We are working closely and hand in hand with our construction contractors and our equipment suppliers to maintain our capacity expansion schedules. All of our expansion investments are backed with customer long-term capacity reservation agreements and significant prepayments. Further, the majority of this expansion investment is in support of single-source business.

We're working closely and hand in hand, with our construction and contractors and equipment suppliers to maintain our capacity expansion schedules.

All of our expansion investments are back with customer long term capacity reservation agreements and significant prepayments.

Further the majority of this expansion.

Investment is in support of single source business.

Speaker 6: In addition to our ongoing capacity expansion, we continue to make solid progress in enhancing our differentiated technology.

In addition to our ongoing capacity expansion, we continue to make solid progress enhancing our differentiated technologies for.

Speaker 6: For example, in 2021, we had 19 new technology qualifications for reduction of our customer products.

For example in 2021, we had 19, new technology qualifications for production of our customer products.

Speaker 6: These include qualifications for image sensor, automotive, RFS-OI, ultra low power BCD-

These include qualifications for image sensor automotive RF Soi.

<unk> low power BCD power management products.

Speaker 6: We aggressively started development that qualified and ramped our 12 low power RF technology in 2021. We added six new feature groups to our proprietary FDX platform, such as resistive RAM, automotive grade capable, and next generation RF.

We aggressively started development and qualified and ramped our 12 low power RF technology in 2021, we added six new feature groups to our proprietary <unk> platform, such as resistive Ram automotive grade capable.

And next generation RF.

Speaker 6: and sampled early customer circuits on our GAN power at RF and power amplifier technologies. For 2022, we are in track to almost double the number of technology qualifications from last year for all our customers, covering silicon photonics, FDX, BCD, and silicon germanium HBT technology.

And sampled early customer circuits on our Gan power and RF and power amplifier technologies for 2022, we are on track to almost double the number of technology qualifications from last year.

For all our customers covering silicon Photonics mdx.

And silicon germanium HPT technologies.

Speaker 6: Now, before I hand the discussion over to David, let me add a few thoughts on the overall industry supply, again, supply-demand dynamics, and the capacity being added to address the shortfall of supply to today's demand and growing need.

Now.

Before I hand, the discussion over to David Let me add a few thoughts on the overall industry supply again supply demand dynamics and the capacity being added to address the shortfall of supply to today's demand and growing need.

Speaker 6: We spent a lot of time in social analysis of this very important topic.

We spent a lot of time in thoughtful analysis of this very important topic.

Speaker 6: So let me start with our sample. This is 12 nanometer in above.

So let me start with our Sam.

This is 12 nanometer and above.

Speaker 6: Now this Sam is growing in the mid to high single digits in unit.

Now this Sam is growing in the mid to high single digits in units.

Speaker 6: That's 300 millimeter equivalent wafer, and that growth is over the next five years. It's important to note we're talking about unit growth in this imbalance and not ASP.

That's 300 millimeter equivalent wafers and that growth is over the next five years.

It is important to note we're talking about unit growth in this imbalance and not asp's.

Speaker 6: Conservatively, we believe the short fall in industry supply to our SAM today is in the mid to high single digit range. This is offset.

Conservatively, we believe the short fall in industry supply to our Sam today is in the mid to high single digit range. This is offset.

Speaker 6: I'm sorry, this is off of base of the industry-wide capacity of approximately 15 million waivers per year.

I'm sorry, this is off a base of industry wide capacity of approximately 15 million wafers per year.

Speaker 6: So let's compare today's supply shortfall and the demand growth to the announced capacity additions in our sample. So let's compare today's supply shortfall and the demand growth to the announced capacity additions in our sample.

So, let's compare today's supply shortfall and the demand growth to.

To the announced capacity additions in our Sam based.

Based on announced fab expansions.

Speaker 6: both those fabs being tooled or presently under construction. Supply will grow around 4% over the next 5 years.

Both of those fabs being tube or presently under construction supply will grow around 4% over the next five years.

Speaker 6: If we exclude China-based boundaries, that number drops from 4% to 2.5% over the next five years.

If we exclude China based foundries that number drops from 4% to two 5% over the next five years.

Speaker 6: So based on this analysis, and our customers continued interest in investing for long-term future capacity, we believe we're making the right long-term investments that will enable us to almost double our revenue while delivering a necessary return on invested capital for business.

So based on this analysis and our customers continued interest in investing for long term future capacity. We believe we're making the right long term investments that will enable us to almost double our revenue.

While delivering the necessary return on invested capital for our business.

Speaker 6: In summary, we ended 2021 on a strong note and business woman. We are seeing robust growth from our customers and the end markets we serve. We are prudently and in partnership expanding our capacity to service their needs and making great progress in accelerating our differentiated technologies for this future.

In summary, we ended 2021 on a strong note and business momentum we are seeing robust growth from our customers in the end markets. We serve we are prudently and in partnership expanding our capacity to service their needs and making great progress in accelerating our differentiated technologies for the future.

Speaker 6: With that, let me turn the call over to Dave to provide the financial details for the fourth quarter and also provide you our guidance for the first quarter. Over you, David.

With that let me turn the call over to Dave to provide the financial details for the fourth quarter and also provide you our guidance for the first quarter over to you David.

Speaker 4: Thank you, Tom. Now onto our fourth quarter and full year 2021 results. Our fourth quarter results exceeded the high end of the financial range we provided in our last earnings.

Thank you Tom now onto our fourth quarter and full year 2021 results our fourth quarter results exceeded the high end of the financial range. We provided in our last earnings call fourth quarter revenue was approximately 185 billion, which increased 9% sequentially driven by higher wafer.

Speaker 4: Fourth quarter revenue was approximately 1.85 billion, which increased 9% sequentially, driven by higher wafer shipments, ASPs, and non-wafer revenue. We shipped approximately 622,300 millimeter equivalent waifers in the quarter, an increase of about 2% on a sequential base.

Asps and non wafer revenue, we shipped approximately 622300 millimeter equivalent wafers in the quarter, an increase of about 2% on a sequential basis.

Speaker 4: ASP per wafer increased approximately 3% sequentially driven by ramping LTAs with better pricing and overall very constructive transactional pricing environment and continued improvement in product mix.

ASP per wafer increased approximately 3% sequentially driven by ramping LTA is with better pricing and overall very constructive transactional pricing environment and continued improvement in product mix.

Speaker 4: Wafer Revenue from our end markets accounted for approximately 89% of total revenue. Non-Wafer Revenue, which includes revenue from reticles, non-recurring engineering, expedite fees and other items, accounted for approximately 11% of total revenue for the fourth quarter, consistent with our expectation of approximately 10% of total revenue.

Wafer revenue from our end markets accounted for approximately 89% of total revenue.

Non wafer revenue, which includes revenue from radicals nonrecurring engineering expedite fees and other items accounted for approximately 11% of total revenue for the fourth quarter consistent with our expectation of approximately 10% of total revenue.

Speaker 4: For the full year, revenue came in at approximately $6.6 billion, representing a 36% year-over-year

For the full year revenue came in at approximately $6 6 billion.

Representing a 36% year over year increase as expected all of our end markets grew meaningfully except for the year over year reduction in personal compute which declined as planned as we remix our business to more differentiated solutions.

Speaker 4: As expected, all of our end markets grew meaningfully except for the year over year reduction and personal compute, which declined as planned as we remix our business to more differentiated

Speaker 4: For the remainder of the call, including first quarter guidance, I will reference adjusted metrics, which exclude stock-based compens-

For the remainder of the call, including first quarter guidance, I will reference adjusted metrics, which exclude stock based compensation.

Speaker 4: For the fourth quarter, we delivered a just a gross profit of $397 million, which translates into approximately 21.5% adjusted gross marks.

For the fourth quarter, we delivered adjusted gross profit of $397 million, which translates into approximately 21, 5% adjusted gross margin.

Speaker 4: The 346 basis point sequential improvement was primarily driven by better fixed cost absorption, higher ASPs and improved mix.

The 346 basis points sequential improvement was primarily driven by better fixed cost absorption higher asps and improved mix.

Speaker 4: Full year 2021, adjusted gross margins were approximately 16%. A significant improvement from the prior year.

Full year 2021, adjusted gross margins were approximately 16% a significant improvement from the prior year.

Speaker 4: Similar to Q3, operating expenses for the fourth quarter represented 13.8% of revenue. R&D represented 121 million or 6.6% of quarterly revenue and S-GNA was 7.2% at 133 million.

Similar to Q3 operating expenses for the fourth quarter represented 13, 8% of revenue R&D represented 121 million or six 6% of quarterly revenue and SG&A was seven 2% at $133 million.

Speaker 4: Total operating expenses of $254 million excludes $43 million of stock-based companies.

Total operating expenses of $254 million excludes $43 million of stock based compensation.

Speaker 4: GF delivered operating profit of approximately $142 million for the quarter, which translates into 8% adjusted operating margin. 291 basis points higher than the high end of our guide.

GFS delivered operating profit of approximately $142 million for the quarter, which translates into 8% adjusted operating margin 291 basis points higher than the high end of our guidance for.

Speaker 4: For the full year, we delivered operating profit of 160.8 million, also a significant improvement from the prior year.

For the full year, we delivered operating profit of $168 million also a significant improvement from the prior year.

Speaker 4: Fourth quarter net interest expense was approximately 26 million and we incurred a tax expense of approximately 26 million in the

Fourth quarter net interest expense was approximately $26 million and we incurred a tax expense of approximately $26 million in the quarter.

Speaker 4: We delivered fourth quarter adjusted net income of approximately 98 million on a deluded share count of 540 million, resulting in earnings of 18 cents per share.

We delivered fourth quarter adjusted net income of approximately $98 million on a diluted share count of 540 million, resulting in earnings of 18 <unk> per share for.

Speaker 4: For the full year, we ended with an adjusted net loss of 26.

For the full year, we ended with an adjusted net loss of $26 million.

