Source: Motley Fool transcript (published 05/05/2026); call date Tuesday, May 5, 2026 at 8:30 a.m. ET. Participants: Tim Breen (CEO), Sam Franklin (CFO), Eric Chow (IR).
Operator: Good morning, everyone, and welcome to GlobalFoundries' First Quarter 2026 Earnings Call. On the call with me today are Tim Breen, CEO; and Sam Franklin, CFO. A short while ago, we released GF's first quarter 2026 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. We will open the call for questions with Tim and Sam. I'll now turn the call over to Tim.
Timothy Breen, CEO: Thank you, Eric, and welcome, everyone, to our first quarter 2026 earnings call. GF delivered a strong first quarter with all of our non-IFRS profitability metrics at or above the high end of their respective guidance ranges. This was the result of excellent execution by the team with a focus on delivering for our customers. These results demonstrate a strong step forward in our multiyear journey to enhance the quality of our revenue composition, improve our structural cost position and achieve efficient scale across our world-class fabs.
We delivered strong double-digit percentage growth in both automotive and comms infrastructure and data center. We continue to execute to our proven 3-pillar strategy: to innovate and deliver a unique technology road map; to deepen our engagement throughout our customers' design cycles; and to scale our diverse and fungible global footprint.
There is no better proof of our technology innovation than our industry leadership in optical networking, which includes both our silicon photonics and silicon germanium capabilities. With the advent of optical for scale-across, scale-out and scale-up networks, the market is moving to adopt our solutions for pluggable, near and co-packaged optics. Our SiGe technology is a critical enabler for data center networks where amplifiers, TIAs and drivers using GF's solutions support the conversion between high-speed electrical and optical signals. We are seeing very strong customer demand for our SiGe solutions with capacity at our Vermont fab oversubscribed through well into 2027. As these offerings are meaningfully margin accretive, we are expanding SiGe capacity to meet accelerating customer demand.
Another notable proof point was announced at the Optical Fiber Communications conference (OFC) in March. Members of the Optical Compute Interconnect Multi-Source Agreement (OCI MSA), including AMD, Broadcom, NVIDIA, Meta, Microsoft and OpenAI, established the CPO industry standard for scale-up networks that perfectly aligns with the capabilities GF has spent years developing. Just a month after the OCI standard was announced, GF announced its complete optical module solution for NPO and CPO, known as SCALE (Silicon Photonics Co-packaged Advanced Light Engine) — not just the industry's first OCI MSA capable platform; the technical specs exceed the MSA requirements. In the first quarter, we saw new tape-outs in Malta, New York for a pair of CPO design wins that support the OCI standard for scale-up networks.
We continued to accelerate our design win momentum. In the first quarter, we saw a 50% increase in design wins compared to the same period a year ago, with excellent representation across all 4 major end markets, building on the record design win year in 2025. Notable commercial engagements included: GF and Renesas announced a multibillion-dollar strategic partnership that expands to GF technologies including FDX, BCD and feature-rich CMOS with integrated nonvolatile memory; tape-outs under the broadened collaboration are already underway. In automotive, we are encouraged by strong customer momentum around our new Auto Grade 1 embedded MRAM capability on FDX, with lead customers taped-out and growing engagement with Tier 1s such as Bosch. In smart mobile, we secured 2 new design wins on our FDX platform for micro-LED backplanes used in smart glasses. In robotics and physical AI, in March GF announced a partnership with Inova Semiconductors to deliver a robotics control reference platform combining MIPS RISC-V compute and mixed-signal technologies with Inova's high-speed communication links.
For optical networking within comms infrastructure and data center, in the first quarter we executed additional tape-outs for silicon photonics that reinforce our confidence that we are on track to roughly double our silicon photonics revenue in '26 and to achieve greater than $1 billion silicon photonics revenue run rate exiting 2028. GF is now designed in at 3 of the top 4 pluggable optical transceiver companies.
On our diversified manufacturing footprint: our 3-continent manufacturing footprint across the U.S., Germany and Singapore is a tremendously valuable asset for our customers. Last month, Apple announced a joint collaboration with Logic and GF to bring new process technologies to our Malta, New York fab — the first U.S. availability of the silicon platform that supports key functions in upcoming Apple devices, including next-generation components used in Face ID systems. We are also working closely with the governments of the U.S., Germany and Singapore on support frameworks such as CHIPS grants and investment tax credits.
Sam Franklin, CFO: For the remainder of the call, including guidance other than revenue, cash flow and net interest income, I will reference non-IFRS metrics. We delivered first quarter revenue of $1.634 billion, down 11% sequentially and up 3.1% year-over-year. We shipped approximately 579 300-millimeter equivalent wafers, down 6% sequentially and up 7% year-over-year.
We have updated our revenue categorization: revenue previously referred to as wafer revenue will now be categorized as revenue from manufacturing services, and non-wafer revenue will now be categorized as revenue from technology services. Revenue from manufacturing services accounted for approximately 87% of total revenue; technology services, which includes IP, licensing, software, reticles, nonrecurring engineering and other items, accounted for approximately 13%. Revenue upside in technology services was driven by increased mask and reticles as we ramp customer tape-outs as well as momentum from IP licensing and software as we integrate MIPS. We expect technology services to comprise a greater proportion of 2026 revenue, closer to the high end of our original 10% to 12% range.
