GLOBALFOUNDRIES Inc. Price & Performance (GFS)

Thank you, operator. Good morning, everyone, and welcome to GlobalFoundry's fourth quarter and full year twenty twenty four earnings call. On the call with me today are Doctor. Thomas Caulfield's CEO John Hollister, CFO Neil Zanderskoff, Chief Business Officer and Tim Breen, Chief Operating Officer. A short while ago, we released GF's fourth quarter and full year twenty twenty four 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 webpage. 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 and on Form 20 F and current reports on Form six ks filed with the SEC. We will begin today's call with Tom providing a summary update on the current business environment and technologies. Neil will then discuss our recent design wins and highlights across the end markets, following which John will provide details on our fourth quarter and full year results, and also provide first quarter twenty twenty five guidance. We will then open the call for questions with Tom, John, Tim 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 fourth quarter and full year twenty twenty four earnings call. In the fourth quarter, we delivered results that exceeded the midpoints of our guidance ranges across revenue, gross margin and EPS. We also continued to generate progressively higher free cash flow. As we set out at the start of 2024, our goal was to generate approximately three times the adjusted free cash flow over 2023. With over $1,000,000,000 of adjusted free cash flow in 2024, we significantly exceeded that target. Our free cash flow generation is a testament to our strong execution, multiyear investments in our capacity footprint and our ability to react quickly to market conditions. This will be an important metric for our company on a go forward basis and we expect to grow adjusted free cash flow in 2025 above the $1,000,000,000 target that we set out to achieve in 2024. Our full year results are consistent with what we indicated at the beginning of twenty twenty four as the macroeconomic environment began to stabilize through the second half of twenty twenty four and our customers cautiously managed down their inventory levels. This time last year, we indicated that GS first quarter of '20 '20 '4 would signal the revenue bottom for the year with an expectation for consistent sequential growth throughout 2024.

I am pleased to report that not only did we deliver on those expectations, we continue to build the foundations for longer term growth with a record level of design wins across all end markets we serve, as well as new opportunities that support the expansion of critical applications such as autonomous vehicles, satellite communications, optical networking and power delivery in the data center. With almost 90% of these design wins secured on a sole source basis, we continue to focus on deep customer partnerships coupled with our strategic global footprint to reinforce GS' position as a critical enabler of essential chip technologies. Entering 2025, we expect continued design win momentum and an improving demand outlook across several end markets. Our guidance for the first quarter of twenty twenty five indicates a modest return to year over year revenue growth, and we expect the full year 2025 to mark a return to growth across key revenue and profitability metrics. Although it's too soon to comment on the rate and pace of this growth, we expect continued moderation of the macroeconomic headwinds that impacted some of the end markets we operate in, and our customers are indicating a return to normalized inventory levels.

Meanwhile, our strategic initiatives in Malta remain on track as we actively transfer a range of essential chip technology into our Fab eight facility in Malta, New York. This will diversify the existing technology portfolio in Malta by supporting our customers with access to our 22 FTX platform, our 40 nanometer auto grade offerings. This will complement the existing 12 nanometer FinFET, RFSOI and silicon photonic technologies in production today. These transfers are part of our long term capacity investments, which include partnering closely with governments and securing incentive packages to offer our customers differentiated technologies in geographically strategic regions. To that end, we recently announced a first of a kind center for advanced packaging and test capabilities to be housed at our Malta facility. Supported by grants from New York State and the U. S. Department of Commerce, GS Advanced Packaging and Photonics Center will help meet the growing demand for U. S. Made essential chips used in AI, automotive, aerospace and defense and communication applications. Our customers continue to seek more geographic resilience in their supply chain and GF's unique footprint is well placed to meet them both globally and locally. In conclusion, I'm extremely proud of our achievements in 2024.

The focus and determination from our 13,000 employees around the globe giving me confidence CF can accelerate its performance as we return to growth in 2025. With that, over to you, Niels.

Thank you, Tom, and welcome to everyone on the call. I'd like to provide a brief update on some of our key customer partnerships and end market performance. 2024 has been a pivotal year for the design win momentum that we've seen across all of the end markets we serve. These design wins set the stage for increasing the content growth and penetration of our essential chip technology portfolio. Now let me walk you through that by end market. In automotive, despite soft end market demand and inventory builds at OEMs, GEF continues to grow. We continue to capture share in auto, expand our concept of vehicle and build on our strong momentum with customers. During our prior earnings calls, we indicated that we expected full year 2024 revenue from our automotive end market to grow meaningfully year on year. I'm very pleased to report that in 2024, we delivered revenue growth of 15% at the high end of these expectations, reaching a new annual record for automotive revenue, an accomplishment we have achieved every year in our history as a public company. We intend to continue this momentum in 2025. And over the last year, we secured several key assignments to deliver critically important ADAS, microcontrollers and sensor applications, all manufactured to the highest automotive grade standards.

