Q1 2025 GlobalFoundries Inc Earnings Call
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Please be advised that today's conference is being recorded.
It is now my pleasure to introduce Senior Vice President, Finance, and Operations, Sam Franklin.
Speaker Change: Thank you, operator. Good morning, everyone and welcome to Global Foundry's first quarter of the 2025 Learning School.
Speaker Change: on the call with me today at Tim Breen, CEO , Niels Anderskouv, President and Chief Operating Officer and John Hollister, CFO .
Speaker Change: A short while ago we released GF's first quarter financial results which were available on our website at investors.gf.com Along with today's accompanying slide presentation.
Speaker Change: This call is being recorded and a replay will be made available on our investor relations webpage. During this call we will present both IFRS and non IFRS financial measures. The most directly comparable IFRS measures and reconciliation for non IFRS measures are available in today's press release and accompanying slides.
Speaker Change: Please note that these financial results are unordered and subject to change. Certain statements on today's call may be deemed to be forward-looking statements.
Speaker Change: Such statements can be identified by terms such as belief, expect, intent, anticipate, and may, or by the use of the future tense.
Speaker Change: You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements and we do not undertake any obligation to update any forward-looking statements we make today.
Speaker Change: For more information about factors that may cause actual results to differ materially from forward to
Speaker Change: Please refer to the press release we issue today as well as risks and uncertainties described in our SEC filings, including in sections under the caption, risk factors in our annual reports on form 20F and in any current reports on form 6K filed with the SEC.
Speaker Change: In terms of upcoming events, please note that we will be participating in fireside chats at the JP Morgan Global Technology Media and Communications Conference in Boston on May 13th and at the Bank of America Global Technology Conference in San Francisco on June 3rd.
Speaker Change: Niels will then discuss our recent design wins, highlights and expectations across the end markets.
Speaker Change: Following which John will provide details on our first quarter results and also provide second quarter 2025 guidance.
Speaker Change: We will then open the call for questions with Tim, John and Niels. We request that you please limit your questions to one with one follow-up. I'll now turn the call over to Tim for his prepared remarks.
Tim Breen: Thank you Sam, and welcome everyone to our first quarter, 2025 earnings call.
Tim Breen: impacting the global economy. I'm proud to announce that in the first quarter, our 13,000 dedicated employees helped deliver solid financial results at the high end of our guidance ranges across revenue, close margin, and EPS.
Tim Breen: Furthermore, GS Track Record of generating meaningful free cash flow continued in the first quarter, with consistent operational excellence across our global footprint delivering 165 million of non-IRFRS adjusted free cash flow.
This represents a free cash margin of approximately 10%.
Tim Breen: We've invested in place to grow revenue in a very capital-efficient manner. We will continue to focus on Christopher's generation as an important objective.
Tim Breen: In the meantime, our industry is not immune from the ongoing trade and tariff disputes dominating
Tim Breen: Although it is too soon to quantify the precise impacts of the demand and the supply chain dynamics, we are monitoring the changing landscape closely and where possible we have diversified our sourcing strategies to mitigate potential impacts on our cost base.
Tim Breen: As you've heard from some of our customers, it is likely that certain costs across the semiconductor supply chain will rise as a result of the tariff related activities. Where this is the case we will continue to work closely with our customers towards a mutually agreeable outcome.
Tim Breen: What is clear at this stage is the geographic resilience in way for manufacturing supply chains is an increasing priority for G.S. customers and given G.S. unique global footprint. We are able to support our customers both globally and locally further validating G.S. strategy and differentiated market position. We are able to support our customers both globally and locally. We are able to support our customers both globally and locally
Tim Breen: Achieving manufacturing scale and technology diversity across off footprint has been a multi-year strategy to invest in capacity with differentiated features.
Tim Breen: To that end, we have deployed over $7 billion into our US, Germany, and Singapore facilities since 2021.
Tim Breen: Customers have been at the core of this strategy and this will continue to be the case as we consider how best to meet their increasing demand while navigating the growing needs for security of supply.
Tim Breen: Despite at these uncertainties, the secular tailwind supporting long-term demand for the central chip technologies remained firmly intact.
Tim Breen: and we anticipate that our serviceable addressable market will grow at approximately 10% per annum through the end of the decade.
Tim Breen: at the Foundry of Choice to many of our customers, evidenced by nearly 90% source-source design winds over the last four quarters. We continue to gain share in critical and markets such as automotive and communications infrastructure and data center.
Tim Breen: as the range of applications, features and performance drives the need for increased semiconductor
Tim Breen: To that end, we have seen exciting traction with customers and applications aligned to the long-term secular growth trends in the end markets we serve.
Tim Breen: In optical networking, GF is not only at forefront of innovation with co-packaged optics, but we are also serving the large and growing pluggable's market with a 45 SPCLO solution.
Tim Breen: ISATCOM, GF content in both the base station and in orbit, is enabling the rapid deployment of commercial satellites on our 22 FDX, 12 LP, 130 NSX and 45 RFMI platforms.
Tim Breen: In Generative AI, JS Proof of 14 Anatomy and Technology is playing an important role, especially in inference workloads for large-language models.
Tim Breen: And finally, automotive continue to deliver year-on-year growth as we have grant opportunities and close new design wins on our 130 BCD and 40 ESF-3 Autopro platforms to support the increasing value of semiconductor content in the Zen market.
Tim Breen: Putting aside the short term uncertainty impacting our industry, GS Financial Profile remains robust.
Tim Breen: General companies metrics in more detail and they live GF well positioned to grow towards our long-term financial objectives both organically or inorganically should the right opportunities fit with our long-term strategic goals.
Tim Breen: In conclusion, thanks to the effort of our teams around the world, we believe GF's long-term future remains as bright as ever.
Tim Breen: As we partner with our customers with our differentiate technology, drive strong operational execution and ensure discipline cost management.
With that, over to you, Niels.
Thank you Tim, and welcome to everyone on the call.
