Hi, everybody. Welcome back. I'm Joe Moore from Morgan Stanley Semiconductor. Happy to have with us the CEO of GlobalFoundries. We'll talk through it. Just quick on the disclosure side, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley rep. Apologize for having to say that so many times. GlobalFoundries, you know, I guess a year and a half since the IPO-ish, company's done really, really well, and I think has really resonated with a lot of the themes that we're hearing in semiconductors now. You know, the idea of focusing on the nodes that you do was probably maybe a controversial decision you made, but it really looks good in retrospect. You know, maybe we'll just kinda go right into some of the questions coming out of the near-term environment, but again, just really impressed with the progress thus far. Can you talk, Tom, about the General Motors agreement? 'Cause I think that was actually something of a watershed for me, where, you know, we're seeing something kinda unique. Can you describe, you know, the agreement there, what's happening, and what it means for GlobalFoundries? Well, first, Joe, I was disappointed you didn't read the whole safe harbor statement. Thanks for having me. You're right because of the uniqueness of what this deal does and how it intercepts where the automotive market is going. We have a market that while unit growth will be relatively flat, we're talking double-digit semiconductor content growth. You have an industry that's coming out of a period where for the want of a $3 or $5 semiconductor they weren't shipping a $50,000 car. Needless to say, these companies, seeing how much technology was gonna play in their future, being constrained in semiconductor, became what I call semiconductor aware. What I see them doing, I'm not speaking for their, you know, for them directly, is the first is to understand their semiconductor content, where it's going, and what I call a harmonization or rationalization of their architecture. Some of them learned that they're using 75 or 80 different microcontroller part number SKUs when they could've done it in four to five. The first element for these car companies is, "Hey, we need to get our arms around the architecture of our car, harmonize it, rationalize it, and make sure that we understand the different features we want to create in a car, and what's the best way to go do that from a semiconductor content." The second thing is the realization that while this market grows over the next eight years, and for them their need will grow, that the investment required to make sure that they're covered from a supply chain needs to happen. It's not the capacity doesn't already exist, so it's going to have to be put on. It gives them an opportunity to decide where that capacity gets put on, how it gets put on, what technology roadmaps or technology platforms they want it on, and how do they get it the best economics. This deal kinda covers all of that. It's a direct relationship between GM and GF for one part of the value chain, and then a direct relationship with their design companies that will use the capacity they've created. First and foremost, it's on a platform that they see a good 10 to 15 years horizon on. For them it was important that this capacity was created in the U.S., so it's technology and supply where they want it. I think the most important part of the deal is this next one, the best economics. If capacity needs to be added, the inherent price to create or the cost to create that wafer now goes up because you need to get a return on that new investment. It's not a fully depreciated. Now, that investment and that return should only go to whoever's making that investment. If a foundry like GF is making it, that's the return, we're investing our capital, we should get a return on it. If an auto company decides they actually wanna use their money to create that capacity, then they should get the return on that. The problem in that in a complex supply chain is if a foundry like GF makes that investment, creates a certain markup to get that return on it, passes that new cost through the supply chain, it doesn't go through as cost. It goes through as margin cost and gets marked up. That cost at the end of the day, that incremental cost for that investment, can mean the car company pays 20% to 25% more for that same part number. Mm-hmm. How do you build the capacity you want it with the best economics, work directly with the foundry, secure that supply, create the economic model that eliminates that stacked margin, and then do business accordingly with a three-way relationship? Yeah, I mean, it's an impressive deal, and I think, you know, to me, I guess I look back and I would say you did a deal with Ford earlier last year as well. You know, did people at GM and Ford at the executive level know who GlobalFoundries was two years ago? Like, the awareness of the supply chains, of the global interdependencies. You're probably the third or fourth person who said, you know, companies are doing a review and finding out, "Hey, we buy, you know, X amount of stuff from this company we didn't even know," you know. There's a lot more thinking about the supply chain in a way that should be really good for what you guys are trying to build. No, absolutely. I think back to the first half of 2021, I think I met either the chief procurement officer, the chief operating officer, or the chief CEO of every major car company, because all of us were in a position where there was a