GlobalFoundries lifts Q3 outlook as AI photonics demand strengthens

GlobalFoundries Inc. reported stronger second-quarter revenue and gross margins as rising wafer shipments and demand for silicon photonics used in artificial intelligence data centres supported its manufacturing recovery. The Nasdaq-listed semiconductor company, which trades under $GFS, generated revenue of $1.79 billion, net income of $167 million and non-IFRS net income of $256 million. Wafer shipments increased 8% to the equivalent of 625,000 300-millimetre wafers, while reported gross margin expanded by 410 basis points to 28.3%. GlobalFoundries expects third-quarter revenue to approach $1.89 billion as optical networking, automotive, industrial and other strategic markets improve. The central tension is that the company is investing heavily in factories, acquisitions and new technology platforms, leaving adjusted free cash flow slightly negative despite stronger operating performance.

Revenue increased 6% from the corresponding 2025 quarter and 9% sequentially, exceeding the high end of management’s guidance. Gross profit rose 24% to $505 million, although reported operating profit declined 11% to $174 million because research, acquisition and administrative expenses increased.

GlobalFoundries shares traded near $49.39 during August 5 trading, down approximately 5.1% from the previous close after reaching an intraday high of $54.50. The decline indicates that investors remained focused on investment requirements, operating-expense growth and limited free cash flow despite the revenue beat and stronger third-quarter forecast. A single-session move may also reflect wider semiconductor-market conditions.

Why stronger wafer shipments improved GlobalFoundries revenue and gross margin

GlobalFoundries shipped the equivalent of 625,000 300-millimetre wafers during the second quarter, compared with 581,000 a year earlier and 579,000 during the first quarter. The 8% increase in physical shipments demonstrates that the revenue improvement was supported by manufacturing volume rather than only by contract payments, pricing changes or accounting adjustments.

The company’s revenue increased by $98 million year over year while cost of revenue remained almost unchanged at approximately $1.28 billion. That relationship allowed gross profit to rise by $97 million and the gross margin to expand from 24.2% to 28.3%.

Semiconductor foundries carry substantial fixed costs associated with factories, equipment, utilities, engineering and depreciation. When more wafers move through existing facilities, those expenses can be distributed across a larger production base, improving margins when pricing and product mix remain supportive.

GlobalFoundries focuses on differentiated manufacturing technologies rather than competing directly for every leading-edge processor design. Its products serve automotive, aerospace and defence, data centres, communications infrastructure, smart devices and industrial systems requiring radio-frequency, power-management, embedded-memory and connectivity capabilities.

This strategy can support longer production cycles than consumer processors manufactured on the smallest available transistor nodes. Automotive, industrial and defence customers may use the same qualified chip platform for several years because redesigning and recertifying systems can be expensive.

The portfolio is not immune to semiconductor cycles. Customers can reduce inventories, delay vehicle or industrial programs and revise orders when demand weakens. The higher wafer shipments provide evidence that the inventory correction affecting parts of the industry is easing, although demand may continue to vary significantly between end markets.

Reported operating expenses increased to $331 million from $212 million. Research and development spending rose 30% to $174 million, while selling, general and administrative expenses more than doubled to $157 million.

Part of the increase reflects GlobalFoundries’ expansion into processor intellectual property, custom design and other services through acquisitions. These investments broaden the company’s opportunity but also explain why reported operating income declined even as gross profit improved.

Non-IFRS operating profit increased 16% to $298 million after excluding share-based compensation, acquisition charges and other identified items. The difference between the reported and adjusted results shows that the underlying manufacturing business strengthened while the company absorbed costs associated with its strategic expansion.

How silicon photonics gives GlobalFoundries exposure to AI data-centre spending

GlobalFoundries identified optical networking within AI data centres as one of its principal strategic growth drivers. As AI clusters expand, processors must exchange increasingly large amounts of data between accelerators, switches, memory systems and separate computing racks.

Traditional copper connections become more difficult to use over longer distances as data rates rise because electrical signals consume more power and experience greater degradation. Optical links transmit information using light, supporting higher bandwidth across longer distances with potentially lower energy requirements.

GlobalFoundries produces silicon photonics and silicon-germanium technologies used in optical transceivers, networking equipment and emerging co-packaged optical systems. The company’s SCALE platform is designed to place optical connectivity closer to computing and switching devices, reducing the distance that the fastest electrical signals must travel.