Niels Anderskouv: As Tim mentioned, we continue to make good progress across commercial partnership and design winds with our customers, of which almost 90% were sole-sourced, class four-quarters.
Tim Breen: Our differentiated and diversified technology for you continues to drive, design minimum momentum across all the end magus we serve.
Tim Breen: With that, let me walk you through the key highlights for the Clawer by end-market.
Tim Breen: In automotive, we built upon our strong momentum with customers, kept at market share in one new designs, all of which supports our expectations for meaningful year-to-year revenue growth
Tim Breen: Despite soft end-market demand, our motive end-market continue to deliver meaningful year-over-year revenue growth in Q1, as the increasing silicon content and vehicles can help to offset short-term unit sales.
Tim Breen: Our broad and broad portfolio of differentiated solutions positions us to benefit from the proliferation of ADAS, safety and sensing applications, electrical vehicles and software defined vehicles.
Tim Breen: Deepest additional strength has been automotive processing, where we are the sole source foundry to the supplier for number one auto-micro-clect form.
Tim Breen: On top of that, we are winning a new applications across all of theography's research.
Tim Breen: In Q1, we achieve design wins across MCUs, battery management systems, motor control devices, and laser drivers for later in our 130 BCD and 40 years of free all-pro platforms.
Speaker Change: EF and NG semiconductor also announced a strategic partnership to introduce high performance radar systems on chip solutions using DF's outer-loaded qualified 22FDX platform.
Speaker Change: These solutions will target 77 GHz and 120 GHz radar applications to enable safety critical advanced driver system systems with low cost, smaller footprint and efficient power consumption.
Simuline Matz,
Speaker Change: Green Chip and Cadence, Anon Stable-USTF's ultra-low power 22FDX platform for ADAS and processing applications, citing the reliability and performance benefits of our integrated IRF and analog
Speaker Change: Looking further ahead, we expect GF to benefit from long-term growth in smart centers for radar, vehicle access, camera and networking as well as general purpose hour for our motive.
Turning now to smart mobile devices.
Speaker Change: very much you want declined year-a-year due to be docks in under-usualization payments from our customers consistent with our expectations.
Speaker Change: My certain customers continue their events, I burn down, we see good commercial traction and continue to win new designs across a broad range of applications as we seek to capture a constant of atturances between the handsets such as audio, haptics, display and imaging.
Speaker Change: With our latest generation IFS or IF platforms, we are not only maintaining our leadership position
Speaker Change: Include one with secured multiple new design wins in high front end with several top industry players, our solutions allow GF to expand share including strong check traction with customers in the US, Europe and Asia.
Speaker Change: Beyond our traditional strength and eye-frontend, we continue to broaden our portfolio and we design important display and imaging applications.
Speaker Change: Notwithstanding the broader tariff on certainties, we're seeing the same in momentum because it was possible to expand the use of offering in all of Android smartphones.
Speaker Change: We also continue to penetrate the gruel market for smart glasses with a Q1 design win for micro LED display back things using our 22FD X platform.
Speaker Change: This win was the result of our partnership with one of the largest players in the micro display industry that has solutions in most commercial smart glasses today.
Speaker Change: Lastly, we saw a continual adoption of our 55-BGD light platform for audio and hat-six in premiered here in smart phones.
Speaker Change: Our second generation, 55 BGD Lite, is on a development to further strengthen our differentiated offerings, and this new technology will enable customers, auditors and losers to be smaller and more efficient, which is critical for the latest designs.
Speaker Change: In IoT, Q1 revenue returned to a year or year growth. However, it remained somewhat cautious on the outlook for the second half of the year, as the uncertainty brought about by terrorists is likely to impact the demand levels for consumer-centric and industrial
Speaker Change: Jonathan, we're seeing a doctrine of geosechnology in AI-nabled edge devices, especially in our unsolute power and AIF-optimized platforms that are well positioned for these
Speaker Change: We're excited about the long-term opportunities in general purpose microcontrollers, image signal processors, and audio signal processors that serve home, industrial and medical educations.
Speaker Change: In Q1, we also secure design links across Wi-Fi 7 connectivity, cellar, IoT, medical consumer devices as well as consumer power management applications.
Speaker Change: Our benefit platform is increasingly optimized for low-leakers and eye performance. It's also enabling the exciting new features of next generation Wi-Fi 7, namely increased data speed, lower latency, improved reliability, and enhanced security for stronger encryption.
Speaker Change: This solution being adopted by the market will ramp in production in the second half of this year.
Speaker Change: We also secured first revenue from a design win for Broadmark Wireless MCU, used for IoT connectivity across consumer, smart home and industrial applications.
Speaker Change: Building our 22 FDX platform, this forward includes embedded non-volatile memory, a key different
Speaker Change: Law CBC continued traction in low power connected medical applications such as continuous glucose monitors and hearing aids.
Speaker Change: NHQ-1, we want to design for an AI-enabled audio DSP on 22FDX.
Speaker Change: T.F. segment is well positioned for this segment and we're seeing a solid pipeline of connected consumer medical device opportunities for multiple blenders.
Speaker Change: Finally, our communication infrastructure and data center and market grew year or year in the first quarter and we continue to expect meaningful revenue growth in 2025.
Speaker Change: With our diversified portfolio of differentiator offerings, we are developing a path for long term growth from communication
First,
Speaker Change: GFS Design Interest, the World's foremost satellite communication companies, and EQ1, we secured an additional design win for SACC on ground terminals on our 45 IFS or Y platform.
Speaker Change: Second, optical communication technologies in the data center are now seeing meaningful near-term remedial growth and our technology platforms are focused on enabling the data centers to get to the next level of performance to support the rising bandwidth and power requirements.
Speaker Change: Accordingly, we expect growing demand for optical transceivers that connect GPUs and AI accelerators to train next generation AI models.
Speaker Change: Not only is GF currently serving the ploughable market momentum is building for co-package objects.
Speaker Change: at the optical fiber communication conference in April , multiple companies demonstrated viable co-package optics solutions built on D.F. Silicon.
