Good day and thank you for standing by. Welcome to the GlobalFoundries' Conference Call to review First Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sukhi Nagesh, Vice President of Corporate Development and Head of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon everyone. And welcome to the GlobalFoundries' first quarter 2022 earnings call. On the call with me today are Dr. Tom Caulfield, CEO; and Dave Reeder, CFO. A short while ago, we released GF's first quarter 2022 financial results press release, which is 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 adjusted non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for adjusted non-IFRS measures are available in today's press release and accompanying slides. I will remind you that these financial measures 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. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements and we undertake no 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 the sections under the caption Risk Factors in our annual report on Form 20-F filed with the SEC on March 31, 2022. We will begin today's call with Tom providing a summary update on our end markets, capacity expansion, and technologies, following which Dave will provide details on our first quarter results and also provide second quarter guidance. We will then open the call for questions. We request that you limit your questions to one with one follow-up. I will now turn the call over to Tom for his prepared remarks.

Thank you, Sukhi and welcome everyone to our first quarter 2022 earnings call. We started the new year building on the strong momentum from last year and delivered records Q1 results that are well ahead of our outlook we provided in February. Amidst the backdrop of sustained and robust demand, our global team 15,000 strong continues to over deliver despite inflationary, geopolitical and pandemic related challenges. This type of execution builds upon itself and creates a foundation of confidence, confidence that we convey to our customers and partners and as a result builds their trust in GF. So a huge, huge shout out to the entire GF team, all 15,000 of you, great Q1. Let's together deliver another record quarter in Q2. In addition to strong manufacturing and operational performance, I am pleased to report that our commercial teams continue to win new, accretive designs with both new and existing customers, customers that are winning in their markets with GF's solutions. We continue to see strong demand across all of our strategic and secular growing end markets with a majority of that demand built upon GF's differentiated process technology. In fact, Q1 single-source wafer shipments grew 48% year-over-year, also and as largely expected. We see some areas of the market normalizing, notably low-end handsets and PCs. As previously communicated, neither of these markets are areas of strategic focus for GF, with the exception of a few applications in these end markets that require unique and differentiated technology. In summary, the demand environment is largely as we expected, and our revenue visibility remains strong. It's backed by multiyear long-term customer agreement. We remain fully sold out in 2022 and 2023 and we are increasingly confident that we can deliver the long-term business model we outlined and articulated in our roadshow. With…

Thank you, Tom. Our first quarter results exceeded the high end of the financial range we provided in our last financial update. First quarter revenue was approximately $1.94 billion, an increase of 37% year-over-year. We shipped approximately 625,000 300 millimeter equivalent wafers in the quarter, a 14% increase from the year prior period. Average selling price, ASP per wafer increased approximately 19% year-over-year, driven by ramping long-term customer agreements with better pricing and overall very constructive transactional pricing environment, as well as continued improvement and product mix. Wafer revenue from our end markets accounted for approximately 90% of total revenue. Non-wafer revenue, which includes revenue from radicals, nonrecurring engineering, expedite fees, and other items accounted for approximately 10% of total revenue for the first quarter, consistent with our expectation. For the remainder of the call, including second quarter guidance, I will reference adjusted metrics which exclude stock based compensation. For the first quarter we delivered adjusted gross profit of $490 million, which translates into approximately 25.3% adjusted gross margin. The 18 percentage point year-on-year improvement was driven by better fixed cost absorption, higher ASPs and improved mix. Approximately 70% of this improvement was attributable to ASP and mix with the remaining 30% attributable to volume related fixed cost absorption. Operating expenses for the first quarter were better than expected and represented approximately 9% of total revenue. R&D for the quarter was flat sequentially at approximately $122 million, while SG&A came in at about $89 million. Total operating expenses were $211 million, excluding $32.6 million of stock based compensation. Q1 total operating expenses increased approximately $17 million from a year ago, largely due to investments in developing new features and IP, as well as customer enablement for our technology platforms. GF delivered operating profit of approximately $279 million for the quarter,…

Thank you. [Operator Instructions] Our first question comes from Harlan Sur with JPMorgan. Your line is open.