lot more demand, and then we didn't even know where it was going ourselves, right? For the auto company. It goes right full circle to what I talked about. These companies had to quickly become what I call silicon aware. Not only is it to make the present, you know, launch of products they may go out, but to comprehend what's the silicon content gonna be when they go from an internal combustion engine to what we call ACE, autonomous connected electrification of a car, and all the content that that requires. We became very, very close to these companies. We participated in helping them understand where their supply chains were, how we can help them. The culmination of that relationship is some of the deals we're talking about today. I think what we really like about the GM deal, it's a first of a kind because it's that one element where they're dealing directly with the foundry. They could have supplied or locked up their supply chain, you know, given a long-term agreement to a tier one who then locks it with a fabless that, and then comes to a foundry. They chose to go right to where the source is. Mm-hmm. It's a first of a kind in that way, but I really believe it's gonna become a model for many of a kind because everybody's gonna want to have capacity to grow. The industry needs to grow, investment needs to be made. How do we do it in the most economic and efficient way? It has to be these types of more complex but thoughtful relationships. Bringing that back to your business more tactically, I mean, you've talked about more than doubling the automotive business this year. you know, I know it's still relatively small relative to where you'd like it to be, but can you just talk generally about your automotive trajectory? Yeah. You know, it's a little bit, you know, $100 million there, $100 million there, pretty soon it's real money. We go back to 2020, our automotive business was under $100 million. Last year, $375 million. For the longest time last year, we were talking about a Q4 exit rate, run rate of 2023 being $1 billion. Well, it looks like now we're gonna be bumping our heads on $1 billion this year Mm-hmm compared to $375, and that will continue to grow. I think that's a little bit back to the pivot of the company where we focused a lot of the design wins that we're growing our revenue on this year, were design wins we won, you know, two, three years ago, and we're continuing to win more content. We talk about other agreements, Joe. This isn't the first one. We announced an agreement with Bosch a little over a year ago to do their next generation radar, precision battery management with other customers for electrification of cars. We do a lot of the content in cabin lighting, and we've done long-term relationships with those types of auto manufacturers. A lot of content we're growing in a car. A lot of long-term agreements. This type of an agreement I think is gonna be the way of the future. Great. Maybe we could talk about some of the history that's led you here. You know, when you took over as CEO, the company was trying to compete with TSMC at the cutting edge on single nanometer nodes. You were investing in a lot of different areas. You were buying CIP at one point. You know, you've really brought focus to the businesses where you can bring leadership and scale. You know, can you talk about what that's like from the standpoint of your customer relationships? You know, you have a book of business, some of which was won because you were cheap four years ago. Now, this real sense we got during the IPO process was people really wanna do more with GlobalFoundries going forward. It's more of a partnership model. I think it ties back, and maybe we'll touch on it later on, but about the investment thesis, you mentioned our IPO a little bit over a year, close to a year and a half ago. Look, we were a company that spent the first nine years back in 2018 creating scale. We spun out of AMD. You spin out a company, doesn't have scale. Doesn't have scale by just spinning out. We bought Chartered Semiconductor. We acquired the assets of IBM. We made organic investments in upstate New York. In 2018, we were a $6 billion to $6.5 billion company, but we were a company that was burning cash in a non-sustainable way. The right strategy was to build scale, but how do you go take that scale and create into profitability? Over that same nine years that GF was coming of age and building scale, the industry made a big shift. They made a shift from a kind of a Moore's Law compute-centric industry to the pervasive deployment of semiconductors. It turned out that the market dynamics were such that where we play, 12 nanometer and above, turned out to be 70% of the market opportunity. When we looked at our company and took a step back, we're burning cash, it's not sustainable. 