Speaker Change: GF's unique silicon electronic platforms offer seamless integration of a giant components with high performance Seymour's logic into a single die, allowing for production-related design that can support both scale-up and scale-up applications for AI workloads.
Speaker Change: Over all, we are encouraged with the progress of its making on commercial engagement and assignments in this space as we begin to capitalise on the exciting multi-year growth opportunities.
Speaker Change: I now pass the call over to John , but Deba died on 1st quarter, 2025, and engines.
Thank you, Niels.
Speaker Change: For the remainder of the call, including guidance, other than revenue, cash flow, capex, and net interest income, I will reference non-IFRS metrics which are included in today's press release and accompanying slides.
Tim Breen: As Tim noted, our first quarter results came in at the high end of the guidance ranges we provided in our last quarterly update. We delivered first quarter revenue of $1.585 billion, which represented a 13% decrease over the prior quarter, but an increase of 2% year over year.
Tim Breen: We ship to approximately 543,300 millimeter equivalent wafers in the quarter, down 9% sequentially and up 17% from the prior year period.
Tim Breen: ASP or average selling price per wafer was down modestly year-over-year due in part to the product mixed ship as well as a significant year-over-year reduction in underutilization payments.
Tim Breen: Wafer Revenue from our End Markets, accounted for approximately 88% of total revenue.
Tim Breen: Non-Wave for Revenue, which includes revenue from radicals, non-recurring engineering, expedite fees and other items, accounted for approximately 12% of total revenue for the first quarter. Let me now provide an update on our revenues by end-markets.
Tim Breen: Smart mobile devices represented approximately 37% of the quarter total revenue. First quarter revenue decreased approximately 21% sequentially and approximately 14% from the prior year period.
Tim Breen: In the first quarter, revenue for the home and industrial IOT markets represented approximately 21% of the quarter's total revenue.
Tim Breen: First quarter revenue decreased approximately 8% sequentially and increased approximately 6% from the prior year period.
Tim Breen: Automotive remained a key growth segment for us and represented approximately 19% of the quarters total revenue, first quarter revenue decreased approximately 25% sequentially and increased approximately 16% from the prior year period.
Tim Breen: For the first quarter, we delivered gross profit of $379 million, which was at the high end of our
Tim Breen: Operating expenses for the quarter represented approximately 10% of total revenue. R&D for the quarter was 114 million, and SGNA expenses were $52 million. Total operating expenses declined sequentially to 166 million in the quarter.
Tim Breen: We delivered operating profit of $213 million for the quarter at operating margin of 13.4%, which is at the high end of our guided range and 130 basis points above the prior year period.
Tim Breen: First quarter net interest income was $14 million dollars, other expense was $7 million and we turned income tax expense of $31 million for the quarter.
Tim Breen: We reported first quarter net income of $189 million dollars an increase of $15 million dollars from the year ago period.
Tim Breen: As a result, based on a fully deluded share count of approximately 557 million shares, we reported deluded earnings of 34 cents per share for the first quarter, which was at the high end of our guidance range.
Tim Breen: Let me now provide some key balance sheet and cash flow metrics.
Tim Breen: Cashflow from operations for the first quarter was $331 million.
Tim Breen: CapEx for the quarter was 166 million or roughly 10% of revenue.
Tim Breen: Adjusted free cash flow for the quarter, which we define as net cash provided by operating activities.
Tim Breen: At the end of the first quarter, our combined total of cash, cash equivalents, and marketable securities still at approximately 3.7 billion.
Tim Breen: We prepate $664 million on our extending term loan aid facility balance, lowering our total debt to $1.1 billion. We also have a $1 billion revolving credit facility which remains undrawn.
Tim Breen: Next, let me provide you with our outlook for the second quarter of 2025.
Tim Breen: We expect total GF revenue to be $1.675 billion plus or minus $25 million. Of this, we expect non-wafer revenue to be approximately 10% of total revenue.
Tim Breen: We expect gross margin to be in the range of 25% plus or minus 100 basis points.
Tim Breen: Excluding share-based compensation, we expect total operating expenses to be $185 million, plus
Tim Breen: We expect I've already margined to be in the range of 14% plus or minus 180 basis points.
Tim Breen: At the midpoint of our guidance, we expect share-based compensation to be approximately $52 million of which roughly $15 million is related to cost of goods sold.
Tim Breen: We expect net interest and other income for the quarter to be between three million and eleven million dollars and income tax expense to be between thirty three million and forty seven million dollars.
Tim Breen: For 2025, we expect GF's non-IFRS effective tax rate for the year to be in the high teens percentage range.
Tim Breen: Based on the multiple jurisdictions where we do business and the dynamic tax policy environment, we expect this indication to be consistent with our normalized tax run rate for the remainder of 2025.
Tim Breen: Based on a fully diluted share count of approximately 560 million shares, we expect diluted earnings per share for the second quarter to be 36 cents plus or minus 5 cents.
Tim Breen: We retain flexibility in our capital expenditure plans and will nibbly adapt to changes in the outlook trajectory. We remain highly focused on controlling costs while balancing the investments needed for our exciting long-term growth opportunities as highlighted by Tim and Niels.
Tim Breen: For the full year 2025, we continue to expect OPEX to be roughly in line with that of 2024. Similarly, our CAQBOX expectations for the full year 2025 have not changed since our last earnings call.
Tim Breen: From our strong design wind pipeline to our diversified product portfolio to our cost discipline and adjusted free cash generation, GF is well positioned to capitalize on the opportunities ahead.
Tim Breen: I'll now pass it back to 10 for closing remarks before we move to Q&A.
Tim Breen: Thanks John , to recap, I would like to reiterate how strongly GF is committed and how uniquely GF is positioned to being a trusted partner for our customers.
Tim Breen: Our differentiated essential chip technologies offer customers a diverse portfolio of solutions to win in the end markets that they compete in.
Tim Breen: Our Global Footprint offers customers supply flexibility and security where they need us both globally and locally.
Tim Breen: Our Responsible Manufacturing helps customers achieve their sustainability priorities, as indicated by recent announcements featuring our collaboration with Infinian and Apple in conclusion.