Speaker 4: We delivered record fourth quarter adjusted EBITDA of approximately 584 million. Adjusted EBITDA grew 79 million sequentially on 147 million of incremental revenue growth, representing approximately 54 percent fault.

We delivered record fourth quarter, adjusted EBITDA of approximately $584 million.

Adjusted EBITDA grew $79 million sequentially on $147 million of incremental revenue growth, representing approximately 54% fall through.

Speaker 4: For the full year, we delivered adjusted EBITDA of 1.85 billion, an increase of approximately 90% over the prior year. Let me now provide some key balance.

For the full year, we delivered adjusted EBITDA of $1 85 billion, an increase of approximately 90% over the prior year.

Let me now provide some key balance sheet and cash flow metrics cash flow from operations for the quarter was approximately $1 5 billion and included approximately $800 million of customer prepayments and capacity access fees.

Speaker 4: Cash flow from operations for the quarter was approximately 1.15 billion and included approximately 800 million of customer prepayments and capacity x.

Speaker 4: Gross CapEx for the quarter was about 650 million or roughly 35% of revenue.

Gross capex for the quarter was about $650 million or roughly 35% of revenue.

Speaker 4: We ended fourth quarter and the year with approximately three billion in cash and cash equivalents an increase of more than two billion dollars from the prior year.

We ended fourth quarter and the year with approximately $3 billion in cash and cash equivalents, an increase of more than $2 billion from the prior year.

Speaker 4: Next, let me provide you with our outlook for the first quarter. We expect revenue to be between 1.88 and 1.92 billion. We expect adjusted gross profit to be between 409 and 437 million. We expect adjusted operating profit to be between 164 and 202 million. Excluding share-based compensation for the first quarter, we expect total op-EX to decrease approximately $15 million sequential.

Next let me provide you with our outlook for the first quarter.

We expect revenue to be between $1 88, and $1 92 billion. We expect adjusted gross profit to be between 409 and $437 million. We expect adjusted operating profit to be between 164 and $202 million.

Excluding share based compensation for the first quarter, we expect total opex to decrease approximately $15 million sequentially.

Speaker 4: At the midpoint of our first quarter guidance, we expect share-based compensation to be approximately $60 million of which 25 million is in cost of goods sold and 35 million in up.

At the midpoint of our first quarter guidance, we expect share based compensation to be approximately $60 million of which $25 million is in cost of goods sold and $35 million in opex we.

Speaker 4: We expect net interest expense for the quarter to be approximately 29 million and taxing other expenses to be roughly 9.

We expect net interest expense for the quarter to be approximately $29 million and tax and other expenses to be roughly $19 million. We expect adjusted net income to be between 117 and $153 million.

Speaker 4: We expect adjusted net income to be between 117 and 153 million dollars.

Speaker 4: On a fully diluted basis of approximately 560 million shares, we expect adjusted earnings per share for the first quarter to be between 21 and 27 cents.

On a fully diluted basis of approximately 560 million shares we expect adjusted earnings per share for the first quarter to be between 'twenty, one and 'twenty seven.

Speaker 4: For the first quarter, we expected just the EBIDA to be between 580 and 620 million.

For the first quarter, we expect adjusted EBITDA to be between $580 million and $620 million for 2022, we expect total gross capex to be approximately $4 $5 billion as we continue to invest in partnership with our customers to deliver the capacity necessarily necessary to support.

Speaker 4: For 2022, we expect total gross capex to be approximately $4.5 billion as we continue to invest in partnership with our customers to deliver the capacity necessary to support our contracts. So, 2021 and summary, we executed the plan.

Our contracts.

2021 in summary, we executed the plan.

Speaker 4: We delivered progressively better financials quarter to quarter throughout the year. We secured 30 long-term customer agreements with more than $3.2 billion of customer funding and access fees and prepayments. And we executed on our CAPEX investment roadmap that delivers growth and competitive return on invest-

We delivered progressively better financials quarter to quarter throughout the year, we secured 30 long term customer agreements with more than $3 $2 billion of customer funding and access fees and prepayments and we executed on our Capex investment roadmap that delivers growth and competitive return on invested capital.

Speaker 4: We are excited about our prospects in 2022 and we fully expect to continue our methodical exit.

We are excited about our prospects in 2022, and we fully expect to continue our methodical execution with that let's open up the call for Q&A operator.

Speaker 4: With that, let's open up the call for Q&A, operator.

Speaker 1: Thank you, ladies and gentlemen. As a reminder to ask the question, you will need to press star then one on your telephone. We ask that you limit yourself to one question and one follow.

Thank you, ladies and gentlemen, as a reminder to ask the question you will need to press Star then one on your telephone.

I ask that you limit yourself to one question and one follow up.

Speaker 1: to withdraw your question, press the penalty. Again, let's start one to ask the question and one question and one follow-up. Please stand by while we compile the Q&A roster.

To withdraw your question press dependency.

Again, Thats star one to ask a question at one question and one follow up please standby, while we compile the Q&A roster.

Speaker 1: Our first question comes from the line of John Pitchford with Credit Swift, Yaline S.O.

Our first question comes from the line of John Pitzer with Credit Suisse. Your line is open.

Speaker 5: Hey guys, good afternoon. Thanks for letting me ask the question. Tom, I wonder if you talk a little bit about kind of the ASP progression you see for calendar year 22. You're kind of in the envious position of being supply limited. You did a good job on the call kind of talking about the growth in way for outs through the balance of the year. How do you think about ASPs and how are you navigating kind of getting paid for value, not taking advantage of the cyclical environment and still maintaining those long-

Hey, guys. Good afternoon. Thanks for letting me ask the question Tom I was wondering if could talk a little bit about kind of the ASP progression you see for calendar year 'twenty. Two you are kind of in the envious position of being supplied limited you did a good job on the call kind of talking about.

The growth in wafer out through the balance of the year. How are you thinking about asps and how are you navigating kind of getting paid for value not taking advantage of the cyclical environment and still maintaining those long term customer relations.

Speaker 6: Look, John , as we talked to in the road show in our last call, it was important for us to be very balanced in this. We wanted to make sure we aired on the side of more certainty along our range when we signed these long-term agreements because we were adding capacity, and we wanted to make sure our customers we equally committed to that capacity. And so we balanced that certainty of our business with ASP growth. So data give you a little bit more details, but this is the year really those ASPs we need to give our...

John as we've talked on the road show in our last call. It was important for us to be very balanced in this we wanted to make sure we are going to sign up more certainty longer range. When we signed these long term agreements because we were adding capacity we wanted to make sure our customers weekly committed to that capacity and so we balanced that certainty of our business with ASP.

So David can give you a little bit more details, but this is the year really those asps.

Speaker 6: transfer our customers to pass or deal with those ASP increases the way they chose to do it in 2022.

Our chance for our customers too.

To deal with those ASP increases the way they chose to do it in 2022.

Speaker 6: And so, roughly, this is about a high-simile digit number of growth of ASPs at the enterprise level for the year this year. Done in a way that was very methodical in partnership with our customers as we used their balance sheet and our...

And so roughly this is.

High single digit kind of number of growth of Asps.

At the enterprise level for the year. This year done in a way that was very methodical in partnership with our customers as we use their balance sheet and our.

Speaker 6: and in partnership to go create that capacity for this growth we're talking about. David, I'm here today.

And in partnership to go create that capacity for this growth were talking about David <unk> to them.

Speaker 4: Yeah, hey John , from a volume perspective, you know what we've talked about is we're gonna grow capacity in the high single digits year over year from 21 to 22. And then ASPs, as Tom mentioned, those ASPs will actually grow about 10% year over year versus high single digits. So volume up about high single digits year over year, ASPs up in the 10% range year over year.

Hey, John .

From a volume perspective, what we've talked about is we're going to grow capacity.

The high single digits year over year from 'twenty, one to 'twenty, two and then Asps.

As Tom mentioned, those Asps will actually grow about 10% year over year.

Versus high single digit so volume up about high single digits year over year Asps up in the 10% range year over year.

Speaker 5: That's helpful. Yeah, just on my follow up, there's still some skeptics out there relative to the longer term financial model you put out on the roadshow. And I was just hoping you go through some details of kind of the expected margin progression, you know, exiting the March quarter for the balance of the year. And Dave, maybe you can touch on it by geo because I know there's some distinct differences amongst Singapore, Malta and Dresden.

That's helpful. Do you have a thought.

Yes, just on my follow up there's still some skeptics out there relative to the longer term financial.

Model you put out on the road show and I was just hoping you could go through some details of kind of the expected margin progression exiting the march quarter for the balance of the year and Dave maybe you can touch on it but by Geo because I know theres some distinct differences amongst Singapore, multi dresden as capacity ramps.

Speaker 4: Sure. Maybe I'll answer the first part of that and then Thomas, if you have anything to add, you can chime in.

Sure, maybe maybe I'll answer the first part of that and then Tom If you have anything to add you can chime in.

Speaker 4: to build upon it. You know, John , we talked to really about three things that were happening to drive our margins. We talked about this discipline, capex, and partnership investment that would lead to normalization of depreciation, as well as improve fixed cost absorption. We've talked about the constructive pricing environment.

To build upon it.

John We've talked really about three things that were happening to drive our margins. We talked about this disciplined capex and partnership investment that would lead to normalization of depreciation as well as improved fixed cost absorption, we've talked about the constructive constructive pricing environment and our increasing percentage of singles.

<unk> business driven by the differentiation in our business as being something that helps capture margin and then of course, we talked about the mixing up of our business through accretive markets that we target and so with those three points as a backdrop. Let me let me talk about the geographic regions and the individual factory, so let's start with Singapore for Singapore.

Speaker 4: And so with those three points as a backdrop, let me talk about the geographic regions and the individual factories. So let's start with Singapore first. Singapore is our largest campus. It's services about 45% of our total capacity. Singapore is already at our long-term financial model.

As our largest campus.