The company has demonstrated optical technology supporting multiple wavelengths in both directions over individual fibres. Commercial value will depend on customer qualification, manufacturing yields and whether co-packaged optics becomes widely adopted across AI infrastructure rather than remaining limited to selected high-performance systems.

GlobalFoundries signed a letter of intent with the United States Department of Commerce for an expected $300 million award supporting next-generation optical materials, wafer technologies and advanced packaging. The proposed funding remains subject to final agreements and program conditions rather than representing unrestricted cash already received.

The government support reflects the strategic importance of manufacturing optical and semiconductor technologies within the United States. AI infrastructure depends not only on graphics processors and accelerators but also on the components that move data and deliver power throughout the system.

GlobalFoundries also completed the acquisition of Photeon Technologies’ integrated voltage-regulator business in July. The acquired technology is intended to expand the company’s power-delivery capabilities for AI data-centre systems by combining voltage regulation with its existing power-management and semiconductor technologies.

Power delivery is becoming increasingly important as AI processors consume more electricity. Moving voltage regulation closer to computing devices can improve efficiency and system response, but GlobalFoundries must integrate the acquired engineers and convert the technology into qualified customer products.

The strategy positions GlobalFoundries around AI infrastructure without requiring it to manufacture the most advanced computing processors directly. The company can instead supply optical, radio-frequency, power-management and packaging technologies that support those processors.

This approach broadens AI exposure, although its revenue opportunity may be less visible than that of companies selling complete accelerators or networking systems. Customer identities, production timing and content per data-centre installation may also remain confidential under commercial agreements.

Why the MIPS and ARC acquisitions change GlobalFoundries’ business model

GlobalFoundries completed its acquisition of Synopsys’ ARC Processor IP Solutions business in June. The assets were combined with MIPS, which GlobalFoundries acquired previously, creating a portfolio spanning RISC-V processor intellectual property, software tools, custom design and semiconductor manufacturing.

The combined MIPS and ARC operation includes processor cores covering high-performance, mid-range and low-power applications. It also includes specialized tools that allow customers to develop processors optimized for individual workloads.

GlobalFoundries said the portfolio is supported by more than 150 patents and an ecosystem exceeding 300 intellectual-property customers. These relationships could create opportunities to engage with customers earlier, when they are selecting processor architecture and software rather than waiting until a completed chip design requires manufacturing.

This represents a meaningful change from the conventional foundry model. A pure manufacturing provider receives a customer’s chip design and produces it using an agreed process. GlobalFoundries increasingly wants to participate in processor selection, custom-chip design, software tools, packaging and final manufacturing.

The broader relationship could increase revenue per customer and make GlobalFoundries more difficult to replace. A customer using its processor intellectual property, design tools and manufacturing process would face more disruption when moving the product to another foundry.

The model also creates potential conflicts. Customers may prefer processor intellectual property that can be manufactured at several foundries rather than becoming closely connected with one production provider. GlobalFoundries must maintain openness and support existing ARC and MIPS customers even when they use other manufacturing partners.

The intellectual-property businesses also have different economics from factories. Processor licensing may produce upfront fees and recurring royalties without requiring the same capital investment as wafer manufacturing. Successful expansion could therefore improve margins and reduce the company’s dependence on manufacturing utilization.

Integration remains a risk. GlobalFoundries has acquired engineering teams, product portfolios and software tools while continuing to fund factory and technology development. The increase in goodwill and intangible assets to $1.86 billion from $1.37 billion reflects the growing importance of acquired businesses on the balance sheet.

The company recorded $440 million of acquisition spending during the second quarter. It also recognized $25 million of acquisition-related charges within the reconciliation between reported and adjusted results.

The long-term case depends on whether these acquisitions generate new customer designs, licensing revenue and manufacturing contracts rather than only increasing expenses and intangible assets.

Why $408 million of capital investment eliminated quarterly free cash flow

GlobalFoundries generated $405 million of operating cash flow during the second quarter, compared with $431 million a year earlier. Purchases of property, equipment and intangible assets reached $411 million, more than double the $159 million spent during the corresponding 2025 period.

After adding $3 million of government-grant proceeds, adjusted free cash flow was negative by $3 million. This compares with positive adjusted free cash flow of $277 million a year earlier and $233 million during the first quarter.

The result does not indicate that GlobalFoundries’ operations failed to generate cash. It shows that nearly all operating cash was reinvested in manufacturing capacity, equipment, technology and intangible assets during the quarter.