Tim Breen: The direct and indirect impacts of trade policy and the broader economic climate that this results in still remains to be seen. However, our first quarter results demonstrate consistent execution and financial resilience.
Tim Breen: We will monitor the situation closely and take actions within our control to navigate the uncertain macro environment. However, a lot of growth opportunities and financial foundations remain strong.
Tim Breen: We will continue to leverage our unique and diversified global footprint, support customers and meet them where they need us.
With that, let's open the call for Q&A. Operator? Yeah.
Certainly.
Tim Breen: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment please.
Speaker Change: Our first question comes from the line of Mark Lipacis with Evercore ISI.
Hi, thanks for taking my question.
Speaker Change: Tim, I believe you touched on the tariff issue on the cost side. I was wondering if you could give us a framework for thinking about
Speaker Change: Tariffs on the on the revenue side and perhaps maybe remind us what percentage of your revenues can you manufacture and multiple geographies.
and to what extent is the current tariff? [inaudible]
Speaker Change: discussions out there give you better visibility into demand or enable you to take share from you do your direct foundry competitors or from internal manufacturing groups at your own customers. So it'd be great if you could provide any color on this side of the tariff dynamics.
Yeah, thank you, Mark, and obviously a very timely question.
Speaker Change: Just to be consistent with what we said already and what you're hearing from others in the industry, we haven't seen in the short-term significant impacts from tariffs, neither pushing out or pulling in of orders for Shofa Q1 and Q2, that's the situation that we've been in important to reiterate that for the second half and into 2026, it remains to be seen what the broader environment is
Speaker Change: Impact is from tariffs based on consumer demand and industrial demand. So that we remain, obviously watching very closely and remain focused on.
Speaker Change: However, I think you know you're touching on something very important for us, which is [inaudible]
How are manufacturing footprint provides? [inaudible]
Speaker Change: Optionality for customers in this difficult time and I think what...
Speaker Change: It's interesting and has been picking up significantly is the inbound interest in specific sourcing choices and let me zoom on the US.
Speaker Change: as obviously the most relevant case in point here, where a number of our customers have been talking about.
Further increasing US content.
either for existing road map products or for porting existing designs.
Speaker Change: from either our competitors or from other geographies into the US.
and that's been actually a cross. [inaudible]
Speaker Change: We've seen that in areas like automotive, aerospace and defense. Those that you think were traditionally very focused on domestic supply here in the US. But what's been interesting is how that has now grown into sectors like the data center, like communications infrastructure. And then even on the more consumer facing sectors like mobile devices and the IoT, we also see what was previously a balanced preference to becoming much more of a strong preference for US sourcing.
Speaker Change: You touched on something else, I think, very relevant. We've been investing over the past period in making our manufacturing footprint as flexible as we can with the majority of technologies qualified in at least two fabs, in some cases even three fabs.
Speaker Change: which allows us to also address different requirements of that customer base. So NetNet in a while the situation in the medium term is a little bit difficult to predict. I think long term we definitely see this as a tailwind for GF.
Speaker Change: That's got very helpful and a follow-up if I may, maybe for John . The ASP, it's like they came down. How should we think about ASPs for the rest of the year and what levers are you pulling to offset the ASP declines to maintain the gross margins? Thank you.
Yeah, Mark certainly.
John Hollister: So, you know, looking back at the kind of the framework for our ASP calculation underutilization payments are components of wafer revenue. And as you can see from year to year, as we mentioned in our prepared comments.
John Hollister: Second, putting that aside and looking for the year, we do expect ASPs to decline roughly mid-single digits broadly speaking for the company for the year and what's comprising that is primarily mix. That's the main factor at work there and let me explain that where you can have a product that has many more mask layers versus another product that change in the mask count if you will can drive a differential on the ASP calculation.
John Hollister: from a mixed perspective. So that's really the primary effect part of what you're seeing.
John Hollister: and Bart Gross Margin, as you indicated, that is really the ultimate measure of how we're addressing that, and we see the continue to have levers around Gross Prophet Margin to drive our performance.
John Hollister: including battery utilization, the roll-off of our depreciation costs, structural cost improvements, and as I mentioned product mix can also be positive from a gross margin perspective even if you basically see ASP impacts from the mixed dynamic.
Speaker Change: and maybe Mark, if I can just add a comment from my side there. You know, we've said before, the overall pricing environment for our differentiated technologies is...
Speaker Change: Constructive, and the reason we still believe that to be the case is when we compete on these
Speaker Change: Technologies were competing on features, the ability for us to add value to our customers for them to win in their markets and actually also on time to market which is a critical factor. And so those are difficult to do and therefore scarce in terms of availability and we remain prices always a factor but it's definitely not the primary or even secondary factor in those those awards and I think as we mentioned in the prepared remarks 90%
Speaker Change: Approximately of our design wins over the last four quarters have been on that sole source.
Bases.
Speaker Change: There will always be a portion of our business, a small portion that is dual-sourced.
Speaker Change: And there'll be times in the market where we seek to increase our share of that dual source part for certain parts of our capacity. And that might mean an ASP trade off where we get more revenue at lower pricing, but we'll do that very deliberately to optimize our utilization and improve our profitability. So that dynamic also plays out. But as John said, ASP is not necessarily a good indicator for future profitability, a number of other factors mentioned are at work there.
Very helpful. Thank you.
Speaker Change: Thank you, and our next question comes from the line of CJ Muse with Cantor Fitzgerald.
C.J. Mews: Good morning, thank you for taking the question. Was hoping to focus on your comms in for a data center business?
C.J. Mews: Obviously 2024 was a correction year, but your commentary on the call definitely sounds much more upbeat both in terms of design wins in the growth trajectory for 2025. I know you've always been very strong in silicon photon, but your commentary on transceivers.
Speaker Change: You've got Grock, you know, more kind of newer players like I or Labs and Light Matter, and you also talked about sitcoms. So I believe you were thinking growth kind of in the high single digits before. How should we think about that now for 2025?
