Good day, and thank you for standing by. Welcome to the GlobalFoundries conference call to review the first quarter of fiscal year 2024 financial results. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sam Franklin, VP of Business Finance and Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries' First Quarter 2024 Earnings Call. On the call with me today are Dr. Thomas Caulfield, CEO; John Hollister, CFO; and Niels Anderskouv, Chief Business Officer. A short while ago, we released GF's first quarter financial results, which are available on our website at investors.gf.com, along with today's accompanying slide presentation. 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 IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. I would remind you that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings, including in the sections under the caption Risk Factors in our annual report on Form 20-F filed with the SEC on April 29, 2024. We will begin today's call with Tom providing a summary update on the current business environment and technologies, following which John will provide details on our end markets and first quarter results and also provide second quarter 2024 guidance. We will then open up the call for questions with Tom, 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 Tom for his prepared remarks.

Thank you, Sam, and welcome, everyone, to our first quarter earnings call. We believe our industry is beginning to emerge from a challenging period of inventory correction, albeit in a very cautious manner. For GF, I'm pleased to report first quarter results that exceeded the guidance ranges we indicated in our fourth quarter earnings call. The continued efforts of our employees are positioning GF to support our customers over the long term in the markets where they excel, on the technology platforms they want, and across the regions where they need us, both globally and locally. So before I move on to the business update, let me give a shout out and thank you to all our teams across the world. I'm proud of how well they are partnering with our customers and executing to our plans, particularly as we begin to see signs of channel inventory in absolute dollars decline in some of the key end markets that we serve. Having said this, certain end markets remain challenged, mostly related to macroeconomic conditions, and the rate of inventory reduction is much slower than anticipated as we began 2024. I'm confident in the resilience and commitment of our teams to keep winning new opportunities and innovating our technology offerings as we continue to build our future together. With this in mind, let me start with providing a brief update on the current business landscape. Like many others across the industry, we expect macroeconomic and geopolitical uncertainties to persist through 2024. Although we're seeing signs of inventory levels trending down among some of our customers in core end markets such as smart mobile devices, other customers have indicated to us that inventory levels have remained higher in end markets such as IoT and automotive. The combination of elevated inventory levels and the uncertain demand environment has led to some of our customers seeking to adjust their near-term volume requirements under their agreements with us. We have continued to collaborate closely with these customers to find mutually beneficial outcomes while seeking to safeguard the long-term economic value of our relationships. In some instances, the conclusion of these discussions has resulted in underutilization or restructuring payments, which John will comment on further. Importantly, the dialogue with our customers has been very constructive as we work together to accelerate the channel inventory depletion and continue to find new ways to partner together going forward. Based on the progress of these discussions and as we set out during our last earnings call, we still anticipate that our first quarter revenue will represent the low point for 2024 with quarter-to-quarter sequential growth through the year. Let me now touch briefly on our first quarter results, which John will discuss in more detail later in his commentary. Revenue in the quarter decreased sequentially to $1.549 billion, which was above the high point of our guidance range. We reported non-IFRS gross margin of 26.1% in the quarter, which again exceeded our guidance range. We delivered a fourth consecutive quarter of positive non-IFRS free cash flow, which continues our disciplined approach to capital deployment while preserving our strategic capacity expansion objectives. I am also pleased to report that we delivered non-IFRS diluted earnings per share of $0.31, which exceeded the high end of our guidance range. Let me now provide you a brief update on some of our recent customer and partnership activity. After a milestone year for our automotive end market in 2023, in which we delivered over $1 billion of revenue, we are continuing to partner with our customers to identify long-term opportunities to expand share and content in the vehicles of today and the future. GF technologies are key enablers to the silicon content growth in