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Aug. 10, 2022, 8:17 a.m. EDT

GlobalFoundries stock falls as fears of a chip glut eclipse strong outlook

By Wallace Witkowski

GlobalFoundries Inc. shares fell Tuesday after the chip manufacturer’s strong outlook was eclipsed by recent signs that the global chip shortage has flipped into a glut.

GlobalFoundries  (NAS:GFS) forecast adjusted earnings of 59 cents to 65 cents a share on revenue of $2.04 billion to $2.07 billion for the third quarter, easily ahead of expectation. Analysts polled by FactSet, on average, were projecting earnings of 44 cents a share on revenue of $1.99 billion for the third quarter, according to FactSet.

“We shipped a record 630 thousand wafers in the quarter, driven by double-digit growth at sites in the U.S. and Europe,” said Thomas Caulfield, GlobalFoundries chief executive, in a statement. “Despite global supply chain challenges, the GF team continues to execute to our expansion plans as we build out capacity to meet our customers’ long-term needs. We remain on track to deliver a strong year of growth and profitability.”

The Malta, N.Y.-based company — known for running fabrication plants, or “fabs” in industry parlance, that make silicon wafers for the majority of chip makers who do not have their own fabs — reported second-quarter net income of $317 million, or 48 cents a share, flipping from a loss of $30 million, or 35 cents a share, a year ago. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 58 cents a share, compared with an adjusted loss of 6 cents a share in the year-ago period.

Revenue rose to $1.99 billion, up from $1.62 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast adjusted earnings of 45 cents a share on revenue of $1.97 billion, based on GlobalFoundries’ forecast for adjusted earnings of 43 cents to 48 cents a share on revenue of $1.96 billion to $1.99 billion.

For more: Five things to know about GlobalFoundries

Shares fell as much as 8% Tuesday to an intraday low of $54.35 following the release of the results, after closing up more than 11% Monday. Even that their intraday low, shares are still nearly 16% higher than  their $47 IPO price from the company’s October initial public offering.

As President Biden signs into law about $53 billion earmarked to build out U.S. fab capacity , GlobalFoundries announced that Qualcomm Inc. (NAS:QCOM) extended an agreement with the company for more than $4 billion, giving it more than $7 billion in contracted business out to 2028.

The new elsewhere in the chip sector was not as good, however. Micron Technology Inc. (NAS:MU) warned — like many others in the chip sector, most recently Nvidia Corp. (NAS:NVDA) — that revenue for the quarter will likely come in lower than expected, adding to data that indicate the global chip shortage has passed for the most part.

Wall Street analysts have been expecting a turnaround in the chip sector for months, as the pandemic-era shortages ease and customers realize they ordered too many semiconductors in the frantic rush of the chip crunch. Semiconductor companies’ stocks have been pressured most of the year as Wall Street waited for the change, which now appears to be here for many chip sectors.

For the year, GlobalFoundries shares are down 14%, compared with a 28% drop in the PHLX Semiconductor Index (NASDAQ:SOX) , a 14% fall in the S&P 500 index (S&P:SPX) , and a 20% drop in the tech-heavy Nasdaq Composite Index (NASDAQ:COMP) . On Tuesday, the SOX index was down about 5%, while the S&P 500 was off less than 1% and the Nasdaq was down a little more than 1%.

Link to MarketWatch's Slice.