Good afternoon and congratulations on the solid results and strong execution by the team. You know, there's a lot of cross currents in the end markets with the COVID supply chain disruptions, as you mentioned some pockets of weakness, but overall it appears that demand continues to outstrip supply across most end markets. So as you guys look at your business, talk to customers given your backlog profile, what are you guys seeing out there? And then it looks like capacity growth target Tom was revised higher to 10% plus for this year? I'm just wondering, does the team also still anticipate 10% ASP growth as well?

Yes, let me let me start David, you could add some commentary. Look I think you said it right. The demand environment is still strong, but I think we have to put this in perspective. We'll talk about the small pockets, I'll reiterate some of the small pockets of softness we're seeing. When we started this year, we had demand that was 25% higher than the capacity we can fulfill. And so we're weighing an over demand situation. So I think holistically for the industry there's not like you're either in supply alignment or you're not, there's ranges of that and we were really as an industry and particularly GF having a lot more demand than we can satisfy. So we don't have high exposure to the PC market. We don't have higher exposure to the low end handset market. So there is a little bit of softening that we are seeing there. We're taking it as an opportunity to close some of that big gap that we started this year with, to feed the customers in a more strategic end market for us.

Yes, let me just add on Harlan. We're expecting total wafer shipments to grow kind of high single digits 10-ish percentage in throughout 2022. And at the midpoint of our guidance specifically for second quarter, we guided up 22% year-over-year. And we're expecting every end market to participate in that growth year-over-year in the second quarter with the exception of personal compute, which we expect to really have drop in the first quarter of 2022 and then we expect it to grow sequentially.

Do you guys still expect ASP -- roughly ASPs to grow 10% this year?

Year-over-year we expect ASPs to grow about 10% year-over-year, correct for the entire year. Obviously, they grew a little faster in the first quarter.

Great and then on my second question, I appreciate the insights there. You know, more specifically on your mobile business, your customers have been impacted by COVID-19 lockdown disruptions. This is impacting the premium end of the market. You've got weak China domestic smartphone demand which is impacting the low end of the segment. So on the strong June quarter guidance, Tom, given the commentary around weakness in mobile, so is your mobile business sustaining sequentially, given the supply demand gap by some of the customers in those segments or is your mobile business weaker sequentially in the June quarter, and it's just the diversification in the business is just allowing you guys to reallocate capacity to your non-auto segments where we know that demand is still strongly outstripping supply?

I think we've got flat in sequentially in the kind of the high end handset in that space. Again, the low end where we didn't have a lot of exposure, we're reallocating. I think you have to think about for us in the mobility space is, one we have high concentration there and that's not as growing as fast because it's such a big base is some of the other important end markets to us. And then the second element of this is, we think about what the new features are, the transition of 5G and how our strong position there. We'd actually get kind of more silicon per handset, and so we have a strong position in these high end handsets typically has handset manufacturers or brands that sell that range will air whatever capacity they have to the high end handset before the low end. And so that's what we're seeing, at least in the demand to us. David anything you'd add to that?

Yes, I think we see a continuation of the first quarter Harlan and that's, in the RF front end module, that's our 8SW RF SOI technology. We're really driving the transition from 4G to 5G there. So we're continuing to see sustained growth in that segment, and particularly in that technology. In the image sensor processor side of the smart mobile devices, that's a space where GF's product solution includes the 22FDX platform roadmap that delivers optimized image sensing at optimal power, as well as some other technologies that are growing pretty significantly on a year-over-year basis. And then finally, we're seeing sustained demand on our specialty power. So that's our Penex [ph] and that's where GF's envelope tracking solutions and 65 nanometer and 22FDX provide real time tracking and increased battery life for 5G sub 6 gigahertz solutions, and really a roadmap to symbol tracking for the millimeter wave in the higher bandwidth solutions. So within smart mobile devices, there are sub segments within that, that are driving the transition from 4G to 5G and that's an area of the market that we specifically targeted that continues to perform for us.