Capital spending is necessary because semiconductor manufacturing equipment is expensive and must be continuously upgraded. New processes require clean-room space, tools, engineering and customer qualification before they contribute meaningful revenue.

Government grants can reduce the company’s net investment, but receipts may occur at different times from construction spending. The proposed $300 million silicon-photonics award and a separate expected $375 million grant supporting quantum manufacturing remain subject to final arrangements and performance requirements.

GlobalFoundries ended June with approximately $3.3 billion of cash, cash equivalents and marketable securities. Total long-term debt was approximately $1.12 billion, giving the company meaningful liquidity for investment and acquisitions despite the quarterly free-cash-flow decline.

Cash and cash equivalents declined by $762 million during the quarter, partly because the company spent $440 million on acquisitions and $411 million on property, equipment and intangible assets.

The capital requirements create a tension with shareholder distributions. GlobalFoundries paid its first quarterly dividend of $0.12 per share in July and approved another $0.12 payment for October. Its capital-allocation framework targets returning up to 50% of trailing adjusted free cash flow after investment through dividends and repurchases.

That policy links future distributions to cash generated after capital expenditure rather than relying solely on reported earnings. If investment remains elevated, the amount available for repurchases or dividend growth may be constrained even when revenue and margins improve.

What GlobalFoundries’ third-quarter guidance says about the semiconductor recovery

GlobalFoundries expects third-quarter revenue of $1.86 billion to $1.91 billion, with a midpoint of $1.89 billion. The midpoint represents growth of approximately 5.5% from the second quarter.

Reported gross margin is expected to reach approximately 29.5%, with a one-percentage-point range in either direction. Non-IFRS gross margin is forecast near 30.5%, indicating that management expects the combination of production volume, pricing and product mix to continue improving.

Reported diluted earnings are forecast at $0.32 to $0.42 per share, while non-IFRS earnings are expected between $0.46 and $0.56. The adjusted guidance excludes approximately $0.14 per share of expected share-based compensation.

The widening gap between reported and adjusted earnings deserves attention. Share-based compensation is non-cash when recorded, but it can reduce existing shareholders’ ownership through dilution. GlobalFoundries expects approximately $76 million of share-based compensation across cost of revenue and operating expenses during the third quarter.

The guidance supports the view that demand is recovering across GlobalFoundries’ differentiated semiconductor markets. It does not guarantee that each end market will strengthen simultaneously or that the current level of capital spending will produce immediate free-cash-flow growth.

GlobalFoundries is attempting to build a wider technology platform spanning manufacturing, processor intellectual property, silicon photonics, power delivery, advanced packaging and quantum hardware. The strategy could create higher-value customer relationships and reduce dependence on commodity wafer capacity.

The financial test will be whether the additional revenue and margins eventually exceed the cost of acquisitions, research and factory investment. The second quarter demonstrated improving demand and manufacturing economics, but the negative free-cash-flow result shows that the strategic expansion remains capital intensive.

Key takeaways from GlobalFoundries’ second-quarter semiconductor results

• GlobalFoundries Inc. generated second-quarter revenue of $1.79 billion, an increase of 6% year over year and 9% sequentially, exceeding management’s guidance range.
• Wafer shipments increased 8% to the equivalent of 625,000 300-millimetre wafers, supporting higher factory utilization and revenue growth.
• Reported gross margin expanded by 410 basis points to 28.3%, while non-IFRS gross margin reached 29.9%.
• Reported operating profit declined 11% because research, administrative and acquisition expenses increased, even as non-IFRS operating profit rose 16%.
• Optical networking and silicon photonics give GlobalFoundries exposure to AI data-centre investment without requiring it to manufacture leading-edge AI processors.
• A proposed $300 million United States government award would support silicon-photonics materials, wafer technologies and advanced packaging, subject to final agreements.
• The ARC Processor IP and MIPS businesses expand GlobalFoundries from contract manufacturing into processor licensing, software tools and custom-chip design.
• Operating cash flow of $405 million was offset by $408 million of net capital expenditure, producing adjusted free cash flow of negative $3 million.
• Third-quarter revenue is expected near $1.89 billion, with non-IFRS gross margin forecast at approximately 30.5%.
• The outlook for $GFS depends on converting AI photonics, processor intellectual property and factory investment into sustained free cash flow without allowing acquisition and research costs to overwhelm margin gains.