90% of our investments were going into, quote unquote, "leading edge single digit nanometer technology." Most of our revenue was in these other places. How do we go and pivot the company and focus our investments more targeted towards that pervasive deployment, 70% opportunity in the marketplace, $50 billion growing to $100 billion, be differentiated and create true partnerships with our customers? It took five years. This Saturday, I think, is my five-year anniversary. Oh, really? To a degree where it's not just you wanna be in automotive, you wanna go down to the actual device type. If you wanna be the very best in radar, you understand all the elements you'll need to provide to create solutions that have real value to your customers, value that they can capture in their products, value you can capture in your selling. That doesn't happen overnight. What we really did was we focused the company end market, not technology-based, understand the need, take our $600 million a year in R&D and focus to win in those end markets where we had the biggest opportunity to create value for our customers, capture value for ourselves. What you see as we've evolved in that now is the thesis of that we played in a big SAM and we can compete and do well for ourselves, that SAM continues to grow. Our single source business now is on a design win basis last year was 80% to 90% of our design wins were single source. Our revenue's over two-thirds single source business on differentiation. When customers are betting on you as a single source, it requires a partnership. They gotta believe you're gonna be able to deliver to them when they need it, that you're gonna invest, you know, collectively to create that capacity, and that you're not gonna, you know, stumble in being a great supplier to them. That journey takes time to go from a second source supplier to a primary source to a single source, and that's by demonstrating your ability to execute, differentiate, and win their trust. Maybe if we could bring that into the context of this near-term environment. You have long-term agreements covering, you know, 90% of your revenue, I think, for the next few years. You also have an environment where there are other people that wanna work with you. You have an environment where some of those base businesses are struggling a little bit. You've seen weakness in some of your smartphone-related customers. You know, how do you put all that together? How strict are you gonna be in terms of LTA enforcement, and does that open up opportunity because you're getting visibility on freeing up capacity that might be higher margin for you down the road? Part of the remaking of GlobalFoundries was to not build, you know, build facility and hope people come, build capacity on a forecast. It was to use these partnerships and relationships with the customers to create for both of us durability, certainty, and profitability. That collectively we would pick market segments that differentiation mattered, and that we can partner to create that technology. That there was certainty for them in supply and certainty for us in demand, and then that these solutions would provide the means for both of us to be profitable. That was the framework we created these long-term agreements. Now they get really tested, not when the industry is on fire, it's when it's soft like this. Yeah. To date, I will tell you, they've done exactly everything we said they would during our roadshow and in our presentations at the Capital Markets Day last August. They've created a framework where the same partnership relationship that entered into those agreements now get to sit down and figure out, how do we deal with it? We could remix some of that capacity to areas where they have demand, and we've created a manufacturing capability that has that fungibility between corridors. We have the agility where if we're not building something on 40 nanometer, we can build something for 155. We've allowed them to extend the length of some of these contracts, spread some of that demand out in time. For some of them, it makes sense for them to use some of the contract and the cash they put up front to offset underloading with an underutilization fee. All of them in the context of that these contracts are the framework by which we work together, and the economic intent for both parties always has high integrity. To this date, you could see that it's been working out that way. Yeah. I mean, and then when General Motors asked for capacity in the U.S., you might not have had any if it hadn't been for... Yeah. these challenges. Well, next year that's where we're adding capacity. Yes, 'cause. Yeah. that's where they would like it. Yeah. I guess on that note, you know, can you maybe talk to the CHIPS Act and other forms of government incentives around the world, how that plays into your strategy? I think the whole idea of the governments around the world starting to make investments in this space is because they wanna create global competitiveness so that businesses, you know, find it not a detractor to add capacity somewhere where they haven't in the past. In fact, what they're doing is creating the same types of situation that made Taiwan such a powerhouse in semiconductor. Government involvement, industrial policy to create that industry that's so powerful in Taiwan. The premise of all of this is how do you create co-investments? I hate to call them incentives because incentives don't sound like a business model. Mm-hmm. It sounds like free money. They're really co-investments because any government that invests in semiconductor manufacturing will get a return, economic return in jobs, ecosystems, the amount of velocity of money that goes through an economy because manufacturing takes place there. What they look to do is create these investments that offset the extra cost to do work in, to do manufacturing in some of these other regions of the world. We've leveraged that in building out our facility in Dresden. We have an arrangement with STMicroelectronics where we're gonna help build on their campus to create scale, and the French government's very, and the European Union, very excited to bring GF