Speaker Change: and then perhaps more importantly, how should we be thinking about the growth within that segment beyond 2025?
Speaker Change: Yeah, thank you CGR, I'll give an overview and then perhaps I'll need to add a bit more color on our photonics in particular because I know that's of interest.
Speaker Change: So as you note, we had significant year-on-year growth in communication infrastructure and data center in the first quarter, and we're looking to a high teens growth for the full year for that market, which obviously is strong growth for that segment.
Speaker Change: And the reasons are, you know, very clear. Number one, obviously we're seeing substantial investments more broadly in the data center. And the work that we've been doing over the past, you know, now multiple years, to position GF technologies for those data center requirements is starting to really pay off.
Speaker Change: And that's for a very clear reason. Today's data center uses a lot more data, more storage, more transmission of data for the applications and workloads in question. And it does so with a significant increase power. And so we've been very much focused on positioning GF technologies to serve those requirements and that underpins that growth. And as you also note, we don't just have one solution in that space. We have solutions on our silicon germanium platform in things like TAA and drivers, but also pluggable silicon photonics. And now as you start to note, we're going to have a look at the data center. We're going to have a look at the data center.
Speaker Change: Transition to co-packaged optics. So, again, I think not just a short-term story, but a long-term story for growth as well. Niels, anything to add? Yeah, I can go a little bit deeper on the silicon photonic, but maybe also just highlight, you know, strong growth on the satellite communication side.
Speaker Change: We'll be winning across the board and satellite communications, the last space to raise the tenors, Strong Assignment went in there, SADCOM, satellite wind from our 455 is our iPlatform.
Speaker Change: in addition to that, and of course, 22FDX and 12LP and 130 NSX in the previously announced SAT-com platform. So strong growth there as well that plays into the CID, but maybe going a little bit deeper on silicon photonics.
Speaker Change: It is our fastest growing battleground. It's an area we've been investing in for a long time.
Speaker Change: and we build a very strong technology versus competition where we actually have the Silicon
Speaker Change: with the high performance Seymore as I believe the only supplier in the industry. So this is allowing us to have very strong performance in the pluggable segment that is taken off and is being used within.
Speaker Change: Data Centers between the server and data centers, and then now, you know, good momentum building on the co-packets designs, which really is targeting the communication between the GPUs and CPUs in the data centers.
Speaker Change: So, we just came from the optical fiber conference, there were several customers both larger and smaller ones demonstrating, you know, co-packed technology solutions based on DF technologies and as we speak here, you know
in deep execution with
Speaker Change: Multiple of the major players on co-pagocelic competonics are here under actually having tape outs happening both within this quarter and the next few quarters. So, feeling quite confident about the growth in silicon competonics and very excited about the co-pagocelucions.
Speaker Change: Very, very helpful color. As I follow up, I was hoping perhaps you could drill that into some of the other red markets.
Speaker Change: You know, our auto kind of took a pause here in March. How are you thinking about the rate of recovery through the year and do you see all kind of segments growing in calendar 25 or perhaps?
Speaker Change: Of course, let me start with smart mobile devices. I think the base case remains largely consistent.
So we expecting a flatish market in 2025.
Speaker Change: IOT, specifically. Last time I mentioned that the inventory was starting to come down, and expecting to see growth from some of the co-IOT players. And that's exactly what you saw in the latest announcements from some of those players.
Speaker Change: We grew, DF grew IOT, Year in Year in Q1, however due to the uncertainty on the consumer spend, we expected here to be more of a flatish kind of IOT.
Larko Tremdell, very well positioned.
Speaker Change: with our eye power and Seymore's portfolio. And we have solid design momentum, you know, in areas like medical, audio, industrial power, connectivity, tracking, identification and security, so pretty much across all the segments.
Speaker Change: Solid, Solid Disignment Growth, and Proof Ones from Q1 and IOT.
You know, the assignments in Wi-Fi 7 with our Fin-Fate portfolio.
Speaker Change: And I want to remind people of Fimpit Portipola is getting more, more optimized for low power and thereby an IF performance and thereby have a great fit for Wi-Fi 7, MCU and all UDSP's for connected MCU's and AI enabled all UDSP's and 22 FTX.
Speaker Change: and then Medical Power and Cellar IOT on a border base on 130 and 55 BCD light. So pretty good design with momentum in IOT and expecting.
Speaker Change: You remember that we have consistently delivered sharegames since our IPO.
Speaker Change: And you probably also remember that last year we delivered about 15% the year under the Motor Growth in 24.
Speaker Change: So, ready today, really a result of assignments over the last several years, but what I'm excited about is we have...
Speaker Change: Stept it up in terms of automotive qualifications, if you mentioned earlier that all of our facts are now automotive qualified but in addition to that all our major technologies are automotive qualified and several of them are automotive pro qualified. Thank you very much.
Speaker Change: A couple of here technologies I'd like to call out is 40 years of free. Obviously, you know, big moments in there with the leading MCU, automotive MCU provider in the industry. 130 BCD, you know, very strong in battery management systems. And then now 22 FTX, you know, being seen very, very strong traction across.
All Sense Applications, specifically in Raider. Thank you.
Speaker Change: So the future, you know, looking, you know, as strong as what we have in the past and we really feel will be a procession to continue to take share in the automotive space.
Speaker Change: ACJ, this John is going to add one point of clarification. So our view on smart mobile devices for the year on being flatish is net of the underutilization payment delta. Thanks for a year to year, which is about $100 million just. Thanks John , I should have mentioned that. Thank you.
[inaudible]
Unknown Speaker . .
Speaker Change: Thank you. And our next question comes from the line of Vivek Arya with Bank of America.
Vivek Aria: Thanks for taking my question. For the first one, is exiting 2025 at 30% gross margin still at the target?
and if yes, you know, is that consistent with growing...
Q3 and Q4 kind of like this, you know, mid-single digit rate, sequentially or has anything changed.
Vivek Aria: in that framework versus have you thought about it on the last learning show?