Services about 45% of our total capacity Singapore is already at our long term financial model. So in 2021, Singapore is is at our long term model and thats without that 10% kind of year over year enterprise ASP.

Speaker 4: So in 2021, Singapore is at our long-term model, and that's without that 10% kind of year-over-year enterprise ASP increase that we talked about in your prior question.

Increase that we talked about in your prior question Dresden, which is about 20% of our total capacity but of course growing.

Speaker 4: Dresden, which is about 20% of our total capacity, but of course growing, Dresden, as we...

Dresden as we scale that fixed cost footprint through additional tooling, we get the benefit of that fixed cost absorption. So that fixed cost absorption as we almost triple the total output of that facility plus the improved pricing that gets us to our long term financial metrics.

Speaker 4: scale that fixed cost footprint through additional tooling. We get the benefit of that fixed cost absorption. So that fixed cost absorption as we almost triple the total output of that facility.

Speaker 4: plus the improved pricing. That gets us to our long term financial metrics.

Speaker 4: And then that finally we've got, we've got mortar.

Then finally, we've got we've got Malta and Malta It has.

Speaker 4: In Malta, it has a similar fixed cost absorption challenge, big footprint but wasn't tooled. We'll get that fully told around the mid year of 2023, so kind of exiting 23 will be at our entitled fixed cost absorption. And then it has a little bit of depreciation that has to roll off.

Similar fixed cost absorption challenge big footprint, but wasn't tool, we will get that fully tooled around the mid year 2023, so kind of exiting 'twenty three will be at our entitled fixed cost absorption and then it has a little bit of depreciation that has to roll off throughout 2024, and then the first half of <unk>.

Speaker 4: throughout 2024 and then the first half of 25 so it won't quite be to that long-term model until you know late 24 early 25.

25, so it won't quite be to that long term model until late 'twenty for early 'twenty, five, but Singapore will be their Dresden will be there.

Speaker 4: but Singapore will be there, Dresden will be there.

Speaker 6: Burlington is in a very similar situation as Dresden and of course I just described him all the Tom anything you did I think it's it's good to put it in that concise manner You know there's a depreciation dimension this we invested heavily in the early years for the company and that depreciation rolls off So that's one lever the second

Burlington is in a very similar situation as Dresden, and then of course I just described Martha Tom anything you'd add I think it's good to put it in that concise manner as the depreciation dimension. This we invested heavily in the earlier so the company and that depreciation rolls off. So that's one lever the second lever is remixing and the ASP that will drive our profitability and then the third one is we have.

Speaker 6: remixing and the ASP that will drive our profitability. And the third one is we have a huge fixed cost and the more we can leverage that cost for efficiency. You know, any one of these, I could get some skepticism, but the three, you know, the combination of those three really give us our roadmap to this path, the profitability, and it's always good, David, as you like to say, proof point, our Singapore facilities already at our long-term model. Perfect, guys, thanks.

A huge fixed cost and the more we can leverage that cost for efficiency. So any one of these I could get some skepticism three.

The.

Combination of those three really gives us a roadmap to this path to profitability and it's always good David would you like to say proof point, our Singapore facility is already at our long term model.

Perfect guys. Thank you I appreciate it.

Thank you.

Speaker 1: Next question comes from the line of Holland's third with JP Morgan. Yaline is old.

Our next question comes from the line of Harlan sur with Jpmorgan. Your line is open.

Speaker 3: Good afternoon and congratulations on the strong execution. The man environment stepping into this year looks quite strong across your end markets. The team is anticipating song revenue growth this year. Based on your shipment and your ASP outlook in your prepared remarks, or an answer to one of the questions, looks like you guys are going to grow revenues in the sort of high teams percentage range this year. I'll post sort of rank order, which of your segments are going to be driving the strongest growth this year. The data I'll necklace.

Good afternoon, and congratulations on the strong execution demand environment stepping into this year looks quite strong across your end markets. The team is anticipating.

Strong revenue growth this year I think based on your shipment and ASP outlook in your prepared remarks.

One of the questions. It looks like you guys are going to grow revenues in the sort of high teens percentage range. This year.

Just sort of rank order, which of your segments are going to be driving the strongest growth this year.

David I'll, let you start and I'll add some commentary as to why.

Speaker 4: Sure. Well, Arlan, it's a smaller part of our business, but we've talked a lot about automotive. So, you know, the automotive business we're expecting, expecting it to be kind of lumpy quarter to quarter, but on an annual basis year over year 22 versus 21, we're continuing to expect strong growth from the automotive business.

Sure.

It's a smaller part of our business, but we've talked a lot about automotive.

So the automotive business, we're expecting we're.

We expect it to be kind of lumpy quarter to quarter, but on an annual basis year over year 22 versus 21, we're continuing to expect strong growth from the automotive business.

Speaker 4: The IoT business that's home and industrial IoT business, that's another business for us that grew nicely in 2021. And we actually expected to grow even faster in 2022 and become a bigger part of our total portfolio. And so that's a business that for us, we're seeing just a lot of traction in the home and IoT business, industrial IoT.

The Iot business that is home and industrial Iot business, that's another business for us.

That grew nicely in 2021, and we actually expect it to grow even faster in 2022 and become a bigger part of our total portfolio and so that's a business that for US we're seeing just a lot of traction in the home and Iot business industrial Iot business.

Speaker 4: Smart mobile devices, you know, it's, you know, not quite half of our business.

Smart mobile devices.

Not quite half of our business.

Speaker 4: but certainly around that range and that business will kind of grow at our enterprise average. So I think, you know, in terms of the real highlights, the automotive portion growing from a smaller base to a more sizable portion of our business, the home and industrial IoT, having nice growth, smart mobile devices growing at enterprise average. And, you know, communications, infrastructure and data center also growing, but probably highlight the first two automotive in the home and industrial.

But certainly around that range in that business will kind of grow at our enterprise average so I think in <unk>.

Terms of the real highlights the automotive portion growing from a smaller base too.

A more sizable portion of our business the home and industrial Iot, having nice growth smart mobile devices growing at enterprise at average in communications.

Communications infrastructure and data center also growing.

We highlight the first two automotive in home and industrial Iot.

Speaker 6: Yeah, I'll just say a little bit on the smartmoke with the device and David you pointed out it out.

Yes, I'll, just add a little bit on the smart mobile device, David you pointed out.

Speaker 6: where you percent of our revenue this year. Handcats are not growing at high single digits next year, but our revenue is gonna have a robust growth and what does that mean? It means we're winning more pockets within them. As the industry goes to 5G, that's a real franchise for us in the front-end module. We're building our, and growing our business in image-sensor processes from more pockets, more content. So handcats don't have to grow at the rate our business goes as we win more of the silicon content inside that smart mobile device.

48% of our revenue this year handsets are not growing at high single digits next year.

But our revenue is going to be have robust growth and what does that mean it means we're winning more sockets within it.

As the industry goes to <unk> Thats, a real franchise for us.

Front end module.

We're building our in growing our business and image sensor processors, so more sockets more content. So handsets don't have to grow with the radar business grows as we win more of the silicon content inside the smart mobile devices.

Speaker 3: appreciate the insights there. And so from my follow up, you know, with the House passing the American Compitact, which includes the $52 billion dollar chipsack, and a similar version to the one that was passed by the Senate last year. So the bill now needs to be reconciled, agreed upon by Congress, signed by President Biden. You guys have a strong government relations team. Do you have an updated view on timelines for

I appreciate the insights there and so but for my follow up with the house passing the American competes act, which includes the 52 billion chips and a similar version to the one that was passed by the Senate last year. So the bill now needs to be reconciled agreed upon by Congress signed by President.

By it and you guys have a strong government relations team do you have an updated view on timelines for potential appropriations of subsidy dollars and then maybe over the next three years, how much capex are you allocating to the U S stops primarily volatile just wanted to get some idea on how much of the U S Capex spend.

Speaker 3: potential appropriations of subsidy dollars. And then maybe over the next three years, how much CAPEX are you allocating to your US staffs primarily, Malta? Just want to get some idea on how much of the US CAPEX spend could be supported by CHIPSAC funding. Sure.

Could be supported by chipset funding.

So let's take the first part of that.

Speaker 6: Our context in Washington has been a very forthright. And one thing I love about it is, you know,

Yes.

Our contacts in Washington have been.

Very forthright in and one thing I love about it is.

Speaker 6: There's a matter with the ILEAR, everybody knows that funding the chips field, creating more security around the semiconductor supply chain in U.S. is a paramount import.

It doesn't matter, which side of the Eylea right everybody knows that funding the chip still creating more security around the semiconductor supply chain use is of Paramount importance and you're right. It is going to go to conference now with it rationalization. These two bills will be passed into law.

Speaker 6: And you're right, it's going to go to conference now where that rationalization of these two bills will be passed into law.

Speaker 6: And the timing for that is, you know, it's going to be sometime if it's going to be meaningful before the first half of this year is over, right? We have to be in that time.

The timing for that is it's going to be some time, if it can be meaningful.

First half of this year is over we have to be in that timeframe.

Speaker 6: And $53 billion, $52 billion, $37 billion of building to add capacity is meaningful. As far as our plans are, we don't invest because there's a government incentive or co-investment. We invest first and foremost in partnership with our customers that this certainty to demand and we're building our differentiated technologies with a customer in mind. So they participate in this.

<unk>.

$50 $53 billion $52 billion $37 billion of billing to add capacity as meaningful as far as our plans are we don't invest is because there's a.

Government incentive or co investment, we invest first and foremost in partnership with our customers that the certainty of the demand and we're building our differentiated technologies with a customer in mind. So they participate in that we leverage the government support because we have to get the kinds of returns on investment that makes sense in this.

Speaker 6: We leverage the government support because we have to get the kind of returns on investment that makes sense. And this is, you know, made to high single digit returns. And so first we make sure the demand is there, the certain is there, customer partnership, and then we make sure that we can achieve the capital model or they return on our capital investment to go make those.