Communications infrastructure and data center represented approximately 14% of Q1 revenue and increased 2% sequentially and 32% year-over-year — the sixth consecutive quarter of double-digit YoY growth. We now expect high-30s percent YoY growth in this end market in 2026, up from ~30% a quarter ago. Automotive was ~23% of revenue, down 11% sequentially off a strong Q4 but up 24% YoY; we expect low double-digit growth in 2026, a sixth consecutive year of double-digit growth. Smart mobile was ~34% of revenue, down 15% sequentially and 5% YoY; we expect a high-single-digit decline in 2026, outperforming the overall smartphone market. Home and industrial IoT was ~16% of revenue, down 16% sequentially and 22% YoY on shipment timing, which we expect to reverse in Q2.
We delivered gross profit of $474 million, ~29% gross margin — above the high end of guidance and up 510 basis points year-over-year, the largest YoY margin expansion in over 3 years. R&D was $114 million and SG&A was $89 million; total operating expenses of $203 million were ~12% of revenue. Operating profit was $271 million, operating margin 16.6%, up 320 basis points YoY. Net income was ~$227 million, up ~$38 million YoY. Diluted EPS of $0.40 was at the high end of guidance on ~561 million shares.
Cash flow from operations was $542 million. Q1 CapEx net of government grants was $309 million, ~19% of revenue. Adjusted free cash flow was $233 million, a ~14% margin, driven by favorable working capital movements expected to reverse in Q2. We ended with ~$3.8 billion in cash and equivalents, total debt of $1.1 billion, and a $1 billion undrawn revolver. In Q1 we repurchased $400 million of the $500 million authorization, with ~$100 million remaining.
For Q2 2026 guidance: total revenue expected at $1.76 billion ± $25 million; gross margin ~28.5% ± 100 bps (over 300 bps YoY expansion at midpoint); total operating expenses ex-SBC $225 million ± $10 million; operating margin 15.7% ± 180 bps; diluted EPS $0.43 ± $0.05 on ~555 million shares. For the full year we continue to expect non-IFRS net CapEx of 15% to 20% of revenue and adjusted free cash flow margin of approximately 10%, skewed to the second half. The next wave of capacity investments will be accompanied by customer prepayments in addition to meaningful government grant and tax incentive frameworks.
Operator: [Q&A — selected]
Harlan Sur (JPMorgan): Given the tight supply outlook and supply chain resiliency focus, how should we think about your pricing profile in the second half?
Timothy Breen: There's a part of our portfolio that prices on a very long-term basis, stable for several years. There is a smaller component that prices over a more short-term dynamic, and both the supply and demand dynamics there are more favorable from a pricing perspective. Consistent with peers and even many of our customers, we will implement price adjustments on that part of the portfolio, kicking in towards the back end of 2026 and flowing into 2027. For parts of the portfolio where we are capacity constrained, we are also having conversations with customers about advance payments to secure capacity as we accelerate CapEx in tight corridors such as FDX, silicon photonics, and high-performance silicon germanium.
Harlan Sur: Gross margins came in 200 bps better than guidance; what are the puts and takes and could we exit the year closer to 33-35%?
Sam Franklin: The single biggest driver was mix — both manufacturing services mix (comms infra/data center and automotive fall through at high margin) and technology services (came in at 13% vs ~12% expected). About 1 point of the 200 bps came from cost synergies from the Advanced Micro Foundry acquisition in Singapore. On the Middle East conflict, we've taken proactive steps to shore up supplies of key gases like helium, hydrogen, sulfur, which carries about 0.5 point of margin impact per quarter through the rest of 2026. Our full-year target is to exit 2026 at or above a 30% gross margin.
C.J. Muse (Cantor Fitzgerald): How should we think about technology services growth beyond calendar '26?
Timothy Breen / Sam Franklin: We used to guide technology services to ~8-10%; now we expect to trend to the high end of the 10% to 12% range. We're in early innings of integrating MIPS, and haven't yet closed the Synopsys ARC IP business (expected toward end of H1 2026), which will drive incremental growth over time.
C.J. Muse: On silicon photonics — the lion's share is pluggables today; how does that mix evolve into '27 and '28?
Timothy Breen: Optical adoption is extremely strong — by 2030, 70% of networking ports in the data center will be optical. Pluggables are in high demand today with 1.6T going into the market and 3.2T on the roadmap. The evolution to near and co-packaged optics is accelerating; we are already seeing tape-outs of products intended for co-package and near-package use.
Krish Sankar (TD Cowen): Can you compare SCALE optical with TSMC COUPE?
Timothy Breen: We've been working on co-packaged optics for more than 10 years, built on wafer-level technologies plus advanced packaging like hybrid bonding and TSVs, plus attachable fiber with low insertion loss. We think we have an industry-leading solution that benchmarks very well, and there will be multiple solutions in a fast-growing market.
Matthew Bryson (Wedbush): What drove the upside in comms/data center versus prior guide?
Timothy Breen: It's incremental across the board — silicon photonics optical networking picking up, pulling through pluggable optical transceivers that contain both high-performance silicon photonics and high-performance SiGe content. The optical piece is the one we'd call out.
Ross Seymore (Deutsche Bank): How do you see GF's performance in smart mobile devices relative to the market over time?
Timothy Breen: There are tailwinds from content growth within the handset and new form factors like smart glasses that bring content — micro-LED backplanes for display are something we've been working on with partners for some time.
Operator: Thank you. This does conclude today's call. GF will host its Investor Day on May 7, 2026.