Hello, and welcome to the conference call to review GlobalFoundries First Quarter of Fiscal 2025 Financial Results. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. 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.

Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries First Quarter 2025 Earnings Call. On the call with me today are Tim Breen, CEO; Niels Anderskouv, President and Chief Operating Officer; and John Hollister, CFO. 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. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may, or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today, as well as risks and uncertainties described in our SEC filings, including in sections under the caption Risk Factors in our annual report on Form 20-F and in any current reports on Form 6-K filed with the SEC. In terms of upcoming events, please note that we will be participating in fireside chats at the JPMorgan Global Technology, Media, and Communications Conference in Boston on May 13 and at the Bank of America Global Technology Conference in San Francisco on June 3. We will begin today's call with Tim providing a summary update on the current business environment and technologies. Niels will then discuss our recent design wins, highlights, and expectations across the end markets, following which John will provide details on our first quarter results and also provide second quarter 2025 guidance. 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.

Thank you, Sam, and welcome, everyone, to our first quarter 2025 earnings call. As our industry seeks to navigate the backdrop of geopolitical tension and trade uncertainties impacting the global economy, I'm proud to announce that in the first quarter, our 13,000 dedicated employees helped to deliver solid financial results at the high end of our guidance ranges across revenue, gross margin, and EPS. First quarter revenue in our automotive, CID, and IoT end markets grew on a year-over-year basis as we executed towards our long-term plan and partnered with our customers to maintain healthy design win momentum from recent quarters. Furthermore, GF's 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-IFRS adjusted free cash flow. This represents a free cash margin of approximately 10%. With investments in place to grow revenue in a very capital-efficient manner, we will continue to focus on free cash flow generation as an important objective. In the meantime, our industry is not immune from the ongoing trade and tariff disputes dominating the headlines. And although GF is uniquely positioned to support our customers across our geographically diversified footprint in the U.S., Europe, and Asia, we do expect uncertainties associated with the global supply chain and end market demand dynamics to continue into the second half of 2025. Although it is too soon to quantify the precise impacts to the demand and 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. As you have 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. Whether this is the case, we will continue to work closely with our customers towards a mutually agreeable outcome. What is clear at this stage is the geographic resilience in wafer manufacturing supply chains is an increasing priority for GF's customers and, given GF's unique global footprint, we are able to support our customers both globally and locally, further validating GF's strategy and differentiated market position. Achieving manufacturing scale and technology diversity across our footprint has been a multiyear strategy to invest in capacity with differentiated features. To that end, we have deployed over $7 billion into our U.S., Germany, and Singapore facilities since 2021. 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. Despite these uncertainties, the secular tailwinds supporting long-term demand for essential chip technologies remain firmly intact. And we anticipate that our serviceable addressable market will grow at approximately 10% per annum through the end of the decade. In key end markets, we believe that GF is well-placed to grow at or faster than the overall market growth rates given our differentiated technologies and geographically advanced footprint. As the foundry of choice to many of our customers, evidenced by nearly 90% sole-source design wins over the last four quarters, we continue to gain share in critical end markets such as automotive, communications infrastructure, and data center as the range of applications, features, and performance drives the need for increased semiconductor content. 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. In Optical Networking, GF is not only at the forefront of innovation with co-packaged optics, but we're also serving the large and growing pluggables market, with our 45 SPCLO solution. In Satcom, GF's content in both the base station and in Orbit is enabling the rapid deployment of commercial satellites on our 22FDX, 12LP, 130NSX, and 45RFSOI platforms. In generative AI, GF's proven 14-nanometer technology is playing an important role, especially in inference workloads for large language models. Finally, Automotive continued to deliver year-on-year growth as we ramp opportunities and close new design wins on our 130BCD and 40ESF 3 Autopro platforms to support the increasing value of semiconductor content in this end market. Putting aside the short-term uncertainty impacting our industry, GF's financial profile remains robust. With a strong balance sheet and cash flow fundamentals, declining leverage, $4.7 billion of liquidity, and continued strong free cash flow generation. John will cover these metrics in more detail, and they leave 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. In conclusion, thanks to the effort of our teams around the world, we believe GF's long-term future remains as bright as ever as we partner with our customers, leverage our differentiated technology, drive strong operational execution and ensure disciplined cost management. With that, over to you, Neils.

