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GlobalFoundries Faces Challenges in Q1 2023


GlobalFoundries, a prominent contract chip manufacturer, has provided guidance for the March quarter that fell below expectations. As a result, the company’s shares have experienced a 2.2% decline, reaching $54.58.

Concerns Regarding Inventory Glut: GlobalFoundries specializes in producing chips for various industries, particularly focusing on “lagging edge” parts used in mobile, communications, industrial, and automotive applications. However, like many chip companies, it has been affected by a widespread inventory glut.

Performance in Q4 2022: During the December quarter, GlobalFoundries generated $1.85 billion in revenue, marking a 12% decrease compared to the previous year. This figure fell within the projected guidance range of $1.83 billion to $1.88 billion and matched estimates. Adjusted profits came in at 64 cents per share, slightly lower than the $1.44 per share reported in the previous year. Nevertheless, it exceeded the guidance range of 53 to 64 cents per share and surpassed the Street consensus of 58 cents.

Reviewing Full-Year Performance: GlobalFoundries experienced a 9% decline in revenue for the entire fiscal year of 2022, amounting to $7.39 billion. Adjusted profits were $2.23 per share, a drop from the $3.11 per share reported in 2021.

Q1 2023 Projections: For the upcoming March quarter, GlobalFoundries expects revenue between $1.5 billion and $1.54 billion. As for adjusted profits, the company anticipates a range of 18 to 28 cents per share. FactSet’s Street consensus estimates, meanwhile, predict revenue of $1.76 billion and adjusted profits of 46 cents per share.

Market Performance in Q4 2022: In the fourth quarter, GlobalFoundries witnessed a decline in demand across most of its primary end markets. Notably, revenue from the “smart mobile device” market amounted to $765 million, reflecting a 7% decrease compared to the previous year and a 2% decrease sequentially.

Similarly, revenue from communications infrastructure-related parts declined by 63% year-over-year, reaching $144 million. This reduction aligns with recent weak hardware sales to telecommunications companies, which are struggling with an inventory glut of products awaiting installation.

Additionally, GlobalFoundries experienced a 23% decrease in revenue from home and industrial internet of things applications, which amounted to $322 million. Revenue from components for personal computers also dropped by 27%, totaling $84 million. However, the company’s automotive segment demonstrated remarkable strength, with a 177% increase year-over-year and a 5% increase sequentially.

In conclusion, GlobalFoundries faces challenges in Q1 2023 due to softer-than-expected guidance and the prevailing inventory glut in the chip industry.

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