グローバルファウンドリーズ（GFS）2026年度第3四半期決算説明会：過去最高の利益率とAI生産能力の増強

主要なポイント

• グローバルファウンドリーズが発表した2026年度第3四半期の売上高は18億9900万ドルで、前年同期比13%増、前四半期比6%増となりました。ウエハ出荷量は前年同期比7%増の約64万7000枚（300mmウエハ換算）に増加しました。
• Non-IFRS粗利益率は同社過去最高の31.4%に達し、前年同期から540ベーシスポイント拡大しました。Non-IFRS営業利益率は17.9%、希薄化後EPSは0.53ドルとなりました。
• シリコンフォトニクスおよびシリコンゲルマニウムの需要に牽引され、通信インフラおよびデータセンターの売上高は前年同期比81%増加しました。経営陣は、この最終市場が2026年に60%〜70%成長すると見込んでいます。
• 四半期売上高の3分の2以上が、初めてスマートモバイル機器以外からもたらされました。スマートモバイル機器の売上高比率は32%に低下し、同社史上最低の割合となりました。
• 2026年度第4四半期について、経営陣は売上高見通しを20億ドル（±2500万ドル）、Non-IFRS粗利益率を31.5%（±100ベーシスポイント）と提示しました。
• グローバルファウンドリーズは2027年に約40億ドルの純設備投資を計画しています。同社は顧客からの前払金によりその投資の約3分の1を賄うとともに、政府の助成金や税額控除によってさらにコストが相殺されることを見込んでいます。

主要財務実績

製造サービスが売上高の約88%を占めました。IPライセンス、ソフトウェア、レチクル、受託開発（NRE）などを含むテクノロジーサービスは約12%寄与しました。経営陣は、2026年通期の売上高の約12%をテクノロジーサービスが占め、粗利益率は同社の長期目標を上回る水準になると予想しています。

事業および業績の動向

通信インフラおよびデータセンター

この最終市場は第3四半期の売上高の約17%を占めました。売上高は前四半期比14%増、前年同期比81%増となり、8四半期連続で前年同期比2桁成長を達成しました。

グローバルファウンドリーズは、2026年のシリコンフォトニクス売上高を約5億ドルと見込んでいます。顧客需要、受注状況、および計画されている生産能力増強を踏まえ、経営陣は現在、2027年末時点でのシリコンフォトニクスの年換算売上高ランレートが約10億ドルに達すると予想しており、これは従来予想より1年前倒しとなります。

同社は光トランシーバー大手10社のうち7社を含む、50社以上のシリコンフォトニクス顧客と取引を行っています。経営陣によると、シリコンフォトニクスおよびシリコンゲルマニウムの生産能力は2027年分まで実質的に満杯となっており、2028年分の確定予約も増加傾向にあります。一部の顧客は2029年以降の生産能力確保を求めています。

グローバルファウンドリーズは、今後1年間でシリコンフォトニクスの生産能力を約3倍に拡大する計画です。また、マーベルとの複数年にわたるパートナーシップにより、バーリントン工場でのシリコンゲルマニウムの拡張も後押しされます。

TSMCとの5年間、20億ドル規模の製造協定に基づき、グローバルファウンドリーズはCoWoSエコシステム向けのシリコンインターポーザの米国供給拠点を構築します。マルタ拠点にて2028年上半期に量産を開始する予定です。経営陣は、この協定が同社の長期目標を上回る粗利益率をもたらすと述べています。

自動車

自動車部門は四半期売上高の約19%を占めました。売上高は前四半期比11%増、前年同期比20%増となりました。経営陣は、2026年の成長率を引き続き10%台前半と見込んでいます。

同社はまた、レーダーシステムおよびリアルタイム制御分野でのカスタムシリコンの受注を獲得したと報告しました。経営陣は、複数年の生産能力計画および地理的供給分散に関し、自動車メーカーやTier 1サプライヤーとの直接的な協議継続を強調しました。

スマートモバイル機器

スマートモバイル機器は売上高の約32%を占めました。売上高は前四半期比5%減、前年同期比19%減となりました。グローバルファウンドリーズは、2026年通期で10%台前半の減少を引き続き予想しています。

経営陣は、ローエンド市場よりも需要が力強いプレミアム端末への同社の露出が高い状態が続いていると述べました。また、モバイル用電源管理およびバッテリー残量計ICを含む、スマートフォンやスマートグラスでの新たなデザインウィンを発表しました。

ホーム・産業向けIoT

ホーム・産業向けIoTは四半期売上高の約20%に寄与しました。コネクティビティ、トラッキング、センシング用途に支えられ、売上高は前四半期比16%増、前年同期比49%増となりました。

経営陣は2026年の10%〜15%の成長予想を維持しました。当四半期中、同社はFDXプラットフォーム上で次世代セルラーIoTおよびBluetooth製品のテープアウトを行いました。

カスタムシリコンおよびフィジカルAI

グローバルファウンドリーズは、第3四半期に生涯売上高ベースで10億ドル近くに相当するカスタムシリコンのデザインウィンを獲得しました。獲得案件には、レーダーSystem-on-Chip（SoC）、RISCベースのリアルタイム制御プロセッサ、データセンター・コンピューティング・プロバイダー向けのカスタムボード管理コントローラ、航空宇宙用エンジン制御プロセッサが含まれます。

業績見通し（ガイダンス）

2026年通期について、経営陣は純設備投資額が売上高の約15%〜20%に相当し、Non-IFRS実効税率が10%台半ば、フリーキャッシュフロー利益率が約10%になると見込んでいます。

2027年に向けて、経営陣はシリコンフォトニクス、シリコンゲルマニウム、FDX、先端パッケージング、その他の生産能力プログラムにわたって約40億ドルの純設備投資を予想しています。顧客からの前払金が投資の約3分の1をサポートすると見込まれています。政府の助成金および投資税額控除により、さらに資金が相殺される見込みです。

同社は、2028年度第4四半期末時点までにNon-IFRS粗利益率40%に達することに引き続き注力しています。経営陣はこの目標を変更していませんが、最近の顧客契約や事業ミックスの改善により、この達成プロセスへの確信が高まったと述べました。

リスクと注視すべき領域

• スマートモバイル需要は、特にローエンド市場で引き続き圧迫されており、経営陣はメモリ関連の供給制約を挙げています。
• 光ネットワーキングの成長は、グローバルファウンドリーズが2027年以降の需要に対応できるよう、新しい設備を迅速に設置、認定、立ち上げできるかどうかに依存しています。
• 2027年に計画されている設備投資計画は直近の年間支出よりも大幅に大きくなりますが、顧客前払金、助成金、税額控除によってキャッシュフローへの影響は緩和されると見込まれます。
• 生産能力の拡張によって分母が大きくなったため、第3四半期の稼働率は80%台後半にとどまりました。継続的な生産能力の追加により、短期的には稼働率の上昇ペースが緩やかになる可能性があります。
• 経営陣は第4四半期から第1四半期にかけての通常の季節性を予想していますが、売上構成の変化によりその影響は和らぐ可能性があります。
• 米国政府への株式発行の予定に伴い、希薄化後株式数が増加する見込みです。経営陣は、残りの発行のタイミングに応じて、2027年から希薄化後株式数が約6億株になると予想しています。

