GlobalFoundries Maneuvers Through Industry Downturn with Steady Q4 Expectations

Needham analyst N. Quinn Bolton has maintained a Hold rating on GFS, also known as GlobalFoundries Inc., which is recognized as a significant player in the global semiconductor foundry market. In a detailed assessment, the company's latest financial report showed an alignment with market expectations, barring the impact of customer Long-Term Agreement (LTA) settlements and financial incentives from the CHIPS Act.

Assessment of the Current Semiconductor Industry Climate

The semiconductor industry is currently navigating a landscape littered with excess inventory, an issue that spans numerous end markets. This surplus is anticipated to persist into fiscal year 2024. As a consequence, Bolton has adjusted his projection for the sector's bounce-back, now foreseeing a recovery in the second half of 2024, as opposed to the previously estimated second quarter.

GlobalFoundries' Financial Performance and Expectations

GlobalFoundries has demonstrated resilience through customer LTA adjustments and strong manufacturing execution, factors that have contributed to bolstering gross margins. Although the fourth quarter revealed a significant operating expenditure swing, this was largely attributable to a year's accumulation of tax credits from the CHIPS Act.

Bolton revised the Capital Expenditure (CapEx) expectations for calendar year 2024 to $1 billion, which represents a 50% decrease year-over-year and falls below prior Street estimates of $1.4 billion. This strategic reduction underscores GFS's shift in focus towards Free Cash Flow (FCF), leading to considerably adjusted estimates. The estimated figures for the fourth quarter include $1.850 billion in revenue and an Earnings Per Share (EPS) of $0.59, slightly adjusted from previous expectations.

Analyst Perspectives on GlobalFoundries' Outlook

Meanwhile, analysts from Raymond James and Wedbush have also weighed in on GFS's performance and future prospects. Raymond James' Melissa Fairbanks continues to hold an Outperform rating with a $75 price target, drawing positivity from the company's efforts to mitigate impacts of inventory corrections and weaker demand—especially from sectors other than automotive—through cost recovery mechanisms for customer pushouts and cancellations.

Wedbush's Matt Bryson also reiterated an Outperform rating with a $70 price target. Bryson commended GFS for exceeding previous earnings guidance, largely by keeping costs under control and leveraging benefits from earlier Long-Term Supply Agreement (LTSA) negotiations. Despite guidance falling short of initial expectations, Bryson notes that the forecast is more positive than market fears, signaling stable navigation through current industry setbacks by GFS, even outperforming many of its peers.

Both analysts underscore a generally optimistic long-term outlook for GFS, suggesting that with steady pricing and improved utilization rates, the foundry should eventually reach its targeted financial metrics, including a gross margin of 40%.

At the time of writing, GFS shares have seen a slight downturn, trading lower by 2.23% at $53.06.

GlobalFoundries, Semiconductor, Analyst