Mid to high single digit returns and so firstly make sure. The demand is there. The certainty is there customer partnership and then we make sure that we can achieve.

The capital model or the return on our capital investment to go make those.

Uh huh.

Speaker 6: to make the investment to make sure they have the right payback versus a business.

To make the investments to make sure that they have the right payback versus a business now having said that I think we will find a way to go.

Speaker 6: I haven't said that. I think we will find a way to expand our campus and fab eight in Baltimore, New York in a meaningful way and we'll do that in partnership. What I found really encouraging today was Commerce Department actually started to ask for requests for information and how this money can be spent. So it looks like they're really starting to lean in and get ahead of the appropriations of this funding. So we'll keep a close eye on this as time unfolds here. Great Brayton.

Expand our campus.

In Fab multi new York in a meaningful way and we will do that in partnership with I found really encouraging today was commerce department actually started to ask a request for information.

How this money can be spent so it looks like we're really starting to lean in and get ahead of the appropriations of this funding. So we'll keep a close eye on this.

As time unfolds here, David anything you'd add to that.

Speaker 4: Yeah, I think, you know, to speak to 2022, CapEx, Harlan, there's about $550 million that's going into investment in FAB 8, primarily for FINFECT capacity. And then there's about $150 million give or take a little bit that's going into Burlington to mix us up primarily into SIGI and some of the communications and infrastructure market. So those are the investments that we currently have contemplated for 2022. And none of them are dependent on this funding, government support. That's right. . . . . . .

I think to speak to 2022, Capex Harlan there's about $550 million, that's going into investment in fab, primarily for Finfet capacity and then there is about $150 million give or take a little bit that's going into Burlington to mix us up primarily into into Siggi and some of the communications infrastructure market.

So those are those are the investments that we currently have contemplated for 2022 and none of them are dependent on this.

Funding from government support that's right.

Yep, great insights. Thank you.

Thank you.

Speaker 1: Next question comes from the line of Ross, the more reditcher bank. Your line is over.

Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Speaker 7: I think some of me asking questions and graphs on the strong results. Time I want to go back to one of the topics you hit on in the preamble about the supply coming on and how fast the industry needed to grow. The supply to meet up to the demand and that disconnect. If I look at the broad-based lagging edge companies, whether they're IBMs or Fablight companies, their spending is exploding. Texas Instruments talked about it last week.

Hi, guys. Thanks for letting me ask a question congrats on the strong results Tom I wanted to go back to one of the topics you hit on in the preamble about the supply coming on and how fast the industry needed to grow the.

The supply to meet up to the demand and that disconnect. If I look at kind of the broad based lagging edge companies, whether they are idms or fab light companies Theyre spending is exploding, Texas instruments talked about it last week. So as those companies are spending two to three times their 10 year average rate do you.

Speaker 7: So as those companies are spending two, three times their 10-year average rate, do you view that as more of an endorsement of the growth of the industry, or are you in any way scared that that supply could lead to pricing declines, pressure on your customers? I know you have a long-term agreement, but just wondering how you reconcile these companies that aren't necessarily your customers also spending so aggressively.

That is more of an endorsement of the growth of the industry or are you in any way scared that that supply could lead to pricing declines pressure on your customers. I know you have a long term agreements, but just wondering how you reconcile these.

Is that arent necessarily your customers also spending so aggressively.

Speaker 6: Yeah, remember they have to grow their business too. In our industry, you don't grow if you don't make more product, right? So TI has been very disciplined in how they make capital expansions and they got to a point where they needed to maybe spend a little bit more because they needed new facilities, not just expanding existing footprints.

Remember they have to grow their business too in our industry. They don't grow if you don't make more product and so <unk> been very disciplined in how they make capital expansions and they got to a point, where they needed to maybe spend a little bit more because they needed new facilities, not just expanding existing footprints.

Speaker 6: I think more to the first part of that, which is really an endorsement for where this industry needs to go. It took 50 years to become a half a trillion dollar industry, you call it eight, 10 years, it's going to double. And the economic model to go create that first 50 years is not the one that's going to get us to where we want to go as an industry. And for us, it's to make sure that we are creating differentiated solutions for our cuts.

I think more to your first part of that which is really as an endorsement for where this industry needs to go.

It took 50 years to become a half a trillion dollar industry call. It 810 years its going to double.

The economic model to go create that first 50 years is not the one that's going to get us to where we want to go as an industry and for US it's to make sure that we are creating differentiated solutions for our customers that our customers are equally committed to that capacity and that we are building. It for them. We're not just building it and saying we're going to build a head and have and then go and try to sell.

Speaker 6: that our customers are equally committed to that capacity and that we're building it for them. We're not just building it in shame. We're going to build ahead and have and then go and try to sell the capacity. We're doing it in very orderly and orderly fashion.

The capacity, we're doing it in a very orderly and orderly fashion and I'll tell you we talked a lot about the long term agreements that we signed last year.

Speaker 6: And I'll tell you, we talk a lot about the long term agreements that we signed.

Speaker 6: last year, right? In fourth quarter, we started to sit down with our customers to think about the future beyond 2024. We bring all this capacity on. So what's next, what additional capacity would they like to add?

And fourth quarter, we started to sit down with our customers to think about the future beyond 2024, we bring all of this capacity on to.

What's next with additional capacity, what they'd like to add.

Speaker 6: And those conversations are going well and we expect this year to be doing more of the same to continue to go to the capacity, but fundamentally doing it in a partnership mode where our customers hand in hand are committed to the capacity we're putting on for this.

With us and those conversations are going well and we expect this year to be doing more of the same to continue to grow the capacity, but fundamentally doing it in a partnership mode, where our customers hand in hand are committed to the capacity, we're putting on for them.

Okay.

Speaker 7: Thanks for that color. Because my follow up, David, one for you on the Gross Margin side of things. Just wanted to get a little bit more color on, what was the surprise to you versus your guidance in the fourth quarter? And then as we're thinking about the linearity of the year, I know there's some steps when depreciation falls off and those sorts of things. Any sort of color on how you see this year progressing quarter by quarter in the Gross Margin line.

Thanks for that color as my follow up David one for you on the gross margin side of things just wanted to get a little bit more color on what was the surprise to you versus your guidance in the fourth quarter and then as we're thinking about the linearity of the year I know, there's some some steps one depreciation falls off and those sorts of things any sort of color on how you see this year.

<unk> quarter.

Quarter by quarter and the gross margin line.

Speaker 4: sure i will with respect to fourth quarter uh... you know and yet the improvement to our guidance that we delivered i think there were two things uh... one i think that the pricing and some of the expedite

Sure with respect to fourth quarter.

The improvement to our guidance that we delivered I think there were two things one I think the pricing and some of the Expedites and some of this pricing associated with that was it was a little stronger than we expected and then of course fixed cost absorption is is.

Speaker 4: and some of this pricing associated with that was was a little stronger than we expected and then of course fixed cost absorption

Speaker 4: is a very, very powerful tool as an engine for accretion, for a fixed asset business. And so we got better fixed cost absorption and we got a little bit better ASP and premium pricing in the fourth quarter and that really led to the upside. I think for guidance for the full year, I think I'll stick Pat to what we gave you for the full year with 10%.

Is a very very powerful.

Tool as an engine for accretion for a fixed asset business and so we got we got better fixed cost absorption and we got a little bit better asps and premium pricing in the fourth quarter and that really led to the upside.

Thank for guidance for <unk> for the full year, I think I'll stick Pat to what we gave you for the full year with 10% ASP increases year over year, but but with respect to the to the first quarter.

Speaker 4: ASP increases year over year, but with respect to the to the first quarter

Speaker 4: It's about two-thirds ASP, one-third volume driven. When you think about the improvement, quarter over quarter, Q1 to Q4. And so what that means is that the ASPs are coming online a little faster than the fixed cost absorption would expand gross margin. So still getting the benefit of both, right? Is that volume still scales? You're still getting the benefit of that fixed cost absorption and the footprint.

About two thirds Asps, one third volume driven when you think about the improvement.

<unk> over quarter Q1 to Q4, and so what that means is that the asps are coming online a little faster than the fixed cost absorption would expand gross margin. So still getting the benefit of both right is that volume still scales youre still getting the benefit of that fixed cost absorption and the footprint, but but asps coming online a little bit faster than the fixed cost.

Speaker 4: But ASP is coming online a little bit faster than the fixed cost absorption. Does that make sense?

So that makes sense.

Thank you.

Thanks, Ross Thank you.

Speaker 1: Unfortunately, the

Our next question comes from the line of Chris Danley with Citi. Your line is open.

Speaker 7: Okay, thanks guys. One more pricing question. So you sketched out the strokes on 22, but I would imagine you're booking in the 23. Any first take or first reads on the pricing environment for 2023, can we expect it to be a double that just again next year?

Okay. Thanks, guys.

One more pricing question.

You sketched out the strokes on 22, but I would imagine youre booking into 'twenty three any first first take her first reads on the pricing environment for 2023 can we expect it to be up double digits again next year.

Speaker 4: Yeah, I think, you know, look, I think we're gonna guide one quarter at a time and then try to give you some color and context for the year that we're in. I think as a high level response, I think I'd say that we remain in a very constructive business environment. And so we're very encouraged by the environment that we're currently in, Tom, anything. Yeah, and I think for us, to be able to create the capacity our customers need.

Yes, I think.

Look I think we're going to guide one quarter at a time and then try to give you some color and context.

For the year that we're in I think is a high level response, I think I'd say that we remain in a very constructive business environment and so we're very we're very encouraged by the environment that we're currently in Tom anything Matt Yeah, and I think.

I think for us to be able to create the capacity our customers need.

Speaker 6: ASP is part of the equation that closed those returns we need. So the story that we got to continue to write and develop.

Asps as part of the equation that closed those returns we need.

That's the story that we've got to continue that.

Right and develop here.

Speaker 8: Great, and for my follow-up, just a competitive question. So both of your main competitors in Taiwan have announced increases in CAPEX. They're gonna focus a little more on the...