Thank you, Tim, and welcome to everyone on the call. As Tim mentioned, we continue to make good progress across commercial partnership and design wins with our customers, of which almost 90% was sole sourced in the last four quarters. Our differentiated and diversified technology portfolio continues to drive design win momentum across all the end markets we serve. With that, let me walk you through the key highlights for the quarter by end market. In Automotive, we built upon our strong momentum with customers, captured market share in new designs, all of which supports our expectations for meaningful year-over-year revenue growth in 2025. Despite soft end market demand, our automotive segment continues to deliver meaningful year-over-year revenue growth in Q1 as the increasing silicon content in vehicles helped to offset short-term unit sales. Our broad and growing portfolio of differentiated solutions positions us to benefit from the proliferation of ADAs, safety and sensing applications, electric vehicles, and software-defined vehicles. The best additional strength has been in automotive processing, where we are a sole source foundry to the supplier of the number one auto microcontroller platform. On top of that, we are winning in new applications across all the geographies we serve. In Q1, we achieved design wins across MCUs, battery management systems, motor control devices, and laser drivers for LiDAR and our 130BCD and 40ESF 3 Autopro platforms. GF and an end semiconductor also announced a strategic partnership to introduce high-performance radar on chip solutions using GF's automotive-qualified 22FDX platform. These solutions will target 77 gigahertz and 120 gigahertz greater applications to enable safety-critical advanced driver assistance systems with low-cost, smaller footprint, and efficient power consumption. Similarly, in March, Dream Chip and Cadence announced they will use GF's ultra-low power 22FDX platform for ADAS and processing applications, citing the reliability and performance benefits of our integrated RF and analog technology solution. Looking further ahead, we expect to benefit from long-term growth in smart sensors for rail, vehicle access, cameras, and networking as well as general-purpose automotive. Turning now to smart mobile devices. Revenue in Q1 declined year-over-year due to a reduction in underutilization payments from our customers, consistent with our expectations. While certain customers continue their inventory burn down, we see good commercial traction and continue to win new designs across a broad range of applications as we seek to capture content opportunities within handsets such as audio, haptics, display, and imaging. With our latest generation IFSOI platforms, we are not only maintaining our leadership position in higher front-end but growing market share. In Q1, we secured multiple new design wins in front end with several top industry players. Our solutions allow GF to expand share, including strong traction with customers in the U.S., Europe, and Asia. Beyond our traditional strength in AI front end, we continue to broaden our portfolio and we designed important display and imaging applications. Notwithstanding the broader tariff uncertainties, we are seeing signing momentum with customers to expand GF's offering in OLED Android smartphones. We also continue to penetrate the growing market of smart glasses with a Q1 design win for micro LED display backends using our 22FDX platform. 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. Lastly, we saw continued adoption of our 55BCD light platform for audio and haptic in premier tier smartphones. Our second-generation 55BCD light is on a development to further strengthen our differentiated offerings, and this new technology will enable customers to output solutions to be smaller and more efficient, which is critical for the latest designs. In IoT, Q1 revenue returned to year-over-year growth. However, we remain somewhat cautious on the outlook for the second half of the year as the uncertainty brought about by tariffs is likely to impact the demand levels for consumer-centric and industrial applications. Longer-term, we're seeing adoption of GF's technology in AI-enabled edge devices, especially in our ultra-low-power and RF-optimized platforms that are well positioned for these applications. 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 applications. In Q1, we also secured design wins across WiFi 7 connectivity, cellular IoT, medical consumer devices, as well as consumer power management applications. Our FinFET platform is increasingly optimized for low leakage and RF performance, which is also enabling the exciting new features of next-generation WiFi 7—namely increased data speed, lower latency, improved reliability, and enhanced security for stronger encryption. This solution is being adopted by the market and will ramp in production in the second half of this year. We also secured first revenue from a design win for broad market wireless MCU used for IoT connectivity across consumer, smart home, and industrial applications. Built on our 22FDX platform, this product includes embedded non-volatile memory, a key differentiator for GF. Lastly, we see continued traction in low-power connected medical applications such as continuous glucose monitors and hearing aids. In Q1, we won a design for an AI-enabled audio DSP on 22FDX. GF's technology is well positioned for this segment, and we're seeing a solid pipeline of connected consumer medical device opportunities from multiple vendors. Finally, our communications infrastructure and data center end market grew year-over-year in the first quarter, and we continue to expect meaningful revenue growth in 2025. With our diversified portfolio of differentiated offerings, we are developing a path for long-term growth for communications infrastructure and data center tied to multiple secular drivers. First, commercial satellite operations continue to expand rapidly as subscriptions increase and launches ramp. GF is designed into the world's foremost satellite communication companies. In Q1, we secured an additional design win for second ground terminals on our 45RFSOI platform. Second, optical communication technologies in the data center are now seeing meaningful near-term revenue 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. Accordingly, we expect growing demand for optical transceivers that connect GPUs and AI accelerators to train next-generation AI models. Not only is GF currently serving the pluggable market, but momentum is building for co-packaged optics. At the Optical Fiber Communication Conference in April, multiple companies demonstrated viable co-packaged optics solutions built on GF silicon. GF's unique silicon photonic platforms offer seamless integration of photonic components with high-performance CMOS logic into a single die, allowing for production-ready designs that can support both scale-out and scale-up applications for AI workloads. Overall, we are encouraged with the progress we are making on commercial engagement and design wins in this space as we begin to capitalize on the exciting multiyear growth opportunities. I'll now pass the call over to John for a deeper dive on first quarter 2025 financials.