アナリスト質疑応答のハイライト

利益率および価格設定：経営陣は、第3四半期の加重平均販売単価（ブレンデッドASP）が前四半期比で約2.5%上昇し、前年同期比で約5%上昇したと述べました。2027年には、加重平均ASPおよび製品ミックスが約10%改善すると見込んでいます。ただし、価格設定単体よりも事業ミックス、稼働率、減価償却費、および製造生産性が、利益率を押し上げる引き続き重要な要因であると強調しました。

光通信生産能力の確保動向：経営陣は、シリコンフォトニクスおよびシリコンゲルマニウムの生産能力が2027年まで実質的に完売状態であると述べました。顧客による2028年までのコミットメントが増加しており、2029年までの供給確保を求める声も強まっています。また、多くの顧客が前払金を通じて生産能力への資金提供に応じる姿勢を示しています。

フォトニクス技術のロードマップ：グローバルファウンドリーズは、プラグバブル光トランシーバーからニアパッケージド光学（NPO）や共同パッケージド光学（CPO）への移行により、光集積回路（PIC）、シリコンゲルマニウム、および先端パッケージング全体で自社コンテンツの拡大機会が期待できると見込んでいます。同社はインジウムリン（InP）の自社技術プラットフォームへの統合に注力していますが、現時点で単体レーザーの製造は計画していません。

投資回収とペイバック：経営陣は、顧客資金、政府助成金、および投資税額控除により、計画されているほとんどの生産能力投資について投資回収期間が約2年以内に収まると述べました。既存施設内での拡張により、装置の導入から収益化を開始するまでの期間が短縮されると予想されています。

自動車向け供給：経営陣は、自動車分野の顧客が3〜5年間にわたる供給の安定確保と地理的分散を引き続き重視していると述べました。AI関連技術により多くの投資が振り向けられるものの、2027年の設備投資予算の一部は自動車向けの生産能力維持・拡大をサポートします。

決算説明会トランスクリプト全文

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決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Thank you for standing by, and welcome to the GLOBALFOUNDRIES Third Quarter Fiscal year 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Eric Chow, Head of Investor Relations. Please go ahead, sir.

Eric Chow

Thank you, operator. Good morning, everyone, and welcome to GLOBALFOUNDRIES Third Quarter 2026 Earnings Call. On the call with me today are Tim Breen, CEO; and Sam Franklin, CFO. A short while ago, we released GS Third Quarter 2026 financial results which are available on our website at investors.gf.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations web page.

During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are made available on today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may or by the use of the future tenants. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today.

For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings, including in sections under the caption Risk Factors in our annual report on Form 20-F and in any current reports on Form 6-K furnished with the SEC. In terms of upcoming events, we will be participating in a fireside chat at the UBS Global Technology and AI Conference in Scottsdale, Arizona on December 1. We will begin today's call with Tim providing a summary update on the business environment and technologies, followed by Sam, who will provide details on our third quarter results and fourth quarter guidance.

We will then open the call for questions with Tim and Sam. We request that you please limit your questions to one with one follow-up. I'll now turn the call over to Tim.

Timothy Breen

Thank you, Eric, and welcome, everyone, to our third quarter 2026 earnings call. GF delivered strong results in the third quarter with revenue and non-IFRS profitability metrics at the high end of our guidance ranges. We delivered record non-IFRS gross margin, which demonstrates the meaningful progress we are making to enhance the mix of our business by ramping our differentiated technologies in high-value, high-growth applications.

Our communications infrastructure and data center end market saw record levels of growth, led by accelerating demand in optical networking across our silicon photonics and silicon germanium platforms. We also delivered strong growth in automotive and home and industrial IoT, reflecting broad-based secular momentum across our key markets. Thanks to the accelerated growth across several end markets, the proportion of revenue outside of Smart mobile devices was the highest level in our company's history and is driving a richer, more diversified, more resilient revenue base, thanks to the team's excellent efforts and execution we are ahead of plans to deliver the strategic and financial targets we set out at our Investor Day earlier in the year.

We will look back at 2026 being a pivotal year for GF. In recent weeks, we have made several significant announcements that meaningfully advance our strategy, support our financial objectives and reinforce our foundation for durable long-term growth. We are proud to have announced a significant number of new customer and investment partnerships such as our agreements with Marvell to accelerate capacity for our industry-leading high-performance SiGe with monolithic power for critical power management solutions with TSMC to establish a U.S.-based supply of silicon interposers, for the CoWos ecosystem and the Landmark U.S. Japan fab expansion plan that will transform our multi-new York site. These milestones firmly position GF as a diversified holistic technology provider critical to governments and partners around the world.

Let me cover these areas in more detail, beginning with our strong investment partnerships announced last month, the U.S. Japan initiative provides a new and innovative model for GF to expand our critical U.S. semiconductor manufacturing capacity at accretive economic returns. This initiative will unlock substantial capacity growth, support significant future customer demand and bring the scale of our U.S. operations in Mother New York to mega fab level.

The unique and innovative partnership structure allows GF to expand capacity faster without investing capital with an economic model that is accretive to our long-range plans. Through a robust structure of technology, construction and operations fees, cost reimbursements and EBITDA sharing, the initiative is designed to generate the profit per wafer comparable if we have built and own the capacity ourselves.

As another indicator of our deepening partnership with the U.S. government, GF reached an agreement with the U.S. Department of Commerce to reallocate USD 955 million of our existing chips and Science Act award to accelerate investments at our Multi New York and Burlington, Vermont facilities. The amended award will accelerate CapEx and R&D investments in our highest value differentiated technologies that our customers demand such as silicon photonics, silicon germanium and advanced packaging, including the first U.S.-based source of silicon interposers.

In recognition of the growing role that GF playing in the U.S. semiconductor ecosystem a separate agreement will be entered into to issue 4% equity to the U.S. government, which provides a vehicle for the American people to share GF's future success. Combined with previous announcements across the quantum, silicon photonics and advanced packaging investments, we anticipate the total equity ownership of the U.S. government to be approximately 7% when all agreements are finalized.

Having attained a meaningful position in GF, our Board of Directors and our U.S. government partners do not plan on any further government equity position beyond these announced equity stakes. In summary, this landmark agreement represents a strong vote of confidence in and underscores our critical role in advancing U.S. semiconductor leadership.

