GLOBALFOUNDRIES Inc. (GFS)

Overview

In 2025, the semiconductor industry began to recover from the cyclical downturn experienced in prior periods. Customers reduced excess inventory levels, resulting in a gradual normalization of demand across most major end markets. In addition, tariffs and geopolitical tensions reinforced the importance of semiconductor supply resilience and flexibility – key characteristics offered by GF’s unique and diverse geographic footprint. Against this backdrop, GF made substantial progress toward its strategic objectives in 2025. Notably, the Company achieved a record number of design wins, reflecting strong customer engagement and confidence in our differentiated technology solutions. We also completed the strategic, complementary acquisitions of AMF, MIPS and Infinilink, which expanded our technology portfolio and enhanced our ability to serve complementary markets.

GlobalFoundries remains one of the world’s leading semiconductor foundries, manufacturing complex ICs that enable billions of electronic devices that are pervasive throughout nearly every sector of the global economy. Our ability to attract a significant share of single-sourced products is supported by our scaled manufacturing footprint and highly differentiated technology offerings. As we look forward, factors influencing our business performance include:

•Global demand for semiconductor products

•Customer demand for diversified global semiconductor supply including non-China and non-Taiwan based suppliers

•Design wins with new and existing customers

•Single-sourced revenue mix

•Technology solutions mix and pricing

•Long-term agreements

•Supply chain

•Shipment utilization

•Government policy and grants, see “Item 4. Information on the Company - Government Regulations.”

Global Demand for Semiconductor Products

The principal source of our revenue is wafer fabrication and sales of finished semiconductor wafers, which accounted for approximately 89% of our net revenue in 2025. The rest of our net revenue was mainly derived from photomask manufacturing, sourcing services, post-fab manufacturing services and earning intellectual property license and royalty fees. Demand for these products is dependent on market conditions in the end markets in which our customers operate, which are generally subject to seasonality, as well as macroeconomic, cyclical and competitive conditions.

Semiconductor Industry Cycle

We believe that semiconductor customers in the end markets we serve reduced some of their excess inventory built up in the prior two years. Inventory dynamics vary by customer and end market, with some pockets of elevated inventory persisting compared to historical averages, particularly in the consumer centric end markets. The industry remained subject to volatility due to uncertainties in global trade policy and the macroeconomic environment. These factors led to incremental caution and uncertainty in the demand outlook, particularly for consumer-centric end markets. The company continues to monitor and adapt to changes in key macro indicators, such as inflation, interest rates, and GDP growth.

The company remains focused on executing its strategic priorities, including but not limited to: 1) deepening customer and ecosystem relationships, 2) achieving operational scale and efficiencies across our manufacturing footprint, 3) pursuing continuous improvement in cost optimization, 4) investing in a diversified and differentiated product portfolio.

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Technology Megatrends

Technology megatrends including IoT, physical AI, satellite communications, cloud and next-generation automotive are reshaping the global economy. A significant driver of semiconductor demand has been, and we believe will continue to be, growth in intelligent, connected and AI-enabled edge devices, which are transforming business functions across all sectors. The wide-scale adoption of mobile devices and software solutions has increased expectations for high-speed connectivity, convenience and security in all applications. This is serving as a catalyst for increased semiconductor content in nearly every industry, and we believe that accelerated adoption of technologies such as video conferencing, telemedicine and e-education will serve to drive increased requirements for these technologies going forward.

Additionally, the electrification of automobiles, including autonomous driving applications, are contributing to an increase in semiconductor sensors. Semiconductors are increasingly integral to the performance, safety and comfort of automotive vehicles, and we believe the continued electrification of automobiles will only further accelerate this trend.

Single-sourced Revenue Mix

We manufacture products based on a combination of our own technologies and our customers’ IP, resulting in a significant number of products that can only be sourced from us. Our sales and marketing strategy centers on deepening relationships with top customers and investing in technologies to become their single-source supplier for mission-critical applications. We believe a key measure of our success as a differentiated technology partner to our customers is the mix of our wafer shipment volume attributable to single-sourced business, which represented approximately 63% of wafer shipment volume in 2025. We define single-sourced products as those that we believe can only be manufactured with our technology or cannot be manufactured elsewhere without significant customer redesigns. We believe that single-sourced business will continue to represent a stable percentage of our wafer shipment volume.

Technology Solution Mix and Pricing

Product mix is among the most important factors affecting revenue and margins, as our wafer price varies significantly across technology platforms. The value of a wafer is determined principally by the uniqueness and complexity of the technology, performance characteristics, cost structure, yield and defect density. Devices with richer feature sets, higher performance, better yields and greater system-level integration require more substantial R&D investments and more complex manufacturing expertise and equipment, and thus generally command higher wafer prices.

Demand, pricing and margins for our products depend on the volumes and features of the solutions we deliver. We continually monitor and work to reduce the cost of our products and improve the potential value that our solutions deliver to our customers as we target new win opportunities. While individual product prices may decline, we believe our R&D investments, differentiated product and single-sourced strategy should lead to improvements in pricing mix and overall margins if we compete effectively.

Long-Term Agreements

We derive a portion of our net revenue from sales to customers that purchase large volumes of our products. We have entered into multiple LTAs with leading companies in the industry. Many of these contracts include customer advanced payments and capacity reservation fees in order to secure future supply. As of December 31, 2025, the aggregate remaining revenue commitment reflected by LTAs was approximately $11 billion. These LTAs include binding, multi-year, reciprocal minimum purchase and supply commitments with wafer pricing and associated mechanics outlined for the contract term.

From time to time our wafer revenue consists of restructuring or underutilization payments from customers unable to meet their volume commitments. We continue to collaborate closely with our customers to support their supply needs.

Shipment Utilization

We define shipment utilization as the ratio of wafer shipment volume divided by our estimated total capacity for wafer manufacturing in a specified period. Shipment utilization remains a very important factor in driving our financial performance, as we incur significant costs regardless of the number of wafers we actually produce. These fixed costs include staffing, electricity, infrastructure, depreciation and maintenance costs at each fab.

Our average shipment utilization rate across our global fabs was 86% and 77% for the years ended December 31, 2025 and 2024, respectively. Factors affecting shipment utilization rates include efficiency in production facilities, complexity and mix of wafer types ordered by customers, including the impact of export controls and other regulatory changes affecting customers and competitors. Our production capacity is determined based on the capacity ratings of the equipment in the fab, adjusted for expected down time due to set up for production runs and maintenance and R&D. In 2025, we operated below our production capacity driven by customer demand and market conditions.

Components of Results of Operations

Net Revenue

We generate the majority of our revenue from volume production and sales of finished semiconductor wafers, which are priced on a per-wafer basis for the applicable design. We also generate non-wafer revenue from rendering non-recurring engineering (“NRE”) services, mask production, process qualification, pre-fabrication services such as bump, test, and packaging, and earning intellectual property licenses and royalties.

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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, inflationary headwinds and costs brought about by ongoing tariff uncertainties we are facing within our business, we have experienced an increase in 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 clean room production equipment. Commencement of depreciation related to construction in progress and property, plant and equipment involves determining when the assets are available for their intended use (see Note 3. Summary of Material Accounting Policies to our Annual Consolidated Financial Statements). 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.

Operating Expenses

Our operating expenses consist of R&D, selling, general and administrative expenses, restructuring charges, and impairment 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. As part of our strategic repositioning, we shifted our R&D efforts to focus on technologies where we can deliver highly-differentiated solutions and discontinued our R&D-intensive single-digit node program. 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 n

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