Thank you, Neils. 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. 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. We shipped approximately 543,000 300-millimeter equivalent wafers in the quarter, down 9% sequentially and up 17% from the prior year period. ASP, or average selling price per wafer, was down modestly year-over-year due in part to the product mix shift as well as a significant year-over-year reduction in underutilization payments. Wafer revenue from our end markets accounted for approximately 88% of total revenue. Non-wafer revenue, which includes revenue from reticles, nonrecurring 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. Smart mobile devices represented approximately 37% of the quarter's total revenue. First quarter revenue decreased approximately 21% sequentially and approximately 14% from the prior year period. In the first quarter, revenue for the home and industrial IoT markets represented approximately 21% of the quarter's total revenue. First quarter revenue decreased approximately 8% sequentially and increased approximately 6% from the prior year period. Automotive remained a key growth segment for us and represented approximately 19% of the quarter's total revenue. First quarter revenue decreased approximately 25% sequentially and increased approximately 16% from the prior year period. Finally, our communications infrastructure and data center end market represented approximately 11% of the quarter's total revenue. First quarter revenue increased approximately 2% sequentially and increased approximately 45% over the prior year period as we see new opportunities ramp in this end market. For the first quarter, we delivered gross profit of $379 million, which was at the high end of our guided range and translates into approximately 23.9% gross margin. Operating expenses for the quarter represented approximately 10% of total revenue. R&D for the quarter was $114 million, and SG&A expenses were $52 million. Total operating expenses declined sequentially to $166 million in the quarter. We delivered operating profit of $213 million for the quarter at an operating margin of 13.4%, which is at the high end of our guided range and 130 basis points above the prior year period. First quarter net interest income was $14 million. Other expense was $7 million, and we incurred income tax expense of $31 million for the quarter. We reported first quarter net income of $189 million, an increase of $15 million from the year ago period. As a result, based on a fully diluted share count of approximately 557 million shares, we reported diluted earnings of $0.34 per share for the first quarter, which was at 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 $331 million. CapEx for the quarter was $166 million or roughly 10% of revenue. Adjusted 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 $165 million. At the end of the first quarter, our combined total of cash, cash equivalents, and marketable securities stood at approximately $3.7 billion. We prepaid $664 million on our extending Term Loan A facility balance, lowering our total debt to $1.1 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 2025. 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. We expect gross margin to be in the range of 25%, plus or minus 100 basis points. Excluding share-based compensation, we expect total operating expenses to be $185 million, plus or minus $10 million. We expect operating margin to be in the range of 14%, plus or minus 180 basis points. 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. We expect net interest and other income for the quarter to be between $3 million and $11 million and income tax expense to be between $33 million and $47 million. For 2025, we expect GF's non-IFRS effective tax rate for the year to be in the high-teens percentage range. 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. Based on a fully diluted share count of approximately 560 million shares, we expect diluted earnings per share for the second quarter to be $0.36, plus or minus $0.05. GF has a consistent track record of prudent financial management, which continues to be critically important in an uncertain macro environment. We retain flexibility in our capital expenditure plans and will nimbly 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. For the full year 2025, we continue to expect OpEx to be roughly in line with that of 2024. Similarly, our CapEx expectations for the full year 2025 have not changed since our last earnings call. In summary, the hard work and dedication of our employees around the world drove solid financial performance in the quarter, and we made good progress on our key strategic priorities. From our strong design win 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. I'll now pass it back to Tim for closing remarks before we move to Q&A.