Let me now turn to our significant and expanding opportunity in the AI data center. We see significant momentum with customers for our optical networking solutions, where customers value GF's unique combination of high-performance photonic devices, advanced fiber coupling, RF integration and advanced packaging, backed by more than a decade of investment and substantial clean room space within our modern, highly automated 300-millimeter footprint, GF can deliver differentiated performance and scale capacity rapidly as customer demand grows.

Our competitive advantages are translating into strong design win momentum and robust customer demand. We are actively engaged with more than 50 silicon photonics customers, including 7 of the top 10 optical transceiver suppliers with active designs slotted to ramp in 2027 and 2028 to scale across, scale out and scale up networks. In 2026, we expect to deliver $0.5 billion of revenue from silicon photonics and on the back of the strength of customer demand, order visibility and our capacity growth plans, we now expect to exit 2027 at an annualized silicon photonics revenue run rate of approximately USD 1 billion a full year ahead of prior expectations.

To support the ramping demand for optical networking in 2028 and beyond, we plan to approximately triple our silicon photonics capacity over the course of next year, which Sam will cover in more detail. In addition to silicon photonics, silicon germanium is another important and complementary driver of GS growth in optical networking. Our SiGe technology enables high-speed optical transceivers through transmit drivers and receive amplifiers, key interface elements between the electrical and optical domains. Customer demand for our SiGe technology continues to increase beyond current capacity and supported by customer prepayments, we are accelerating our capacity investments to ensure that we can meet this demand.

Our recently announced multiyear strategic partnership with Marvell will help support significant SiGe capacity expansion in our Burlington fab to enable next-generation optical solutions. Together with the reallocated U.S. government funding from our prior chip France awards, this gives us additional resources and strong customer alignment to scale a highly differentiated platform, meaningfully accretive to GF's long-term margin targets.

Lastly, advanced packaging is another key enabler of our AI data center strategy. Under our 5-year USD 2 billion manufacturing agreement with TSMC GF will establish a U.S.-based supply of silicon interposers for the CoWoS ecosystem, with volume production expected to ramp at our multisite in the first half of 2028 and with a framework to expand the agreement over time. The economics of this arrangement are attractive for GF and the strategic benefits are clear. This agreement establishes a new multiyear revenue stream for GF, with gross margins above our long-term targets and with co-investment from TSMC that will help fund the necessary capital associated with this project.

The silicon interposers are yet another way GF can serve growing AI and high-performance computing infrastructure demand by combining GF trusted U.S. manufacturing capabilities with a leading advanced packaging ecosystem globally, we are expanding into another essential layer of AI infrastructure and supporting the tighter integration of compute, memory and connectivity. We believe we are in the early innings of GF AI data center opportunity underpinned by the critical needs of our customers for higher bandwidth connectivity, tighter integration of compute and memory, greater power efficiency and secure scalable supply. The result for GF, more avenues to win greater content and value in each system and a clear path to growth at a structurally richer business mix.

Let me turn to physical AI as well as the meaningful progress we are making across IP, software and custom silicon or IFC. GF's physical AI opportunity spans a wide variety of applications across connectivity, compute, power actuation and sensing and our IP, software and custom silicon capabilities unlock even more ways for GF to win. We believe the deployment of intelligence into vehicles, factories, robots, drones, satellites, medical devices and other edge systems represents a significant and long-duration demand vector for GF.

Together with the Synopsys ARC processor IP business we acquired earlier this year, MPS expands our role into that of a holistic technology partner, servicing a broader set of customers with our custom silicon platforms. [ MPS ] recently announced 3 physical AI-native reference platforms, focusing on compute, AI inference and real-time control, and we are now working with several customers designing systems focused on physical AI, leveraging our expanded capabilities. The combination of risk 5 compute and AI design capability and AI native platforms based on GF's broad manufacturing capabilities puts us in a unique position to accelerate share gain in this area.

Just over 1 year after we initially acquired MPS, we are very encouraged by the strong customer traction, which is now driving several platform-level wins. During the third quarter alone, we secured custom silicon design wins that totaled nearly $1 billion of lifetime revenue. These included platform wins for our RADAR system on chip and a risk-based processor core designed for real-time control. In addition, we secured a win with a leading provider of high-performance data center computing solutions to design their custom Board management controller system-on-chip, integrating our processor technology with third-party IP.

We also secured a notable aerospace and defense win to support the engine control processor for a leading global aerospace and propulsion company. Ultimately, these wins demonstrate how GF can capture more opportunities and support our customers across the semiconductor value chain, deepen our relationships with industry partners and convert initial design engagements into concrete long-duration growth opportunities.

In summary, the multifaceted progress we demonstrated this quarter shows our strategy in action. We are scaling differentiated technologies into high-growth AI markets and driving meaningful customer value with our capabilities in software and custom silicon. We are transforming GF into a more diversified, more durable and more profitable business, propelled by the defining megatrends of our time.

I'll now pass the call over to Sam for a deeper dive on third quarter 2026 financials.

Sam Franklin

Thank you, Tim. For the remainder of the call, including guidance other than revenue, cash flow and net interest income, I'll reference non-IFRS metrics. The third quarter was a significant milestone for GF, not only for the continued progression in our profitability metrics, but also for the continued mix shift in our portfolio. For the first time in our history, more than 2/3 of our Q3 revenue came from outside Smart Mobile devices, a record for GF and further evidence of our increasingly diversified and margin-accretive mix.

We delivered record non-IFRS gross margin while continuing to fund the strategic investments that will drive GF's next phase of growth. Our strategic decisions are already enhancing our earnings power, and we believe that we're only in the early innings of this evolution.

Now on to the results. We delivered third quarter revenue of $ 1.899 billion, up 6% sequentially and 13% year-over-year. We shipped approximately 647,300-millimeter equivalent wafers in the quarter, up 4% sequentially and 7% from the prior year period. Revenue from manufacturing services accounted for approximately 88% of total revenue. Revenue from Technology Services, which includes revenue from IP licensing, software, reticles, nonrecurring engineering, expedite fees and other items accounted for approximately 12% of total revenue for the third quarter.

As we continue to invest in a broader range of capabilities for our customers, we expect Technology Services revenue will represent approximately 12% of total revenue in 2026, which is at the upper end of the range we indicated and with a gross margin profile that continues to be above our long-term target. Beyond 2026, we expect that the growth of revenue from technology services associated with IP licensing and software combined with strong momentum in customer design wins and tapeouts will be important drivers of GF's revenue growth and gross margin appreciation.

Let me now provide an update on our revenue and outlook by end markets. Communications infrastructure and data center represented approximately 17% of third quarter total revenue. Revenue increased 14% sequentially and 81% year-over-year, driven by robust growth in optical networking which includes silicon photonics and silicon germanium. Not only did Q3 represent record year-over-year growth for this end market, it also marked the eighth consecutive quarter of double-digit percentage year-over-year growth for communications infrastructure and data center.

