What are the drivers of gross margin expansion into Q3, including utilization, mix, and pricing, and what is the trajectory into next year?

Gross margin expansion is primarily driven by a richer mix of manufacturing and technology services revenue, structural cost improvements, and improved utilization (high 80s% in Q2). The company has already exceeded its 30% gross margin target for year-end 2026. Mix will continue to be a significant driver, with utilization still having room to grow. Cost and productivity improvements remain a focus, aiming for a 40% exit run rate by 2028. “Mix has been a big and continues to be a big driver of that. And the way to think about mix is twofold. It's mix from a manufacturing services point of view, and its mix from a technology services point of view as well.”

What caused the material upward revision in the SiPho/CID outlook, and how do GF's PIC solutions compare to competitors, especially given increased competition?

The upward revision is due to strengthening demand, validated by hyperscalers, and confidence in increasing SiPho capacity. The company believes it is on track or ahead of its long-term SiPho growth targets. While competition exists, it validates the secular trend. GF has over 40 SiPho customers, including early-stage companies, and does not see customer concentration as a concern, with durable demand reinforced by hyperscaler conversations. “I think every customer meeting is all about what more can we do, how much faster can we go? There is clearly strong demand today.”

What portion of the 7 Scale platform customers are working on NPL or co-packaged optics, and what is the timing for the NPL opportunity?

The Scale platform supports both Near-Packaged Optics (NPO) and Co-Packaged Optics (CPO), and many customers are working on both, with NPO ramping sooner. NPO is seen as a smaller transition from pluggable infrastructure due to synergies like SerDes. The company maintains its view of NPO ramping in 2027 and CPO ramping in 2028, with Scale's underlying platform benefiting from either adoption rate. “We still maintain the view that 27, we'll see the beginning of NPO ramp in 28. We'll see the beginning of CPO ramp, and that's been quite consistent over the last few quarters.”

GFS

GLOBALFOUNDRIES (GFS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 5, 2026

Source: earnings call transcript

Executive summary

GLOBALFOUNDRIES Q2 FY26 — Record CID Growth and Margin Expansion

GLOBALFOUNDRIES delivered strong Q2 FY26 results, driven by robust demand in AI data center applications and strategic investments in quantum, IP, and power technologies. The company achieved significant non-IFRS gross margin expansion ahead of schedule, supported by a richer business mix and manufacturing productivity. Management is actively expanding capacity and leveraging government partnerships to capitalize on secular growth trends, while navigating softness in the mobile market and temporary automotive shipment timing.

Highlights

Revenue reached $1.786 billion, up 9% sequentially and 6% year-over-year.
Non-IFRS gross margin was 29.9%, a 470 basis point increase year-over-year, exceeding guidance and reaching the 30% target ahead of schedule.
Communications Infrastructure & Data Center (CID) revenue grew 62% year-over-year, marking the fastest quarterly YoY growth since 2022.
Secured 7 new optical networking design wins in Q2, with silicon photonics revenue expected to more than double in 2026.
Home Industrial IoT revenue increased 30% sequentially and 10% year-over-year, with full-year growth guidance raised to 10-15%.

Concerns

Smart Mobile devices revenue decreased 6% year-over-year and is expected to decline by a low teens percentage YoY in 2026 due to memory pricing and shortages.
Automotive revenue decreased 13% sequentially and 10% year-over-year in Q2, primarily driven by customer-led shipment timings.

Guidance & targets

Category	Target	Timeline	Confidence
Total Revenue	$1.85B +/- $25M high materiality	Q3 FY26	High
Non-IFRS Gross Margin	30.5% +/- 100 bps high materiality	Q3 FY26	High
Operating Expenses (ex-SBC)	$260M +/- $10M medium materiality	Q3 FY26	High
Operating Margin	16.7% +/- 170 bps high materiality	Q3 FY26	High
Diluted EPS	$0.51 +/- $0.05 high materiality	Q3 FY26	High
Communications Infrastructure & Data Center Revenue Growth	50% to 60% YoY growth high materiality	FY26	High
Automotive Revenue Growth	Low double-digit percentage YoY growth medium materiality	FY26	High
Smart Mobile Devices Revenue Growth	Low teens percentage YoY decline high materiality	FY26	High
Home Industrial IoT Revenue Growth	10% to 15% YoY growth medium materiality	FY26	High
Technology Services Revenue	$100M to $120M medium materiality	FY26	High
Technology Services Revenue as % of Total Revenue	High end of 10% to 12% medium materiality	FY26	High
Effective Tax Rate	Mid-teens percentage range medium materiality	FY26	High
Adjusted Free Cash Flow Margin	~10% high materiality	FY26	High
Capital Return Objective	Up to 50% of trailing 12-month non-IFRS adjusted free cash flow after investments high materiality	Long-term	High
Gross Margin Exit Run Rate	40% high materiality	Exit 2028 · FY28	High
Quarterly Operating Expenses (H2 FY26)	Consistent with Q3 guidance medium materiality	H2 FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Communications Infrastructure & Data Center Driven by strong customer demand for silicon photonics and silicon germanium offerings. Saw strong double-digit year-over-year growth in wireless infrastructure storage applications. Seventh consecutive quarter of double-digit percentage year-over-year growthFastest quarterly year-on-year growth since 2022	16% of total revenue	62%	20%	—
Automotive Principally driven by customer-led shipment timings. Expect low double-digit percentage revenue growth for the full year with a higher weighting towards Q4.	19% of total revenue	-10%	-13%	—
Smart Mobile Devices Handset forecasts reduced due to continued impact from memory pricing and associated shortages. Expect to decline by a low teens percentage year-over-year in 2026.	36% of total revenue	-6%	15%	—
Home Industrial IoT Driven by demand for AI-enabled image processing, healthcare wearables, and next-generation MCUs for edge AI compute. Expect revenue to grow 10% to 15% in 2026. Fastest year-over-year growth since 2022	19% of total revenue	10%	30%	—