Thanks, John. To recap, I would like to reiterate how strongly GF is committed and how uniquely GF is positioned to be a trusted partner for our customers. Our differentiated essential chip technologies offer customers a diverse portfolio of solutions to win in the end markets that they compete in. Our global footprint offers customers supply flexibility and security where they need us, both globally and locally. Our responsible manufacturing helps customers achieve their sustainability priorities, as indicated by recent announcements featuring our collaboration with Infineon and Apple. In conclusion, 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. We will monitor the situation closely and take actions within our control to navigate the uncertain macro environment. However, our long-term growth opportunities and financial foundations remain strong. We will continue to leverage our unique and diversified global footprint to support customers and meet them where they need us, from ADAS to AI to SatCom to Optical Networking. We continue to build design win momentum across end markets that will be critical enablers to the long-term megatrends in our industry. For that, I want to thank our employees for their hard work and dedication to our long-term objectives. With that, let's open the call for Q&A.

And our first question comes from Mark Lipacis from Evercore ISI.

Hi, thanks for taking my question. 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 tariffs on the revenue side? And perhaps maybe remind us what percentage of your revenues can you manufacture in multiple geographies? And to what extent does the current tariff discussions out there give you better visibility into demand or enable you to take share from either your direct foundry competitors or from internal manufacturing groups at your own customers. So it would be great if you could provide any color on this side of the tariff dynamics.

Yes. Thank you, Mark, and obviously a very timely question. 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 sure for 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 environmental impact is from tariffs based on consumer demand and industrial demand. So that we remain obviously watching very closely and remain focused on. However, I think you're touching on something very important for us, which is how our manufacturing footprint provides optionality for customers in this difficult time. And I think what is interesting and has been picking up significantly is the inbound interest in specific sourcing choices. And let me zoom in on the U.S. as obviously the most relevant case in point here, where a number of our customers have been talking about further increasing U.S. content either for existing roadmap products or for porting existing designs from either our competitors or from other geographies into the U.S. And that's been actually across sectors. And 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 U.S. 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, let's say, a balanced preference to becoming much more of a strong preference for U.S. sourcing. 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, and in some cases, even three fabs, which allows us to also address different requirements of our customer base. So net-net, 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.

Got it. Very helpful. And a follow-up, if I may, maybe for John. The ASPs, it looks 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?

Yes, Mark, certainly. So looking back at the kind of the framework for our ASP calculation, underutilization payments are a component of wafer revenue. And as you can see, from year to year, as we mentioned in our prepared comments, that amount is down year-over-year from 2024 to 2025. So that's contributing significantly to the decline in average selling prices; that's one point. Second, putting that aside and looking for the year, we do expect ASPs to decline by 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 on other products that change in the mask count, if you will, can drive a differential on the ASP calculation from a mix perspective. So that's really the primary effect, Mark, that you're seeing. As for gross margin, as you indicated, that is really the ultimate measure of how we're addressing that. And we see continued leverage around gross profit margin to drive our performance, including better 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 may see ASP impacts from the mix dynamic.

Mark, I would like to add a comment. We have previously noted that the overall pricing environment for our differentiated technologies is positive. We maintain this belief because when we compete with these technologies, we do so based on features and our ability to add value for customers, helping them succeed in their markets. Time to market is also a crucial factor. These elements are challenging to achieve and therefore, rare. While price is always a consideration, it is not the primary or even secondary factor in winning contracts. As we highlighted earlier, around 90% of our design wins in the last four quarters have been on a sole-sourced basis. There will always be a smaller segment of our business that is dual-sourced, and at times, we may aim to increase our share of that dual-source segment for certain capacities. This could involve a trade-off in average selling price where we might generate more revenue at lower prices, but we will do so intentionally to optimize our utilization and enhance our profitability. This factor also influences our strategy. However, as John mentioned, average selling price is not necessarily a good predictor of future profitability, as several other factors are also in play.