vehicles, including 12LP+, our FinFET platform widely used in infotainment and navigation systems, to 40-nanometer microcontrollers with and without embedded nonvolatile memory for safety, powertrain and comfort applications, and all the way through our power technologies at 130- and 180-nanometer technologies. Continuing this trend through the first quarter, our teams closed key design wins on our 40 ISP technology, this is for image sensor processor, and 130 BCD power platforms, delivering critical ADAS, motor controllers and sensor applications at automotive-grade standards. The semiconductor content of automobiles continues to expand. And although we expect a period of automotive demand moderation in 2024, we still expect full year revenue in this end market to grow meaningfully on a year-over-year basis. Turning now to smart mobile devices. As I alluded to in my introduction, we are beginning to see positive indicators across the smart mobile device ecosystem as excess inventories are drawing down on an absolute dollar basis across several of our customers. Although inventories remain above normal levels, we expect the rate and pace of the drawdown to progress throughout 2024. We have excellent traction with our RF front-end offerings, especially our 9SW RF SOI platform, which features low standby currents for longer battery life. Our 22FDX millimeter wave technology for smartphone connectivity has ramped to volume production and we're also engaged with key OLED display driver makers with design wins ramping in 2024. These features drive increased silicon content, which in turn drives the need for higher-performance connectivity and low-power technologies, which GF is well placed to serve. In IoT, we continue to see long-term opportunities as the number and complexity of smart connected devices continues to grow. This is driven by the need to sense, acquire, process and communicate data. This also translates into new requirements for more efficient power management, connectivity and AI at the edge functionalities, as the number of wirelessly connected and battery-operated products continues to broaden. In the first quarter, we closed a key design win on our 22FDX+ platform, which will be used to enable high-speed wireless interfaces for IoT applications. Our 22FDX ecosystem supports design enablement, IP and design services to a wide range of our customers to develop wireless IoT products with improved efficiency at the lowest possible power. We expect inventories to remain elevated across IoT during at least the first half of 2024. However, the requirements for speed, security and inference at the edge are all long-term drivers for our next-generation analog and mixed-signal technologies. Furthermore, we continue to see traction in aerospace and defense, where we are addressing key needs across harsh environments, such as satellite and space avionics and terrestrial applications with our resilient, secure and performance-optimized products. Finally, our communications infrastructure and data center segment continued to show weakness in the first quarter amidst the sustained node migration of data center and digital-centric customers to single-digit nanometer platforms, which we discussed in our prior earnings call. We expect this end market to remain challenged in 2024, with quarterly revenue expected to be roughly in line with what we have reported for in the first quarter. However, over the long term, we expect the transition to generative AI will increase the demand for high bandwidth communication and efficient power conversions, a trend that GF is well positioned to address through our silicon photonics and power delivery solutions. To that end, I am pleased to report an important Q1 design win using our 130 NSX platform, which will support ground terminal infrastructure for satellite communications. As we ramp these programs, we continue to execute opportunities to remix some of our excess capacity to service FinFET demand in more durable segments, such as automotive and smart mobile devices. We are also diversifying our manufacturing footprint by accelerating the transfer of technologies such as 22FDX, 28-nanometer high voltage and 40-nanometer ESF3 into our Fab 8 facility in Malta, New York. This diversification will offer even more choice to our customers across multiple end markets here in the U.S. and enable a broader end market participation. To that end, we are delighted with the announcement from the Department of Commerce to award $1.5 billion in proposed funding for GF as part of the U.S. CHIPS and Science Act, in addition to the over $600 million proposed by New York State under its Green CHIPS Program. We're very excited to be working closely with the federal and state governments on these grants, which will enable us to add critical semiconductor manufacturing capacity and construction jobs in our U.S. locations while supporting our customers where they need us. To summarize, I am proud of our teams around the world as they executed to plan, and we delivered first quarter revenue, gross profit, and EPS which all exceeded the high end of our guidance ranges. With that, over to you, John.

