GlobalFoundries expects semi market dip – but only in first half of 2023

Foundries folk pity the fool who writes off whole of 2023, though analyst says GF crew is 'optimistic'

Semiconductor manufacturing biz GlobalFoundries expects weakening chip demand to bottom out in the first half of 2023, as it announced better than expected results for Q3 2022.

The chip industry is bracing itself for a downturn as demand weakens, due to various causes such as hiked inflation rates and rising energy costs, but GlobalFoundries seems to believe this will mainly affect business in the opening six m onths of next year.

"Some of our customers have requested to modestly adjust some of their 2023 shipments downward, particularly with respect to the first half of 2023," said CEO Thomas Caulfield in his opening remarks for the company's Q3 2022 earnings conference.

Later onm a conference call, CFO Dave Reeder gave a more nuanced view, saying: "We think the first half of 2023 is probably the trough based on what we're hearing. It's probably more likely than not the first quarter, but we continue to refine and assess that demand based upon our collaboration with customers."

This is in contrast with some analyst predictions, which forecast that 2023 will be a year of decline for the semiconductor market as a whole, with any recovery starting sometime in 2024.

Gartner's vice president for semiconductors and electronics Richard Gordon told us last month that: "We are already seeing pullbacks in announced capital expenditure as semi companies try to throttle back output," adding: "This will slow the addition of new fab capacity as vendors try to align it to a recovery in the market in beginning in 2024 and accelerating in 2025."

Gordon said he believes that the GlobalFoundries' forecast seems a little optimistic, and that Gartner is assuming only "improving market conditions" for 2H 2023, "But there is a lot of uncertainty about the macroeconomy overshadowing the outlook right now," he said today.

Costcutting

Meanwhile, Caulfield said that GlobalFoundries was taking action now to contain costs and to accelerate previously planned productivity initiatives, based on the current macroeconomic environment and discussions with the company's customers.

Longer term, the picture for the company is rosy, he claimed, with the number of customers under long-term agreements increasing to 38, and the total value of these now slightly above $27 billion. These deals are providing a strong framework for GlobalFoundries and customers to have balanced and constructive discussions regarding demand, he said.

For calendar Q3 2022, the company reported revenue of $2.1 billion, up 22 percent year-on-year. For Q4, it forecast revenue to be between $2.05 billion and $2.1 billion, which is effectively flat in terms of growth.

However, GlobalFoundries said it expects to close on the sale of its East Fishkill facility – a former IBM fabrication plant acquired in 2014 – to chipmaker Onsemi. As a result, it expects to record a gain in the fourth quarter that will be in the range of $350 million to $400 million.

By end market, smart mobile devices represented approximately 46 percent of the GlobalFoundries Q3 revenue, up about 12 percent year-on-year. Revenue from the home and industrial IoT market made up 19 percent, a growth of about 83 percent.

Communications infrastructure and datacenter products comprised approximately 18 percent of revenue for the quarter, up 29 percent year-on-year, while compute end market products declined year-on-year and comprised just 2 percent of the company’s total revenue.

Automotive was billed as one of the bright spots, representing just 5 percent of revenue for this quarter, but based on current design wins, CFO Reeder said the company anticipates continued growth in its automotive business in 2023, “and we expect the business to exit 2023 at a $1 billion annualized run rate.”

Wafer revenue accounted for approximately 90 percent of the company’s total revenue during Q3, and Reeder said the average selling price per wafer increased approximately 14 percent year-on-year, driven by the long-term customer agreements and continued improvement in the product mix.

Global Foundries shipped approximately 637,000 300mm-equivalent wafers during the quarter, an increase of 5 percent compared with the same period last year.

Among the products qualified by GlobalFoundries this quarter is a 40nm embedded non-volatile memory product for “one of the largest automotive MCU suppliers in the industry”. This can now be shipped from both the company’s Dresden and Singapore facilities, establishing a high-volume supply chain for the automotive industry, the company said.

Caulfield said that GlobalFoundries has also been sampling Gallium Nitride (GaN) power devices to early engagement customers from its Burlington, Vermont facility, where the company recently received a $30 million grant from the US government as part of the commercialization funding for this technology. ®

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