EX-99.2 3 mda-q22023.htm EX-99.2
GLOBALFOUNDRIES INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This document includes “forward-looking statements” that reflect our current expectations and views of future events. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995 and include but are not limited to, statements regarding our financial outlook, future guidance, product development, business strategy and plans, and market trends, opportunities and positioning. These statements are based on current expectations, assumptions, estimates, forecasts, projections and limited information available at the time they are made. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall,” "outlook," "on track," and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to a broad variety of risks and uncertainties, both known and unknown. Any inaccuracy in our assumptions and estimates could affect the realization of the expectations or forecasts in these forward-looking statements. For example, our business could be impacted by geopolitical conditions such as the ongoing political and trade tensions with China and the Russia/Ukraine conflict; the market for our products may develop or recover more slowly than expected or than it has in the past; we may fail to achieve the full benefits of our current restructuring plan; our operating results may fluctuate more than expected; there may be significant fluctuations in our results of operations and cash flows related to our revenue recognition or otherwise; a network or data security incident that allows unauthorized access to our network or data or our customers’ data could damage our reputation; we could experience interruptions or performance problems associated with our technology, including a service outage; and global economic conditions could deteriorate, including due to increasing interest rates, rising inflation, and any potential recession. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results or outcomes to differ materially from those contained in any forward-looking statements we may make. Moreover, we operate in a competitive and rapidly changing market, and new risks may emerge from time to time. You should not rely upon forward-looking statements as predictions of future events. These statements are based on our historical performance and on our current plans, estimates and projections in light of information currently available to us, and therefore you should not place undue reliance on them.
Although we believe that the expectations reflected in our statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we, nor any other person, assumes responsibility for the accuracy and completeness of these statements. Recipients are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made and should not be construed as statements of fact. Except to the extent required by federal securities laws, we undertake no obligation to update any information or any forward-looking statements as a result of new information, subsequent events, or any other circumstances after the date hereof, or to reflect the occurrence of unanticipated events. For a discussion of potential risks and uncertainties, please refer to the risk factors and cautionary statements in GLOBALFOUNDRIES’ Annual Report on Form 20-F for the year ended December 31, 2022, current reports on Form 6-K and other reports filed with the Securities and Exchange Commission (the “SEC”). Copies of our SEC filings are available on our Investor Relations website, investors.gf.com, or from the SEC website, www.sec.gov.
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GLOBALFOUNDRIES INC.
OPERATING AND FINANCIAL REVIEWS AND PROSPECTS
Overview
GLOBALFOUNDRIES Inc. (“We,” “GF,” or the “Company”) is one of the world’s leading semiconductor foundries. We manufacture complex, feature-rich integrated circuits (“ICs”) that enable billions of electronic devices that are pervasive throughout nearly every sector of the global economy. With our specialized foundry manufacturing processes, a library consisting of thousands of IP titles, and differentiated transistor and device technology, we serve a broad range of customers, including the global leaders in IC design, and provide optimized solutions for the function, performance and power requirements of critical applications driving key secular growth end markets.
The combination of our highly-differentiated technology and our scaled manufacturing footprint enables us to attract a large share of single-sourced products and long-term supply agreements (“LTAs”), providing a high degree of revenue visibility and significant operating leverage, resulting in improved financial performance and bottom line growth. These agreements include binding, multi-year, reciprocal annual (and, in some cases, quarterly) minimum purchase and supply commitments with wafer pricing and associated mechanics outlined for the contract term. Through an intense focus on collaboration, we have built deep strategic partnerships with a broad base of more than 40 customers with LTAs as of June 30, 2023, many of whom are the global leaders in their field.
The principal source of our revenue is wafer fabrication and sales of finished semiconductor wafers, which accounted for approximately 94% and 92% of our net revenue for the three and six months ended June 30, 2023, respectively. The rest of our net revenue was mainly derived from photomask manufacturing, sourcing services and pre-fab manufacturing services.
The semiconductor industry is susceptible to uncertain economic conditions that could impact demand. We remain cautious regarding the macroeconomic headwinds facing our industry in the second half of 2023. We continue to implement a long-term partnership-driven model, which is helping to provide improved visibility for our business through this period of uncertainty.
Components of Results of Operations
Net Revenue
We generate the majority of our revenue from sales of finished semiconductor wafers, which are priced on a per-wafer basis for the applicable design. We also generate revenue from pre-fabrication services such as rendering of non-recurring engineering (“NRE”) services, mask production and pre-fabrication services such as bump, test, and packaging. Pricing is typically agreed prior to production and then updated based on subsequent period negotiations.
Cost of Revenue
Cost of revenue consists primarily of material expenses, depreciation and amortization, employee-related expenses, facility costs and costs of fixed assets, including maintenance and spare parts. Material expenses primarily include the costs of raw wafers, test wafers, photomasks, resists, process gases, process chemicals, other operating supplies, and external service costs for wafer manufacturing. Costs related to NRE services are also included within the cost of revenue. As it pertains to inflation and inflationary-headwinds we are facing within our business, we have experienced increased costs for materials and energy, and we expect these increases to continue to have an adverse impact on our financial results of operations, while these economic conditions persist.
Depreciation and amortization charges primarily include the depreciation of production equipment. We periodically assess the estimated useful lives of property, plant and equipment. As a result of a review completed in April 2023, the Company concluded the estimated maximum useful life of buildings should be increased from 26 years to 50 years. This change in estimate was applied prospectively, effective beginning in the first quarter of 2023. We depreciate equipment on a straight-line basis over a two-to-ten-year period. Employee-related expenses primarily include employee wages and salaries, social security contributions and benefit costs for operators, maintenance technicians, process engineers, supply chain, IT production, yield improvement and health and safety roles. Facility costs primarily consist of the costs of electricity, water and other utilities and services. We expect cost of revenue to increase modestly in absolute terms and as a percentage of revenue in the third quarter 2023.
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GLOBALFOUNDRIES INC.
Operating Expenses
Our operating expenses consist of research and development (“R&D”), selling, general and administrative expenses (“SG&A”), and restructuring charges. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, share-based compensation, and commissions.
Research and Development
Our R&D efforts are focused on developing highly differentiated process technologies and solutions. Our R&D expense includes personnel costs, material costs, software license and intellectual property expenses, facility costs, supplies, professional and consulting fees, and depreciation on equipment used in R&D activities. Our development roadmap includes new platform investments, platform features and extensions, and investments in emerging technology capabilities and solutions. We expense R&D costs as incurred. We believe that continued investment in our technology portfolio is important for our future growth and acquisition of new customers. We expect our R&D expense to increase modestly in absolute terms and as a percentage of revenue in the third quarter 2023.
Selling, General and Administrative
SG&A expenses consist primarily of personnel-related costs, including sales commissions to independent sales representatives and professional fees, including the costs of accounting, audit, legal, regulatory and tax compliance. Additionally, costs related to advertising, trade shows, corporate marketing and allocated overhead costs are also included in SG&A expenses.
We incur costs associated with operating as a publicly traded company, including those associated with audit, accounting, legal, information technology, regulatory, compliance, director and officer insurance, and investor and public relations. We expect SG&A expenses to decrease modestly in absolute terms and as a percentage of revenue in the third quarter 2023.
Restructuring Charges
Restructuring charges primarily relate to reductions in our global workforce, leased workspace and we engage consultants for strategic support of the restructuring.
Other Operating Charges
Finance Income (Expense), net
Finance income (expense), net consists primarily of interest on borrowings, amortization of debt issuance costs under our term loans, revolving credit facility, finance leases and the other credit facilities we maintain with various financial institutions, net of interest income received on our cash deposits.
Other Income (Expense), net
Other income (expense), net consists of gains and losses and other miscellaneous income and expense items unrelated to our core operations. Included are tool sales to third parties, as well as gains and losses relating to hedging activities.
Income Tax Expense
Income tax expense consists primarily of income taxes in certain foreign jurisdictions in which we conduct business, which mainly include Germany, Singapore and the United States.
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GLOBALFOUNDRIES INC.
A. Results of Operations
The following table sets forth our unaudited consolidated statements of operations data for the periods indicated:

(in millions) |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Net revenue |  | $ | 1,845 |  |  | $ | 1,993 |  |  | $ | 3,686 |  |  | $ | 3,933 |
Cost of revenue |  | 1,313 |  |  | 1,455 |  |  | 2,639 |  |  | 2,926 |
Gross profit |  | 532 |  |  | 538 |  |  | 1,047 |  |  | 1,007 |
Gross profit margin |  | 28.8 | % |  | 27.0 | % |  | 28.4 | % |  | 25.6 | %
Research and development expenses |  | 106 |  |  | 120 |  |  | 215 |  |  | 248 |
Selling, general and administrative expenses |  | 132 |  |  | 121 |  |  | 243 |  |  | 237 |
Restructuring expenses |  | 19 |  |  | — |  |  | 24 |  |  | — |
Operating expenses |  | 257 |  |  | 241 |  |  | 482 |  |  | 485 |
Profit from operations |  | 275 |  |  | 297 |  |  | 565 |  |  | 522 |
Finance income (expenses), net |  | — |  |  | (19) |  |  | 1 |  |  | (47) |
Share of profit of joint ventures |  | 1 |  |  | 1 |  |  | 2 |  |  | 2 |
Other income (expense), net |  | (11) |  |  | 15 |  |  | (26) |  |  | 24 |
Profit before income taxes |  | 265 |  |  | 294 |  |  | 542 |  |  | 501 |
Income tax expense |  | (28) |  |  | (30) |  |  | (51) |  |  | (59) |
Net income for the period |  | $ | 237 |  |  | $ | 264 |  |  | $ | 491 |  |  | $ | 442 |