In October 2024, we announced a key collaboration with NXP to deliver low power, high performance chips using our leading 22 FTX platform. Qualified for automotive grade one and two applications, 22 FTX not only ensures excellent reliability, but also optimizes energy management to deliver up to 50% high performance and 70% less power compared with other planar CMOS technologies. In 2025, supported by our robust design win pipeline, we expect a similar growth rate to 2024 as we focus on constant gains across automotive processing, camera, lidar, haptics and battery management systems. Longer term, as vehicles become increasingly autonomous, connected and electrified, we remain deeply focused on capturing new content and growing our share of the market for our diverse product portfolio and global footprint. Turning now to smart mobile devices. Revenue grew slightly year over year in 2024, despite a market challenge by an environment of elevated inventory and soft consumer demand for premium tier handsets. Against this backdrop, we continue to focus on opportunities for content growth and secured several key design wins throughout 2024. Customer interest for 9SW, our latest generation RFSOI platform that enables low standby current, longer battery life has continued to drive momentum in this end market, offering up to 25% reduction in die size along with greater than 20% power efficiency improvement compared to prior generations.

This is well suited to offset the increased power consumptions of premium handsets. In 2024, we not only reinforced GF's leading position in our front ends, but also delivered design win momentum in display, imaging and power. With key start events across and based on discussions with our customers, the expectation is for consumer, end demand and unit shipments in premium smart mobile devices to show modest year over year growth. To that end, our strategy remains to continue growing our content in the premium tier handset market and supporting our customers as they continue to add new features including AI enabled capabilities. 2024 was a challenging year for IoT as customers were working down the elevated inventory levels for both industrial and consumer applications. Although 2024 revenue was down on a year over year basis, we saw strong design win momentum on our 12 nanometer, 28 nanometer and 22 FTX platforms across a variety of applications such as edge devices, next generation smart cards and connectivity products across Wi Fi and Bluetooth. In Q4, GF also delivered wins on our 55 BCD light platform for portable ultrasound and imaging. By partnering with our customers to enable low power SoCs, GF is well positioned to capture share in the growing medical imaging market.

As another example of our diverse portfolio with growing medical applications, in 2024, we also secured key design wins our 130 BCD light platforms for continuous glucose monitoring systems. We also announced our collaboration with IDEMIA to deliver next generation smart card technology with improved data retention, low read latency and enhanced power efficiency. This multi year partnership will be 100% manufactured and tested in Europe on our 28 ESF free platform, ensuring trusted provenance. Lastly, through our leadership in IFSOI, GF continues to benefit from the transition to Wi Fi six, 6E and Wi Fi seven standards. Looking ahead, we expect customer inventory adjustment to start to stabilize throughout 2025 and longer term we expect to be well positioned to support the tectonic shifts in IoT applications as the number of smart and connected devices continues to expand over the next decade. Finally, in our communication infrastructure and data center end market, the expected headwinds of platform transition in 2023 and 2024 have largely concluded. In 2024, we started to see our accumulated design wins deliver revenue in three new and exciting areas. First, we see growing demand in optical transceivers. We're working with three of the largest optical transceiver customers to address a range of data set of requirements from Gen AI servers to high performance network switches and storage solutions.

As ever larger data centers move ever larger amount of data across ever greater spans, we believe this is an exciting long term secular growth opportunity that will benefit both our silicon photonics and silicon germanium technologies. Second, we see satellite communication as another high growth opportunity area getting significant traction and GFX partnering with the world's foremost companies in this space. In 2024, we secured design wins on our 22 FTX platform to enhance satellite beamforming, our 12LP platform for modem and our 130NSX platform to support the growth of ground terminals. Industry estimates indicate an acceleration of satellite deployments and as the industry growth, we expect to benefit from the significant AI front end content in large phased array antennas. Third, we see positive momentum in partnerships with rapidly growing disruptors such as GROG, a leading developer of fast AI inference technology using our 14 nanometer platform. We believe this momentum will continue as inference applications accelerate further at the edge and endpoint. We're encouraged by both the breadth and the depth of our expanding opportunities in communication infrastructure and data center, which we expect to grow revenue meaningfully in 2025 from the timing that we saw in 'twenty four.

Overall, I'm very pleased to report the progress that we're seeing across our design wins in all of the end markets that we support. We continue to position JEA for long term growth opportunities and our diverse product portfolio is well positioned to capitalize on the secular trends of our time. I'll now pass the call over to John for a deeper dive on fourth quarter and full year 2024 financials.