Great and for my follow up just a competitive question. So both of your main competitors in Taiwan have announced increases in Capex are going to focus a little more on the on the trailing edge and then you also have a major semiconductor company here in the U S.

Speaker 8: on the trailing edge and then you also have a major semi-conceptor company here in the US with their, I guess, their latest.

With their I guess their latest.

Speaker 7: announcement of getting into Foundry. Has this changed the conversation with the customers at all? Does this make you guys a little bit more worried about potential capacity issues down the road or no change to the business environment when you talk to the customers or internally? Yeah.

Announcement of getting into foundry has this changed the conversation with the customers at all of this makes you guys a little bit more worried about potential capacity issues.

On the road or no change to the business environment, when you talk to the customers or internal.

Speaker 6: I think you have to segment three levels of investment.

I think you have to segment three levels of investment for capital expansion Theres, a whole memory dimension to this clearly does it does it complements the logic part of the industry, but it doesn't compete at all and then Theres the segment for.

Speaker 6: for capital expansion. There's a whole memory dimension to this clearly doesn't, doesn't decomplements the logic part of the industry but doesn't compete at all. And then there's the segment for...

Speaker 6: Some like to call it, you know, leading edge, we call it single digit nanometer. This is the smallest fastest transistors for data centers. It represents...

So I'd like to call it.

Leading edge, we call it single digit nanometer this is the <unk>.

<unk> fastest transistors feeds data centers represent 25% of the market, but it's highly capital intensive <unk> see a lot of dollars being important to that there are now three competitors in that space as Intel has declared they want to be foundry and serve that market.

Speaker 6: 25% of the market, but it's highly capital intensive. So you see a lot of dollars being important to that. There are now three competitors in that space as Intel has declared they want to be foundry and serve that market.

Speaker 6: You know, for us, an Intel entering this market just validates once again how important semiconductor manufacturing is and important.

<unk>.

And Intel entering this market validates once again, how important semiconductor manufacturing is.

Sure.

An important it is to two.

Speaker 6: to not only the industry but to the world economy. But we don't see them as competitors as they're in that market segment that we choose not to serve.

Not only the industry, but to the world economy, but we don't see them as competitors there in that market segment that we choose not to serve.

Speaker 6: The other capacity is being put on. I spoke about in the service will market lease or we tracked it very closely. We watched where shovels are going to ground where capacity is being added. We gave the statistics around that. We don't see a lot of.

The other capacity that's being put on I spoke about in this.

Serviceable market we serve.

We track that very closely we watch where shovels and go on the ground where capacity is being added we gave you. The statistics around that we don't see a lot of of capacity going in beyond with natural demand growth. That's going on I think you are seeing.

Speaker 6: of capacity going in beyond with the natural demand growth. That's going on, I think you're saying, rational capacity expansion, making sure that we don't over build for this industry. And when that's something we'll watch very closely, and again, we will not add capacity if we don't know we have somebody who's going to be.

Rational capacity expansion, making sure that we don't over built for this industry.

It's something we'll watch very closely and again, we will not add capacity. If we don't know we have somebody who is going to be.

Speaker 4: You know, committed to that capacity that we put on. David, anything you'd add to that? Yeah, I think I just add that, you know, again, as a proof point, you know, our...

Committed to that capacity that we put on David anything you'd add to that.

I would just add that again is a proof point.

Speaker 4: We signed five new LTAs in the fourth quarter. And we continue to have customers engage with us on wanting to secure long-term supply. So, you know, from all the signals that we see, it looks like we are currently in a supply a demand imbalance.

We signed five new <unk> in the fourth quarter, and we continue to have customers engage with us on wanting to secure long term supply. So from all the signals that we see it looks like we are currently in a supply demand imbalance. It looks like things are getting a little bit better, but I think.

Speaker 4: Looks like things are getting a little bit better, but I think based on what we see, we believe it's gonna last for an extended period of time and it looks like our customers.

Based on what we see we believe it's going to last for an extended period of time and it looks like our customers.

Speaker 4: I believe that as well. And so what we're gonna do is we're gonna, in a very disciplined methodical way, we are going to continue to execute our plan. And as we execute our plan, we're gonna look at the headlights that we have and of course correct accordingly if we see anything different.

Believe that as well and so we're going to do is we're going to in a very disciplined and methodical way. We are going to continue to execute our plan and as we execute our plan we're going to look at the headlights that we have.

And course, correct accordingly, if we see anything different than that.

Alright, thanks, guys.

Speaker 1: Thank you. Our next question comes from the line of Mark Lipocasis with Jeffrey.

Thank you. Our next question comes from the line of Mark <unk>.

With Jefferies.

I'm sorry your line is open.

Speaker 4: That's okay a lot of people mispronounce my name. It's Mark Lepasis in Jeffries. Thank you for taking my question. When you listen to the earnings calls the semi-KF equipment companies, you hear many of them discuss missing expectations because they're not getting enough components.

That's okay a lot of people Miss pronounce my name is Mark <unk> from Jefferies. Thank you for taking my question when you listen to the earnings calls the semi cap equipment companies you heard many of them discussing missing expectations, because they're not getting enough components, given you're capacity constrained and it seems to be.

Speaker 4: Given your capacity constraints, and seems the biggest risk to your ability to hit your growth potential and meet your customer commitments is your ability to get that capital equipment. Well, what are your conversations? I know Tom, you talked about this in your script a little bit, but maybe you can peel one layer of that onion. What are the conversations with the semi-caps suppliers going like right now? I imagine you're listening to the same calls that we are too. Yeah, we listen to that all the time.

<unk> risk to your ability to hit your growth potential and meet your customer commitments is your ability to get that capital equipment. What are your conversations like I know Tom you talked about this in your script, a little bit, but maybe you can peel one layer of that onion, what are the conversations with the semi cap suppliers going like right now I imagine youre listening at the same cost that we are.

Two.

We listen I had a follow up thanks.

Speaker 6: We was the same calls and we were on calls with them. Look, I think fundamentally we started the plan our capacity expansion at the end of 2020 early 2021 where there really times and and and and booking of the swatts was a lot less competitive.

We used the same causing Ron cause of that look I think fundamentally we started to plan our capacity expansion at the end of 2020, and early 2021, where the lead times and booking of the slots with a lot less competitive and so it's kind of a little bit first in first out and so we're not seeing huge swings in our <unk>.

Speaker 6: And so, it's kind of a little bit first in, first out. And so we're not seeing huge swings in our delivery of equipment. They're all manageable within the buffers we put in our schedules, their plus or minus weeks of delivery. We've balanced our capacity. I think for us timing was our friend on this one and we got our orders in early.

Every of equipment. They are all manageable within the buffers, we put in our schedules, there plus or minus weeks of delivery, we balance to add our capacity I think for US timing was was our friend on this one and we got our orders in early I get no one's immune from daily battles with the worldwide supply chain, whether it's chemicals to make way.

Speaker 6: I get the no one's immune from daily battles with worldwide supply chains, whether it's chemical to make wafers or components to make tools. We're all dealing with that as best we can. But for us on the equipment side, we have a pretty good line of sight of the equipment we need to add to create this capacity.

<unk> our components to make tools, we're all dealing with that as best we can but for us on the equipment side, we have a pretty good line of sight of the equipment, we need to add to create this capacity and we got our we got our orders in early plants receives early I guess.

Speaker 6: and we got our orders in early. I plan to proceed early.

Speaker 4: Got you that's helpful and a follow up if I may. You know, given that there is such a shortage of semi conductor manufacturing capacity worldwide and you know, many industries outside of semis are losing billions of dollars in revenues because they can't get enough semiconductor components. It seems that prioritizing the semi cap equipment players for chips might be a way to alleviate, you know, the world focus on the semiconductor industry right now. I guess I'm wondering.

Got you that's helpful and a follow up if I may.

Given that there is such a shortage of semi conductor manufacturing capacity worldwide.

Many industries.

Upside assemblies are losing billions of dollars in revenues because they can't get enough semiconductor components it seems that <unk>.

We are tightening the semi cap equipment players for chips with might be a way to alleviate.

The world focus on the semiconductor industry right now and I guess I'm wondering is.

Speaker 4: Is there like an industry association that you guys get together and say, hey, one way that we can solve this problem together is to prioritize that vertical market to send the cup players and help them get...

Is there like a an industry Association do you guys get together and say hey.

One way that we can solve this problem together is to prioritize that.

Vertical markets semi cap players to help them get.

Speaker 4: equipment to us and we can make more chips. Is that something that goes on, or is this a, you know, they kind of get put into the queue like everybody else does?

Equipment to us and we can make more chips is that something that goes on.

Or is this a.

They kind of get put into the Q like everybody else does.

Speaker 6: Well, look, if it's going on, we're not part of those conversations. This is a very complex business.

Well look if it is going on we're not part of those conversations this is a very complex business.

Speaker 6: You know, you could be adding one tool to a existing factory that all of a sudden gives you 3% more else because it was a pinch point tool. You could be doing a green field and very complicated mix and match of configurations and tools and type of tools. I don't even know if that's possible what you're talking about. I think the point here is for everybody to plan their business, understand the markets they want to serve, create the capacity, and serve those markets.

You could be adding one tool to our existing factory that all of a sudden gives you 3% more hours because there was a pinch point tool you could be doing a greenfield.

Very complicated mix and match of of configurations to tools and type of tools I don't even know if that's possible what youre talking about I think the point here is for everybody to plan their business understand the markets. They want to create the capacity to serve those markets and then we're in.

Speaker 6: And then work in partnership mode, not only with your customers, but your suppliers to go and keep those plans. I think that's a tried-in-to-hoo business objective and methodology, and that's what we try to do.

Partnership mode, not only with your customers what youre suppliers to go execute those plans I think that's a tried and true.

This objective and methodology and that's what we tried to do.

Gotcha very helpful. Thank you.

Thank you.