GFS operating KPIs by quarter

GFS operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Jun 2025 Q2 FY25	This call Jun 2026 Q2 FY26	Change vs prior quarter
Employees	13K The focus and determination from our 13,000 employees around the globe give me confidence GF can accelerate its performance as we return to growth in 2025. Source: earnings call transcript	13K In conclusion, I want to thank our 13,000 strong employees around the world for their focus on technology differentiation, manufacturing excellence and driving the momentum with our customers, as we continue to execute to our long-term strategy and lay the foundations for a strong future. Source: earnings call transcript	—	0%
Wafer shipments	~595K We shipped approximately 595,000 300-millimeter equivalent wafers in the quarter, an 8% increase from the prior year period. Source: earnings call transcript	~581K We shipped approximately 581,000 300-millimeter equivalent wafers in the quarter, up 7% sequentially and up 12% from the prior year period. Source: earnings call transcript	~625K We shipped approximately $625,000, a 300-millimeter equivalent wafers in the quarter, up 8% sequentially and 8% from the prior year period. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

SiGe Demand Oversubscribed Q2 FY26

Demand remains strong and is oversubscribed through 2027.

Product announcements

Product	Type	Timeline	Details
Quantum Technology Solutions	launch	May 2026
Scale Platform	launch	—

Deals & partnerships

Synopsys Acquisition of ARC processor IP Solutions business

Completed in June. Brings over 150 patents, 300 existing customers, and 400 R&D engineers. Enables earlier engagement with customers in the design cycle for physical AI.

Potion Technologies Acqui-hire of custom power team

Closed in July. Brings new differentiated IVR technology, specialized engineering talent, and additional R&D capabilities to enable new power architectures for AI infrastructure.

Lockheed Martin Strategic chiplet design wins

Secured 3 strategic chiplet design wins on FinFET and FDX platforms, creating a foundational aerospace and defense chiplet ecosystem.

Microchip Meaningful design win

Expanded relationship with a meaningful design win on the FinFET platform, supporting growth of embedded compute and edge AI offerings.

Bosch ADAS radar tape-out

Taped out an ADAS radar built on the FDX platform, a notable milestone from years of close partnership.

MediaTek PMIC design win

Secured a notable design win on the BCD platform for a power management integrated circuit, marking GF's first-ever PMIC design win with MediaTek.

Leading Hyperscaler New design for micro LED display backplanes

Strengthened position with next-generation augmented reality wearables by winning a new design for micro LED display backplanes.

Capital programs

Quantum Manufacturing Capacity Build-out announced $375M

Funding: U.S. Department of Commerce grant

Benefit:Accelerate research, development, and build-out of quantum manufacturing capacity in the U.S.

Critical partnership with the U.S. government underscoring quantum as a national priority.

Next-Generation Silicon Photonics Technologies Development announced $300M

Funding: U.S. Department of Commerce award

Benefit:Support advanced optical materials, modulated technologies, and packaging innovations for next-generation near and co-packaged optics architectures, building on GF Scale platform.

Letter of intent signed with the U.S. Department of Commerce to accelerate development in the U.S.

Risks & headwinds

Smart Mobile Devices Market Softness FY26

Revenue decreased 6% YoY in Q2 FY26; expected to decline by a low teens percentage YoY in FY26.

Mitigation:Flexible manufacturing footprint allows reallocation of capacity to other strong end markets; customer design win momentum for new generations of smart mobile devices continues to be positive.

Automotive Revenue Shipment Timings Q2 FY26

Revenue decreased 13% sequentially and 10% YoY in Q2 FY26.