John Hollister: Yeah, thank you Vivek, and so maybe I'll give a bit of colour of our overall trajectory to margin expansion and then John gives some colour on 2025 itself and so, you know, there are really three factors that give us a lot of confidence in our ability to grow margins in line with our long-term target of 40%.
John Hollister: And you know, we talked about some of them on the call already. The first one is…
John Hollister: The ramp of differentiated technologies and so all these designs we've mentioned, where we're competing on performance, where we're competing on ability to add value to our customers.
John Hollister: The vast majority come in significantly above corporate averages and corporate goals in terms of those price outcomes.
John Hollister: and that gives us confidence in the ability to ramp as those grow as part of our business.
John Hollister: I think the second factor is the depth we have with customers but also the opportunity to do more. As you can imagine I've been on the road in the last couple of months spending a lot of time with customers and I would say with no exceptions the appetite to do more in existing areas but also in new areas is very strong and even for some customers where we have relatively low share today the opportunity to do more is very much there and some of that is the differentiated technologies but also some of it is back to the footprint discussion that we had.
Earlier, so there's appetite to significantly increase. [inaudible]
John Hollister: But the third factor that's really structural is that we have a significant manufacturing footprint as you heard in the prepared remarks.
John Hollister: We've invested over $7 billion in 2021 to build that footprint, both scale and diversification and that allows us to serve anywhere between $9 and $10 billion of revenue depending on the mix.
without Significant. [inaudible]
CapExpending, and definitely without significant increase in fixed cost.
John Hollister: and that allows us to basically have a lot of a creative flow through from top-line growth, both as both design wins and customer depth ramps, but also as the broader market comes back. And so that gives me long-term confidence enough in our model. Perhaps John , you can comment about 2025 itself. Yeah, sure, Vivek. So, you know, clearly...
John Hollister: The tariff concern is lingering out there as Tim and Niels have both indicated and potentially impacting the more consumer oriented end markets that we have in SMD and some portions of our IoT market.
John Hollister: So we just have to acknowledge that. Putting that aside, you know, under the base case of growth this year.
John Hollister: We do expect utilization to increase our utilization level and Q1 was around 80% in our factories.
John Hollister: So it starts with that, that's a key element to absorbing our fixed costs and improving our profit margin.
John Hollister: The second factor is the improvement in our depreciation cost as we've been able to operate in a more capex light manner for the last couple of years here at around 10% even less of a function of our revenue on capex and leveraging the substantial amount of investment in our factories that have been made over the years as Tim indicated in his prepared commentary.
John Hollister: And we remain confident that that improvement would be on the order of about $250 million in fiscal 2025, a vast majority of which does affect gross profit margins. So that's another key factor at work here.
Niels Anderskouv: Third is an improving product mix where some of the exciting new highly differentiated product lines that Niels was talking about that are ramping or actually coming in at above corporate average gross profit margins. So that helps.
Niels Anderskouv: as well. And finally, we have ongoing efforts in terms of a structural cost improvement to help improve our efficiency. So putting that all together, Vivek, we do continue to have the view that with the base case assumptions, we have the possibility to exit 2025 at 30% gross margin.
and that's pretty helpful, and for my follow-up.
Speaker Change: You know, maybe I'm kind of nitpicking here, but you mentioned that the vapor ASC could come down sort of in the mid-single digit range.
Speaker Change: When we look at commentary from a lot of the diversified automotive and industrial IoT customers.
Speaker Change: I don't know whether I'm reading too much into this but...
Speaker Change: Conceptually, you know, should your pricing, you know, come down at the same pace, why, why would it be a different and then I've also had a point of clarification there. What was the apples to apples way for price decline because on a reported basis, it is down 13%
Speaker Change: But if I remove the 82 million, I think you had in term, Nation C's and Q1 last year, it's down 8%. But just wanted to kind of clarify that numerically. And then why should there be a difference between how your customers are planning their pricing versus how you are thinking about your vapour pricing. Thank you.
Speaker Change: Yeah, but it's so certainly the kind of three factors that work here are...
Speaker Change: The underutilization payment dynamic, I think you understand that. And then looking beyond that, it's really a combination of primarily mixed changes. So I mentioned that earlier in the earlier responses.
where, you know, difference. [inaudible]
Speaker Change: and different types of products can carry different ASPs and some products with lower ASPs actually have higher gross profit margin.
Speaker Change: So that's not really a great indicator on profitability from that dynamic and then finally it's the point that Tim was mentioning where in some few cases we have chosen to take market share with modest price allowance.
Speaker Change: in some markets where there's a dual source dynamic, but that's not the major driver of the first two factors that I mentioned.
Speaker Change: Yeah, if I may, you know, maybe just explaining, you know, why law is peace is not necessarily equivalent to law margin.
Speaker Change: You look at the process notes that we are positioning into the market space and maybe have very good differentiation and good margin on. Some of those process notes have only what we call
Speaker Change: 25 mask layers, versus Autoprosis notes, you know, that already in production are sitting maybe at 50-60 mask layers so you can...
Speaker Change: You can very quickly understand that the cost difference between two technologies like that is quite big and thereby you can at a lower wafer ASP you can end up with much better margins.
Thank you.
Speaker Change: Thank you. And our next question comes from the line of Ross Seymore with Deutsche Bank.
Ross Seymour: Hi guys, thanks so much for the question. Lots of good stuff on the year as a whole. I wanted to just get a little shorter term with my first question. For the second quarter guide, by Ann Markets, versus the roughly up 6% overall.
Speaker Change: Which markets are growing above that or below that or if you want to talk kind of in absolute terms and what's the reasons behind those drivers by and market please.
[inaudible]
Speaker Change: John , you want to comment and then I'll add some comments. Yeah, sure. I mean, we generally see you, wherever it's just a pattern, they're Ross of the crew member of the 2nd quarter. And so we mentioned the 1st quarter being the low point on the swarm mobile device category. But it's fairly well distributed.
Niels Anderskouv, Sam Franklin, Niels Anderskouv, Sam Franklin, Unknown Executive
Okay.
