GLOBALFOUNDRIES Inc. (GFS) Earnings

Management highlights

- **Strategic Growth Initiatives** * Launched Quantum Technology Solutions, a new dedicated business unit to move quantum computing from lab prototypes to high-volume manufacturing. The qubit-agnostic platform supports all leading quantum modalities, and GF already has 4 new customer engagements 3 months post-launch, supported by a $375 million U.S. Department of Commerce grant for U.S. manufacturing capacity buildout. Near-term quantum revenue will come from engineering services, with volume manufacturing revenue expected to ramp by the end of the 2020s. * Secured 7 new optical networking design wins in Q2 for AI data center end markets. Silicon photonics revenue is projected to more than double in 2026 year-over-year, with high-volume production of 200G per lane technology underway and 400G per lane capability demonstrated. GF secured a $300 million U.S. Department of Commerce award to accelerate next-generation silicon photonics development for near and co-packaged optics. High performance silicon germanium (SiGe) capacity is oversubscribed through 2027, with capacity expansion underway at GF's Vermont facility. GF completed an acqui-hire of Photon Technologies' custom integrated voltage regulator (IVR) team to expand AI data center power technology capabilities, bringing differentiated power conversion design talent to enable new power architectures for high-demand AI processors. * Completed the acquisition of Synopsys Arc Processor IP Solutions Business, which complements the earlier MIPS acquisition to expand GF's RISC-V processor IP, software development tools, and custom silicon design capabilities for physical AI applications. The acquisition adds over 150 patents, 300 existing customers, and 400 R&D engineers, enabling GF to support customers from architecture design through high-volume production for edge and on-device AI use cases. - **Operational and Financial Highlights** * Non-IFRS gross margin reached 29.9% (nearly 30%) in Q2, hitting the 2026 full-year target 6 months ahead of schedule, up ~470 basis points year-over-year, driven by favorable product mix, improved manufacturing productivity, and higher utilization (high 80s% in Q2). * GF paid its first-ever quarterly cash dividend of $0.12 per share in July 2026, with a second dividend declared for September 2026. * Record design win activity across all core end markets in Q2, including notable wins for automotive ADAS radar, power management ICs, micro-LED display backplanes for AR wearables, and aerospace defense chiplets.

Guidance

- Full-year 2026 Communications Infrastructure and Data Center revenue growth is revised upward to 50% to 60% year-over-year, from the prior guidance of high 30% percentage growth. - Full-year 2026 Home and Industrial IoT revenue growth is revised upward to 10% to 15% year-over-year, from the prior guidance of mid-single-digit percentage growth. - Technology services revenue is projected to contribute 10% to 12% of total 2026 revenue (towards the high end of the range), with the 2026 total contribution from the MIPS and Synopsys Arc acquisitions revised upward to $100 million to $120 million, from the prior expectation of $60 million to $100 million. - Full-year 2026 automotive revenue is still expected to deliver low double-digit percentage year-over-year growth, with most of the growth weighted to Q4 2026. - Smart mobile devices full-year 2026 revenue is expected to decline by a low teens percentage year-over-year. - Q3 FY2026 guidance: Total revenue of $1.885 billion ± $25 million; non-IFRS gross margin of ~30.5% ± 100 basis points; non-IFRS diluted earnings per share of $0.51 ± $0.05. - Full-year 2026 non-IFRS gross margin is now expected to reach ~30% for the full year (previously an exit-of-year target only), adjusted free cash flow margin is projected to be approximately 10%, and the effective tax rate is expected to be in the mid-teens percentage range. - GF maintains its long-term target of 30+% annual revenue growth for Communications Infrastructure and Data Center through 2027 and beyond, and a 40% gross margin exit target by 2028.

