GlobalFoundries Pops On Q323 Earnings. But Why?

Solid earnings but bleak outlook, 50% CapEx cut looming, LTAs under pressure & ominous-sounding "True Up" coming by EOY

GlobalFoundries reported Q323 revenues of $1.85 billion, flat sequentially but down 11% YoY. Net income was $249 million, up 5% sequentially but down 26% YoY. At 28.6%, gross margin was essentially flat sequentially. Basically all key metrics were modestly to the high side of the guided numbers.

At a midpoint of $1.85 billion, forward guidance is once again flat sequentially. Overall it was a solid report with guidance slightly better than UMC delivered last week.

Globalfoundries share price popped on the news, rising at one point by around 9%. As the trading day progressed, the share price trended downwards to close at $54.27, still up 5% on the day.

This market reaction was strange to say the least. In spite of the solid Q3, there was little else of cheer to note on the earnings call. In fact, I would go so far as to say that the company struck one of the most negative notes I’ve heard thus far in the earnings season. To make matters worse, CEO Thomas Caulfield dropped a number of not-so-subtle hints about trouble ahead for their Long Term Agreements (LTAs) as well as a sneak preview about the company’s thinking in terms of CapEx for 2024. It was a bit of a shocker to be honest. Let’s dig in…