Speaker 1: Our next question comes from the line of Chris Casio with Raymond James. Your line is open.

Our next question comes from the line of Chris Caso with Raymond James Your line is open.

Speaker 8: Yes, thank you. Good evening. Tom, I'd like to come back to some of your opening remarks.

Yes. Thank you good evening.

Tom I would like to come back to some of your opening remarks on your view of the supply demand balance of the industry you spoke about that as a high single digit shortfall.

Speaker 8: on your view of the supply demand balance for the industry. You spoke about that as a high single digit shortfall. When do you think the industry gets back into balance? It sounds like you think we make some progress from here, but wondering as you look at your analysis, at what point do you think that the industry catches up and we get back to what was thought to be normal supply conditions?

When do you think the industry gets back into balance.

It sounds like you think we make some progress from here, but.

Wondering as you look at your analysis at what point do you think that the industry catches up and we get back to what was thought to be normal supply conditions.

Speaker 6: Yeah, I think the problem we have is we have this big offset to begin with and we have something that's growing.

Yes.

I think.

The problem. We have is we have this big offset to begin with and we have something that's growing.

Speaker 6: And we think of it, we either have a mismatch or a match. If there's a range, we started...

And we think of it we either have a mismatch or matched.

The range we started.

Speaker 6: with a really big mismatch, it's gotten better.

Mid last year with a really big mismatch, it's gotten better.

Speaker 6: But again, I think it really comes down to how fast can we add capacity? We just talked about equipments, suppliers, and lead times going out. How fast can we add capacity while the man continues to grow? Back to an industry that will double in 8 to 10 years.

But again I think it really comes down to how fast can we add capacity, we just talked about equipment suppliers and lead times going out how fast can we add capacity while demand continues to grow back to an industry that will double in eight to 10 years and so for me the way I think.

Speaker 6: And so for me, the way I think about this, short of some kind of big macroeconomic event that will slow down all economies, including our industry, I think for the better part of the next five years, we'll be chasing, you know, to put capacity on, not demand, and doing everything we can to get a better balance.

About this short of some kind of big macroeconomic event that will slowdown all economies, including our industry I think for the better part of the next five years, we'll be chasing put capacity on not demand and and doing everything we can to get a better balance it doesn't mean.

Speaker 6: It doesn't mean it doesn't get better, but it doesn't mean it gets fixed when we're in a position where we have more supply than we know what to do.

It doesn't get better, but it doesn't mean it gets fixed and we're in a position where we have more supply than we know what to do.

Okay.

Speaker 8: God, thank you. As a follow-up, David, there was very good leverage on fall through from the incremental revenue. I think you spoke about 54% of the incremental revenue fell through. Is that a reasonable expectation going forward and I'd suspect some of the ASP gains, which might not be even every quarter, might have some influence on that?

Got it thank you.

As a follow up David.

There was very good leverage.

Sure.

On fall through from the incremental revenue I think you spoke about 54% of the incremental incremental revenue fell through.

A reasonable expectation going forward and I suspect some of the ASP.

Gains, which might not be even every quarter it might have some influence on that.

Speaker 4: That's correct. Look, I think I mentioned 54% for the EBITDA fall through. I think if you did the map on the gross margin, you'd get something that's more slightly higher than 60%. I think from a fall through perspective somewhere in that mid 50s to low 60s range is a good fall.

That's correct look I think I mentioned, 54% for the EBITDA fall through I think if you did the math on the on the gross margin you would get something thats more slightly higher than 60%.

From a from a fall through perspective somewhere in that mid <unk> to low <unk> range is a good fall through estimate.

Speaker 4: Again, taking advantage of the ASPs and the fixed cost absorption that we talked about earlier.

Again, taking advantage of the Asps and the fixed cost absorption.

We talked about earlier.

Okay. Thank you.

Thanks, guys. Thank you.

Speaker 1: An expression comes from the line of Joe Moore with Morgan Stanley . The line is open.

Our next question comes from the line of Joe Moore with Morgan Stanley . Your line is open.

Speaker 9: Great, thank you. I wonder if you could talk about the 4.5 billion of CAPEX. And what would that, how much would that increase your wafer fab capacity when fully deployed? I understand it doesn't get fully deployed this year. But can you just give us a ballpark estimate of that number and what it means for your overall wafer growth? And then can you talk a little bit about CAPEX in 2023 directionally?

Great. Thank you I Wonder if you could talk about the.

The $4 5 billion of Capex.

And what would that how much would that increase your wafer fab capacity when fully deployed I understand it doesn't get fully deployed this year, but can you just give us a ballpark estimate.

Of that number and what it means for your overall wafer growth and then can you talk a little bit about capex in 2023 Directionally.

Speaker 4: Sure, Joe. And, you know, what we talked about kind of in the road show, as well as a little bit on the prior call, what we talked about taking our wafer capacity from 2020, from about two million waifers to north of three million waifers, as we're, you know, exiting 2023 from a run rate perspective. And again, that's with that fully ramps Singapore facility that's currently under construction today.

Sure Jeff.

Well, we talked about kind of in the road show as well as a little bit on the on the prior call. When we talked about taking our wafer capacity from 2020 from about 2 million wafers to north of 3 million wafers as we're exiting 2023 from a run rate perspective, again, that's with that fully <unk>.

Ramp Singapore facility that that's currently under construction today and so if you look at the 'twenty one numbers, we delivered roughly $2 4 million wafers in 2021 rounding up slightly there.

Speaker 4: And so if you look at the 21 numbers, we delivered roughly 2.4 million wafers in 2021 rounding up slightly there. And so we're not quite halfway there, right? To get to more than 3 million wafers per year. And so the $4.5 billion investment this year, again, that's our investments in coordination with our customers as well as some partnerships with governments.

And so so we're we're not quite halfway there right to get some more than 3 million wafers per year, and so the $4 $5 billion investment. This year again, that's our investments in coordination with our with our customers as well as some partnerships with governments.

Speaker 4: That helps take us a good portion of the way to that 3 million wafers. So, directionally 2023 will decline from what we're spending in 2022. I'm not going to give a lot more color than that other than it's not significant changes from maybe what was talked about in the road show.

That helps take us a good a good portion of the way through that 3 million wafers. So so directionally 2023 will decline.

From what we're spending in 2022.

Going to give a lot more color than that other than it's not significant changes from maybe what was talked about in the roadshow.

Speaker 4: And then ultimately we talked about 2024 being at our long-term model or approaching our long-term model of 20% capital intensity.

And then ultimately we talked about 2020 for being at our long term model are approaching our long term model of 20% capital intensity.

Okay, Great and then if I could follow up on the.

Speaker 9: sort of government policy angle, you talked about maybe benefit to your spending in Malta. There are a lot of, you know, you guys spending money in Germany or Singapore obviously does a lot to give the US supply chain conviction on their ability to procure if there's, you know, any tensions in Asia, things like that. Um, any chance you could get subsidies for spending outside of the US.

Sort of.

Government policy angle, you talked about maybe benefit to your spending in Malta is there any thought of you guys spending money in Germany or Singapore.

Obviously, it does a lot to give the U S supply chain conviction on your ability to procure if there is any tensions in Asia and things like that.

Any chance you could get subsidies for spending outside of the U S.

Speaker 6: Well, first I think our global footprint is one of our competitive strengths. Because it's supply chain, risk and mitigation, you spread your risk around the world and you don't have it so highly counted.

Well first I think our global footprint is one of our competitive strengths because of supply chain.

Risks and mitigation.

De risk around the world and you don't have it so highly concentrated.

Speaker 6: The Singapore facility that we're building right now, it's a phase one expansion of a three phase, has significant support from the ECB and the floor. We've taken a partnership.

The Singapore facility that we're building right now it's a phase one expansion of a three phase has significant support from the ECB.

We've taken a partnership.

Partnerships.

Speaker 6: Money from the, in co-investment with the IPCHI program in our Dresden facility over the years. In fact, today, the European Union came out with a bill they want to start debating that's about $43 billion to go, that's comparable to the chips bill in the US.

Money from it.

Co investment with the <unk> program, and our Dresden facility over the years.

In fact today.

The European Union came out let's say.

Bill do you want to start debating thats about $43 billion to go that's comparable to the chips Bill in the U S. So.

Speaker 6: So we're always going to look for opportunities to increase the scale of our global footprint and do it again back with the right economics that makes sense.

So we're always going to look for opportunities to increase the scale of our global footprint and do it again back with the right economics that makes sense.

Speaker 6: I think one thing I could promise you is you're not going to see us co-green field. We're not going to go in the middle of some location that doesn't have an ecosystem or scale. We'll always add on to existing facilities because you have faster time to market. You have better capital efficiency and better leverage.

One thing I can promise you is youre not going to see US go Greenfield, we're not going to go into the middle of the.

Some location that doesn't have an ecosystem or scale will always add on to existing facilities. Because you have faster time to market you have better capital efficiency and better leverage and so we will always look for opportunities to leverage our competitive advantage by having a global footprint and look to add capacity when it makes sense and then all three.

Speaker 6: And so we'll always look for opportunities to leverage our competitive advantage by having a global footprint and look to add capacity when it makes sense in all three contents we operate. Would you have anything to say today? No, I think that's all said.

Continents, we operate on the <unk>.

I think I think that's well said.

Thank you.

Thanks, Joe.

Sure.

Speaker 8: Thank you. I'm taking my questions. Congrats on the good momentum following the IPO. I just want to have a better understanding.

Thank you. Our next question comes from the line of Roger Gill with Needham <unk> Company. Your line is open.

Thank you for taking my questions. Congrats on the good momentum following the IPO.

Just wanted to get a better understanding.

Speaker 5: of your revenue mixed by region and how that may change over time to 2024. And then you briefly spoke about it. But is your European presence, you know, courts your strategy, or will you invest more heavily in the US, you know, Asia in the long term?

Of your revenue mix by region, and how that May change over time through 2024, I know you briefly spoke about it but is your European presence core to your strategy or will you invest more heavily in the U S.