Thank you, Neils. For the remainder of the call, including guidance, other than revenue, cash flow, CapEx and net interest and other expense, I will reference non IFRS metrics. Our fourth quarter results exceeded the midpoints of the guidance ranges we provided in our last quarterly update. Fourth quarter revenue grew 5% sequentially to approximately $1,830,000,000 which was above the midpoint of our guidance range and consistent with the commentary on our last earnings call and equated to a 1% decline in revenue compared to the prior year period. We shipped approximately 595,300 millimeter equivalent wafers in the quarter, an 8% increase from the prior year period. ASP or average selling price per wafer decreased approximately 5% year over year, mainly driven by changes in the product mix shift during the quarter and the reduction in underutilization payments from our customers, which we indicated on our last earnings call. Wafer revenue accounted for approximately 92% of total revenue. Non waiver revenue, which includes revenue from reticles, non recurring engineering, expedite fees and other items, accounted for approximately 8% of total revenue for the fourth quarter. For the full year, revenue came in at approximately $6,750,000,000 down 9% year over year, principally due to the prolonged industry downturn and weak economic conditions, which led to factory utilization levels in the mid-70s.

We shipped approximately two point one million three hundred millimeter equivalent wafers, a 4% decrease from 2023 and ASP per wafer was slightly down year over year. In the fourth quarter, we incurred a one time $935,000,000 impairment charge on long lived assets relating to the legacy investments in our production capacity at our Fab eight facility in Malta, New York. We undertook this action related to the diversification of our long term manufacturing technology platform roadmap in Malta, which is consistent with the technology transfer strategy mentioned earlier by Tom and as discussed on our prior earnings calls. Our decision was based on an evaluation of the current technology capabilities and our go forward business strategy to position our Malta facility with a broader range of technology platforms, consistent with the expected demand from our customers. With this better alignment of our Malta manufacturing capabilities, the company is now better positioned to generate long term sustainable growth and profitability moving forward. Inclusive of the existing asset depreciation schedules, we expect depreciation and amortization in 2025 to reduce by approximately 15% compared to 2024. Since we do not expect such impairment to be a recurring event, we believe this additional adjustment to our non IFRS metrics better enables management and investors to make more meaningful comparisons of our fourth quarter twenty twenty four results against prior periods and peer results.

Let me now provide an update on our revenue by end markets. For the fourth quarter, smart mobile devices represented approximately 40% of the quarter's total revenue. Fourth quarter revenue declined approximately 15% sequentially and roughly 4% from the prior year period, principally driven by ASP declines and mix, partially offset by volume growth. Full year 2024 revenue for smart mobile devices represented approximately 45% of the year's total revenue. Full year revenue increased 1% year over year, driven by similar dynamics as the fourth quarter. Longer term, we are well positioned to capture opportunities for increased silicon content and handsets, including RF front end, power, display and imaging. In the fourth quarter, revenue for the home and industrial IoT market represented approximately 19% of the quarter's total revenue. Fourth quarter revenue marked a second consecutive quarter of sequential growth and grew approximately 15% sequentially. The IoT end market declined 13% year over year, principally driven by lower volumes, partially offset by ASP and mix improvements during the quarter. Full year home and industrial IoT revenue represented approximately 19% of the year's total revenue. Full year revenue declined 21% year over year as inventory management across both industrial and consumer applications remained a top priority for our customers.

While in the short term customers are carefully managing inventories, we continue to capture long term growth opportunities driven by the increased number and complexity of smart connected devices. Moving now to automotive, which continues to be a key growth driver for us. Fourth quarter revenue represented approximately 23% of the quarter's total revenue. Revenue for the quarter increased approximately 62% sequentially and roughly 30% year over year, principally due to higher volumes, ASP and mix dynamics as semiconductor content increases across the vehicle architecture. Full year automotive revenue represented approximately 18% of the year's total revenue, which is up from just 2% in 2020. Full year revenue grew roughly 15% year over year and achieved a new record and exceeded our $1,000,000,000 milestone in 2023. Looking ahead to 2025, we expect to see another year of meaningful revenue growth in our automotive end market. Next, our communications infrastructure and data center end market, where fourth quarter revenue represented approximately 9% of the quarter's total revenue. Revenue increased approximately 28% sequentially and 18% year over year, primarily due to growth in volume and ASP on a year over year basis. For the full year 2024, Communications Infrastructure and Data Center revenue represented approximately 9% of total revenue. 2024 revenue declined 33% year over year as a result of the continued and expected platform transitions for compute applications.

Looking ahead to 2025, we expect meaningful revenue growth driven by upside in AI accelerators, optical networking for data centers and satellite communication. Moving next to gross profit. For the fourth quarter, we delivered gross profit of $464,000,000 which translates into approximately 25.4% gross margin. Gross margin was above the midpoint of the guidance range. For the full year, we delivered gross profit of $1,709,000,000 and gross margin of 25.3% equating to a three eighty basis point decline from 2023. Operating expenses for the fourth quarter represented approximately 10% of total revenue. R and D for the quarter decreased sequentially to approximately $110,000,000 and SG and A also declined to $69,000,000 Total operating expenses were $179,000,000 Included in our total operating expenses is the benefit of approximately $17,000,000 related to the Advanced Manufacturing Investment Tax Credit for 2024 qualifying expenses. As we continue to spend on qualifying expenses and capitalize assets in 2025 and beyond, we expect to continue to receive these benefits through the life of the program. We delivered operating profit of $285,000,000 for the quarter, which translates into an approximately 15.6% operating margin, roughly five ten basis points lower than the year ago period and above the midpoint of our guided range.