Thank you, Tom, and welcome, everyone, to our first quarter earnings call. For the remainder of the call, including guidance, other than revenue, cash flow, CapEx, tax expense, and net interest and other expense, I will reference non-IFRS metrics, which exclude stock-based compensation and restructuring charges. As Tom noted, our first quarter results exceeded the upper end of the guidance ranges we provided in our last quarterly update. We delivered first quarter revenue of $1.549 billion, a decrease of 16% year-over-year, principally due to lower shipments and utilization levels in the low to mid-70s, consistent with the commentary on our last earnings call. We shipped approximately 463,000 300-millimeter equivalent wafers in the quarter, a 9% decrease from the prior year period. ASP or average selling price per wafer declined approximately 6% year-over-year, mainly driven by changes in the product mix shipped during the quarter. We expect that the pricing environment will remain constructive through 2024, and we believe that ASPs for the full year will be roughly flat compared to 2023. Wafer revenue from our end markets accounted for approximately 89% of total revenue. Non-wafer revenue, which includes revenue from reticles, nonrecurring engineering, expedite fees, and other items accounted for approximately 11% of total revenue for the first quarter. Let me now provide an update on our revenues by end markets. Smart mobile devices represented approximately 44% of the quarter's total revenue. First quarter revenue decreased approximately 2% from the prior year period, principally driven by reduced shipments as customers continue to draw down inventory. This decline was partially offset by slightly higher ASPs, premium tier mix growth, and continued content growth and value capture in 5G RF front-end content as well as imaging and display applications. As Tom discussed, we believe that inventory levels in this end market will begin to normalize through the first half of 2024, with some of our customers signaling demand growth in the second half of the year. In the first quarter, revenue for the home and industrial IoT markets, which now includes revenue from our legacy PC end market, represented approximately 20% of the quarter's total revenue. First quarter revenue decreased approximately 19% from the year prior period as our customers in the consumer and industrial IoT segments continue to focus on bringing down channel inventory, which remains elevated compared to recent years. Reduced shipments in the consumer-centric and industrial portions of IoT were partially offset by year-over-year improvements in ASP and mix as well as increased volumes in our aerospace and defense segment. Automotive continues to be a key growth segment for us and represented approximately 17% of the quarter's total revenue. First quarter revenue grew approximately 48% from the year prior period principally due to higher volumes as semiconductor content and features increased across the vehicle architecture, and our designs continue to ramp at key customers, which were partially offset by reductions in ASP and mix. As Tom noted, we expect automotive revenue growth to continue in 2024 as we support our customers across a diverse range of automotive applications in both internal combustion engine and autonomous connected electrified vehicles. Finally, moving on to our communications infrastructure and data center end market, which represented approximately 8% of the quarter's total revenue, first quarter revenue declined approximately 66% year-over-year as a result of declining volumes and the key drivers outlined by Tom in his prepared remarks, while ASP and mix remained roughly flat in this end market. As Tom noted, we will continue to allocate manufacturing capacity in order to diversify our footprint with the additional allocation targeted to markets such as automotive and premium smart mobile applications. Moving next to gross profit. For the first quarter, we delivered gross profit of $405 million, which was above the high end of our guidance range and translates into approximately 26.1% gross margin. Gross margin exceeded the guidance range indicated, and as Tom alluded to in his prepared remarks, includes $82 million in revenue associated with the execution of customer volume adjustments. Looking ahead to the second quarter of 2024, we expect additional customer volume adjustments, which have been reflected in our second quarter guidance ranges. Operating expenses for the first quarter represented approximately 14% of total revenue. R&D for the quarter increased sequentially to $117 million, and SG&A increased sequentially to $101 million. Total operating expenses increased sequentially to $218 million in the quarter and incorporated an advanced manufacturing investment tax credit of $10 million. As we discussed on our last earnings call, as we continue to spend on qualifying U.S. expenses and capitalized assets in 2024 and beyond, we expect to continue to receive these benefits through the life of the program. We delivered operating profit of $187 million for the quarter, which translates into approximately 12.1% operating margin, above the high end of our guidance range and 560 basis points below the prior year period. First quarter net interest income and other income and expense was $8 million, and we incurred a tax expense of $21 million in the quarter. We reported first quarter net income of $174 million, a decrease of approximately $116 million from the year-ago period. As a result, we reported diluted earnings of $0.31 per share for the first quarter, which was above the high end of our guidance range. Let me now provide some key balance sheet and cash flow metrics. Cash flow from operations for the first quarter was $488 million. CapEx for the quarter was $227 million or roughly 15% of revenue. Free cash flow for the quarter, which we define as net cash provided by operating activities, plus the proceeds from government grants related to capital expenditure, less purchases of property, plant, and equipment, and intangible assets, as set out on the statement of cash flows, was $261 million. At the end of the first quarter, our combined total of cash, cash equivalents, and marketable securities stood at approximately $4.164 billion. We also have a $1 billion revolving credit facility, which remains undrawn. Next, let me provide you with our outlook for the second quarter of 2024. We expect total GF revenue to be between $1.59 billion and $1.64 billion. Of this, we expect non-wafer revenue to be approximately 10% of total revenue. We expect gross profit to be between $382 million and $426 million. Excluding share-based compensation, but including the benefit related to the advanced manufacturing investment tax credit, for the second quarter, we expect total OpEx to be between $213 million and $233 million. We expect operating profit to be between $149 million and $213 million. At the midpoint of our guidance, we expect share-based compensation to be approximately $50 million, of which roughly $14 million is related to cost of goods sold and approximately $36 million is related to OpEx. We expect net interest and other income and expense for the quarter to be between negative $4 million and positive $4 million and tax expense to be between $12 million and $26 million. We expect net income to be between $133 million and $191 million. On a fully diluted share count of approximately 561 million shares, we expect earnings per share for the second quarter to be between $0.24 and $0.34. Consistent with our commentary on our last earnings call, our second quarter guidance reflects the expectation that utilization will be in the low to mid-70s, as some of our core end markets start to emerge from the ongoing inventory correction during the first half of 2024. For the full year 2024, we continue to expect CapEx to be approximately $700 million, and as Tom commented during our last earnings call, we expect this to provide GF an opportunity to focus on delivering free cash flow generation 2 to 3 times higher than 2023. In summary, the dedication from our 12,000 employees across the world and their continued efforts to expand our differentiated product offerings in key growth segments while navigating a challenging cyclical backdrop enabled us to achieve first quarter results above the high end of the guidance ranges we provided in our fourth quarter earnings update. We remain focused on winning opportunities in critical end markets and partnering with our customers to position them and GF for long-term growth opportunities. With that, let's open the call for Q&A.