With accelerating customer demand and improved manufacturing productivity, our expectation is that revenue from communications infrastructure and data center will grow in the range of 60% to 70% in 2026. Furthermore, our design win momentum across this end market has continued to strengthen. In the third quarter, we secured design wins for both silicon photonics and SiGe and a new optical transceiver customer for hyperscaler demand.

In data center power, we take out a smart power stage gate driver on our BCD platform and secured a design win on our 650-volt GaN platform. Automotive represented approximately 19% of third quarter total revenue. Automotive revenue increased 11% sequentially and 20% year-over-year. Consistent with our prior commentary, our expectation is that automotive revenue will grow low double-digit percentage in 2026, marking another strong year of growth for this end market, and GF continues to win with our customers to support the expansion of automotive semiconductor content.

Smart Mobile devices represented approximately 32% of third quarter total revenue, the lowest proportion in our history and a step forward to our long-term strategic goal to enhance the diversification of mix. Revenue decreased 5% sequentially and 19% from the prior year period. Consistent with the commentary from our customers, we continue to expect smart mobile devices to decline by a low teens percentage year-over-year in 2026.

We continue to have a skew towards the premium end of the smart mobile market, and we expect to largely track the broader demand dynamics as the market adjusts to the challenges associated with memory-related supply constraints. The long-term demand indicators continue to be positive. In the third quarter, we secured new design wins across form factors spanning both smartphones and smart glasses. These included additional content wins in mobile power and a first-ever design win for field gauge ICs in premium tier handsets. Customer engagement continues to be strong for GF's differentiated and high-performance RF, power, audio, display and imaging capabilities to service the demand for smart and connected mobile devices.

Finally, home and industrial IoT represented approximately 20% of third quarter total revenue, revenue increased 16% sequentially and 49% year-over-year on broad-based strength across connectivity, tracking and sensing applications. As workloads for edge AI applications continue to grow, alongside the requirement for Bluetooth wireless, cellular and power management components to perform at higher standards, we have seen strong traction with our customers in this end market for GF's highly differentiated platforms. As a result, we continue to expect Home & Industrial IoT to grow in the range of 10% to 15% in 2026.

Looking ahead to the future growth opportunities, the design win momentum has continued. In the third quarter, we taped out next-generation cellular IoT and Bluetooth products on our FDX platform for wireless connectivity. We're encouraged by the momentum we're seeing across the end markets we serve, and believe keep us on track with the strategic diversification objectives that we set out during our Investor Day this year.

Moving now to other key financial performance metrics in the quarter. In the third quarter, we delivered gross profit of $597 million, which translates into approximately 31.4% gross margin, up 540 basis points year-over-year. Q3 gross margin achieved a company record and was at the high end of our guidance range. R&D for the quarter was $164 million, and SG&A was $93 million. Total operating expenses of $257 million represented approximately 14% of total revenue and were up 9% quarter-over-quarter, reflecting recent acquisitions.

We delivered operating profit of $340 million for the quarter at an operating margin of 17.9% at the high end of our guided range and up 250 basis points from the prior year period. Third quarter net interest income was $9 million and other expense was $6 million, and we incurred tax expense of $45 million in the quarter. We delivered third quarter net income of approximately $298 million, an increase of approximately $66 million from the prior year period. Diluted earnings of $0.53 per share was at the high end of the guidance range based on a fully diluted share count of approximately 558 million shares.

Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations in the third quarter was $341 million. Third quarter CapEx net of proceeds from government grants was $205 million or roughly 11% of revenue. Adjusted free cash flow for the quarter was $136 million. Free cash flow in the third quarter benefited from approximately $150 million of customer prepayments and government grants received.

At the end of the third quarter, our combined total of cash and cash equivalents and marketable securities stood approximately $3.2 billion. Our total debt was $1.1 billion and we also have a $1.5 billion revolving credit facility, which remains undrawn. On October 9, we paid a quarterly cash dividend of $0.12 per share. On October 27, the Board of Directors approved a dividend of $0.12 per share payable on January 14, 2027, to shareholders of record as of December 22, 2026. In the third quarter, we also repurchased $100 million of our shares.

Let me now provide you with our outlook for the fourth quarter of 2026. We expect total GF revenue to be $2 billion, plus or minus $25 million. We expect gross margin to be approximately 31.5%, plus or minus 100 basis points, which at the midpoint reflects approximately 250 basis points of year-over-year expansion. Excluding share-based compensation, we expect total operating expenses to be $235 million, plus or minus $10 million. We expect operating margin to be in the range of 19.8%, plus or minus 170 basis points.

At the midpoint of our guidance, we expect share-based compensation to be approximately $68 million of which roughly $16 million is related to cost of goods sold. We expect net interest and other income for the quarter to be between negative $5 million and $1 million. and income tax expense to be between $44 million and $68 million.

Based on a fully diluted share count of approximately 575 million shares, which reflects the expected issuance of equity to the U.S. government, we expect diluted earnings per share to be $0.59, plus or minus $0.05. Subject to the timing of the closures associated with the remaining equity issuances to the U.S. government we expect that our fully diluted share count will be approximately 600 million shares commencing 2027.

Now let me provide an update on some broader financial drivers, milestones and outlook. With respect to pricing, the third quarter saw meaningful blended ASP growth, both sequentially and year-over-year. This marked the first quarter of year-over-year blended pricing improvements since 2023 and is consistent with the commentary we provided on our last earnings call, especially as we execute the continued mix shift of our business.

With respect to tax, we continue to expect a non-IFRS effective tax rate in the mid-teens percentage range for the full year 2026. We Net CapEx for 2026 is expected to be approximately 15% to 20% of revenue, which remains below our long-term model, and we continue to expect free cash flow margin of approximately 10% in 2026.

Touching briefly on the CapEx outlook for the year ahead, we expect 2027 to represent a year of accelerated investment for GF. Throughout the second half of this year, our customers have substantially increased their demand for our differentiated solutions across critical technologies such as silicon photonics, silicon germanium, FDX and advanced packaging.

Importantly, we have the ability to grow our capacity quickly and efficiently within our existing 4-walls manufacturing footprint, resulting in a strong return on investment for new CapEx spending, robust demand and customer commitments form the foundation of our capacity investment principles. As these signals strengthen, we expect approximately 1/3 of our net OpEx in 2027 to be supported by customer prepayments for incremental capacity agreements.

In parallel, we also expect to secure CapEx offsets from investment tax credits and government grant frameworks, including a proportion of the recently announced $955 million repurposing from our previously awarded chips grants.

Against this backdrop of customer demand, prepayments and government support we now expect net CapEx investments of approximately $4 billion into our manufacturing footprint in 2027, while continuing to deliver our free cash generation targets. These critical investments will unlock capacity constraints accelerate future growth and continue to evolve our business into a more diversified, resilient and accretive portfolio.

Our third quarter results demonstrate that GF strategy is translating into stronger financial performance. Importantly, we believe these improvements are structural. Our revenue mix continues to shift towards differentiated high-value technologies and services, while our government and customer partnerships are enabling us to make capital-efficient investments to scale and accelerate key technologies with favorable economics.

