John Hollister : Yes, Harlan. So, yes, we didn’t specify the level of customer volume adjustment in Q2. We’ll have to see how it plays out. There is a few open items that we’re continuing to address in that regard. As we work through the balance of the year, we’ll see how the second half ramps. Clearly, if we can see a more robust second half ramp and there is some seasonality, as Tom indicated, a lot of that is just around the rate and pace of the recovery of the global economy and inventory draw down and improvement with our customers. But those are the signs we’re looking for to see our loadings come up. So the utilization come up and again, it’s you can look at it that one is an offset or it’s an additional gross profit from customer volume or really the way we think about it, it’s really in lieu of what would’ve otherwise been higher utilization.
Thomas Caulfield : So as one goes down, because the revenue will be going up in a natural way.
Harlan Sur : Tom, you took us through some of the dynamics around sort of diversifying the technology mix for Malta 58. It’s a very smart strategy, right? You talked about 40 nanometer embedded MCU-RFSOI fully depleted SLI capabilities and even on the mainstream 12 nanometer FinFET capacity, right? Mixing in new customers and applications as older programs phase out. Maybe you can just expand on this a little bit. Maybe timelines on phasing in new technologies and success in backfilling the FinFET technology.
Thomas Caulfield : Yes. Harlan first of all, thanks for this question because I think we’ve not done this topic justice. I used to watch this show with my son growing up MythBusters, and I think there’s a lot of myths around what we do and don’t do in fab 8 and what diversification looks like. So let’s take fab 8 and think about it in two dimensions of diversification. The first being end markets we serve with our 12 nanometer platform, and then we’ll talk about diversification, for the fab and the technology portfolio. We will bring there in the customers what that means to GF and also to our global footprint. So think about four end markets, our comms infrastructure, data center, auto, IoT and smart mobile devices. The base load — the base load right is data center.
And that is almost equivalent to what we have in automotive load in the fab. Next up is IoT, which is one and a half times more load than either the automotive, I’m sorry, either the automotive or data center. And then smart mobile devices is one and a half times more than the other three end markets combined. So there’s a broad diversification. So when we think of data center clients moving to single-digit nanometer that represents a fraction of what we do in fab 8 on 12 nanometer. And so we need to dispel the fact that fab 8 means data center, data center business goes down, we’re going to struggle. Yes. Now, diversification, you pointed out, you said it better than I did. We have 12 nanometer technology plus the features we’re adding on that serves, like I said, smart mobile devices 1.5x more than any other combination of all our other markets.
We have 22 FDX that’s being currently qualified and brought up 20 nanometer high voltage, 40 nanometer embedded memory for automotive, 45 RFSOI silicon photonics. This diversification will play out for us in qualification this year. Customers starting to tape out towards the end of this year, into next year and then ramping in 2026 to bring this full diversification. Now, why is diversification important? And this is a point that I think we all need to understand. Having a global footprint means more than just having a location where you can produce one thing. I call it a mailing address. A fab in any location that can make one technology is a mailing address because the by and large, most of your customers demand can’t be served there. What GF has done and we’ve done over the last decade and accelerated in the last five to six years was making sure every one of our global sites has a diversification so our customers can source globally and locally.
It’s great to have a global footprint but it has to have a broad range of technologies. When we complete this journey with fab 8 and its diversification, we’ll have Singapore, European Union and GF with a lot of overlap in the technology platforms. So it’s important for us as a strategic value of our global footprint to diversify fab 8. And clearly it’s important for diversification. Make sure our fab 8 facility stays full.
Operator: Our next question comes from the line of Joe Moore of Morgan Stanley.
Joseph Moore : A little over a year ago, you guys had a partnership with an automotive OEM, with General Motors. Before that you had had some discussions with Ford, which is really interesting. We haven’t really seen OEMs work with foundries more directly like that. Those automotive shortages are behind us. So I wonder if you could kind of talk to the commitment the focus that those guys have on geographic diversification of their foundry and how that might help you?
Niels Anderskouv : So maybe I can take that one. This is Niels Anderskouv. I like to take a little bit of a background on the LTA in general. And remember that the LTAs is still a relatively new feature within the foundry model, but I want to emphasize that there have been key feature of our business since 2021, and really have enabled us to invest more than $7 billion into new capacities to support our customers. So you recollect from prior earnings calls that we’ve entered into more than 40 of these LTAs, including the ones you just mentioned. And we over $30 billion of life-time revenue coming out of those 40 LTAs. Fast forward to the end of 2023, and you may recall we had approximately 2/3 of that life-time revenue remaining.