And our next question comes from the line of CJ Muse with Cantor Fitzgerald.

Dan, good morning. Thank you for taking the question. I was hoping to focus on your comms infra and data center business. Obviously, 2024 was a correction year. But your commentary on the call definitely sounds much more upbeat, both in terms of design wins and the growth trajectory for 2025. I know you've always been very strong in silicon photonics, but your commentary on transceivers. You've got Graco kind of newer players like Ayar Labs and Light Matter, and you also talked about SatCom. So I believe you were thinking growth kind of in the high single digits before. How should we think about that now for 2025? And then perhaps more importantly, how should we be thinking about the growth within that segment beyond 2025?

Yes. Thank you, CJ. I'll give an overview and then perhaps ask Neils to add a bit more color on our photonics in particular, since I know that's of interest. So as you note, we had significant year-on-year growth in communications 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 a strong growth for that segment. The reasons are 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 now multiple years to position GF technologies for those data center requirements is starting to really pay off. 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 increased 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 TIA and drivers, but also pluggable silicon photonics. And now as you start to note the transition to co-packaged optics. So again, I think it's not just a short-term story, but a long-term story for growth as well. Neils, anything to add?

Yes, I can go a little bit deeper on the silicon photonics, but maybe also just highlight strong growth in the satellite communications side, where we were winning across the board and satellite communications, large space arrays, antennas, strong design momentum there. SatCom, satellite win from our 45RFSOI platform in addition to that, and of course, 22FDX, 12LP, and 130NSX in the previously announced SATCOM platform. So strong growth there as well that plays into the CID. But maybe going a little bit deeper on silicon photonics. It is our fastest-growing battleground. It's an area we've been investing in for a long time. We built a very strong technology versus competition, where we actually have the silicon photonics, optical integrated with high-performance CMOS as I believe, the only supply in the industry. So this is allowing us to have very strong performance in the pluggable segment that has taken off and is being used within data centers between the servers between data centers and then now good momentum building on the co-packaged designs. This really is targeting the communication between the GPUs and CPUs in the data centers. We just came from the Optical Fiber Conference, there were several customers, both larger and smaller ones, demonstrating co-packed technology solutions based on GF technologies. And as we speak here, in deep execution with multiple major players on co-packaged silicon photonics, we are actually having tape-outs happening both within this quarter and the next few quarters. So feeling quite confident about the growth in silicon photonics and very excited about the co-packaged optics solutions.

Very helpful color. As a follow-up, I was hoping perhaps you could drill down into some of the other end markets. 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 should we be perhaps more conservative on the smart mobile side? Any color there would be very helpful.

Yes, certainly. Let me begin by discussing smart mobile devices. I believe our fundamental outlook remains largely unchanged, with expectations for a stable market in 2025. Regarding IoT, I previously noted that inventory levels were decreasing, and we anticipate growth from key IoT players. This was evident in the recent announcements from those companies. GF saw year-on-year growth in IoT in Q1. However, due to uncertainties regarding consumer spending, we expect a more stable performance in IoT this year. In the long term, we are well positioned with our IFSOI and CMOS portfolio, and we are experiencing strong design momentum in sectors such as medical, audio, industrial power, connectivity tracking, identification, and security. We have observed significant growth in design wins across all these segments, particularly in Q1 with IoT design wins in WiFi 7 using our FinFET portfolio. I want to emphasize that our FinFET portfolio is increasingly optimized for low power and NII performance, making it a great fit for WiFi 7. We are seeing good momentum with MCUs and audio DSPs, including connected MCUs and AI-enabled audio DSPs, as well as advancements in 22FDX. Additionally, we see solid growth potential in medical and power applications utilizing our 130 and 55BCD technologies. Overall, we are optimistic about design momentum in IoT and anticipate growth post-2025. Now, regarding Automotive, we remain confident. As you may recall, we have consistently gained market share since our IPO, and last year we achieved about 15% year-on-year growth in automotive for 2024, which results from design wins accumulated over several years. We are particularly excited about our progress in automotive qualifications; all our fabs and major technologies are now automotive qualified, with several being automotive pro qualified. Notably, our 40nm process technology has gained significant traction, establishing us as a leading MCU provider in the automotive sector. Our 130BCD technology is strong in battery management systems, and 22FDX is experiencing substantial success across sensor applications, especially in RADAR. Thus, we are optimistic about maintaining our growth trajectory and market share in the automotive sector.