All of these drivers reinforce our confidence in the long-term financial targets we presented at our Investor Day. GF today is more diversified and better positioned to capture more value than it ever has been.

In closing, I want to thank our employees around the world for their continued focus and execution. Their work made this quarter's performance possible and gives us confidence in what GF can achieve next. With that, let's open the call to Q&A. Operator?

Operator

Certainly. And our first question for today comes from the line of C.J. Muse from Cantor Fitzgerald.

質疑応答

Christopher Muse

I think one of the key themes from this call is you guys move into a structurally richer business mix, particularly as I think about silicon photonics pulled in by a year. And so I'm curious, you laid out targets of exiting 27% to 35% gross margins, 40% exiting 2 you're raising pricing starting Jan 1. How, I guess, is that portfolio of changes impacting your thinking about your gross margin trajectory into '27 and '28.

Sam Franklin

Yes. C.J., I'll take that one, and then Tim probably overlay some of the strategic dynamics as well. We're really pleased with the margin trajectory. And I think you've seen from us consistently this year, near on 500 basis points of year-over-year margin growth. So if you go back to what we said we were going to do at the Investor Day back in May, we feel like we're doing exactly that mix has been a key component of it. We've also seen some gradual pickup in utilization as well through this year. But fundamentally, it's been driven by those strategic decisions that we've taken over the last couple of years.

And technology services as a percentage of revenue clearly falls through as a richer mix and margin driver as well. That's continued to grow during the course of this year. So on balance, we feel like we're actually hitting that target, and we're well on track to the target that we set out in May. Remember, at the start of this year, we said we wanted to exit the fourth quarter of 2026 with a 30% gross margin handle. We were bumping up on that in our 2Q results, our 3Q results.

Obviously, we've gone through that target we're quite pleased with even where the guidance for fourth quarter, it shows about 1.5 points of growth relative to the original target we have. So very much feel at this point that we are on track to those gross margin goals that we set out earlier on this year.

Obviously, there's still some way to bridge from, call it, the 31.4% in 3Q up to the 40% that we want to exit the fourth quarter of 2028 with -- but that mix dynamic and where we're continuing to invest in those corridors where we're seeing very strong demand signals from customers is continuing to push us in the right direction as it relates to that margin accretion. So no change to the goals that we laid out just a few months ago, but maybe I'll pass it to Tim for some of the other structural and strategic dynamics.

Timothy Breen

Yes. Thank you, Sam. C.J., I think the right way to think about this is we're delivering what we said earlier this year, right? We're winning in those secular growth markets, and we're winning with leading customers who, in many cases, are new to GF. And so the announcement we made just this quarter customers like MPS, customers like TSMC, expanded business with Marvell.

By the way, there are many others that supported our several announcements over the quarter, just tell you kind of the breadth of engagement we have. and that's giving us a lot of confidence to bring those technologies to market, accelerate those brands to accelerate the capacity investments and obviously unlock even more growth through the partnership we struck with the U.S. and Japan. So look, it's been a great period of accelerating our business model and we're very confident in the trajectory ahead.

Christopher Muse

I guess as a follow-up question, could you speak to, I guess, your early look to Q1 seasonality. If I look at it, the implied SMD, you're talking down 22% year-on-year for Q4 and down 40% from your prior peak. And at the same time, CID is tracking 80% implied in Q4. So would love to hear how you're thinking about the March quarter.

Sam Franklin

Yes. Happy to give you a little bit of color, C.J., Obviously, just mindful that we're going to guide 1 quarter at a time. But the way you've characterized it is the right way. And we think that relative to where we said earlier on this year, we're broadly on track with several of those end markets, right? We expected that mobile would be down in the low teens percentage, no change for that. For the full year, 26%. We expected that IoT would be in that 10% to 15% range full year.

Again, no change in automotive, low double-digit percentage growth. That's been a consistent theme for us. So really, the step change has been the accelerated growth that we're seeing in comms infrastructure and data center and the way you thought about it for the fourth quarter is the right way.

Looking out to 2027, obviously, we'll put more color on that when we get to the next call. But just going back to what we said as part of our Investor Day in May, look, I think the general trends are very constructive as it relates to automotive, IoT, remember in that space, we said low double-digit growth is our long-term goal for automotive and sort of mid-teens for IoT. Comms infra and data center is where we think that there's very strong momentum to continue growing.

The target that we put out previously in our long-term model was 30-plus percentage points you can defer from where we reported in Q3 and the direction of travel for Q4 that we're seeing that continued momentum in that space. So I'd say that, that is probably a tailwind going into 2027. And then look, mobile, we've been consistent on the commentary there and largely tracking where we see the rest of the market. So I don't think any surprises on that front.

But hopefully, that gives you a little bit of color as we're thinking about it for the full year, and obviously, happy to give you more color on Q1 when we get to the next quarter.

Operator

And our next question comes from the line of Sahej Singh from Stifel.

Sahej Singh

And congrats, by the way, on the partnerships you've lined up this quarter. I think they say a lot about where Global sits in the AI supply chain. Tim, I guess, thanks for the color that customer prepayments will support roughly 1/3 of 2027 CapEx, I think I heard. And since May, you've sort of talked about customers discussing advanced payments to secure FDX, IFO and silicon germanium capacity. And you've had CPO tape-out in the first quarter and a scale tape-out in the second -- so I guess, even directionally, could you give some color into how much of your 2027, 2028 site-on-site capacity is now under signed commitments? And are those agreements even reaching into 2029 as NPL and CPO potentially come in?

Timothy Breen

Yes. No, thank you, Sahej. So I think the picture is as follows. The acceleration of optical communication is very clear. And I think we're still at the very early ins of that, as you see just optical links replacing copper in all aspects of the data center, just demand is truly skyrocketing. And so we're having those discussions with our customers and lining up the supply they need. We are absolutely booked out through 27, increasingly booked out through '28 and the question for us is how fast we can add more capacity to meet their requirements in '28. And many of them are seeking capacity assurance through '29 and even in some cases, beyond. And I think in every single case, they're willing to put their balance sheet to work to support us in those investments as well.

So it's a very constructive environment in terms of visibility, in terms of demand, and it's really now down to us in terms of execution, right, installing tools, driving productivity. And that's really what you're seeing accelerate our own trajectory even within '26 we're doing better than we expected based on our acceleration of investments and the ability to ramp those tools to production quickly. And that's true across all those corridors you mentioned. And I'd say increasing that will also be true in advanced packaging with some of the interposer work we've also announced.

Sahej Singh

Yes. Thank you for that. I guess interposer work is topical as well. And Sam, thank you for the color on the on the blended ASPs. I guess I'd like to build on C.J.'s question on the margin drivers. Particularly would help us price -- frame pricing specifically. At the Investor Day, you were pretty clear that the bridge to the 40% exiting '28 doesn't embed significant price increases from supply and demand. So now with ASPs up year-over-year for the first time since 2023, should we think of pricing as additive to that to the 40%, I mean?