Speaker Change: Thanks for that. And I guess a bigger picture question. Kim, in your preamble, you talked about confidence in the company's ability to grow over time for a number of different organic reasons, but you also mentioned inorganic. I don't expect you to comment on any specific deals or opportunities, but just wondered what is the general strategy around what you would look for in those inorganic opportunities.
Speaker Change: Yeah, thank you Ross. So, you know, for us the way we think about, you know, M&A as a growth lever is really very much aligned with our strategy and so as we've laid out in the past, you know, going deeper on a different sheet of essential chip portfolio, meeting our customers where they need us and adding capabilities that meet their requirements.
Speaker Change: and then obviously offer print itself. And I'd say, if you'd have to think about where we'd be most focused in an organic, it's really on the first...
Speaker Change: of those pillars and potentially slightly on the second and so we'll look for areas where we can add value to our experience and that could be on the technology side like the acquisition we made last year with tech or technologies but similar areas where we can bring value to the platform.
Speaker Change: There's nothing critical needed to execute our strategy, but we'll definitely be opportunistic about opportunities that can help us accelerate based on that differentiation.
Unknown Speaker . .
Speaker Change: Thank you. Ross, if I could just quickly add, in terms of our firepower in terms of an organic activity, we're very well positioned. We ended the quarter of the $3.7 billion in cash and investments in another billion dollars.
in the capacity on our revolver that's on draw on.
Speaker Change: So that puts us in a good position and I also want to emphasize that we continue to view free cash flow generation as a major goal for this year and have the goal of exceeding a billion dollars in free cash flow again in 2025 as we did in 2024.
Great, thank you John .
Speaker Change: Thank you. And our next question comes from the line of Chris Caso with Wolf Research.
Chris Caso: Do you expect with the elimination and the payments that happened last quarter, are we pretty much done?
Chris Caso: With that headwind, is there any potential future headwind and anything left to roll off? And can you quantify in getting to this goal of 30% gross margins for the year, what's the headwind from the absence of unusualization payments on a year on your basis?
Chris Caso: Yeah, Chris is John . Yeah, first part of your question is yes, we do expect that to be largely behind us if you will. You know, you may have some modest amount of time from time to time but largely behind us.
Chris Caso: and you know it's several points of a gross profit margin that we are overcoming here and related to that if you pay few.
Chris Caso: You know, wish to think of it that way. I mean, really the way to-
Chris Caso: The way I think of it more is that this has allowed us the ability to absorb a downturn in the industry and we had the framework in place to allow us to be, you know, partially compensated for that. So I actually think it was positive, very positive from that aspect, but I understand the angle of how you're asking.
Okay, thank you.
Speaker Change: But also in your prayer remarks, you talked a bit about the tariff impact, and I guess I'm focused here on the direct impact, such as, you know, additional cost that you may have to encounter on that. I guess one is, you know, have you done any work with being able to identify what the magnitude of that may be. And then secondly, you know, what's your ability to pass it on to customers? Yes, I do.
John Hollister: Yeah, Chris, this John again. So, we have analyzed that and clearly a good portion of the semiconductor input landscape is exempt from tariff, but not 100% of it. So looking at the balance of input cost that is not exempt.
John Hollister: from Tara if we have roughly estimated that at about a $20 million annualized impact on us with a very minimal portion of that affecting second quarter that is comprehended in our guidance by the way.
John Hollister: So that's that's the rough framing. Grinch definitely need to keep an eye on this and monitor it, which we which we are doing. And yes, as we continue to assess the materiality of terrace overall, we will
John Hollister: Look at how we can pass this through in terms of our ASPs and commercially.
John Hollister: Yeah, I think Chris just had from my side. I mean, the reason that impact is so low is based on the fact that we've got a very diversified supply chain on a global basis and all of our fabs have broad sets of suppliers that we can tap into if we see dynamics like this and so we're able to keep that to a bare minimum relative to some other companies.
John Hollister: Yeah, I just got a final point. I mean, Bear in mind, our fall are a global footprint where, you know, a good portion of our manufacturing is outside the United States. So, two of our three 300 millimeter fabs are not in the United States as well.
Thank you.
Speaker Change: Thank you, and our next question comes from the line of Quinn Bolton with Needhaman Company.
Speaker Change: Hey Jen, just wanted to ask on the second quarter gross margin, looks like the guidance for 25% implies a fairly low or maybe on the low side incremental fall through on them.
Speaker Change: 2nd quarter, just wondering if there are any specific puts or takes on 2nd quarter gross margin at 25%.
Speaker Change: Quinn, you know, it's really mixed from that perspective, but yeah, it's really looking at mix primarily driving that.
Speaker Change: Great, and then maybe a longer-term question. You guys talked about several design wins and
Speaker Change: Tate Bout, Zimmerman, and on the CPO side. You know, based on your discussions with customers, what do you see the volume ramp? Is that something you think ramps in 26? Is it take longer to get, especially on the scale up network side? Yeah, that's right.
Speaker Change: I think maybe I'll just give a bit of colour on that trajectory and then ask Niels for what we're hearing in the industry more broadly. The industry's gone through an evolution of its view about...
Speaker Change: The Ramp of the Tonics, and I think it's very clear that this has moved from an if to a when-
Speaker Change: Stateman, both on, you know, use of athletics more broadly, but definitely on CPO and there were announcements at Edoos Niels mentioned, but even before OSE, including industries like Nvidia that talked about co-packaged optics for scale-out applications in their case. So, I think there's no more debate.
Niels Anderskouv: about whether or not CPO, obviously rating pace of transitions, always a little bit uncertain, maybe Niels, share a bit your perspective on that.
Niels Anderskouv: Yeah, maybe the first way to think about it is what co-package optics does.
Niels Anderskouv: within the data center between the GPUs is it enables a pretty substantial performance improvement.
Niels Anderskouv: as well as a pretty substantial power reduction. And so when you think about the next generation data centers, this is just becoming even more urgent now that you can see what you can
Niels Anderskouv: and that is what really have heightened the urgency, you know, from the major players in getting this tomorrow as fast as they can.