Our first question comes from Vivek Arya of Bank of America Securities.

Tom, it seems your trends at GF are kind of bottoming about a quarter before some of the downstream customers in industrial and RF markets. I was hoping you could talk more to that contrast. What is helping you kind of emerge from this roughly a quarter before? And then you mentioned Q1 could be the bottom and I was hoping you could give us a sense for how you're looking at sequential growth through the rest of the year. Should we assume that Q3, Q4 can kind of grow the way you're growing from Q1 to Q2? Or are there other seasonal or mix factors we should keep in mind?

Good morning, Vivek. Yes, we are going to continue to grow quarter-on-quarter. Let me give you some context around that. First, let's discuss overall inventory. We analyze inventory in two ways: days of inventory and absolute dollar amounts. Although days of inventory has worsened in some cases, the dollar amounts have decreased, which is an important sign. As this year progresses, we expect to see more of this inventory decline, particularly in dollar terms, bringing us closer to natural demand. From a macro perspective, as long as inventory continues to reduce in dollars, we will approach a point that aligns with natural demand. Now let's consider GF and the four end markets for the remainder of the year. Starting with our communications infrastructure and data center, we expect revenue in this area to remain approximately flat in the coming quarters. In our home and industrial IoT sector, we anticipate similar flat levels for at least one to two quarters, with the potential for growth later this year linked to the macro inventory situation. In the automotive sector, there has been much discussion about growing inventory. Last year was a significant ramp-up year for us as key design wins began to come to fruition, limiting our ability to build inventory in the channel. As we mentioned in our previous call, we expect meaningful growth in the automotive segment this year, and we still see that continuing. Regarding smart mobile devices, we've observed that several of our customers have reported low single-digit growth in handset sales this year, primarily driven by premium-tier smartphones where we have a strong presence. This indicates an opportunity for sequential growth for our company. Automotive and smart mobile devices together accounted for over 60 percent of our revenue in Q1, and that’s where our growth will come from. This gives us confidence that Q1 was the lowest point for revenue, with growth expected thereafter. The real question remains about the macro economy: how much growth will we see? Will it be significant, or more subdued? However, Q1 is definitely our low point. Do you have any follow-up questions?

Yes. Thank you, Tom. So for my follow-up, maybe one on gross margins. How much did Q1 gross margins benefit from some of the restructuring and underutilization payments? How much is that effect in your Q2 outlook? And then how are you feeling about the shape of gross margins from here, given all the pricing and mix trends? So let's say if GF does conceptually grow roughly in this range, in Q3 and Q4, how should we think about the shape of gross margins for the rest of the year?

Yes, I'm going to pass it to John, but you're right that timing can be significant in these events. The accuracy of gross margin is heavily influenced by timing. John, I'll hand it over to you.

Yes. This is John. So we had a business plan at the beginning of the year, of course, which formed the foundation of our first quarter guidance. And as Tom was just indicating, timing can vary on business outcomes. And we saw some favorability in Q1 that helped our gross margins. So we're pleased with that. The customer volume adjustment factor was also at play there. We did comprehend that in our guidance. The outcomes there were a bit better than we had anticipated. So it's really a result of those 2 factors, Vivek, with driving the gross margin outcome for first quarter. As we look ahead into second quarter, similar dynamics at work. There are some customer payment adjustments planned in Q2, albeit not at the level of Q1. And that's starting to come in as we're settling through various customer volume discussions that we're having constructively with our customers to address business conditions and move ahead. I will note that the guidance for Q2 is 100 basis points above the guidance for Q1. And just a reminder, the single biggest factor affecting our gross margin is factory utilization. And a good rule of thumb is that every 5 points of utilization influences gross margin by roughly 200 basis points. So as one would expect, as loading can pick up through the course of growth onward, we would expect improvement in gross margin over time here.

Our next question comes from the line of Chris Caso of Wolfe Research.

Good morning. I guess first question is regarding pricing. In your prepared remarks, you gave some indication of where you thought pricing would be for the year. But I guess if you could expand on that a little bit, because we have heard of some of the Tier 2 foundries being a little more aggressive on pricing as the utilization comes down. And specifically for new business that you're signing outside of the existing LTAs that have been kind of helping your pricing, where has the pricing been for new contracts that you're signing today?

Yes, in line with our prepared remarks, our average selling price is significantly influenced by the specific mix for that quarter. Year-over-year, we noted a 6% decline, but we expect pricing to normalize in 2024, remaining flat compared to 2023. This indicates that the pricing environment continues to be positive, a sentiment echoed by our peers in the industry during their earnings calls. Additionally, a large portion of our revenue comes from single source business, which means we're primarily addressing genuine demand. There isn't much pricing flexibility, so higher prices do not create additional opportunities. Therefore, we expect a stable pricing environment and a differentiated business model to keep our pricing flat from 2023 to 2024, with quarterly changes mainly due to mix variations. John, do you have anything to add?