And then on the TSMC interposer agreement. Thanks for the color that margin set above your long-term targets? And at roughly $400 million a year or about 4% of revenue against 28 consensus. Is it fair to think of that as adding on the magnitude of 50 basis points to corporate gross margins at run rate alongside the 100 to 200 basis points from the U.S. Japan program?

Sam Franklin

So just a little bit to unpack that. So maybe I'll start with the pricing point and then we can talk more broadly around margins -- and look, it's encouraging what we've seen in the third quarter, but also not surprising. We gave the color on this in prior quarterly earnings updates where we said we expected the second half of 2026 to be the point where we lapped some of those pricing headwinds, if you like, that we've seen over the course of the last few years, and that was certainly the case in the third quarter, quarter-over-quarter blended ASPs were up about 2.5%. And for the year-over-year period, they were up almost 5%.

So we feel that across all of the end markets that we operate in now that pricing is a much more constructive demat. But obviously, mix is a key component of that as well. We are servicing a richer mix of demand within the end market portfolio that we have. And so looking out to 2027, like I said, this combination of richer mix and blended ASP mix improvements, points us towards probably about a 10% uplift in blended ASP mix 2027, which I think is consistent more broadly with the market. And it's consistent with what we said we were going to do as it relates to pricing actions as well that we took towards the end of the first half of 2026.

So naturally, that serves as a tailwind. But I would say, Sahej, in the same way that we -- when we see pricing going the other way in prior year, pricing is only one component from the margin perspective. And it's actually a far less impactful component than even the broader mix dynamics are concerned, the utilization, the depreciation, the productivity within our manufacturing footprint. So like I said to C.J., we're not looking to change the targets that we put out there from the perspective of our gross margin accretion over the course of the next couple of years, but you can infer that the decision, these announcements that we've made over the course of the last couple of months, really give us more clarity, more certainty on our ability to hit those targets.

So I'd say no major change on that front, but we're encouraged by the momentum. And naturally, as you would expect, the announcement for the sort of in process with the SMC, when that starts to ramp in the first half of 2028, we would expect that to be margin accretive as well to our overall objective. So the change to the targets, greater visibility, and we think a high degree of momentum to get to those targets.

Operator

And our next question comes from the line of Jim Schneider from Goldman Sachs.

James Schneider

Maybe just sort of building on the theme that's been asked for the last few questions. wanted to maybe clarify more tactically where you see the various moving parts of utilization pricing and mix going into the first half of '27. It seems like, if anything, mix is improving pricing, as you said, is getting better. And then I guess the question is about utilization. And so do you think you're going to be able to maintain sort of at least flattish utilization? Because it seems like given everything that's going on with the smartphone market and it's relatively dilutive margins that mix or gross margins could actually at least stay flat in the first half, if not go up?

Sam Franklin

Happy to take that one, Jim. And look, I think I like what I said around some of the structural drivers that we see across those end markets. And naturally, from a mobile point of view, we think we largely track that market. But the offset that we're seeing in terms of mix benefits from the other end markets or a tailwind from our point of view going into next year. I will say that naturally, there's a degree of seasonality from the fourth quarter into the first quarter, you can see that in prior years.

But given some of the structural shifts that we're seeing within those end markets, we do think that there should be a slightly less pronounced impact from a seasonality point of view fourth quarter into the first quarter. And obviously, I'll give more color around that when we get to the next call. But hopefully, that helps give you a little bit of insight from a tactical point of view. And then as it relates to more broadly and into 2028, like Tim said, and like I said, we think we're increasing our visibility on getting to those objectives that we set out from a margin point of view and really have our eyes set on getting to that 40% gross margin, we think we're making good progress towards that.

Timothy Breen

Maybe, Jim, one comment I'll add is about just thinking about utilization. It's also about flexibility. We spent a lot of time over the last 3 years really investing in our manufacturing footprint to make it as flexible as possible. so that we can respond when one market is weak and one market is stronger, we can respond and use that capacity across where those grow. Obviously, there are always limitations to that, but that's definitely a factor that's helping us overall improve utilization this year and picking up into next year as well. .

James Schneider

That's fine. And then maybe just to clarify, on the smart mobile device market, clearly, there's some correction there for all the reasons that we understand. But I just wanted to clarify, your outlook is unchanged on the full year. So can you maybe characterize where you think the downstream inventory levels stand with respect to component inventories and smart mobile devices and just kind of making sure that you're sort of aligned with inventory levels you can go in terms of unit demand tracking from there?

Timothy Breen

Yes. Thanks, Jim. I think the broader topic on SMB is just how the market is quite bifurcated. I think the high end is not that bad, right, all things considered. Obviously, can weather the memory impacts much more. The low end is much, much worse. Our exposure is much more to the high end of the market. And I'd even say in the current environment, some of the capacity in the industry more broadly is being taken up by other end markets, which actually, in turn, leads mobile customers to come back to us and look for more supply to make sure they have enough to do what they need to build. So I'd say, overall, we're not seeing any kind of concerns from an inventory point of view. Like I said, overall, we're going to track the market going into 2027. But the situation is, that's not as bad as people might think.

Operator

And our next question comes from the line of Mehdi Hosseini from Sequanna International.

Mehdi Hosseini

I want to dive into communication infrastructure. And Tim, can you please update us on how you see the mix between Sifang changing into 2027 and 2028. And I asked the question in this context because last time you highlighted that in '26, SiGe mix is higher than cycle. And again, I wanted to see how that mix is changing over the next couple of years. And I do have a follow-up.

Timothy Breen

No, thanks, Mehdi. I think the story I'd say is very simple. The optical transition is pulling both of them very strongly, and I'd say SiGe is getting in a particular pickup because of the transition to 200 gig per lane speeds, and I think that's going to continue going forward. We've sold out effectively of both. We're adding capacity for both. We have an excellent road map for both, right? And I think our strategy will continue to operate on that basis.

I think both are going to see very strong growth going into '27 and beyond. And like I say, customers are now willing to put their balance sheet to work to help us invest and add capacity, again, both those end markets, so very strong. And you didn't ask it, but I'll answer anyway, the transition to technologies like NPO are going to accelerate that story even further because that requires even higher-performance photonics, but also extra SiGe content as well. So those are tailwinds for the business going forward.

Mehdi Hosseini

I was actually going to follow up on NPL, which is kind of a black box, in my opinion, is more about integration, heterogeneous integration, you have PIC and EIC, which is quite different than dispute components associated with the pluggable transceiver. And my follow-up question for you is how do you see GLOBALFOUNDRIES content changing from pluggable to NPO transceivers?