Our next question comes from Vivek Arya with Bank of America. Your line is open.

Thanks for taking my question. There was almost 100% follow through on incremental gross margins for March on a sequential basis, and I'm curious, what specifically in mix help you? And how should we think about gross margin progression for the rest of the year?

Sure. We've talked a lot, especially in the roadshow about our fixed costs footprint and cost absorption. And so, when you have an environment where you have very constructive pricing, you have higher ASPs that are worked in and contractually obligated into our long-term agreements, and then you're taking that same fixed cost footprint, and for just modest increases in cost, producing more units on a year-over-year basis, and that's the fall through that you get So increased ASPs, reduced cost per unit if you will from a fixed cost absorption perspective. And you get this fall through that really is what we talked a lot about in our roadshows for IPOs. So we're executing on that plan. Now, what do we expect going forward from a systemic perspective or programmatic perspective? I think you can expect fall through that's in the 60-ish percent range, that's the kind of variable fall through of the business. And so that's the type of fall through that you can expect going forward, once we fully get our entitlement out of our fixed costs absorption.

Got it, very helpful David. For my follow up, I thought I heard you say, CapEx of $4 billion, I thought it used to be $4.5 billion. So wondering, why the change? What's the implication? Is it just the tight availability of tools? And just how does it impact your growth plans for this and next year?

Sure. So our growth plans for 2022 and 2023 remain on track. I think what we're seeing is a lot of what you're hearing in the industry, and others are seeing across the industry, is that our tool suppliers are on average late, by around 30 days or so. And to put that into some real proof points for you. So to date, we have accepted receipt of about 150 tools, and about 15% of those tools are slightly more than 30 days late. And it's actually gotten a little worse as the year has progressed. So we expect that number to go from 15% to in that 20-ish percent range and so on a CapEx plan of roughly $4.5 billion, you slip about 30 days on that plan on 20-ish percent of your tools and what you'll calculate is something around $4 billion.

Yes and David on the other end of that, is when we built our plans, one, we had our purchase orders in early in this process for this capacity so we're kind of front line. And that's why we're not as impacted to say others may be. And we don't build plans without a certain level of contingency. And we're still, while we've eaten into some of that contingency, this is why we have -- we're confident we'll maintain our projected growth outlook.

Thank you. Our next question comes from Ross Seymore with Deutsche Bank. Your line is open.

Hi guys, thanks for allowing me ask a question. Congratulations on the strong results. I just had a question on the gross margin again, maybe a separate way to ask it. How do you guys or I guess, what was the surprise versus your guide? I know you build in a healthy amount of conservatism and we all appreciate that. But the magnitude of the upside in this last quarter was just so significantly better than we thought. So Dave, I know you gave that 70/30 mix in the drivers before, but that to you guys, what was the surprise?

I think to us what the surprise was Ross was the continued fixed cost absorption. As we produce more units on our existing footprint, we continue to get more and more productive. And the team across the world is just continuing to really execute from a productivity perspective and we're seeing that in our fixed cost absorption. That said, ASPs came in a little bit better, mix came in a little bit better. So I would say from our guidance perspective, everything improved a little bit, but the area that we kind of consistently under call is really fixed cost absorption.

Got it. And I guess just the follow up with sticking to the gross margin line, does this do anything to either accelerate the timetable to your long-term target of a 40% gross margin, give you more confidence in it or potentially even raised where you think that target can be? And I know it's a number of years down the road, but what does the performance you've delivered over the last couple quarters now, due to your confidence in that longer-term target?

Yes, I think I'd reiterate what Tom said in his opening statement, which is really, we have increased confidence in our ability to achieve our long-term targets. I think it'd be prudent at this point to stick with those targets, but we are becoming more and more confident in our ability to deliver those long-term financial targets.

Thank you. Our next question comes from Chris Danely with Citi. Your line is open.

Hey, thanks, guys. I guess just on the end markets, can you give us any sense of Q2 guidance by end market? And I guess embedded in that, you've been posting some pretty nice sequential revenue growth, but it's dropping markedly in Q2. Is that just because of the weakness in handsets and PCs or is there something else going on there?