Yes, I would. Chris, I think it's important to not conflate absolute ASP with profitability as well. In other words, just because our products may have a higher ASP doesn't necessarily mean it would have higher gross profit. Obviously, it affects wafer account and top line. I just wanted to make that point.

Did you have a follow-up, Chris?

I do. If I could come back to your earlier comments on gross margins as well. And just more specifically, presumably, if revenue continues to grow during the year, some of these volume adjustments will continue to come down. What does that mean for the pace of gross margins as you go into the second half and into '25? Just the improvement in utilization, will that be enough to offset some of the reduced volume adjustments, presumably as that happens and gives you an increase in gross margin profile as we go through the year?

Yes, Chris, this is John again. I would describe the gross margin as modest and stable within the current environment, considering the dynamics at play. There are factors that both support and challenge this situation. On one hand, the adjustments in customer volume impact the economics, which would have been different if there were more wafer shipments and better utilization. Essentially, these factors are balancing each other out. However, as we achieve higher levels of utilization, that will be the key driver for growth over time.

We have taken significant structural costs out and used this downturn as an opportunity to enhance our efficiency. As we move back into growth, we expect that every dollar of revenue will generate a higher degree of flow-through compared to what we have now. Many of the actions we've taken during this prolonged downturn are positioning us to be a stronger company when growth resumes.

Our next question comes from the line of Harlan Sur of JPMorgan.

Good morning. Nice job to the team on the quarterly execution. December quarter, you guys had $79 million of this high gross margin sort of customer utilization and restructuring fees. It was $82 million in the March quarter. So it looks like core product gross margins were about 22%. Is that fair? And you said on the utilization fees would be lower in Q2. Can you just quantify, John, is that $50 million, $60 million, $70 million? And then given your fab cycle times, your wafer starts this quarter are shipments in the second half, right, which typically is seasonally stronger, especially for your smart mobile customers. So I would have assumed utilizations would have been up in the June quarter, but it sounds like they're staying flattish. So why is that and how do you see utilizations trending for the remainder of the year?

Yes, we didn't specify the level of customer volume adjustment in Q2. We'll have to see how it plays out. There are a few open items that we're continuing to address in that regard. As we work through the rest of the year, we'll see how the second half improves. If we can see a stronger ramp in the second half, there will be some seasonality. A lot of this depends on the rate and pace of the recovery of the global economy and the improvement in inventory drawdown with our customers. Those are the indicators we're looking for to see our loadings and utilization increase. You can view this as either an offset or additional gross profit from customer volume adjustments, or really, it's more about what would have otherwise been higher utilization.

Yes, so as one goes down, because the revenue will be going up in the natural way.

Tom, you took us through some of the dynamics around sort of diversifying the technology mix for Malta, Fab 8. It's a very smart strategy, right, you talk about 40-nanometer embedded MCU, RF SOI, fully depleted SOI capabilities. And even on the mainstream 12-nanometer FinFET capacity, right, mixing in new customers and applications as older programs phase out. Maybe you can just expand on this a little bit, maybe timelines on phasing in new technologies and success in backfilling the FinFET technology.

Thank you for the question, Harlan. I believe we haven't fully addressed this topic yet. I used to enjoy watching MythBusters with my son, and it made me realize there are many misconceptions about what we do at Fab 8 and how diversification works. Let's consider Fab 8 through two dimensions of diversification: the end markets we serve with our 12-nanometer platform and the technology portfolio we offer to our customers, which impacts GF and our global reach. We are targeting four end markets: communications infrastructure, data centers, automotive, IoT, and smart mobile devices. Data centers are our core focus, and they contribute about the same load as automotive. IoT represents 1.5 times more load than either automotive or data center, while smart mobile devices account for 1.5 times the load of the other three markets combined, indicating broad diversification. When we think about data center clients moving to single-digit nanometers, this only represents a small part of our operations in Fab 8 at the 12-nanometer level. It's important to clarify that a decline in the data center business doesn't mean that Fab 8 will struggle. As you mentioned, we have 12-nanometer technology and are enhancing its features to cater to smart mobile devices, which demand 1.5 times more than our other markets combined. We are currently qualifying 22FDX, and also working on 28-nanometer high-voltage, 40-nanometer embedded memory for automotive, and 45 RF SOI with silicon photonics. This diversification will be evident as we qualify customers this year, with some beginning to tape out by the end of this year or early next year, and ramping up in 2026. Why is this diversification crucial? It's essential to recognize that having a global footprint means more than just having locations to produce single technologies. I refer to a location that can only make one technology as simply a mailing address. Most customer demands cannot be served from such a facility. Over the past decade, and more intensively in the last five to six years, GF has ensured all our global sites are diversified, allowing our customers to source both globally and locally. Having a global presence is beneficial, but this must encompass a wide range of technologies. Once we complete the diversification journey for Fab 8, we will have Singapore and the European Union in GF, both with significant overlaps in technology platforms. Thus, strategic diversification of Fab 8 is vital for the value of our global footprint and to ensure its continued productivity.