For the full year, GM delivered operating profit of $920,000,000 which translates into 13.6% operating margin, a decrease of roughly four ninety basis points year over year. Fourth quarter net interest income, net of other expenses was $14,000,000 and we incurred tax expense of $43,000,000 in the quarter. We delivered fourth quarter net income of approximately $256,000,000 a decrease of approximately $100,000,000 from the year ago period. As a result, we reported diluted earnings of $0.46 per share for the fourth quarter on a fully diluted share count of approximately $556,000,000 shares. On a full year basis, GF delivered net income of approximately $870,000,000 and diluted earnings per share of $1.56 Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations for the fourth quarter was $457,000,000 For the full year, cash flow from operations was $1,722,000,000 CapEx for the quarter was $135,000,000 or roughly 7% of revenue. Full year CapEx for 2024 was approximately $625,000,000 or 9% 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 $328,000,000 With that, I am very pleased to report that adjusted free cash flow for the full year 2024 was $1,100,000,000 As Tom noted, this is an important milestone for GF and we will look to continue this flywheel of free cash flow generation in 2025 while maintaining our capacity growth objectives.

At the end of the fourth quarter, our combined total of cash, cash equivalents and marketable securities stood at a healthy $4,200,000,000 which is net of an approximately $350,000,000 term loan maturity payment in Q4. We also have a $1,000,000,000 revolving credit facility, which remains undrawn. Looking ahead to 2025, and as noted in our filing with the SEC on January 2, we prepaid $664,000,000 on our outstanding Term Loan A facility balance, which will be reflected in our first quarter financials. Next, let me provide you with our outlook for the first quarter of twenty twenty five. We expect total GF revenue to be between $1,550,000,000 and $1,600,000,000 Of this, we expect non wafer revenue to be approximately 10% of total revenue. We expect gross profit to be between $341,000,000 and $384,000,000 which at the midpoint is 23% of revenue. Excluding share based compensation, but including the benefit related to the Advanced Manufacturing Investment Tax Credit, for the first quarter, we expect total OpEx to be between 170,000,000 and $190,000,000 We expect operating profit to be between $151,000,000 and $214,000,000 At the midpoint of our guidance, we expect share based compensation to be approximately $52,000,000 of which roughly $15,000,000 is related to cost of goods sold and approximately $37,000,000 is related to OpEx.

We expect net interest income and other income for the quarter to be between $0 and $8,000,000 and income tax expense to be between $16,000,000 and $33,000,000 We expect net income to be between $135,000,000 and $189,000,000 On a fully diluted share count of approximately $556,000,000 shares, we expect earnings per share for the first quarter to be between $0.24 and $0.34 For the full year, we expect twenty twenty five non IFRS net CapEx to be approximately $700,000,000 This metric includes proceeds from government grants where applicable. And while the timing of proceeds may vary quarter to quarter, we remain extremely focused on aligning capacity expansion plans with customer demand. Our disciplined approach to cost and expense management also extends to SG and A and R and D, which in 2025 we expect will be roughly in line with 2024, while continuing to invest in our people and long term growth objectives. As Tom noted, we expect 2025 will be a growth year for GF. And although we only guide one quarter at a time, as customer demand and utilization levels improve, coupled with the benefits associated with our continuing cost and productivity initiatives, we believe we can exit the fourth quarter of twenty twenty five with adjusted gross margins of approximately 30%.

This is just an interim step. And longer term, we remain focused on optimizing our cost structure, mix of business and utilization of our global capacity to continue growing our core profitability metrics. In summary, the dedication of our employees across the world and their continued efforts to expand our differentiated product offerings in key growth markets enabled us to achieve fourth quarter results at the higher end of the guidance ranges. I'll now pass back to Tom and Tim before we move to Q and A. Thanks, John. In conclusion, GF not only navigated the cycle well in 2024, it achieved new milestones that highlight the strength of our customer partnerships and the resilience of our business. We remain focused on execution and advancing our strategic goals. I deeply appreciate our team members around the globe for their tenacity, dedication and teamwork in securing key design wins. And our customers have my sincere gratitude for their support and trust in us. Lastly, as announced last week and effective April 28, I want to congratulate Tim as Jeff's incoming CEO and Neil's as Jeff's new President and COO. I am proud of what we've accomplished together and I'm looking forward to our continued partnership as I take on the role of Executive Chairman.