Segment performance

Global Foundries (GF) reported total Q2 FY2026 revenue of $1.786 billion, up 9% sequentially and 6% year-over-year. Manufacturing services contributed 89% of total revenue, while technology services contributed 11%. 625,000 300mm equivalent wafers were shipped, up 8% both sequentially and year-over-year. 1. Communications Infrastructure and Data Center: 16% of Q2 total revenue, with revenue up 20% sequentially and 62% year-over-year, marking the seventh consecutive quarter of double-digit year-over-year growth. Growth was driven by strong demand for silicon photonics and silicon germanium offerings for optical networking, plus double-digit growth in wireless infrastructure and storage. 2. Automotive: 19% of Q2 total revenue, with revenue down 13% sequentially and 10% year-over-year, driven by customer-led shipment timing adjustments. 3. Smart Mobile Devices: 36% of Q2 total revenue, with revenue up 15% sequentially and down 6% year-over-year. The full-year 2026 forecast reflects a projected low teens percentage year-over-year decline due to industry-wide memory pricing and shortage impacts. 4. Home and Industrial IoT: 19% of Q2 total revenue, with revenue up 30% sequentially and 10% year-over-year, the fastest annual growth since 2022, driven by demand for AI-enabled image processing, healthcare wearables, and edge AI microcontroller units.

Risks & headwinds

- Industry-wide smart mobile device demand and production are negatively impacted by ongoing memory pricing volatility and component shortages, leading to a projected full-year revenue decline for the segment. - Customer shipment timing adjustments can create quarterly revenue volatility in the automotive segment, even as full-year growth expectations remain intact. - Capacity constraints in high-growth segments including silicon photonics and SiGe require timely capacity expansion to meet accelerating customer demand.

Analyst Q&A

• Q: Data center capacity is constrained by strong demand; what is the timing/magnitude of expansion, and how does the $300 million CHIPS Act grant impact net capex? /

  A: Demand is strengthening across all data center optical networking and power applications, with additional capacity being brought online to meet growth through H2 2026 and into 2027. The grant accelerates next-generation silicon photonics innovation, including new modulator technologies and advanced materials for 400G+ per lane bandwidth, and funds expanded capability and capacity for near/co-packaged optics solutions developed on GF's scale platform, with all work based in the U.S.

• Q: What is driving Q3 gross margin expansion, and what is the 2027 gross margin trajectory? /

  A: Mix is the primary driver, with both high-growth, high-margin manufacturing (communications infrastructure and data center) and high-margin technology services contributing tailwinds. Utilization is in the high 80s% in Q2, leaving additional capacity to drive further margin gains. GF hit its 30% full-year 2026 gross margin target in Q2, and now expects full-year 2026 gross margin to come in at ~30%, ahead of prior expectations.

• Q: Why was communications infrastructure and data center 2026 growth guidance materially upgraded, and what is GF's competitive position in silicon photonics versus peers? /

  A: Demand has meaningfully strengthened across the ecosystem, including from hyperscalers, giving GF confidence to increase capacity investments. GF remains ahead of its original long-term silicon photonics growth targets, with strong manufacturing output momentum at its New York facility. Demand is durable, as the secular shift to optical networking in data centers is still in early stages.

• Q: What is the breakdown of NPO vs CPO work on GF's 7-customer scale platform, and what is the timing of NPO ramps? /

  A: Most scale platform customers are developing both NPO (near package optics) and CPO (co-packaged optics) solutions, as NPO is expected to ramp sooner while CPO ramps later. GF's scale platform supports both architectures, as most core design and manufacturing capabilities are shared between the two. GF maintains its prior timeline: NPO ramps begin in 2027, and CPO ramps begin in 2028.

• Q: How does GF view competitor aggression in silicon photonics, and can customers multi-source? /

  A: Competitor entry confirms the strength of the secular optical networking trend. GF has over 40 silicon photonics customers, including both established and new entrants, so there is no meaningful customer concentration risk. Many customers are actively seeking additional secured supply to mitigate geopolitical risk, supporting durable demand growth for GF's U.S.-based manufacturing capacity.