Asia and the long term.

Speaker 4: Yeah, so in terms of our revenue mix, about two thirds of our revenue is from the US.

Yes, so in terms of our revenue mix about two thirds of our revenue is from the U S.

Speaker 4: about 15% or so plus or minus a little bit is from Europe .

15% or so plus or minus a little bit is from Europe .

Speaker 4: And then China is high single digits, you know, around that 10% range. And then the rest of the world makes up the rest of that revenue.

And then China is.

Is it high single digits.

Around that 10% range and then the rest of the world makes up the rest of that revenue.

Speaker 4: We're incredibly pleased with our geographic footprint from a manufacturing perspective. We think that it's a real strength of ours. We think it appeals to customers and all of the regions that I just mentioned.

We're incredibly pleased with our geographic footprint from a manufacturing perspective, we think that it's a it's a real strength of ours, we think it appeals to customers and all of the regions that I just mentioned and as we as we spend this capex in partnership with our customers.

Well as local governments.

Speaker 4: It's really enabling that fixed cost absorption and the gross margin expansion that we've spoken about on this call. How many things you did? Yeah, just think about what this global footprint does when you think it's supply chain security. There are a number of partners for our customers. One design.

It's really enabling that fixed cost absorption and the gross margin expansion that we've spoken about on this call anything you'd add yes, just think about with this global footprint. When you think of supply chain security. There are a number of part numbers for our customers one design.

Speaker 6: That's source, you know, continents away. We can build it in our fab seven facility in Singapore or our fab one facility. It's dual qualified. It's built in supply chain, you know, geographical risk mitigation without any real cost is to qualify two sites instead of one site to same design, same process well. And our customers see this in a world where there's a lot of concentration, a lot more geopolitical tensions that having that flexibility starting to create real value.

That source.

Continents away, we can build in our fab seven facility in Singapore, Our fab one facility. It's still qualified it's built in supply chain.

Geographical.

Risk mitigation without any real cost to qualifying two sites instead of one sites. The same design same process flow and our customers see this in a world where there's a lot of concentration a lot more geopolitical tensions that having that.

That flexibility is starting to create real value for our customers.

Speaker 5: Thank you for that. And from my follow up of your 20 million plus in commitment.

Hey, Thank you for that and for my follow up of your <unk>.

$20 billion plus in commitments.

Speaker 5: How much of that is based on tech that is ramped versus developing? And what would be the impact be if the process is yield later than expected? Thanks.

Much of that is based on tech that has ramped versus developing.

And what would be the impact be if the processes yield later than expected.

Speaker 6: Well, the vast, vast majority that is already in production and it's adding more capacity to continue to build on things we've already been built.

Well the vast vast majority of that is already in production and it's adding more capacity to continue to build on things we've already been building.

Speaker 6: So this is not an R&D exercise. This is a manufacturing execution.

So this.

This is not a <unk>.

R&D exercise this is a manufacturing execution exercise.

Thank you.

Speaker 1: Our next question comes from the line of Matt Bryton with wet bush, Elon.

Our next question comes from the line of Matt Robison with Wedbush. Your line is open.

Speaker 10: Thanks for taking my question and congrats on that great quarter. I hear people talk about strength and families. They often focus on HBC or automotive and the electrification of autos. You don't hear very often people talking about home and industrial IoT being fast.

Thanks for taking my question and congrats on a great quarter.

When I hear people talking about shrinking so that means they often focus on EPC or automotive.

Electrification of autos.

Here very often people talking about home and industrial Iot being the fastest growing segment for them I guess.

Speaker 10: I guess when you're looking at that strength moving forward.

When you're looking at that strength moving forward do you see that was more market driven or.

Speaker 10: You see that as more market-driven or I'm guessing at least a portion of the strength.

At least a portion of the strength is specific.

Speaker 10: specific to global foundries with some of your technologies like FDX fitting well with requirements of that space and allowing you to take some share. And if that assumption is correct, am I right in thinking that the faster growth in that space ends up with that being a higher margin or f-

To globalfoundries with some of your technologies like MTX fitting well with requirements without space.

And allowing you to take some share.

If that assumption is correct am I right in thinking that the faster growth in that space.

Ends up without being a higher margin.

Being higher margin growth for you guys. Thanks.

Speaker 6: Let's talk first the IoT market.

Well, let's talk first Iot market.

Speaker 6: As we sat there in 2021, we had shipped 10 billion IOT devices as an industry. We did that in 10 years. It took.

As we sat there in 2021, we had shipped 10 billion.

Iot devices as an industry and we did that in 10 years. It took 40 years for Pcs to ship 10 billion units and it took 40 years for.

Speaker 6: for PCs to ship 10 billion units and it took 40 years for handsets to actually ship that kind of line.

For handsets to actually ship that kind of volume.

Speaker 6: And that IOT growth is going to be 30 billion units for the next three to five years, depending on your outline. So IOT, everything connected, the pervasive deployment of semiconductors.

And then Iot growth is going to be 30 units over the next three to five years depending on your.

Your outlook, so Iot everything connected the perfect pervasive deployment of semiconductors.

Speaker 6: Everything needs to be connected. I was sitting in the dentist's office today, given away a blender and the biggest feature on the blender is that it's wireless connected. Whoever thought they needed there, their blender connected to the internet. So I think this is a growth market. IoT and connectivity of everything is a growing market. And you're me, the exact point. We have differentiated ourselves.

Everything needs to be connected I was sitting in the dentist office today, given away a blender and the biggest feature on the lenders that its wireless connected whoever thought they needed their their blender connected to the internet. So I think this is a growth market Iot and connected connectivity of everything is a growing market.

The exact point, we have differentiated ourselves with things that are connected and especially when they are not tethered. The number one number two and number three priority is power management, you need battery life, we make applications with <unk>.

Speaker 6: For things that are connected, and especially when they're not tethered, the number one, number two, and number three, priority is power management. You need battery life. We make applications with non-tethered cameras that need to do image recognition and image processing at the edge for two years on two AA batteries. And there's very few technologies that can deliver that. And yet they need to be connected and on...

Non tethered cameras that need to do image recognition and image processing at the edge for two years on to double a batteries and there's very few technologies that can deliver that and yet they need to be connected in all the time.

Speaker 6: And so IoT, NetNet IoT is a growing market. It's one of the fastest growing markets, and sorry, been one of the fastest growing markets. And we have key differentiated technology in that space. David Wujed.

So I would say net net Iot is a growing market. It's one of the fastest growing markets and it's already been one of the fastest growing markets and we have key differentiated technology in that space, David would you add to that yes.

Speaker 4: Yeah, you know, I look at this space and I look at how diverse it is, right? I mean, if you were to talk about the major kind of sub-steigments underneath home and industrial IoT, you've got, you know, control and compute and wireless connectivity and human machine interface and, of course, power management, right? And those are, those are all areas as Tom mentioned as he described in that two-year, you know, life with AA batteries.

Yes.

Look at this space and I look at how diverse it is right. I mean, if you were to talk about the major kind of sub segments underneath home and industrial Iot, you've got control in compute and wireless connectivity and human machine interface and of course power management right and those are those are all areas as Tom mentioned as he described in that two year.

Life.

With double a batteries.

Speaker 4: This is an area where we have some real differentiation on our technology and so we have a purpose-built platform that enables us to compete very effectively in the home and industrial IoT space and we're very happy with our position. And to the kind of second part of your question, if you will, it is a creative business for us. And so it was a battleground that we targeted during our strategic pivot a couple of years ago and we're very pleased with our progress in this segment. Thank you.

This is an area, where we have some real differentiation in our technology and so we have a purpose built platform that enables us to compete very effectively in the home and industrial Iot space and we're very happy with our position and to that kind of second part of your question. If you will it is it accretive business for us and so it was a battleground.

We targeted during our strategic pivot a couple of years ago, and we're very pleased with our progress in this segment.

Do you have a follow up Matt.

No no follow up thank you.

Okay.

Thank you.

Speaker 1: Question comes from the line of kirse sencar with Cohen company caronis.

Our next question comes from the lineup Kurzban car with Cowen and company. Your line is open.

Speaker 11: Hi, thanks for bringing my question. I told them, Tom, on the first one is I understand that during a situation, today where the demand exceeds supply, and it is going to be like that for a while. So the big picture question is, there are couple of intensities high and the ASP of pricing is also very strong. So, simplicity put, would capital declining for a double-fondry employee that pricing goes to revenue slowing and then I'll follow up.

Yeah, Hi, Thanks for taking my question I had two of them Tom on the first one is I understand there's been a situation today, where the demand exceeds supply.

There's going to be like that for a while so the big picture question is capital intensity is high.

Pricing was also very strong.

So simplistically put capex declining with Globalfoundries.

Pricing growth of revenue slowly.

I had a follow up.

Speaker 6: I'll start and I'll hand over to David. You know, as we're adding capacity, we're obviously adding top line. And so if you get to a percentage of, a six percentage of your revenue that you deploy to CapEx and your revenue is growing, that means you could deploy more and more CapEx. Our sustainable model is set that we can grow, maintain our growth.

I'll start and I'll hand, it over to David.

We're adding capacity, we're obviously, adding top line and so if you get to a percentage of six percentage of revenue that you would deploy to Capex and your revenue is growing that means you could deploy more and more capex our sustainable model.

Set that we can grow and maintain our growth.

Speaker 6: through our capital investment with 20% of revenue. So the key is for us over the next years, as David talked about, exiting 2023, to get that 1.5, 1.6 growth in our output to grow that revenue. So we could get to our sustainable model where we can not only fund our growth through capital investment, but produce competitive free cash flow.

Through our capital investments with 20% of revenue and so the key is for us over the next years as David talked about exiting 2023 to get that 15166 growth in our in our output to grow that revenue. So we could get to a sustainable model, where we can not only.

Fund our growth through capital investment, but.

But produced.

Competitive free cash flows for our shareholders.

