GlobalFoundries (NASDAQ:GFS) Chief Financial Officer Sam Franklin said the chipmaker sees a path to significantly higher profitability over the next several years, driven by a mix shift toward faster-growing end markets, technology services, manufacturing productivity and better utilization of its existing footprint.
Speaking at a TD Cowen event hosted by analyst Krish Sankar, Franklin said GlobalFoundries is targeting an exit gross margin of about 30% in 2026, 40% by the end of 2028 and 45% over the longer term. He said the company’s margin plan is tied to investments already made, customer design-win momentum and an expanded ability to serve customers earlier in the design process.
Margin Targets Rely on Mix, Services and Scale
Communications infrastructure and data center is one example of the mix shift, Franklin said. The segment grew a little under 30% last year, about 32% in the first quarter and is expected to grow in the high-30% range for the full year. He also pointed to automotive and IoT as important margin contributors.
Franklin said GlobalFoundries is also building its technology services revenue, historically referred to as non-wafer revenue. He cited the company’s acquisition of MIPS and the pending acquisition of Synopsys’ ARC IP business as part of a broader effort to build RISC-V capabilities. Technology services have historically been about 8% to 10% of revenue, were above 13% in the first quarter and are expected to be 12% to 14% over the longer term, he said.
CapEx Increase Tied to Demand Visibility
Sankar asked whether the company’s expected $1.3 billion to $1.4 billion in capital spending this year is mainly related to silicon photonics. Franklin said silicon photonics is a major beneficiary, but not the only area receiving investment.
Franklin said net capital spending is expected to be in the range of 15% to 20% of revenue this year, up from 7% to 10% in recent years. He said the increase reflects stronger demand visibility, the ability to expand efficiently within the company’s existing facilities and support from government funding and customer partnerships.
In addition to silicon photonics, Franklin cited demand for FDX solutions and silicon germanium capabilities, including applications in data center transimpedance amplifier drivers. He said the company’s current three-year model does not rely on modular expansion and remains within its longer-term target of net CapEx at about 20% of revenue.
Silicon Photonics and Data Center Growth in Focus
Franklin said GlobalFoundries sees two phases of growth in silicon photonics. The first is tied to pluggable optical transceivers, where he said the company has a strong position and a growing customer base following its acquisition of AMF last year. The company is targeting a $1 billion silicon photonics run rate exiting 2028.
The second phase is expected to come from co-packaged optics, with an inflection point in late 2028 into 2029. Franklin said the company has set a target of $2 billion in silicon photonics revenue over the longer term. He said GlobalFoundries recorded two tape-outs on its co-packaged optics solution in the first quarter.
Franklin described GlobalFoundries’ SCALE platform as an ecosystem-based silicon photonics co-packaged advanced light engine solution. He said the company has invested more than $1 billion in R&D and CapEx over roughly a decade to develop its photonics capabilities. He added that GlobalFoundries can manufacture an electrical integrated circuit within its own technology nodes, while also supporting third-party EICs developed on single-digit nanometer nodes.
Franklin said the company is working with several founding members of the OCI MSA and believes its solution exceeds the demand requirements under those principles. He also said GlobalFoundries and TSMC are the only companies with “fully fledged” co-packaged optics solutions taping out in the market today, while adding that he does not expect the market to have a single winner.
Quantum, Satellite and Defense Opportunities
Franklin said GlobalFoundries does not have a strong need to pursue single-digit nanometer logic, saying the company’s served available market can nearly double toward the end of the decade and into the 2030s using technologies greater than 10 nanometers. He pointed to automotive, IoT, communications infrastructure, data center and smart mobile as markets where the company’s portfolio fits customer requirements.
On satellite communications, Franklin said low Earth orbit satellite-related revenue is expected to grow from a “standing start” in 2024 to about $100 million in 2025. He said GlobalFoundries is supporting commercial satellite communications customers with RF front-end content and 22FDX solutions for beamforming applications.
Franklin also discussed aerospace and defense, which GlobalFoundries categorizes within IoT. He said the company remains a trusted foundry with a relationship with the U.S. Department of Defense, and noted that first-quarter technology services revenue included healthier mask and reticle-related revenue tied to aerospace and defense applications.
On quantum computing, Franklin called a recently announced $375 million CHIPS R&D grant a strong endorsement of GlobalFoundries’ role in the semiconductor ecosystem and quantum technology. He said the company aims to be a “quantum foundry of choice” with a modality-agnostic platform, using FDX, advanced packaging and quantum process design kits. Franklin said the U.S. government’s approximately 1% equity stake is viewed separately from grant funding and is not expected to include restrictions similar to prior CHIPS Act frameworks.
Capital Returns and Mubadala Ownership
Franklin said GlobalFoundries’ long-term plan is not premised on growth in smart mobile devices, though the category remains important. Smart mobile accounted for about 34% of first-quarter revenue, the lowest level in the company’s history, he said, as other end markets have grown faster.
The CFO said the company is moving toward a more systematic capital allocation framework. He said GlobalFoundries plans to return about 50% of free cash after investments to shareholders, including through a newly initiated dividend. He also said the board approved $500 million in share repurchases at the start of the year, of which about $400 million has been completed.
Addressing Mubadala’s ownership, Franklin said management supports more float coming into the stock. He noted that Mubadala recently sold shares and said the activity reflects investor appetite for GlobalFoundries’ strategy. He described Mubadala as a “thoughtful and patient” majority shareholder and said the company continues to view its support positively.
About GlobalFoundries (NASDAQ:GFS)
GlobalFoundries, Inc (NASDAQ: GFS) is a leading contract semiconductor manufacturer that provides wafer fabrication and related services to semiconductor companies and systems manufacturers. The company operates as a pure-play foundry, producing integrated circuits across a range of process technologies for customers in markets such as automotive, communications, consumer electronics, industrial, and aerospace. Its service offering spans process development, manufacturing, test and packaging support, and design enablement including process design kits (PDKs) and intellectual property (IP) libraries to help customers bring designs to production.
GlobalFoundries focuses on a portfolio of differentiated and specialty process nodes, offering technologies for radio-frequency (RF) and wireless, analog and mixed-signal, power management, embedded non-volatile memory, and silicon-on-insulator (SOI) process families.