Our next question comes from the line of Joe Moore of Morgan Stanley.

Great, thank you. So a little over a year ago, you guys had a partnership with an automotive OEM with General Motors. Before that, you had some discussions with Ford. We found this really interesting. We haven't really seen OEMs work with foundries more directly like that. Those automotive shortages are behind us. So I wonder if you could kind of talk to the commitment, the focus that those guys have on geographic diversification of their foundry and how that might help you.

So maybe I can address that. This is Niels Anderskouv. I’d like to provide some background on the LTA in general. The LTA is still a relatively new feature within the foundry model, but I want to highlight that it has been a key part of our business since 2021, enabling us to invest more than $7 billion into new capacity to support our customers. You may remember from previous earnings calls that we have entered into over 40 LTAs, including the ones you just mentioned, generating more than $30 billion in lifetime revenue from those agreements. By the end of 2023, approximately two-thirds of that lifetime revenue was still outstanding. Additionally, this year in January, we announced a significant LTA extension with Infineon, which remains a vital aspect of our future business model. The LTAs have benefited both us and our customers in several ways: they provide certainty for supply and demand, demonstrate durability across all end markets we serve, and enhance visibility and profitability for our business in a challenging market. Our customers play a crucial role in this, as does the longevity of our relationships with them. Although we have had recent discussions with customers about their near-term volume adjustments, it is clear that LTAs continue to be important for our business model. Looking at the current quarter, particularly Q1, the inventory levels in certain end markets have slowed the rate of entering into new LTAs as our customers manage their inventory. However, LTAs remain essential for us and our customers, as demonstrated by our announcement in Q1 of an extension of one of our largest LTAs with Infineon to support long-term supply requirements for automotive-grade 40-nanometer microcontrollers. During this call, you may have heard about instances where we have worked with customers to adjust their near-term volume needs. I want to emphasize that these discussions have been very constructive, and we have collaborated on finding balanced outcomes based on the fixed aspects of our LTAs, such as price, volume, and duration. These features have allowed us to maintain relationships and achieve the right long-term balance with our customers. Looking ahead, it’s encouraging to see how our customers are responding to these discussions. For example, we mutually agreed to terminate an agreement in one instance to better align with a customer's long-term supply needs. Remarkably, the following week, that same customer initiated a new design with us. What we want to convey is that we still believe the LTA framework creates a mutually beneficial partnership for us and our customers over the long run. Moving forward, I expect LTAs will continue to be key in serving our customers across various end markets, including automotive and OEMs. You can anticipate seeing more developments in this area, though it’s reasonable to expect variations in the terms and duration of agreements based on the end markets we support.

Great. That's helpful. And I guess to follow up on that, there's obviously one reason to do LTAs and those types of relationships is because of tactical supply concerns, but there's also the sort of bigger picture OEM concern that maybe we're too reliant on certain geographies. So just like how strategic do you think those relationships can be? And I guess I'm just trying to make sure people don't, with the shortage space, people sort of forget about some of the reasons that they came to you guys in the first place. Are you still having those strategic discussions in terms of bigger picture geographic diversification?

Joe, you’re highlighting a crucial aspect. One thing we've discovered is that not all end markets operate the same way anymore. The semiconductor industry consists of various components that behave differently. I’d like to revisit our discussions with automotive players and explain how they differ from other markets. In the automotive sector, long-term supply agreements are key. Once they approve a part, it will likely be used for 5 to 10 years. Therefore, having long-term visibility and certainty regarding supply pricing is vital for automotive manufacturers, as they are making long-term commitments. Our conversations with them persist, but they now take a different approach. Since neither we nor they handle design, an intermediary customer helps facilitate discussions about ensuring their future supply certainty and durability. In markets with rapid product life cycles, we observe that the duration of long-term agreements doesn’t need to extend as long. Customers desire LTAs, but they prefer shorter durations to remain agile and adaptable. However, like all businesses, they require assurance that they can access their products when needed. As an industry, we are learning to tailor the terms of these LTAs based on the specific needs of each market segment. Long-term segments seek enduring assurance, while fast-changing markets look for short-term certainty, acknowledging that longer-term commitments will need to be renegotiated annually. This is a lesson we are learning together. Regarding the automotive OEMs, we regularly engage to align on technology roadmaps and ensure we are collectively fulfilling our shared objectives. Additionally, Tier 1 companies are beginning to explore their own designs, and we will continue to collaborate with them as well.