Comparison of Three Months Ended June 30, 2023 and 2022 and Six Months Ended June 30, 2023 and 2022
Net Revenue

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Net revenue |  | $ | 1,845 |  |  | $ | 1,993 |  |  | $ | (148) |  |  | (7.4) | % |  | $ | 3,686 |  |  | $ | 3,933 |  |  | $ | (247) |  |  | (6.3) | %

Net revenue decreased by $148 million or 7.4% for the three-months ended June 30, 2023 compared to the three-months ended June 30, 2022. The decrease was driven by lower wafer shipment volume of 573 thousand (300mm equivalent), a 9% decrease from prior period, 1% decline in average selling price (“ASP”) slightly offset by 8% increase in revenue generated from engineering and other prefabrication services.
Net revenue decreased $247 million, or 6.3%, for the six-months ended June 30, 2023, compared to the six-months ended June 30, 2022. The decrease was driven by lower wafer shipment volume of 1.1 million (300mm equivalent), a 14% decrease from the prior year, offset by a 5% increase in ASP year over year driven by ramping LTAs with better pricing, and continued improvement in product mix and 24% increase in revenue generated from engineering and other prefabrication services.
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GLOBALFOUNDRIES INC.
Cost of Revenue

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Cost of revenue |  | $ | 1,313 |  |  | $ | 1,455 |  |  | $ | (142) |  |  | (9.8) | % |  | $ | 2,639 |  |  | $ | 2,926 |  |  | $ | (287) |  |  | (9.8) | %
Gross margin |  | 28.8 | % |  | 27.0 | % |  | $ | — |  |  | — | % |  | 28.4 | % |  | 25.6 | % |  | $ | — |  |  | — | %

Cost of revenue decreased by $142 million or 9.8% for the three-months ended June 30, 2023 compared to the three- months ended June 30, 2022. The decrease was primarily a result of lower shipments in the period, depreciation and amortization expense reduction and a decrease in employee-related expense driven by the sale of the East Fishkill sale transaction and restructuring activities.
Cost of revenue decreased by $287 million or 9.8% for the six-months ended June 30, 2023 compared to the six-months ended June 30, 2022. The decrease was primarily a result of lower shipments in the period, depreciation and amortization expense reduction, a decrease in employee-related expenses driven by the sale of East Fishkill transaction and restructuring activities and lower share-based compensation expense.
Operating Expenses
Research and Development Expenses