It has been the honor of my career to lead GF these last seven years. And as I hand over the reins to Tim as CEO, I am confident the company is in exceptional hands with a bright and exciting future. With that, over to you, Tim, to say a few words. Tim?

Thanks, Tom, and congratulations to you as our next Executive Chairman of the Board. GF will undoubtedly continue to benefit from your knowledge, experience and support. It's a privilege to take on this new role, to partner with Neals and to lead our 13,000 strong team into a new chapter of growth and opportunity. GF is uniquely positioned with our exceptionally talented employees, essential chip technologies and a diverse global manufacturing footprint to meet our customers where they need us. I'm incredibly excited for the next phase of GF's growth trajectory, and I'm looking forward to executing on our strategic vision. With that, let's open the call for Q and A. Operator?

Thank And our first question will come from Chris Caso of Wolfe Research. Your line is open, Chris.

Yes. Thank you. Good morning. And congrats, Tim, and all the best to you, Tom, on your next endeavor. I'll start with a commentary on the end markets. And if you could provide some explanation of what your expectation is by end market for Q1, and particularly in auto that was stronger than what we would have expected. Is this something that you expect to continue as you go into next year?

Yes, let me give a little context first and talk a little bit about the year and what we're seeing. So let's go back a year ago. 1Q twenty twenty four, we said would be the low point of GF revenue and over 2024, we grew revenue sequentially all through the year. At our last earnings call in November, we stated that one, Q1 20 20 five would show year on year growth and we're seeing approximately 2% growth. By the way, if we normalize this Q1 twenty four to Q1 twenty five eliminating or normalizing out the LTA revenue, our growth would be actually 7%. And then while we only guide one quarter at a time, as we said in our prepared remarks, we do see 2025 being a growth year over 2024. Now here's the thing, the range of that growth will be in large part determined by the secular industry growth in the diversified space that we play in the end markets that we serve. But if you compare our Q1 revenue year over year to other companies in this diversified space, we're showing growth. As we said, whether it's roughly 2% or the normalization of seven where many others, the vast majority were showing decreasing year over year mid single digits, some of them as high as 25%.

So where is the upside for GF? Why are we seeing it different? Well, it's certainly auto, which by the way, this will be a fifth year in a row of achieving revenue growth. Remember, we started in 2020 with somewhere under $100,000,000 in revenue. And last year, as you see, we reported $1,200,000,000 and we see there's no reason we shouldn't continue to grow in 2025. Why is auto strong for us, say versus what you're hearing from others? It's not only just the content growth, it's the number of sockets we won over the last number of years. And they are starting to ramp. So even in the face of sluggish auto sales out of the dealerships that you're seeing, even with that, we're going to grow again this year. And then the other upside for us in 2025 is in our comms infrastructure and data center end market. We've that was a transitional market for us. We've been bumping along the bottom at about $500,000,000 of revenue on an annual basis. But given the strength in some of the key design wins in satellite communications and our photonics platform in the data center, this is the year that CID is going to start growing for us.

So as the industry comes back, we will come back. The theme for us is we should outperform because we position the company with these key design wins in these end markets for growth.

Do have a follow-up, Chris? I do. My follow-up on gross margins. And you made a comment in your prepared remarks of exiting the year at 30%. Can you walk us through how you intend to get there? And I presume that there would be some revenue expectation attached to that. Can you speak about what sort of revenue growth you would need to get to that 30% exiting year?

Yes, Chris, this is John. Let me first talk about the first quarter. Overall, we see an improving gross margin story here. And let me do the year on year comparison. If you look at the first quarter of 'twenty four that included, as Tom indicated, the roughly $80,000,000 underutilization benefit. That's roughly accounts for about four points of the gross margin result in the first quarter of twenty twenty four. So if I normalize that and compare it to the guide that we just put out, you actually can see that our gross margins are improving by roughly 100 basis points year over year on a normalized basis. And as we look to the balance of this year and expect continued sequential growth as we experienced in 2024, yes, you will see the benefit coming in the form of improved factory utilization, ongoing structural cost improvement, and that's comprised of both our optimization of our cash input costs as well as the roll off of our depreciation and amortization costs. We indicated in the prepared commentary an expectation of a roughly 15% improvement in depreciation and amortization costs as well as ever enriching product mix in the overall portfolio.

So that's what gives us the view that through the balance of this year, we have the opportunity to improve our gross margins and according to those expectations exit the year roughly 30% gross profit margin.

And our next question will be coming from Mark Lipacis of Evercore ISI.

A A question for John, I think. So in 2024, it looks like the free cash flow was about 25% higher than your net income. And it looks like CapEx is lower and but you actually had looks like you had a headwind from working capital. So I'm wondering you gave us some of the pieces here, the depreciation and it looks like you're underfunding depreciation expense again. So that's a tailwind. What happens with working capital? Is that do you expect that to still be a headwind again this year or do you get does that become a source of cash? Do you expect to maintain this kind of high level of free cash flow in 'twenty five? And I had a follow-up. Thank you.