CJ, this is John. I just want to add one point of clarification. So our view on smart mobile devices for the year on being flattish is net of the underutilization payment delta from year to year, which is about $100 million.

And our next question comes from the line of Vivek Arya with Bank of America.

Thanks for taking my question. For the first one, is exiting 2025 at 30% gross margin still the target? And if yes, is that consistent with growing Q3 and Q4 kind of at this mid-single-digit rate sequentially? Or has anything changed in that framework versus how you thought about it on the last earnings call?

Thank you, Vivek. I'll provide some insights into our overall path toward margin expansion, and then John can elaborate on 2025. There are three key factors that boost our confidence in our ability to grow margins towards our long-term target of 40%. We have already discussed some of these. First, the introduction of differentiated technologies is crucial. The majority of our design wins, where we excel in performance and adding value for our customers, result in price outcomes that are significantly above our corporate averages and goals. Second, we have strong relationships with our customers and the potential for further growth. In recent months, I have been actively meeting with customers, and universally, their interest in expanding our collaboration in existing areas and exploring new ones is very encouraging. Even in segments where we currently hold a smaller share, there is notable potential for growth. This growth is tied not only to our differentiated technologies but also to the earlier discussed footprint strategy. Lastly, we possess a significant manufacturing footprint that has been developed through over $7 billion in investments since 2021, aimed at both scaling and diversifying our operations. This infrastructure enables us to accommodate revenues between $9 billion and $10 billion without the need for substantial capital expenditures or increases in fixed costs. Consequently, we can effectively leverage top-line growth from our design wins and deeper customer engagement, while also benefiting when the overall market rebounds. This gives me strong long-term confidence in our business model. John, could you now share your thoughts on 2025?

Yes, sure, Vivek. So clearly, the tariff concern is lingering out there, as Tim and Neils have both indicated, and potentially impacting the more consumer-oriented end markets that we have in SMB in some portions of our IoT market, so we just talked acknowledge that. Putting that aside, under the base case of growth this year, we do expect utilization to increase. Our utilization level in Q1 was around 80% in our factories. So it starts with that. That's a key element to absorbing our fixed costs and improving our gross profit margin. The second factor is the improvement in our depreciation costs 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 as 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, 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 margin. So that's another key factor at work here. The third is an improving product mix where some of the exciting new highly differentiated product lines that Neils was talking about are ramping, and they're actually coming in at above corporate average gross profit margin. So that helps us as well. Finally, we have ongoing efforts in terms of structural cost improvement to help improve our efficiency. 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 a 30% gross margin.

Very helpful. And for my follow-up, maybe I'm kind of nitpicking here, but you mentioned that wafer ASPs could come down sort of in the mid-single-digit range. When we look at commentary from a lot of the diversified automotive, industrial IoT customers, they're indicating their pricing will only go down kind of low-single digits. And I don't know whether I'm reading too much into this, but conceptually, should your pricing come down at the same pace; why would it be different? And then I also had a point of clarification there. What was the apples-to-apples wafer price decline? Because on a reported basis, it is down 13%. But if I remove the $82 million, I think you had in termination fees in Q1 last year, it's down 8%. So I 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 wafer pricing?

Yes, Vivek. So certainly, the kind of three factors that work here are the underutilization payment dynamic. I think you understand that. And then looking beyond that, it's really a combination of primarily mix changes. So I mentioned that earlier in the earlier responses where different types of products carry different ASPs. And some products with lower ASPs actually have higher gross profit margin. So that's not really a great indicator of profitability from that dynamic. Finally, it's the point that Tim was mentioning, where in some few cases, we have chosen to take market share with modest price allowances in some markets where there's a dual-source dynamic, but that's not the major driver; the major driver of the first two factors that I mentioned.

Yes, if I may, maybe just explaining why lower ASPs are not necessarily equivalent to lower margins. You look at the process nodes that we are positioning into the market space and maybe have very good differentiation and good margin on. Some of those process nodes have only what we call 25 mask layers versus other processor nodes that are already in production sitting maybe at 50-60 mask layers. So you can very quickly understand that the cost difference between two technologies like that is quite big. Thereby, you can, at a lower wafer ASP, you can end up with much better margins.