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Research and development expenses |  | $ | 106 |  |  | $ | 120 |  |  | $ | (14) |  |  | (11.7) | % |  | $ | 215 |  |  | $ | 248 |  |  | $ | (33) |  |  | (13.3) | %
As a % of revenue |  | 5.7 | % |  | 6.0 | % |  |  |  |  |  | 5.8% |  | 6.3% |  |  |  |

Research and development expenses decreased by $14 million and $33 million, or 11.7% and 13.3%, for the three- and six-months ended June 30, 2023, respectively, compared to the three-and six-months ended June 30, 2022, respectively. The change was primarily a result of a 20% decrease in employee-related expenses driven by lower headcount.
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GLOBALFOUNDRIES INC.
Selling, General and Administrative Expenses

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Selling, general and administrative expenses |  | $ | 132 |  |  | $ | 121 |  |  | $ | 11 |  |  | 9.1 | % |  | $ | 243 |  |  | $ | 237 |  |  | $ | 6 |  |  | 2.5 | %
As a % of revenue |  | 7.2 | % |  | 6.1 | % |  |  |  |  |  | 6.6 | % |  | 6.0 | % |  |  |  |

Selling, general and administrative expenses increased by $11 million, or 9.1% for the three-months ended June 30, 2023, compared to the three-months ended June 30, 2022. The change was primarily a result of $4 million higher professional services spend, associated with strategic initiatives, including new leadership hires and $6 million related to software lease and IT related costs.
Selling, general and administrative expenses increased by $6 million, or 2.5% for the six-months ended June 30, 2023, compared to the six-months ended June 30, 2022. The change was primarily a result of $9 million higher professional services spend, associated with strategic initiatives, including new leadership hires, $15 million related to software lease and IT related costs offset by $18 million lower share-based compensation.
Restructuring Charges

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Restructuring Charges |  | $ | 19 |  |  | $ | — |  |  | $ | 19 |  |  | NA |  | $ | 24 |  |  | $ | — |  |  | $ | 24 |  |  | NA

Restructuring charges were $19 million and $24 million for the three and six-months ended June 30, 2023, respectively, compared to $0 for the three and six-months ended June 30, 2022.This change was due to the Company incurring employee-related charges associated with the reduction in our global workforce.
Finance income (expense), net

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Finance income (expenses), net |  | $ | — |  |  | $ | (19) |  |  | $ | 19 |  |  | 100.0 | % |  | $ | 1 |  |  | $ | (47) |  |  | $ | 48 |  |  | (102.1) | %

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GLOBALFOUNDRIES INC.
Finance income, net increased by $19 million or 100.0%, for the three-months ended June 30, 2023, compared to the three-months ended June 30, 2022. The increase was primarily a result of $26 million higher interest income generated from money market funds and investments in marketable securities, partially offset by $7 million higher interest expense.
Finance income, net increased by $48 million or 102.1% for the six-months ended June 30, 2023 compared to the six-months ended June 30, 2022. The increase was primarily a result of $57 million higher interest income generated from money market funds and investment in marketable securities, partially offset by $9 million higher interest expense.
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GLOBALFOUNDRIES INC.
Other income (expense), net

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Other income (expense), net |  | $ | (11) |  |  | $ | 15 |  |  | $ | (26) |  |  | (173.3) | % |  | $ | (26) |  |  | $ | 24 |  |  | $ | (50) |  |  | 208.3 | %

Other income (expense), net decreased by $26 million for the three-months ended June 30, 2023 compared to the three-months ended June 30, 2022. The decrease was primarily driven by a $12 million reduction in tool sales and $9 million of increased foreign exchange currency losses related to currency hedges.
Other income (expense), net decreased by $50 million, for the six-months ended June 30, 2023, compared to the six-months ended June 30, 2022. The decrease was primarily driven by $39 million of increased foreign exchange currency losses related to currency hedges and the unwinding of certain commodity hedges and a $14 million reduction in tool sales.
Income Tax Expense