And then, again, with the announcement of a significant LTA extension in January this year with Infineon, that continues to be a very, very important part of our future business model. So the made point here is that the LTAs have benefited both GF and our customers through a number of lenses. Number one, they provided a level of certainty for both supply and demand. Two, to demonstrate durability in the application to all end markets we serve. And three, they provided a greater visibility and profitability to our business through a challenging market backdrop. So clearly, our customers are essential to this and so is the longevity of our relationships with our customers. So notwithstanding some of the recent discussions with our customers on their near-term volume adjustments, it’s fair to say that LTAs remain a very important feature of our business model.
So, but take those and common a little bit to the current quarter. Take Q1 here, for example. Clearly, given the inventory levels across certain end markets, the rate and pace of entering new LTAs has slowed as our customers are working through the inventory in the channel. But by no means are LTAs less important to us, our customers. As evident by the fact that we in Q1 again announced the extension of one of our largest LTAs within Infineon. And that one was to support the long-term supply requirements of automotive grade 40 nanometer, my controllers. So, as you heard on the call today, there have been a couple instances where we work with our customers on adjusting the near-term volume requirements. And I would highlight that these have been highly constructed conversations and we work together on finding a balanced outcome based on the common features of our LTAs namely fixed price, fixed volume and fixed duration.
So these are all the key features that we’ve been able to flex in order to preserve this relationship and strike the right long-term balance with our customers. So what’s the outlook? What’s most encouraging is actually how well our customers have responded to these discussions. For example, in one instance we mutually agreed on terminating agreement but that was primarily to align with our customers long terms of private requirements, and just to demonstrate the resilience of the relationship. The very next week, that same customer taped out a new design with us. So what you’re hearing from us today is that we continue to believe the LTA framework offers a mutual — mutually beneficial arrangement for both us and our customers to partner together over the long-term.
And looking forward, I would expect to see the LTAs remaining very key to sell our customers across very end markets, automotive included and also including the OEMs. So I think you should expect to see more on that front. But however, it is reasonable to assume that the terms and duration of the agreements will vary according to the end markets and what we are supporting.
Joseph Moore : And I guess to follow-up on that, there’s obviously one reason to do LTAs and those types of relationships is because of tactical supply concerns but there’s also the sort of bigger picture, OEM concern that maybe were too reliant on certain geographies. So just like how strategic do you think those relationships can be? And I guess, I’m just trying to make sure people don’t with the shortage space, people sort of forget about some of the reasons that became to you guys in the first place. Are you still having those strategic discussions in terms of bigger picture geographic diversification?
Thomas Caulfield : Joe, I think you’re hitting on a really important point. One of the things that we learned is not all end markets. This is back to the — there’s no such thing as macro in a world anymore. There’s no such thing semiconductor industry. There’s a lot of different components to it that have different behaviors. And I want to go back to the kind of discussions that we’re having with auto players, why that’s different with some of the other end markets. So what’s unique about auto. These are long-term supply agreements. When they qualify a part, they’re going to use it for 5 to 10 years. So having long-term visibility and long-term certainty on supply pricing is really important for automotive makers because they’re making commitments for a long time.
The discussions we started with them continue, but they continue in a different fashion. Since we don’t design and they don’t design, there’s a third party of one of our customers in the middle and we sit down collectively talk about what we’re going to do to make sure they have the level of certainty and durability and supply for their future. In more markets that have much quicker product life cycles, what we’re finding is the LTA durations don’t need to be as long. It doesn’t mean customers don’t want LTAs, they just want them on a much shorter duration so they can be nimble and flexible. They still need like all of us, certainty that when they need their product, they can have it. And so what we’re all learning as an industry is to make sure that the terms and conditions of these LTAs reflect the uniqueness of each market.
Long-term markets segments that last a long time, want long-term certainty. In markets that have fast product transitions, they want near-term certainty. But recognizing commitments for the longer term will have to be renegotiated every year. And I think that’s the one learning we’re all getting out of this. And at the end of all of this for you, you started the question how are discussions going with the auto — the automotive OEMs. We continually sit down and make sure we’re aligning technology road maps, first and foremost that were brought into conversations with our customers so that we can make sure we’re all serving the same purposes. And I think there’s another entrant into this marketplace, the Tier 1s are also starting to think about doing their own designs.