Timothy Breen

Yes. No, it's a great question. I'd say, overall, a transition from pluggable to NPL and to CPO, by the way, which we still believe will continue to happen. All of that creates a growing content opportunity for us. Because obviously, as you go forward in high performance, the PIC has to do more right in different applications. You have more SiGe content in each of those applications. And then as you get closer to the XPU, you have some of the packaging components be that fiber attach guide away for bonding and so on also play an important role.

So I'd say the opportunity increases as you get closer to the ultimate chip. And therefore, our investments in R&D, building the scale platform and others have really begun to pay off very well in terms of customer interest and traction for long-term road map in those areas.

Operator

Our next question comes from the line of Harlan Sur from JPMorgan.

Harlan Sur

Great job on the quarterly execution. June quarter utilization were in the high 80% range. Did that increase in the September quarter, maybe towards the 90% range. That would imply -- the team still has another 8 to 10 percentage points of utilization increases ahead if that's the case, I mean, by my calculations, you still have roughly about 400 basis points of gross margin improvement in front of you, just from utilization right how much of that potentially gets unlocked in 2027 as manufacturing activity and utilizations continue to increase?

Sam Franklin

Harlan, maybe just to pick up on that, you're right, utilization in the high 80s in the second quarter. Utilization in the third quarter was also in the high 8s. One of the reasons for that is that we've been investing CapEx through this year. We've been adding to the capacity, which in effect adds to that denominator for the purpose of calculating utilization. So you're right, we do still see utilization upside as an opportunity from a margin point of view.

But as you heard on the call, we're going to be continuing to invest in that capacity and really sort of grow the overall corridors where we see strong demand to be able to expand margins from the mix point of view, but also from a utilization point of view into 2027. So at this point, headroom to certainly grow into from a utilization point of view, and we think we're going to keep growing that denominator as we invest CapEx dollars to grow our capacity.

Harlan Sur

Appreciate that. And then for Tim, on the Photonics front, lasers are also in pipe supply, right, in high-quality lasers, very, very tight supply situation. I mean Marvell is paying a healthy premium to acquire Lumentum might partly for the indium phosphide laser portfolio. The GF team has done a very good job in compound semiconductors, right, silicon germanium, you talk about quite a bit. targeted for high-quality TIAs and drivers is a good example. Indium phosphide lasers would also add to your slide capabilities and portfolio as the team -- is the team considering adding indium phosphide manufacturing to your technology offerings? .

Timothy Breen

No, it's a great question, Harlan. And you're definitely seeing a strong interest in that part of the value chain expressed by the transaction you mentioned, but also other investments that we're hearing about in the industry. We're focusing on integration of indium phosphide into our technologies, right?

And I think part of the road map is about having integrated lasers into greater SOAs for future optical applications. By the way, just like we're also investing in novel materials for future enhanced modulation to go to 400 gig per lane and beyond. And so part of remote can test at the silicon level discrete laser manufacturing, not on our current road map. But obviously, we'll continue to be open to opportunities going forward.

Operator

Our next question comes from the line of Joseph Moore from Morgan Stanley.

Joseph Moore

In the last cycle, it seemed like a lot of the focus on wafer securing was coming from automotive. And you had big automotive OEM deals that we're working with GLOBALFOUNDRIES. And obviously, we had shortage of cars that was driven by all of this. And as I look at things now, I mean, your automotive business is doing fine, but I worry about looking at all the capacity going to interposers and silicon photonics and AI. These fabs are getting full. Like do you think we could be looking at another capacity crunch in the automotive space? And I guess, how are you thinking about that? And how are your customers thinking about that? Are you seeing people start to focus on those supply chains in the way that they did a couple of years ago?

Timothy Breen

Yes. Thank you, Joe. It doesn't get as much of a limelight, but I think the sector continues to be advancing forward in terms of automotive that is in terms of its thinking on supply security. We have a lot of conversations with automotive players, not just for like the next 12 months but the next kind of 3 to 5 years.

And for a lot of them, they're very keen also to see that geographic supply diversification as well. And that plays particularly well for us given our U.S. footprint and our European footprint. So I would expect continuous investment, more engagement, more direct business opportunities in auto as well. Many of them are doing that, both OEMs and Tier 1s. And that also plays, by the way, into our custom business where a part of what we've announced in our prepared remarks was progress in things like custom radar, which is another area we're developing further within the platform.

So I'd say automotive continues to be in line with what we talked about at our Investor Day, strong consistent growth opportunity in where GS is really very well positioned to play across multiple technologies and with multiple end customers.

Sam Franklin

And Joe, maybe just more broadly, as you think about some of the CapEx that we've guided to today for 2027, as you'd expect, a lot of that is going into both the silicon photonics, SiGe data center applications. But we're not leaving our other end markets behind and automotive is a key component of that. So as we think about driving towards that low double-digit percentage growth, investing into some of our automotive capacity corridors across the footprint will also feature within that overall $4 billion net CapEx that we indicated for next year.

Joseph Moore

Yes. That's helpful. And in terms of the OEMs, you mentioned, that those relationships are direct. I mean, I feel like that's what's been unique about the last few years is that you're getting automotive OEMs showing awareness of foundry supply chains and things. Is it still -- I guess, are they emphasizing it enough, do you think? And is it still very much a focus on the geographic sourcing? Is that coming from the Tier 1s? Or is that coming from the OEMs?

Timothy Breen

I think it's both. And I think part of it also is increased differentiation. I mean if you look at today's car, the content growth is just tremendously increased over the last years. And all of them have road maps to do more, right, as you move to different architectures, some of that's linked to electrification, but some of it is just linked to performance and feature sets of the cars. I think it's also being led by the more kind of silicon native OEMs.

By the way, I would say, obviously, Tesla, but I would also cite the Chinese players that are increasingly setting the term globally for what the automotive industry used to do in terms of performance. So I just think you've got a much more aware end market, and that creates a lot of opportunities for players like us.

Operator

And our next question comes from the line of Krish Sankar from TD Cowen.

Sreekrishnan Sankarnarayanan

I had 2 of the first one, Tim or Sam, can you give us an update on the silicon photonics competitive landscape? Obviously, there is TSMC tower STMicro or UMC. And also, along the same path, I think the Marvell Lumentum merger highlights one of the best aspects which people worry that you could be into optical transceiver overbuilt in 2028. I'm just kind of curious if you have any thoughts around that, and I have a quick follow-up. .

Timothy Breen

Yes. No, great question, Chris. Look, overall, it's great to see other players believing the same thing, we believe that the optical transition is just getting started, and that's why you're obviously seeing people enter the space who previously weren't very engaged in photonics. We've been doing this for 10 years. We've got a very strong technology road map and positioning.

Today, we've also got a lot of investments beyond the PIK level into the packaging side, which I think will play more and more into those new applications we talked about earlier, like NPO and CPO. But I think perhaps even more important right now is we've got the scalable fab footprint to invest and grow with our customers without adding fab fates for it, particularly for photonics and SiGe, where they need that capacity rapidly. And that's 1 thing they're betting on in terms of coming to GF for more of their capacity.