Sure, Mark. Yes, the short answer is yes, we do expect to continue to have strong performance in free cash flow. And that's driven by strong performance in the business coupled with a capital efficient strategy that we have at the moment where we're leveraging some of the prior installed base of investment for the company and we're able to deliver what our customers need with modest CapEx experience. We did about $625,000,000 in net CapEx in 2024 and indicated in our prepared comments roughly $700,000,000 in 2025. Working capital should be fairly normalized for the year. We did experience a nice benefit in inventory of roughly $200,000,000 in the fourth quarter that helped our result for the year. And yes, we expect to generate similar amounts of free cash flow in 2025 as what we just posted for 2024.

Okay. Thank you. That's very helpful. And then a follow-up, John, also for you, I think the impairment charge, can you describe what was written down? I understand that this is part of what you're doing at Malta. But if you could just give a little bit more color on that. And then does this does that write down does that also help your depreciation expense as you look into this year? Thank you.

Yes, Mark, certainly. Yes, this fundamentally relates to the diversification of the MultiFab and the essential technologies that we're offering there. We indicated this in the prepared comments. But if you really look at the 22 FTX, 40 nanometer, what we're doing in advanced packaging and photonics, these are new essential technologies that we're adding onshore here in the Multifab. And that speaks very much to our global manufacturing footprint and how critical it is particularly in today's environment that we're able to have fungible consistent essential technologies globally at each of our locations in the world. So that's really what's behind that. And as part of that diversification strategy, we felt it appropriate to analyze the legacy investments in the MoltoFab. And based on that, we did a comprehensive analysis in the fourth quarter and determined that in order to right size the carrying value of the MoltoFab, we it was appropriate to incur this roughly $900,000,000 impairment charge. And yes, to your question, Mark, that is included in the 15% decline in DNA cost, although it's not the majority. The majority of that is coming from simply the natural runoff of the depreciation schedule for Malta.

Got you. Very helpful. Thank you very much.

One moment for our next question. Our next question will be coming from Krish Sankar of TD Cowen. Your line is open, Krish.

Yes. Hi. Thanks for taking my question. Congrats, Tim. And Tom, I had two questions. First one, you said you expect revenue growth in calendar 'twenty five. Within that, how to think about ASP versus vapor volumes this year? And then I had a follow-up.

Yes. Let me start on that and I think I'll pass over to Neils. Look, in a phrase, we have a constructive pricing environment. Why? The win in the marketplace, our customers need differentiated solutions. That's when they come to us. When we talk to them in our engagements, it's centered around what features we can add, what kind of unique customization and enablement that they could bring to maximize the performance in the marketplace. So our first priority when we think about capturing value is how do we go and leverage the range of technology platforms we have to now bring great solutions to our customers, but to maximize our profitability. So let me give you a little insight on that. The range of complexity of our technologies is somewhere in the order of 2x in process steps depending on what platform we're talking about. So we think about ASP, it's not really a good indicator of value capture, which is the whole ASP is about. It's really about us maximizing the leverage of the breadth of our portfolio to win business that our customers need our solutions for. I think this is evident by the fact that we continue to have 90% of our design wins on single source opportunities because we bring these different differentiation across a broad range of platforms in end markets.

Maybe a couple of examples on some of that differentiation.

Yes. You answered it very well, Tom. I mean, for TF, pricing continues to be very constructive. And it really is due to our strategy and focus on essential chip technologies. I mentioned on the last earnings calls, we are not competing with bulk seamers at all. 90% of our design wins are in highly differentiated sole source technologies. And whether that's RF, whether that's 22 FTX, low power, high performance or whether that's any of our 40 nanometer, 28 nanometer, ESF free type of technologies for automotive, that allows us to have a very constructive pricing environment where we continue to be able to differentiate and help our customers develop superior products. And when they develop superior products, they're also able to pay us better price and thereby a better margin for GEF.

Got it. That's very helpful. And then, Tom, I had a follow-up for you. I'm curious about the impact of China. There are some concerns in terms of the incremental capacity coming from there. On the flip side, there are also some restrictions that could curtail their expansion. So I'm kind of curious how to think about opportunities and threat from that region for global foundries?

Yes, look, the best defense we have against the capacity build in the diversified space or central chip technology is our differentiation, goes right back to that. We have to continue to innovate on what matters to our customers and move in our fair share of business and let others fight it out in the more commoditized part of this marketplace. But for China, I think it also gives us great opportunity besides the headwinds you point out about overcapacity. First, let's talk about what fabulous companies in China are telling us. They need diversification. In fact, they've coined the phrase in C and T, no China, no Taiwan in their N plus one sourcing strategy. So what they need is a diversified platform or diversified manufacturing footprint that GF offers to serve the markets outside of China. And the natural choice for them is GF. And so we'll see a lot of great engagements with the fabulous companies of China who want to become international players. On the other end of that, China for China, while we don't have any plans to build our own factory, that doesn't mean we don't have ways and opportunities working first with our customers and then with partners in China to bring very specific technology platform, very specific to products, so that they can have a China for China play.