Mitigation:Expected to rebound in H2 FY26 with a higher weighting towards Q4; full-year guidance for low double-digit percentage growth maintained; strong design win momentum.

What to watch in Q3 FY26

CID Revenue Growth

Next quarter

Current 62% YoY in Q2 FY26

Target Maintain or increase FY26 guidance of 50-60% YoY growth

Why it matters

CID is a key growth driver, and continued acceleration or maintenance of this high growth rate is critical for the company's overall performance and AI thesis.

Given the accelerating demand outlook from our customers, we now expect to achieve full year 2026 revenue growth in the range of 50% to 60% for our communications infrastructure and data center end market, up from our prior expectations of high 30s percentage year-over-year growth

Find out whether GFS delivers this. Inve re-checks your case every morning.

Q&A highlights

What is the timing and magnitude of CID capacity expansion, and how does the $300M CHIPS Act grant for silicon photonics help defray CapEx?

Capacity expansion for CID, particularly optical networking, is being done within existing fab footprints, allowing for relatively quick ramps through H2 2026 and into 2027. The $300M U.S. government partnership accelerates the development of next-generation silicon photonics technologies, including improved modulated technology, new materials (barium titanate, lithium niobate, indium phosphide), and advanced packaging for NPO/CPO, supporting higher performance systems.

“One advantage for us is we're building that capacity out within our existing fab footprint, and we have, let's say, ample fab footprint today to ramp capacity relatively quickly.”

asked by Chris Caso · answered by Timothy Breen

3 min read 5 chapters

Detailed narrative

Quantum Technology Solutions Launch and Momentum

GLOBALFOUNDRIES launched Quantum Technology Solutions in May, a new dedicated team and capabilities aimed at enabling the quantum industry to transition from prototypes to high-volume production. The strategy is cubit-agnostic, supporting various modalities, and leverages existing platforms like FDX for cryogenic CMOS and advanced packaging.

The company is working with 8 leading quantum computing players, including hyperscalers, and has already embarked on 4 new customer-specific engagements. This initiative is bolstered by an expected $375 million grant from the U.S. Department of Commerce to accelerate quantum manufacturing capacity in the U.S.

Quantum-related revenue is expected from engineering engagements in the next 1-3 years, with manufacturing services revenue ramping towards the end of the decade as platforms move to volume production.

Accelerating AI Data Center Momentum and Silicon Photonics Expansion

The company secured 7 new optical networking design wins in Q2, driven by strong demand for silicon photonics and silicon germanium platforms. Silicon photonics revenue is projected to more than double in 2026, with high-volume manufacturing of 200 gig per lane technology underway and 400-gig capability demonstrated.

Significant customer interest is noted for the Scale platform, the industry's first OCI MSA compatible solution for near and co-packaged optics, with 7 active engagements and two tape-outs in Q2/Q3. A $300 million award from the U.S. Department of Commerce will further accelerate next-generation silicon photonics technologies, including advanced optical materials, modulated technologies, and packaging innovations.

Strategic Acquisitions Bolster IP, Software, and Power Capabilities

GLOBALFOUNDRIES completed the acquisition of Synopsys ARC processor IP Solutions business in June, significantly expanding its serviceable addressable market and bolstering capabilities across RISC-V processor IP, software development tools, and custom silicon design. This acquisition brings over 150 patents, 300 existing customers, and 400 R&D engineers, enabling earlier engagement with customers on future architectures for physical AI.

Additionally, the acqui-hire of Potion Technologies' custom power team in July strengthens the company's roadmap in Power Technologies, particularly integrated voltage regulators (IVR), to enable new power architectures for AI infrastructure that bring power conversion closer to the processor.

Robust Gross Margin Expansion and Pricing Strategy

The company delivered a non-IFRS gross profit of $534 million, translating to a 29.9% gross margin in Q2, exceeding the high end of guidance and reaching the 30% target well before year-end. This expansion was driven by a richer mix of manufacturing and technology services revenue, structural improvements in manufacturing costs, and improved utilization (high 80s%).

Management implemented pricing increases across several technology corridors in Q2, effective 2027, following constructive customer conversations. These adjustments reflect differentiated value, supply/demand dynamics, and inflationary absorption, with continued assessment of pricing for 2027.

Flexible Manufacturing and End-Market Dynamics

GLOBALFOUNDRIES shipped approximately 625,000 300-millimeter equivalent wafers in Q2, up 8% sequentially and year-over-year. The company emphasized its flexible manufacturing footprint, which allows it to reallocate capacity to meet strong demand in areas like data center, offsetting softness in smart mobile devices due to memory shortages.

This flexibility has enabled the company to capture upside and maintain strong design win momentum across various end markets, including defense and automotive.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.