David Reeder: Sure. Let me speak about when you say inventory, I think you’re referring to GF inventory. So, maybe I’ll address that one first come back around and provide some additional color on the LTAs. Our inventory has increased this year and the vast majority of all of that increase is actually not in work in process nor is it in finished goods. It’s actually in the raw materials the majority of which is in substrates. And those substrates typically their lives could be up to five years, if not even longer than five years with some of those substrates. So, the inventory increase specifically at GlobalFoundries is by and large associated with kind of raw materials if you will that feed into the manufacturing process. It is not in — it is not in finished goods.
We build to our customers’ demand. And so taking that aside, and then talking about the LTAs, all of the LTAs, as Tom mentioned are bespoke. There’s over 40 LTAs that we work with our customers on a daily basis with respect to what their volumes and their demand needs are. And so without being too generic, but to talk about some of the elements in those LTAs. Tom described it very well earlier in this call, which was at the beginning of this year, the expectation was that the first half would be a little bit softer in the market, and then there would be a relatively healthy recovery in the second half of this year. And so during the first half of this year what you saw customers doing is, I’d say, by and large across the semiconductor industry customers were looking at demand needs.
They were looking at some of their longer-lived products, and they were saying, well, let’s build a little bit of inventory to be able to accommodate a second half recovery such that we’re not left stranded and unable to satisfy demand. As we made it through the first and second quarter, and we got into the second half of this year, I think, what everyone recognized was that the second half ramp that maybe we were expecting was not happening at the rate and pace that we expected. And so then you saw customers and I would say, GF customers as well as the general industry, you saw customers say, okay, we don’t want to build any more inventory, we actually now need to start reducing our demand on local boundaries and on some others. And then you start working through those LTAs, I would say, in some pretty good rigor and detail around those LTAs. And so the end results what are you seeing?
You’re seeing us get great visibility to customers’ road maps, which is giving us greater opportunity for design wins. You’re seeing us working with customers on, if you don’t want to take the inventory demand then how can we work together maybe for either increasing the duration, maybe a modest underutilization fee. So you’re seeing those start to flow through. The resolution of some of those agreements again for the third quarter was about $23 million, included in our guidance range for the fourth quarter is the expectation that we’ll have some additional resolutions in the fourth quarter. And so I don’t think what you’re seeing is some push out into first half of 2024 or the second half of 2024. I think what you’re seeing is call it the true-up of 2023 right now.
And I think as we exit 2023 and as we start to get into 2024, our expectations are that the demands that are loaded in the LTAs for 2024 that those demands will largely be realized. And to the extent that they’re not then we’ll sit down again in the 2024 period with our customers on all the elements and variables. Did you have a follow-up Chris?
Chris Danely : Thanks. Yes. So I guess a question for Tom. I think Tom you intimated that in the automotive side, you’re seeing some customers start to ask for a second source outside of Taiwan. This is just something that we’re starting to hear more and more not just in the automotive end market. So can you just expand on that? I mean, is this happening like across end markets where semi customers are starting to get more and more fearful of a potential Chinese invasion of Taiwan and saying hey within two, three years you need to give us another manufacturing source outside of Taiwan the potential benefits to GlobalFoundries?
Thomas Caulfield : Yes. I think, it’s more macro than that. I think it’s about single points of failure and resiliency. How can you have something that’s critical in the semiconductor industry have such a high level of concentration in any part of the world? I mean, it’s geopolitical, there’s geological risk. And what you’re really seeing is that like, anything too much of a good thing becomes a bad thing. That we just put too much concentration and customers are looking for a more resilient supply chain, a little bit more balanced. I think the leaders in that right now are customers in China, who want to be international players and they worry about their ability to shift worldwide if there are more issues that prevent them from shipping from things manufacturing in China.
So, yeah, interested in China for China but also interested for worldwide supply for the rest of the world and their customers. And we’re seeing some of that take place with customers and getting design wins where they want us to be an alternative manufacturing for a footprint to supply their global customers. So I think this is more of a macro event of independent of geopolitical things going on right now which is good and prudent managing that you eliminate signal points of failure and concentration of supply chain and you make it a little bit broader and resilient. And GF, I mean that was the premise Chris, the GF story when we were created in 2009 we’re going to be the first — world’s first truly global semiconductor foundry. In the beginning didn’t have much value for people, but more-and-more as we see how important semiconductors are, it creates great value for customers.
It gave us a bit of a head start, because we have that global footprint and it’s easier for us to create additional capacity in the regions we operate on rather than go greenfield and so — and I think this is a trend for the future independent of what the temperature is in the geopolitical landscape.
Niels Anderskouv: And maybe if I could just add one thing, because I’m not sure it’s clear to everybody outside of GF. But a big part of our strategy is to have manufacture, all our technologies in multiple locations. So you can get manufacturing in Singapore, we try to do the same in Dresden and vice versa in Malta. In that way all customers we can provide them those dual capacity footprints. And we think that’s a big and important part of the strategy moving forward.
Thomas Caulfield: So a single part member can be sourced across our global business.
Niels Anderskouv: Yes. Yes.
Chris Danely: Got it. Thanks guys.
Niels Anderskouv: Next one.
Sam Franklin: Thanks Tom. We’ll take one more.
Operator: Okay. One more question.
Sam Franklin: Thank you.
Operator: One moment for our next question or the last question. Our next question comes from Harlan Sur from JPMorgan. Please go ahead.
Harlan Sur: Good morning. Thanks for taking my question. Many of your customers are still working to clear excess inventories. March quarter is a seasonally weaker quarter for any of your consumer-focused segments. Your wafer fab cycle times are typically a full quarter. So you’re already executing wafer starts for the first quarter. Can you just give us a sense directionally on how to think of your revenue and utilization trajectory into Q1? Should we expect a sequential step down in Q1 more in line with seasonal trends or maybe a more flattish profile, as you guys are already kind of shipping below consumption?