Now look, we'll do that eyes wide open making sure we protect our IP, our differentiation, but we need to do this in partnership with customers first and foremost and then people who are building factories in Got it. Thanks, Tom. Very helpful.

One moment for our next question. Our next question will be coming from Ross Seymore of Deutsche Bank. Ross, your line is open.

Thanks for asking a couple of questions and Tim, Tom and Nils congratulations on all your new roles. I guess following up the last question, one for you, I guess probably Tom. Your U. S. Customers, any sort of change in behavior, new administration, maybe some other questions on the CHIPS Act, maybe the flip side of it is even greater importance on kind of U. S. Based manufacturing. Have you noticed anything from the DesignOne perspective or just general behaviors that has changed due to this change in administration?

Yes. Look, I think in the world of uncertainty, especially how tariffs going to impact customers. The dialogues we're having with them is a little bit like we're not going to necessarily wait and see. We need to start becoming more diversified. We need to have the ability to source from different regions. And I think it's just raising the height of importance of diversification supply chain with customers. Now they don't run out the next day and say, here's seven design wins. But the conversations we're having with customers, some with existing products saying, hey, I'd like to start to multi source that in other regions. Others saying, hey, I need a new supply for these types of applications, GM, let's start to talk about how you can we can leverage your footprint. So the short answer to your question is, it's becoming real for customers now. And while it's in early days and starting with discussions, I can see this materially starting to change where we have the footprint the rest of the world is going to try to get. And so we're ahead of the curve on that. Neil, is there anything you want to add to that?

Yes. I just want to confirm an example. So you look at aerospace and defense, that's probably the most obvious one. Very strong traction with our two U. S. Factories in Malton, Burlington. But you then move into comm infrastructure and data center, very critical that silicon that is well understood where it's coming from. So also very focused on Molton and Burlington from that front. And then of course, you're seeing automotive and you're seeing automotive players having a lot more focus on especially the American automotive players having more focus on where the silicon is coming from. So all of these trends are clearly building in the market space. I think uncertainty that Tom is talking about and some of the news you read in the past few years are really built momentum on that front. So what we are doing from a strategic standpoint is we are positioning some of our most differentiated and advanced technologies into Moltenberg and Burlington for that reason.

Yes. And Ross, this is John. You touched on the chips angle. And just to add on, all of these trends and themes that Tom and Nils are referencing with respect to Malton and Bernanke are supported with our strong partnership with the CHIPS office.

Perfect. Thanks for that, John.

I guess as my follow-up, the first quarter I know is seasonally volatile at times and you did give some directional color for the full year for the whole company and even a little bit by segment. But versus the kind of down 14% at the midpoint sequentially, are there any large puts and takes by various end markets? And if so, what's the cause of that if it's something more than seasonality? Thank you.

Yes, Ross, this is John. It really is seasonality. There's not really any one single item there. And this was not the trend was not unexpected by us. It was a little more than we anticipated a quarter ago. But Dan, it's diversified across our various end markets based on seasonality.

And one moment for our next question. Our next question will be coming from Harlan Sur of JPMorgan. Your line is open.

Congratulations to Tom on your appointment to Executive Chair and Tim to CEO. Appreciate all of the support over the past few years guys. My first question, the impairment charge in the long lived asset, which I assume is what took down your net PP and E by about 13 in Q4. Depreciation dropped by about $18,000,000 quarter on quarter, which is about a 1% positive impact to your gross margins in Q4. Is that the right math? Some of that impairment could have been below the COGS line. Just trying to figure out the impact to depreciation on the takedown of PT and E in Q4?

Yes, Harlan. The impairment charge was implemented during the quarter, so there was some in quarter effect and of course that is continuing into the first quarter and that will build some through the course of the year as some of those benefits are inventory and then flow through later through the course. But you're generally thinking about it correctly.

I appreciate that. Again as a part of the impairment charge on PP and E relating to Malta, I assume it's because the team is rolling in your twenty two, twenty eight, 40 nanometer technologies and capacity into Fabry. Can you guys just give us an update here? Are you already qualified in shipping these technologies out of Malta? If not, like what's the timeline for starting to ship production wafers of these technologies?

Yes. Harlan, you are right. It is very much related to the diversification of the Multifab. And as you indicated, it's bringing those essential chip technologies into Malta for production. And we're making a lot of progress. We are working our way through the final qualifications and have early customer engagement in Malta as well. So the project is continuing at pace here at GF. And one moment for our next question. Our next question will be coming from Vivek Arya of Bank of America Securities. Your line is open, Vivek.