into France. We're going to do that with the CHIPS Act in the U.S. We'll talk about that in a moment. We've done that in Singapore over the last, you know, 15 years, with partnership with EDB to go create capacity at the right economics. The CHIPS Act for us is an opportunity to grow our U.S. footprint, and we see three areas of ability to do that. One is we have a 200 millimeter facility in Burlington, Vermont. We see that as a way to use that money to kind of modernize, bring in wide bandgap technology capability beyond just CMOS. We're gonna take a phase I approach to our existing facility, Fab8 in upstate New York, and use the floor space that needs tooling to go build out the rest of that capacity. In fact, that's where the first GM capacity would go. Longer range with the right customer-committed demand and economics, go build a modular expansion at the site and double its capacity. You know, that's the one thing about GF. For the better part of the first 10 years of our company, we broke our pick building a global footprint. Very expensive to go greenfield to create capacity. Once you have that footprint, you can add modular capacity. You get tremendous capital efficiency and economics, economies of scale. I think you're gonna see in this industry, a lot of these greenfield build-outs are gonna be painful because it's just the nature of the amount of capital needed to be deployed before you get your first dollar of revenue up. That first wafer is really expensive in greenfield. I think, you know, the tax part of it is relatively clear from the CHIPS Act. There's also this additional level of grants and partnerships that the government's forming. It seems to me that there's a real opportunity in the nodes that you serve because the media focus is all on, you know, 2 nanometer and TSMC. If you talk to the biggest customers of... for those wafers, you know, they've invested in Samsung. They have a multi-source situation. They feel like they have geographic diversification. The people who are really worried about, who have capacity, you know, in the U.S. from U.S. suppliers, is your core customers. I think, you know... It seems like as the government does its research, I think they're gonna hear a lot of people that are suggesting, "Hey, this is actually where we need to have domestic capacity. Yeah, there is a certain romanticism about so-called leading edge and single digit nanometer, and it's a necessary, but not sufficient part of the value chain. Making sure that high-speed digital applications have domestic supply is important, and that's happening. In fact, that's the first up in the CHIPS bill funding. The rest of us will get what we need out of this to build what the rest of the supply chain needs, which is what we call feature-rich silicon. One of the things about these grants, the capital intensity to add the types of capacity we do versus single digit nanometer could be a third. Mm-hmm. You know, a third of the capital intensity. You can understand why more of that money would go to a project that has higher capital intensity, but it doesn't mean money doesn't come to projects like ours. The last point is, you're right, there are two things. There's CHIPS funding, which is gonna cover 10% to 15% of the project cost, and then there's the investment tax credit, which is 25%. Mm-hmm. It's the combination of those two, incentive programs or partnership investment programs that come together to create the industrial policy that the U.S. is putting forward to create U.S. capacity. Great. Also one more question, and then we can open it to the audience, in case there's some. You know, I guess one of the challenges that we had narratively around the IPO was, you know, does today's cutting edge become tomorrow's kind of feature-rich silicon? Is there still growth, if not approaching the single nanometer nodes? Can you just talk to some of the shifts? It seems to me it's quite a bit different than it's been historically in this regard, that the markets you serve are gonna stay with you, but can you just talk to that? I'll answer that part, which is really the second part of your question. The first part was a little bit on the investment thesis for the company. Mm-hmm. I'll come back to that in a second. It all comes down to what you believe and what's factual. The reason why there's 70% of the market is not in single-digit nanometer today is it's all about what Moore's Law is and is not. Moore's Law was an economic model. It had three elements to it. Every generation of technology, the transistor cost would be less. Every generation technology, the transistor performance would be better. Every generation technology, the power per transistor would go down. Number one ended at 28 nanometer. I'd argue 14 nanometer is at parity. Every technology node beyond 14 nanometer, transistor cost goes up. Mm-hmm. First and foremost, if you don't need that transistor performance, you're not gonna spend more money for a transistor. Transistor is a transistor, many applications became not relevant in single-digit nanometer because the cost was too high, and that's not gonna change. The performance per device diminishing return, you could still get some performance, but the real reason people still invest an ungodly amount of money into single-digit nanometer is power per device. When you have, you know, 100 billion to 200 billion transistor designs in a, you know, in a single chip, and you're building out data centers, power is a big part of that