So I think we feel very confident in our competitive position within that landscape. Look, I view the recent announcement, the Marvell momentum announcement, again, it's a pretty strong endorsement of the optical transition, both betting a bit, if you like, their future on optical, which I think is reassuring. Both, by the way, our close partners with GF would be public about that as well. So we think this is a great opportunity for all of us to do more innovate faster and to grow the business. So I think it's a tailwind.

Sreekrishnan Sankarnarayanan

Great. And then a quick follow-up on the TSMC Cobalt inter-person agreement, it's like a $2 billion manufacturing agreement is any of this flowing through CapEx next year, and will the wafer supply there be dedicated to TSM for the first 5 years? Or do you have flexibility over there?

Timothy Breen

Yes. So it's part of the CapEx that Sam has talked about. So definitely that's included within the $4 billion number that he shared. Look, our strategy in interpose -- it is a critical technology for all forms of high-performance compute, where you're integrating multiple die with HBM and so on. So we've had a road map for some time in that. The TSMC agreement stands on its own, and that's accretive in its own right, but we're also engaging with a number of other customers for future interposer requirements.

And these are getting increasingly sophisticated with integration of deep trench capacities and so on. So I think it's actually a very interesting area that we're spending R&D money and effort to actually build more for the future because it's still in our sweet spot in terms of technology mix.

Operator

And our next question comes from the line of Atif Malik from Citi.

Atif Malik

You guys have been busy with the partnership announcements with TSMC, Marvell, Monolithic Power. To what extent are these partnerships incremental to the long-term model I shared at the Investor Day?

Timothy Breen

I think Sam commented on that a bit earlier. The way I think about it, Atif is that we set out only 6 months ago, a set of strategic goals, which I think are both appropriate for the business and very much strategically align with where we have a right to win. -- and these are evidence points that we are winning in those directions with those customers. So too early to update the numbers of our strategic goals, but as Sam said, all of these give us increased confidence that we're on the right track to deliver and exceed those goals over time.

Atif Malik

Great. And then, Sam, what is the satellite communications exposure within CIB? And what's the gross margin profile? .

Sam Franklin

Look, we don't break out the individual components. I will say that in 2025, we gave a little bit of color around Satcom. We delivered about $100 million of revenue within that component of the end market from relative standing start in the prior year. You've seen publicly, we've made some announcements that associate ourselves with some of those key players within the satellite communications market more broadly.

You've only got to look at lower orbit satellite launches and the continued momentum within that end market to see that it's an important growth vector within comms interim data center for us and look more broadly, this is a technology that we're servicing that demand which is accretive to the long-term goals that we've set out.

Timothy Breen

Let me just add on my side. I mean, I think 1 of the reasons we're seeing strong long-term momentum in technologies like SiGe beyond the data center is actually things like satellite communications, right? When you want to launch satellite 300 miles in space and have a high performance high-bandwidth solution, bringing that bandwidth back to us, you need high-performance RF technologies. We've been doing that for a very long time, and SiGe is getting also traction from those areas as well. So it's very encouraging. .

Operator

And our final question for today comes from the line of Chris Caso from Wolfe Research.

Christopher Caso

My first question is with regard to the CapEx and the $4 billion number you mentioned, it's a big number relative to what you guys have spent in the past. So a few questions on that. One is, if you could discuss given some of the prepayments and credits in that, how much of that is cash out the door from GLOBALFOUNDRIES that would affect your cash flow for next year, just kind of separating out what's supported by others and what you're putting out yourself. And then in terms of when that turns into revenue and kind of the timing of that? And I guess what I'd really like you to answer, which you probably won't, how much revenue gets generated by $4 billion CapEx, but I'll settle for the win.

Sam Franklin

Yes, Chris, I think that we've been relatively under investing from a CapEx point of view over the last, call it, 3 years. If you look at the aggregate over the last 3 years, it's only been a little north of revenue versus what we said previously was targeting a 20% net CapEx to revenue and what we reiterated earlier this year.

So the principal reason for that is the foundation of our investment decisions into capacity is demand. we've seen a step change function in that demand outlook as we go through this year. It's the technologies across Photonics, FDX, Advanced Packaging, SiGe, more recently, what we announced with TSMC on enterprises. So this has been the single biggest change in terms of how we think about that investment into the footprint.

Now our customers recognize that as well. And actually, to Tim's earlier comments, they've been very, very constructive conversations in terms of the prepayment capacity reservation for incremental capacity discussions that we've been having. We expect those largely to close in, call it, the fourth quarter and into early 2027 as well.

And so that $4 billion net number that I gave you, obviously, we don't net customer prepayments from that in terms of how we calculate net CapEx. So think of that as 4 billion net CapEx to GF, but within that $4 billion, we expect that we'll get about, call it, 1/3 of that supported by customer prepayments. You won't see that flow through as a net to CapEx.

But you will effectively see a flow-through towards our free cash flow. And so that's why we feel good about still remaining the targets around our free cash flow margin for 2027. And then look, the other dynamic, as you said, is around government grants and water support framework. If I take the ITC, as an example, that's now 35%. Now we don't get all of that 35% in the year.

In fact, some of what will get us a net to CapEx next year will be from ITC that was accrued in, call it, the 2025 time frame. We will, however, get as an offset to CapEx next year. The government grants that we've announced during the course of this year. Some of that is in relation to quantum computing.

We've also got the $955 million repurposing from the original chip offices. About 80% of that -- we expect we'll allocate towards CapEx. Not all of that will be allocated in 2027 as an offset, but we'll probably get the majority of that coming through. in 2027 as well. So all points towards good indicators from a free cash point of view. And then look, the way we think about the ROI is really a function of payback.

And when you take that combination of the government grant, the ITC, the offset to our overall CapEx burden, we see strong paybacks inside a sort of 2-year time horizon for most of those technologies that we outlined. So it forms an important part of our investment decision-making and given the margin profile and the mix associated with these corridors, we see a strong ROI and a relatively quick ramp to demand and revenue.

Obviously, it's really a function of how quickly you can get these tools installed, qualified and ramped that the beauty of our expansion footprint is that we can do it within our existing 4 walls. So we're not relying like some others are around building incremental product capacity to it, we could do within our reducting 4 walls. So that accelerates the time to revenue as well.

Timothy Breen

And maybe I'll just add. I mean, the way we've been thinking about this is -- it's a unique moment for us to accelerate our business with the participation of our customers, with the participation of government, maintaining a very strong balance sheet, maintaining our free cash flow generation objectives. It's the right way to navigate the current situation that we're in.

Operator

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Chow for any further remarks.

Eric Chow

Thank you very much for joining today. We look forward to seeing you at the UBS conference on December 1. Thanks again.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.