And our next question comes from the line of Ross Seymore with Deutsche Bank.

Lots of good stuff on the year as a whole. I want to just get a little shorter term with my first question. For the second quarter guide by end markets versus the roughly up 6% overall, 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 end market, please?

John, do you want to comment and then I'll add some color?

Yes, sure. I mean we generally see a fairly consistent pattern there, Ross, of the improvement in the second quarter. We mentioned the first quarter being below point to more mobile device categories, but it's fairly well distributed.

And then I guess a bigger picture question. Tim, 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?

Yes. Thank you, Ross. So for us, the way we think about M&A as a growth lever is really very much in line with our strategy. And so as we've laid out in the past, going deeper on a differentiated essential chip portfolio, meeting our customers where they need us, and adding capabilities that meet their requirements. And then obviously, our footprint itself. And I'd say if you'd have to think about where we'd be most focused in inorganic, it's really on the first of those pillars and potentially slightly on the second. And so we'll look for areas where we can add value to our existing offering, and that could be on the technology side, like the acquisition we made last year with Tagore Technologies, but similar areas where we can bring value to the platform. 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.

Ross, if I could just quickly add. In terms of our firepower in terms of inorganic activity, we're very well positioned. We ended the quarter with $3.7 billion in cash and investments and another $1 billion capacity on our revolver that's undrawn. So that puts us in a good position. 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 $1 billion in free cash flow again in 2025 as we did in 2024.

And our next question comes from the line of Chris Caso with Wolfe Research.

Yes, thank you. The first question, it's just a clarification of the underutilization charge payments. Do you expect with the elimination of the payments that happened last quarter, are we pretty much done with that headwind? Is there any potential future headwinds, 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 unutilization payments on a year-on-year basis?

Yes, Chris, this is John. Yes, the first part of your question is yes, we do expect that to be largely behind us, if you will. You may have some modest amount of this from time to time. But largely behind us. And it's several points of gross profit margin that we are overcoming here. Related to that, if you wish to think of it that way, really, 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 partially compensated for that. So I actually think it was very positive from that aspect.

Okay. Also in your prepared remarks, you talked a bit about the tariff impact. And I guess I'm focused here on the direct impact, such as additional costs that you may have to encounter on that. I guess, one is, have you done any work with being able to identify what the magnitude of that may be? And then secondly, what's your ability to pass it on to customers?

Yes, Chris, this is 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 from tariff. We have roughly estimated that at about a $20 million annualized impact on us with a very minimal portion of that affecting the second quarter that is comprehended in our guidance, by the way. So that's the rough framing. We'll definitely need to keep an eye on this and monitor it, which we are doing. And yes, as we continue to assess the materiality of tariffs overall, we will look at how we can pass this through in terms of our ASP and commercially.

Yes. And I think, Chris, just to add 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 a broad set 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.

Yes, just a final point. I mean, bear in mind our solar global footprint where 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.

And our next question comes from the line of Quinn Bolton with Needham & Company.

Hey John, just wanted to ask on the second quarter gross margin. It looks like the guidance for 25% implies a fairly low or maybe on the low side, incremental fall-through on the second quarter. Just wondering if there are any specific puts or takes on second quarter gross margin at 25%?

Quinn, it's really mix from that perspective. But yes, so really looking at the mix primarily driving that.

Great. And then maybe a longer-term question. You guys talked about several design wins and tape-outs imminent on the CPO side. Based on your discussions with the customers, when do you see the volume ramp? Is that something you think ramps in '26? Does it take longer to get especially on the scale-up network side?

I think maybe I'll just give a bit of color on that trajectory and then ask Neils for what we're hearing in the industry more broadly. The industry has gone through an evolution of its view about the ramp-up of photonics. And I think it's very clear that this has moved from an if to a when statement, both on the use of Photonics more broadly, but definitely on CPO. There were announcements I know Neils mentioned, but even before OC, including industry dates like NVIDIA, that talked about co-packaged optics for scale-out applications in their case. So I think there's no more debate about whether or not CPO. Obviously, the rate and pace of transition is always a little bit uncertain. Maybe Neil should share a bit of your perspective on that.