Niels Anderskouv: So, we're excited about it. We've got the technology, well positioned and ready. We have our team's maniacally focused on flawless execution as we work through it.
Niels Anderskouv: and we expect to be ramping with these players among the earliest of the optical Silicon
Thank you.
Niels Anderskouv: Thank you. And our next question comes from the line of Krish Sankar with TD Cowan.
Speaker Change: © 2016 University of Georgia College of Agricultural and Environmental Sciences U.S. Department of Agriculture University of Georgia College of Agriculture San Francisco Department of Agriculture Bureau of Agriculture Bureau of Agriculture U.S. Department of Agriculture
Krish Sankar: Yeah, thanks for taking my question. I took them on the first one on the smart mobile side. I think John , you mentioned
Speaker Change: Joseph Moore, Broad Based, and also within Mobile, you see me getting more traction in RF front and products. How do you think about those gross margin versus the 22-50-finanimate mobile products? Then I have a quick follow up.
So maybe Niels, you can come in on the market. [inaudible]
Niels Anderskouv: Yeah, I would say maybe less of an inventory but more of an underutilisation challenge that happened in the EMU and it might have changed.
Niels Anderskouv: You know, when you take that out of the picture or exclude that out of the picture, you know, basically, you know, flatish but I think what's really...
Niels Anderskouv: exciting for us in the smart mobile device spaces that not only do we have strength and solid design lens on the eye front lens, like you mentioned, but VXE also was starting to see
Niels Anderskouv: Very good soluble momentum on display imaging as well as haptics and audio in the SMD space and not to mention smart glasses where we got our first major design in first quarter for micro LED displays.
Niels Anderskouv: So there's a lot more going on than just the eye of front end and in general I would say the margins are I created to our business, the margins will be winning and I created to our business to answer your specific question.
Niels Anderskouv: Carter, Carter, very helpful, and then just a quick follow-up on autos, and thanks for all the color that you gave on Tatters, I'm just trying to, there's so many moving parts there, but given that on the end market for autos, like obviously Tatters has an impact.
Niels Anderskouv: China vs. you as Otto, this difference in their growth, quite a curious factoring all of that, so you still expect double digit growth in authors for your author's segment this year.
Niels Anderskouv: Again, I think, maybe, you know, general view and his ad to it, Niels as well. You know, this is very much a story of G.F. Chergaine relative to others versus, you know, increase in sales at the forecourt increasing, obviously that environment is relatively weak, but G.F. Chergaine's story is relatively strong, and that's based on...
Niels Anderskouv: Number one, us winning with our customers, but also our customers and Niels Kaisen's specific examples winning in their markets and taking shares. So we remain very confident based on the shared dynamics.
Niels Anderskouv: And the sharegames comes from, of course, the original play, you know, another mode of M2U where...
Niels Anderskouv: where we have the same wins with the fastest-growing players, but it's also very exciting what we're seeing. I mentioned earlier what we're seeing on our power technologies for battery management system as well as the body.
Niels Anderskouv: The body power controls within the car and then of course all the sensors and specifically radar where 22 FDX has really become an industry standard.
Niels Anderskouv: that this year games come from our regular position and then in addition adding new market areas where we are growing from almost nothing to more meaningful revenue.
Thank you all for listening, John . Thanks, Krish. Andrew, we'll take one last question.
Speaker Change: and our final question comes from the line of Mehdi Hosseini with SIG.
Speaker Change: Hi, thanks John . So my question is on home in IOT. I'm feeling for Mehdi, it's
Speaker Change: You still have two quarters of fear on your growth. I was wondering if you could give us some color on how much of that 6% is being driven by volume versus pricing, and is it improving your visibility really to the end of the inventory, digestion that's been a little bit hard to call, and I have a follow-up.
Niels Anderskouv: Yeah, Niels, do you want to comment on the market? Yeah, I can comment on that. You know, as mentioned earlier on, the inventory has certainly come down and I know it at more, you know, what do we say in that normal levels.
Niels Anderskouv: Also, I mentioned earlier on, you see the players that are strictly our team players, you actually see them having very strong growth.
Niels Anderskouv: in Q1, I'm sure you saw some of those announcements.
Niels Anderskouv: And that's really what we believe that we're seeing as well again as I mentioned earlier on.
We are cautious here because of consumer sentiment.
Niels Anderskouv: But I can mention maybe a couple of major wins that we had in Q1, you know, we have Wi-Fi 7, you know, on our FINFET technology, connected MCUs, AI-enabled audio DSPs, medical, you know, blocked and closed monitoring.
Niels Anderskouv: Power in general and then cell IOT. So these are all this time into the first quarter that boats well for, you know, where IOT is going for the year of the future.
That's the end of the year, a quick follow-up.
Speaker Change: Oh, yeah, I won. In terms of the smartphone, I think the revenue was a little bit lower than we expected. Any particular category on the high end or a mid-hand smartphone that you saw drawing that decline in revenue and related to consumer demand, you know, is that decline more of a, you know, building, you know, customers building more inventory than expected or is that more of a consumer demand or if you could just share a little bit of light on [inaudible]
Speaker Change: You bet this, Johnny. We're really point to two factors. One is Niels Mitchen, several times. It's the roll-off of the underutilization payments from one year ago to first quarter 25. And then secondly is just the seasonality of this being a seasonally low period. We expect us some data to continue to ramp throughout the year.
Speaker Change: Thanks, Martin, and thank you Andrew for emceeing the call. Appreciate everyone and the questions raised today, LePorte, seeing and speaking to you many of you over the next quarter. Thank you.
Speaker Change: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Alec Baldwin: Christopher Danely, Ross Seymore, John Hollister, Thomas Caulfield, Thomas Caulfield,
Speaker Change: Christopher Danely, Ross Seymore, John Hollister, Thomas Caulfield,
Speaker Change: Christopher Danely, Ross Seymore, John Hollister, Joseph Moore, John Hollister, Thomas Caulfield,