I can comment on the importance of long life cycles. This is a crucial aspect of our strategy concerning technology. Essential chip technology is focused on supporting these long life cycles, and we are witnessing ongoing momentum in the automotive sector. In fact, 17% of our revenue in Q1 came from automotive, which remains a significant growth driver for us. This aligns well with our strategy. I also want to highlight that we plan to qualify all our process nodes for automotive. As Tom mentioned regarding Fab 8, this facility will play a crucial role in our automotive strategy, and this has been positively received by the OEMs, especially since it ensures a U.S. supply in that area.

Our next question comes from the line of Chris Danely of Citi.

I have a question about the CHIPS Act funding. The $1.5 billion is significant, but it seems to represent over a year's worth of capital expenditures. While this funding is welcome, utilization rates are in the 70s, and we have ample inventory as we recover from a downturn. How do we manage that capacity to avoid issues like overcapacity or pricing problems? How will this be addressed?

Yes, Chris, we don't create capacity before it's needed. There's nothing worse than going overboard and building empty factories, even with good intentions from government programs aimed at diversifying and strengthening the supply chain. As we consider our global presence and future investments, by the end of this year we will have the ability to produce approximately 3 million wafers annually, which is the equivalent of 300-millimeter output. Based on our average selling prices and the revenue from wafers and non-wafer products, this positions us to generate between $9 billion to $10 billion in revenue. Looking at our current status, we've achieved between $6 billion and $8 billion this year, indicating significant growth potential within our existing framework. Furthermore, securing our future and the flexibility to expand capacity is what we are pursuing through the CHIPS Act in both the European Union and the U.S. This ensures we have the funding necessary to invest strategically as needed, doing so in the most cost-effective manner. Our belief, shared by many, is that the industry will double, though it's uncertain if that will happen in six or eight years. We must be prepared for that growth to meet customer demands efficiently, which is where government funding partnerships become essential. The CHIPS Act provides about $1.5 billion, which only covers around 15% of project costs, while the Investment Tax Credit adds another 25%. Collectively, this shows a significant level of government support for these investments. The majority of funding will go to foundries like GlobalFoundries, but I’m confident that we won’t exceed our capacity needs to serve our customers, and I trust that other manufacturers in the EU and U.S. will also align their capacity expansions with actual industry demand.

Thanks for that clarification, Tom. And then my follow-up is on the LTAs and the contracts. Can you let us know what percentage of say, '24 and '25 are covered by LTAs? And in terms of these customer revenue adjustments, is it that they come to you and say, 'Hey, we need to renegotiate.' And so you say, 'If you want to renegotiate, you just have to pay us this money,' and is it all 100% gross margin? Just any insight into the machinations of all this.

Yes, we have determined that our total value from LTAs is around $20 billion, which is mentioned in our recently filed 20-F report. The specific time frame isn’t specified, as it represents lifetime revenue with product life cycles that differ by market segment. This figure gives you an idea of our coverage level. While our economics may adjust based on customer volume changes, the primary aim of these LTAs, as noted by Niels, is to ensure certainty for customers and to instill confidence in their supply availability when they require it. That truly encapsulates the goal.

Our next question comes from the line of Ross Seymore of Deutsche Bank.

Couple questions. The first one is on the node transition risk. I know, Tom, you talked about what's happening in the comm infrastructure and data center segment, but how would you characterize that node transition risk entering this year versus exiting this year? How do we think about that as a headwind over time? And I know you're diversifying away from it as well.

Yes, I think, as I said before, how we serve that market, we're pretty much at the low end of that revenue. And the real question is how do we build this back to the business we want it to be, through our technology platforms for power delivery and solving the bandwidth challenges. And so that's the growth opportunity for us back into this end market. We can hold the line of where we are today at that level of revenue that we spoke about.

Well, I guess as a quick follow-up, is there something beyond that? Do you have a similar problem in smart mobile devices, not just limiting the original question to the comm infrastructure side of things.

There's a fundamental aspect to single-digit nanometer technology and its limitations. If an application can tolerate higher costs per transistor but demands lower power usage per transistor, those applications will cover the additional costs for that transistor. This creates a significant barrier against moving to single-digit nanometer technology unless it's truly necessary for the application. We're observing this trend in data centers, where power consumption is critical, and minimizing power usage is essential. In contrast to the past, where lower costs per transistor drove industry shifts, today's customers are collaborating with us to avoid transitioning to single-digit nanometer technology and incurring higher costs per transistor. This is the hurdle we face, underscoring the need for continuous innovation and enhancement of our platforms, so our customers can maintain cost-effective solutions for the markets they serve.