(in millions) |  | Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
|  | 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change |  | % Change
Income tax expense |  | (28) |  |  | (30) |  |  | $ | 2 |  |  | (6.7) | % |  | (51) |  |  | (59) |  |  | $ | 8 |  |  | 13.6 | %

Income tax expense decreased by $2 million, or 6.7%, for the three-months ended June 30, 2023, compared to the three-months ended June 30, 2022. The decrease was primarily a result of an improved mix of income in certain jurisdictions, partially offset by additional withholding tax expense accrued in the United States.
Income tax expense decreased by $8 million, 13.6%, for the six-months ended June 30, 2023, compared to the six-months ended June 30, 2022. The decrease was primarily a result of an improved mix of income in certain jurisdictions, partially offset by additional withholding tax expense accrued in the United States.
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GLOBALFOUNDRIES INC.
B. Liquidity and Capital Resources
We have financed our operations primarily through cash and cash equivalents, marketable securities, as well as cash generated from our business operations, including customers' prepayments under LTAs. As of June 30, 2023, our cash, cash equivalents and marketable securities balances of $3.3 billion included $1.8 billion of cash and cash equivalents and $1.5 billion of marketable securities.
As of June 30, 2023 and December 31, 2022, we had an undrawn revolving credit facility of $1 billion. In addition to our available revolver, we had $2.4 billion and $2.5 billion of debt outstanding as of June 30, 2023 and December 31, 2022, respectively, which was primarily comprised of multiple term loans in various currencies. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount we receive from customers, the timing and extent of our expansion in new territories, spending to support research and development efforts, the introduction of new and enhanced products and solutions, and the continuing market adoption of our technology offerings. We may from time to time seek to raise additional capital to support our growth. We believe that our existing cash, cash equivalents, investment in marketable securities, credit under our revolving credit facility, and expected cash generated from operations, are sufficient to meet our capital requirements.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:

|  | Six Months Ended June 30,
|  | 2023 |  | 2022
Cash provided by operating activities |  | $ | 1,025 |  |  | $ | 1,454 |
Cash used in investing activities |  | (1,474) |  |  | (2,243) |
Cash (used in) provided by financing activities |  | (71) |  |  | 325 |
Effect of exchange rate changes on cash and cash equivalents |  | $ | — |  |  | $ | (1) |
Net decrease in cash and cash equivalents |  | $ | (520) |  |  | $ | (465) |

Operating Activities
Cash provided by operating activities for the six-months ended June 30, 2023 of $1,025 million decreased $429 million compared to the $1,454 million provided for the six-month period ended June 30, 2022. The decrease was primarily attributable to higher net income of $49 million, adjusted for $136 million of reduced depreciation and amortization of intangible assets and $25 million of lower share-based compensation expense. Unfavorable changes in working capital of $353 million included a decrease in trade and other payables of $421 million driven by a decrease in advances and deposits, and an increase in inventory of $24 million dues to ongoing cyclical headwinds facing the semiconductor industry, in part caused by recent macroeconomic events which have led to softness in certain consumer-centric markets. This was partially offset by lower prepayments received in the current year as compared to the prior year, which contributed to a decrease in receivables, prepayments other non-current assets and other assets of $92 million.
Investing Activities
Cash used in investing activities for the six-months ended June 30, 2023 of $1,474 million, improved $769 million compared to the use of $2,243 million for the six-month period ended June 30, 2022. The decrease was primarily driven by $319 million lower net purchases of marketable securities in the current year, as compared to 2022, and $238 million in proceeds from the sale of the East Fishkill business. Additionally, in the prior year, we incurred higher capital expenditures associated with activities to expand capacity within certain of our fabrication facilities. In the current year, costs associated with those expansion activities have moderated, resulting in a decrease of $213 million from the prior year period, where capital expenditures were $1,252 million, net of a $152 million tax credit refund from the State of New York.
Financing Activities
Cash used in financing activities for the six-months ended June 30, 2023 of $71 million decreased $396 million as compared to the cash provided by financing activities of $325 million for the six-months ended June 30, 2022. The decrease was primarily attributable to reduced net borrowings of $348 million and lower proceeds from the issuance of equity instruments of $48 million.
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