Speaker 4: Yeah, let me add onto that. Look, CapEx in 2021 was approximately 1.8 billion. I mentioned in the prepared commentary that we're going to spend about 4.5 billion in 2022. And then of course, we put the market marker out there that says our long-term model is to spend about 20% of revenue in CapEx to continue to sustainably grow our business. And that's kind of 2024 and beyond.

Yes, let me, let me add on to that.

Capex in 2021 was was approximately $1 8 billion.

I mentioned in the prepared commentary that we're going to spend about $4 5 billion in 2022, and then of course, we put the market marker out there that says our long term model is to spend about 20% of revenue in capex to continue to sustainably grow our business and that's kind of 2024 and beyond and so capital intensity.

Speaker 4: And so capital intensity is high. It was, you know, I can mention 1.8 billion last year, 4.5 billion this year in 22. But, you know, those investments are made in partnership with our customers, you know, more than $3.2 billion.

<unk> is high.

Like I mentioned $1 8 billion last year $4 $5 billion. This year in 'twenty two.

Those investments.

<unk> are made in partnership with our customers you know more than $3 $2 billion.

Speaker 4: customer funding and access fees as well as prepayments, as well as partnership with local governments. And so we've taken a very disciplined, methodical approach towards making these investments with profitability, with certainty of demand, and with durability of end markets. And so we feel very, very good about these investments.

Customer funding and access fees as well as prepayments as well as partnership with local governments and so we've we've taken a very disciplined and methodical approach towards making these investments with profitability.

Certainty of demand and with durability of end markets and so we feel very very good about these investments and we don't look at investments just in a one year time horizon. These assets will last upwards of 20 years and so so we look at our investments very carefully very cautiously and we have a very disciplined approach.

Speaker 4: And we don't look at investments just in a one-year time horizon. These assets will last, you know, upwards of 20 years. And so...

Speaker 4: So we look at our investments very carefully, very cautiously, and we have a very disciplined approach to cap-up.

As to Capex.

Speaker 11: But it's super helpful. Thanks for the comment, Dave. And then as a quick follow up, you know, someone asked his question on a equipment act as I just want to see as a similar question in a different way, you know, you're going to spend 4.5 billion this year, TSMT spending 4.2 billion on mature nodes and UNC stepping up Catholic. So, didn't actually think for me equipment could be a bottleneck? How do you feel that, you know, you have enough access to equipment to meet the demand that you're seeing today?

Got it Super helpful. Thanks for that Tom and Dave and then as a quick follow up.

Someone asked the question on the <unk>.

I just wanted to say.

Hello, My question, a different way youre going to spend $4 5 billion. This year TSMC spending $4 $2 billion in mature nodes and UMC stepping up capex. So do you actually think semi equipment could be a bottleneck how do you feel.

That you.

Do you have enough I guess.

Shipments to meet the demand that you're seeing today. Thank you.

Speaker 6: We spoke a little bit about this before. We started to order for our growth as a tail end of 2020 and a lot of our orders were placed in the first half of 2021 before the capacity of our equipment manufacturers started to really get spoken.

Yes, we spoke a little bit about this before we started to order for our growth at the tail end of 2020 and a lot of orders were placed in the first half of 2021 before the capacity of our equipment manufacturers started to really get spoken for and so I think it was getting back to the maybe the good fortune, but the early planning of us getting off.

Speaker 6: And so I think it was getting back to, not made it a good fortune, but the early planning of us getting our equipment orders in place so that we can build this capacity. I think the equipment industry needs to add capacity just like we do if they're gonna feed this growth. And I'm sure they have plans to go do some of this.

Our equipment orders in place that we can build this capacity.

The equipment industry needs to add capacity just like we do if theyre going to feed this growth.

I am sure. They have plans to go do some of that no.

Speaker 6: It's no different for them. They need to add clean rooms that build tools and highly controlled environment. And so that capacity doesn't come on overnight and they'll need to plot their course for how they can enhance their ability to ship more tools on a quarterly basis. Hey, to line up.

No different for them they need to add clean rooms that build tools in a highly controlled environment and so that capacity doesn't come on over night and they'll need to plot their course for how they can.

Hence their ability to ship more tools on a quarterly basis.

Hey, Jonathan.

One last question please.

Thank you.

Speaker 1: I found a question comes from the line of Vivek Arya with Bank of America.

Our final question comes from the line of Vivek Arya with Bank of America.

Your line is open.

Speaker 12: Thanks, actually two quick questions. First of all, I just wanted to revisit this question about the levers of content or pricing growth beyond this year.

Actually two quick questions first Tom I, just wanted to revisit this question about the levers of content or pricing growth beyond this year conceptually what can help you drive higher price per wafer in the next few years is it proprietary technology is it supply guaranteed location.

Speaker 12: Conceptually, what can help you drive higher price per wafer in the next few years? Is it proprietary technology? Is it supply guarantee, location of supply or mix? Just conceptually, what can help you drive pricing higher in the future? Because there is a perception that the pricing strength that the industry is seeing is more a factor of the supply shortages and once those shortages go away, that pricing may not be a lever. So that's why I wanted to get to.

<unk> just conceptually what can help you drive.

Pricing are higher in the future because there is a perception that the pricing strength that the industry is seeing is more a factor of the supply shortages and once those shortages go away that pricing may not be a lever. So that's why I wanted to get your perspective, yes.

Speaker 6: Yeah, I think for us, it's kind of back to our go-to market strategy. We chose to be very in-market.

I think for US, it's kind of back to our go to market strategy.

Chose to be very end market.

Speaker 6: focused, not just automotive, but all the way down to a particular device and make sure that we, in our front end of our business, really understood what were the features, not feature features that really made the best winning product, the real differentiated.

Focus not just.

Automotive.

All the way down to a particular device and make sure that we and our front end of our business really understood. What were the features that feature features that really made the best winning product that real differentiated product.

Speaker 6: And we don't say you're differentiated on the node or not. It's how many features you add to create that full capability for an application. And for us, it's always going to focus on very strategically on Lewis.

We don't say, what you differentiate it on a node or not it's how many features you add to create that full capability for an application.

For us, it's we're always going to focus on.

Very good.

Very strategically on what we call battleground.

Speaker 6: that require real differentiation and make sure we have customer insight into the kind of differentiation they want. Make those investments.

That require real differentiation and make sure we have customer insight into the kind of differentiation you wont make those investments and create single source differentiated business and then that capacity becomes very sticky it becomes very.

Speaker 6: and create single source differentiated business. And then that capacity becomes very sticky. It becomes very hand in hand with the applications we've won the business.

And in hand, with the applications, we won the business.

Speaker 6: And so for us to continue to focus on differentiation, we play in a very large SAM, so we don't have to be all things to all markets, and we're going to be very disciplined in making sure we participate in markets where differentiation matters.

And so for us to continue to focus on differentiation, we play in a very large Tam. So we don't have to be all things to all markets and we can be very disciplined in making sure we participate in markets, where differentiation matters, it's key to our customers and make sure we create in our innovation engine that type of different differentiation for our customers.

Speaker 6: key to our customers and make sure we create in our innovation engine that type of different differentiation for us.

Speaker 12: And maybe one follow up for Dave, if there are any US government incentives, Dave, I'm curious, how will they be reflected in your financials? So for example, we have seen one large US IDM, already assume in net cafes and in net depreciation number based on some government incentives. So I'm curious, whenever those incentives come, how will they affect your financials?

Thanks, Tom and maybe one follow up for Dave.

Or are there any U S government incentives, Dave I'm curious how will they be reflected.

Financials. So for example, we have seen one large U S IDM.

Already assume a net capex and a net depreciation number based on some government incentives. So I'm curious whenever those incentives.

How do they affect your financials.

Speaker 4: Sure. Well, I haven't really seen the mechanism yet, Vivek, with respect to how any of those incentives.

Sure.

I haven't really seen the mechanism yet vivek.

<unk>.

With respect to how any of those incentives.

Speaker 4: would flow into the company. So it's a little unclear to me at this point from a geographical perspective on the P&L, whether it would be a gross and then net off cat-backs or whether it would come in through a different line. So I don't wanna speculate at this point. I've seen in other regions of the world in GF and other companies for that matter, those benefits come in through different lines. And so I don't wanna speculate on that at this point. What I can tell you,

Would flow into the company. So it's a little unclear to me at this point from a geographical perspective on the P&L.

Whether it would be a gross and net off capex or whether it would come in through a different line.

I don't want to I don't want to speculate at this point I've seen in other regions of the world in <unk> and other companies for that matter.

Those benefits come in through different lines, and so I don't want to speculate on that at this point.

What I can tell you is that with our geographical footprint and our diversification.

Speaker 4: is that with our geographical footprint and our diversification

Speaker 4: and with our ability to be differentiated in the marketplace and partner deeply with our customers. I'm just very encouraged by the environment that I see and I'm very encouraged by our customers willingness to partner with us to bring online this capacity. And then to the extent that governments also want to participate in that partnership, the more the better. So stay tuned on how that would flow geographically into the P&L. I'm just talking. Thank you.

And with our ability to be differentiated in the marketplace and partner deeply with our customers I'm just very encouraged by the environment that I see and I am very encouraged by our customers' willingness to partner with us to bring online. This capacity and then to the extent that the governments also want to participate in that partner.

<unk>.

The more the better so stay tuned on on how that would flow geographically into the P&L.

Understood. Thank you.

Thank you.

I would now like to turn the call back over to Toby for closing remarks alright.

Speaker 2: Right, thank you, Tomanda. Thank you everyone for your interest in GF and for joining us on this call. Please feel free to reach out with any questions. We look forward to speaking with you in the quarter.

Alright. Thank you. Thank you everyone for your interest in GFS and for joining US on this call. Please feel free to reach out with any questions and we look forward to speaking with you in the quarter. Thank you.

Speaker 1: Ladies and gentlemen, it's concludes today's conference call. Thank you for your participation. You may not.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.