Yes. Maybe the best way to think about it is what co-packaged optics does within the data center between the GPUs; it enables a pretty substantial performance improvement as well as a pretty substantial power reduction. When you think about the next-generation data centers, this is just becoming even more urgent now that you can see what you can actually achieve. That has heightened the urgency from the major players in getting this to market as fast as they can. So we're excited about it. We've got the technology well-positioned and ready. We have our teams maniacally focused on flawless execution as we work through it. We expect to be ramping with these players among the earliest of the optical silicon photonics players.

And our next question comes from the line of Krish Sankar with TD Cowen.

Yes, hi, thanks for taking my question. I told the first one on the smart mobile side. I think, John, you mentioned there was some inventory reduction. Was it concentrated at one customer? Was it more broad-based? And also within mobile, you seem like you're getting more traction in RF front-end products; how to think about those gross margins versus the 22, 55-nanometer mobile products? And then I have a quick follow-up.

So maybe, Neil, you can comment on the market.

I would say there's less of an inventory issue and more of an underutilization charge that occurred earlier. When you set that aside, the situation is basically flat. What’s particularly exciting for us in the smart mobile device space is that we not only have strong design wins in the front lines, as you mentioned, but we are also beginning to see solid momentum in display imaging, haptics, and audio within the S&D space. Additionally, we achieved our first major design win for micro-LED displays in smart glasses during the first quarter. There is much more happening beyond just the front end. Overall, I would say that the margins we are achieving are beneficial for our business, addressing your specific inquiry.

Got it. Got it. Very helpful. And then just a quick follow-up on autos. And thanks for all the color that you gave on tariffs. I understand there's so many moving parts there. But given that on the end market for autos, like obviously tariff has an impact, China versus U.S. auto, the difference in their growth. But curious, factoring all of that, so you still expect double-digit growth in autos for your auto segment this year?

Yes. I think it's important to note that we are gaining market share relative to our competitors while sales at the forecourt are increasing. The overall market environment may be weak, but our story of gaining share is strong. This is largely due to our success with customers, as well as specific instances where our customers are performing well in their markets and gaining share themselves. We remain very confident based on these share dynamics.

And the share gains come from, of course, the original play in automotive MCU, where we have the design 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 systems as well as the body power controls within the car. And then, of course, all the sensors, and specifically RADAR, where 22FDX has really become an industry standard. So the share gains come from our original position and then in addition, adding new market areas where we are growing from almost nothing to more meaningful revenue.

We'll take one last question.

And our final question comes from the line of Mehdi Hosseini with SIG.

Hi, thanks John. So my question is on home and IoT. I'm filling in for Mehdi. It's Bastian. You saw two quarters of year-on-year 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 relating to the add of inventory digestion that has been a little bit hard to call. And I have a follow-up.

Yes, Neils, do you want to comment on the market?

Yes, I can comment that. As mentioned earlier on, the inventory has certainly come down and are now at more what do we say, net normal levels. Also, I mentioned earlier on, you see the players that are strictly IoT players, you actually see them having very strong growth in Q1. I'm sure you saw some of those announcements. 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. But I can mention maybe a couple of major wins that we had in Q1. We have WiFi 7 on our FinFET technology, connected MCUs, AI-enabled audio DSPs, medical, block cost monitoring, power in general, and then cellular IoT. So these are all design wins we had in the first quarter that bode well for where IoT is going for GF in the future.

And did you have a quick follow-up?

Yes, regarding smart mobile, our revenue was slightly below expectations. Were there specific categories in the high-end or mid-range smartphones that contributed to this revenue decline? Additionally, in terms of consumer demand, do you believe this decline is primarily due to customers accumulating more inventory than anticipated, or is it indicative of weaker consumer demand? Any insights into this dynamic would be appreciated.

Sure. This is John. I really point to two factors. One, as Neils has mentioned several times, it's the roll-off of the underutilization payments from one year ago to first quarter '25. Secondly is just the seasonality of this being a seasonally low period. We expect SMD to continue to ramp throughout the year.

Thanks, Martin, and thank you, Andrew, for in appreciate everyone and the questions raised today. We look forward to seeing and speaking to many of you over the next quarter. Thank you.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.