equation, that's the value proposition. It becomes very limited where that technology gets used. That was part of the investment thesis for GF. Are you playing in markets that are here today and growing? Remember we say this, that we play in a total SAM, $50 billion last year, growing to $100 billion in 2030. Big blue ocean for us. The investment thesis was, you're playing in a SAM that's growing, you're playing with differentiated technology, single source business. You have plenty of opportunity to pick and choose what your priority market segments and, you know, technology that you want to apply to create and capture value. That your long-term agreements with your customers give you that certainty, durability and profitability in your business. That the fundamentals of the business would be, we would grow our business with the industry or a little bit better, but more importantly, we would grow our profitability multiples of that. The last part of the thesis, then I'll tell you how we did, the proof point was, "Hey, it'll be easy to do it when it's an up market. How are you gonna do when it's an inventory correction, when there's a cycle?" Take a look at 2022. We grew revenue 23% year-over-year, about $1.5 billion. Pick your favorite profitability metric. You like gross profit, you like net income, you like EBITDA, every one of those, $1.2 billion, 80% flow through or multiples of our revenue growth. That's the, you know, the delivery of the investment thesis. Here we are in, you know, a industry correction, right? We're talking about pricing holding strong, even going up as we remix our business. We're talking about our long-term agreements, having the ability to weather the storm with our customers and not seeing our business as impacted as the whole industry coming down. The test of our company is not what we did in 2022, it's what we'll continue to do in 2023 as we weather this storm until the eventual turnaround of our industry. Great. Let me pause there and see if we have questions from the audience. Up here in the front. Thank you. Tom, you used the downturn to, you know, reduce costs. Can you talk about that a little bit and your confidence in hitting the target model that you outlined at the analyst meeting? Yeah, thank you. In our fourth quarter, we announced that we were, we're not gonna be smarter than anybody else in this industry. Everybody was seeing that we were gonna go into a tough period of inventory correction. We committed to take $200 million out of our structural costs for 2023. We entered the year achieving about $115 million of that, and we're on target to take the rest of that out. You know, it's a little bit interesting. When you're in an industry that was as hot paced as we were in, there were opportunities where maybe we were spending to protect supply, and we were able to cut back on that and then come out of this downturn with that fundamental $200 million of less operating costs as we turn around the company. Look, we're not gonna be. We have to be prepared for a second half recovery. We have to be equally prepared that this industry correction takes longer that we continue to perform. That's our intention, and that's our commitment. Another question in the front. You can ask it. Hey, Tom. Can you talk a little bit about your M&A strategy? You know, within the next two to three years, could we see you guys being aggressive on M&A? Is there certain end markets that you specifically wanna target? Yeah. We've been pretty not involved in that. We recently announced buying a resistive RAM technology team from Renesas. A couple years back, we bought a design team in Bulgaria, very, very benign. We should never rule that out, but, you know, for us, it's about making sure we're creating real value for our business long term and not doing anything in a significant way to undermine our near-term financials. You know, sometimes that's a little bit hard to pick and choose that, but we shouldn't rule any of that out. It has to make fundamental business sense and be consistent in who we are as a company. Great. Well, actually, go ahead, Charlie. We gotta wrap up, but, Thanks, Joe. Hi, Tom. I'm still calling covering Asian companies. My question is about, you talked about the same is going to grow after mature enough. You're seeing that China is also being building a lot of path for materials. Do you think that that's going to dilute your market share in the long term? Thank you. Yeah. That's the question on everybody's mind, how is the capacity being built out compared to the demand we see coming? You have to first start with where we are today versus demand, you know, post this inventory correction and then what's coming on. As we see things, there's plenty of opportunity, yes, to grow our revenue consistent with customer needs and not chase putting capacity without what we call CCD. Not charge couple device, customer committed demand. I think what we offer to the world is an alternative to, you know, greater China capacity, and that's what we'll leverage our global footprint, and we will build that out on the differentiation that we create for our customers. You know, that's another thing. Just because you add 20 nanometer capacity somewhere in the world or 40 nanometer doesn't mean it comes with the special features that we add to create that differentiation for our customers. Thanks, Charlie. Thanks, Tom. We'll wrap it up there. Thank you so much. Thank you, Joe. Appreciate it. Thank you. Thank you, everybody.