If I may add to that, we're seeing it today on 22FDX. Many of our customers are requesting that we continue to innovate on the process nodes so they can use them longer. We're also noticing a similar trend with 12-nanometer. Our roadmaps include newer versions of 12-nanometer that offer a significantly improved power performance ratio over time. The core chip technology strategy we've implemented across our four product lines focuses on extending the life cycles of these process nodes and ensuring they remain competitive so we can win new business. The example of smart mobile devices being the largest end market for 12-nanometer today highlights this perfectly. It fits this segment well, and we'll keep optimizing it to make it even better.

Our next question comes from the line of C.J. Muse of Cantor Fitzgerald.

Good morning. I guess first question on auto, down 16% sequentially. I think it came in a little bit worse than what we were thinking when you initially guided. Curious, maybe what changed in the quarter in terms of product or subsegment? And then I guess as you think about the recovery into June and beyond, what are the key drivers that we should be focused on there?

Look, I think this quarterly seasonality, those things, we don't pay a lot of attention to in this segment given the fact that it's a very long duration. What we're highly confident in is that this is a business that will continue to grow, not only in the out years but this year, and meaningful growth in the mid- to high-single digits for us in 2024. So we see it. We see it in the order book, and we see it in our business plans. So I wouldn't read too much into a quarter and quarter down in automotive, especially given last year was a year of over $1 billion, growing from $375 million the year before.

Do you have a follow-up, C.J.?

Yes. I guess maybe a question on smart mobile. Maybe kind of similar type of question. You talked about mix shift to premium phones, which benefits you. I think you talked about RF front end and display drivers as incremental drivers for you in '24. So is that a business that you think can grow in all of calendar '24? Or is there sufficient inventory challenge that that might be difficult?

We believe that area will grow this year. With the growth in content and handsets, we expect to see overall growth. We’re coming off a challenging Q1 due to inventory issues in the channel. As inventory decreases and handset growth occurs, we anticipate growth in smart mobile devices for GF this year.

Yes. I think that's a good growth story we have there. Handsets growing, us growing, us having a larger share in premium handsets that we believe to grow faster. And then on top of that, you're starting to see inventory dollar-wise draining in the space. So yes, we do believe that's going to be a growth market for us this year.

Julia, we'll take one last question, thank you.

Our final question comes from Mehdi Hosseini of Susquehanna International Group.

Yes. A couple of follow-ups. Tom, just double-clicking on communication. I believe that your comments suggest that the revenues there are expected to grow flattish throughout the year, especially with the migration to nanometer. What I want to better understand is, when do you expect new opportunities like silicon photonics that have been talked about in the downstream, are going to be material to you? And then one follow-up question for John. How should we think about D&A and OpEx in '24 versus '23?

John, go in reverse order.

Yes. Yes. No problem, Mehdi. So D&A, roughly consistent. It's how we see that. We've drawn down our CapEx a fair amount. As we said in our prepared remarks, we see about $700 million as our estimate for the year, which is enabling tremendous growth in free cash flow and we're holding the view that, that can increase to 2x to 3x the free cash flow that we generated in 2023. So that's, that's positive. As far as OpEx, just a quick reminder that we had a large credit in the fourth quarter related to the advanced investment tax credit. That was coming into SG&A. That was about $50 million of credit in Q4. We've got that more normalized now in the first quarter, but you do see an uptick in OpEx for Q1 related to that as that was a one-time benefit in the fourth quarter of 2023.

So let me maybe address the data center part of the question. So in data center, the 2 major growth vectors that we're seeing is, as you pointed out, silicon photonics and power delivery. So maybe if I start with silicon photonics, where the market is at today is that you're starting to see adoption and products being released in what we term as the pluggable space. So these are the pluggable type of silicon photonic devices that you're seeing out there today. Where we're seeing a lot of activity for future growth and maybe more substantial growth is in the co-packaged silicon photonics, where basically you're starting to see silicon photonics becoming a real design consideration for GPUs, NPUs and CPUs, simply to be able to enable the required bandwidth you need to have, not just within the rack, between the racks, but also within and between the processors that sit on the main board. So that's a big growth vector. Obviously, not something that happens overnight. These are big infrastructure changes. So you should expect that, that will probably take a couple of years before it really materializes, but starting to see some early momentum on that front. Power delivery, very exciting. We're making very good progress on that, power delivery for data centers. Initially, it is with our BCD technology and our 12-nanometer technology that we're seeing the first tape-outs. And as you know from previous calls, we are investing in GaN technology as well, and we believe that GaN, both the 650-volt as well as the 100-volt GaN, will have a major play also within the data center. So those are some of the future growth areas for us in the data center out in time.

Thanks, Niels. Julia, I think we're coming up on the O&O.

This concludes the question-and-answer session. I would now like to turn it back to Sam Franklin, Vice President of Business Finance and Investor Relations, for closing remarks.

Thank you, Julia. Thank you, everyone, for joining us on the call today. I appreciate the questions and looking forward to seeing and speaking to many of you over the next couple of months.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.