Thanks for taking my questions. For the first one, if I were to use the sort of the sequential growth rate that we saw last year, I get to a full year sales growth of roughly 2%, right, or so, sort of what you're seeing in Q1. Is that a reasonable way to think about growth or do you see any scenarios which can help you grow above seasonally in quarters this year?

Yes, let me start out Vivek. We're really only giving the guidance one quarter at a time. The general trend of growth for the year and sequential growth from here is what we expect. The rate and pace of it, as we indicated, is going to depend on the recovery in the market as customers work through inventory and we get more clarity on the demand signal for the year. But that's the general trend that we see.

I think that's well stated. And then on gross margins, I mean you've given a very specific number, right, of 30% exiting the year. So is that supported if you are growing top line in this range? And then in that 30%, how much is the benefit, not just for that Q4, but also in Q1, of the lower depreciation expenses, the assumptions around wafer pricing, factory utilization, any impact of cancellation fees. So if you could just help us kind of bridge gross margins last year to how you are thinking about gross margins this year, right? What would be different this year in terms of those gross margin drivers when it comes to depreciation, when it comes to wafer pricing, factor utilization and impact of any cancellation fees? Thank you.

Yes. Sure, Amit. It's John again here. So, yes, we indicated roughly 30% exit rate for the year based on the assumption of continued revenue growth sequentially through the course of this year at some level. And really it is different drivers this year than what we had. The expectation for underutilization payments is really not as relevant now. It's really not a material amount of that and comprehensive in the first quarter guidance. It's driven by other factors. And as you indicated, it's really around the utilization improving and the structural optimization of our costs, both on cash input costs. So our team does a lot of good work to continue to assess and negotiate and push on continuous cost improvement on the cash side as well as the roll off of the depreciation costs based on the legacy investments that we have in the fabs as well as the capital efficient approach that we've had in the last couple of years. We're benefiting from all of those trends. We indicated roughly 15% improvement in DNA cost. That's on a base of roughly $1,600,000,000 in 2024. So framing that in dollars, it's about $250,000,000 of improvement in the DNA cost profile for the company in 2025.

So those are some of the key drivers for us as we expect continuous improvement in gross profit margin in 2025.

Let me Pete, I'm sorry, Dave. No, look, I want to build a list on this. It's really about the three key themes or takeaways for GF where we sit today. It's about taking share, is about growing profitability and it's about growing free cash flow. Taking share, look, we will grow when this market comes about, but we will grow disproportionate because of the design wins we've been able to fill in our pipeline during this downturn. We're going to grow profitability because with the top line comes higher utilization rates. We're going to leverage the structural costs that we've taken over the last two years, including the productivity improvements. And we're going to leverage the fact that these design wins we have on single source business are richer mix for us. And then the last part is, but we've invested already ahead for the long term. We have the footprint in place call it $9,000,000,000 plus of revenue. So we could be very capital efficient going forward to grow. And so this allows us to leverage that footprint to grow free cash flow. So taking share, growing profitability and growing free cash flow, that's a story of GS as we look forward.

And one moment for our next question. Our next question will be coming from Quinn Bolton of Needham and Company LLC. Your line is open.

Hey, congrats Tom, Tim and Niels. Niels, I might have missed it, but you went through the growth outlook for each of the end markets. I may have missed it, but did you give us a sort of sense of what you thought the home and IoT business would do in 2025?

I didn't mention earlier, but we do think that it bottomed out in 2024. We're starting to see green shoots across the customer base. You've seen the same read the same news and releases that came out this month. And you see some of the companies that are almost 100% focused on IoT. You're starting to see the revenue coming back. You're starting to see the inventory being drained. So I have a similar take on that IoT bottomed out last year and we're going to get back to growth this year.

Perfect. And then just John on the gross margin walk to 30% by the fourth quarter, Is there any sort of lift in ASP assumed in that? It looks like ASPs were sort of down sequentially in each of Q2, Q3, Q4 of 'twenty '4. I'm wondering if you get a little bit of pricing recovery just driven by mix in 2025? Thank you.

Yes, Quinn. So we see a generally constructive pricing environment for the essential chip technology that we offer. As Neil has indicated, we're not operating in bulk CMOS per se. It's very specialized and differentiated for the markets we serve. So we see generally stable pricing. We have been selectively taking some price back in a few cases. But in general, there is a mix of price dynamics depending on the technology and application, but generally a stable environment for price.

Certainly.

I would now like to hand the conference back to Sam Franklin for closing remarks.

Very good. All right. Thank you, Tonya. Thank you, everyone, for joining us on the call today. Just as a reminder, we will be at the Wolf Research Semiconductor Conference tomorrow and we'll also be participating in the Morgan Stanley T and T Conference on the March 4. We'll see you there. Thank you very much for joining today.

Certainly. And this concludes today's conference call. Thank you for participating. You may now disconnect.