Yes, I think obviously, we guide at the enterprise level, but when we look sequentially from Q1 to Q2 as well as Q2 2022 to Q2 2021, the areas that we've highlighted for growth this year continue to remain the areas that are driving outsized gains for us. And specifically, I'd point to home and industrial IoT, I would point to comms, infrastructure and data center. And then on a year-over-year basis and a little lumpy, because it's a smaller number, I'd point to automotive. And those segments of the market for us continue to perform. Those are the areas where we feel like we have tremendous differentiation, that we really targeted in our strategic pivot and we expect those areas to continue to perform.

Got it. And I think, earlier in the call, you guys mentioned that a while ago, demand was about 25% higher than what you could fill, how would you rate that metric now in terms of demand versus your planned capacity?

Look I would tell you the following, I would tell you that our book-to-bill ratio is still north of 1 and by the way, it's a lot closer to 1.5 than it is 1. I would tell you that sequentially our backlog is increased 5% and 10% year-over-year. So when I think of getting caught up here, I'd like to believe we are, but those statistics would say not.

Thank you. Our next question comes from Joe Moore with Morgan Stanley. Your line is open.

Great, thank you. I wonder if you could talk to the non-wafer revenue. The strength you're seeing there, you mentioned, expedite fees, I mean is that something that is going to be repeated in the next few quarters? And then is there any other element of those non-wafer revenues that would be potentially lumpy going forward?

When we look at it, non-wafer revenue was about 10% of total revenue in Q1. It was about a similar percentage in the year ago period. We guided it for second quarter of 2022 to be about 8.5% of total revenue. And when I look at the non-wafer revenue line, as you know, it includes radicals and NREs and expedite fees. I would say expedite fees on a year-over-year basis, as well as on a sequential basis, I would characterize it as kind of flattish quite frankly. I would say radical line, that's the line with the most variability is that radical line. And that's really based upon when design wins ramp, when customers can get their design wins to us, when we can get in the queue to manufacture the radicals. So there is a lot of engineering that actually goes into that segment of the process, as well as the NRE line. That's the non-recurring engineering line. So from that perspective, I'd say no real surprises to us on the non-wafer revenue line, either in Q1 performance or in the second quarter guide.

Great, thank you. And then, in terms of, it sounds like you definitely have robust backlog coverage kind of through the year. But a few small pockets, if some of the more negative economic scenarios start to play out and you see those small pockets of weakness in areas like phones get bigger, how quickly, I assume there's a lot more demand for wafers from other markets and talked about autos, you know, the challenges of bringing up capacity, how quickly can you kind of move those wafers over to other markets if that indeed becomes something you need to contemplate? I realize that's not where you are today.

I think one of the biggest elements of our pivot of our company that we talked about in the roadshow in 2018 was not just the markets we focused on, but also to create fungibility in our capacity. It's how we invest, how we think about our capacity. And so it's fungibility and you have corridors of capacity that we could build in more than one location. Within locations, we try to make that capacity, we put on fungible for a couple of different nodes and features. And so the specificity of any given opportunity has to be really what's been taken down versus what is going up, there may be opportunities where the fungibility is not as high as we'd like it to be. But we plan this into our business. It's part of some of the how we manage supply chain, both globally and locally, is to create capacity that we can we can find it's not just a one for one substitution of a particular node with a particular feature.

Thank you. Our next question comes from Chris Caso with Raymond James. Your line is open.

Yes, thank you. A question about some of the capacity additions in the context of what you said about the auto market and that revenue being lumpy because you're still in the process of adding capacity or could you give us some sense of in which end markets we expect capacity expansion to be the greatest over the next few quarters to imagine that, the comments that you have about the end markets you expect it to grow this year should be paired up with the areas and the processes in which you're going to begin some investment capacity this year?

Sure, well, as we've stated, we've got a CapEx plan of about $4 billion this year. I'm going to use some rough and tough numbers there, but about half of that CapEx is really related to our module 7, 8, in Singapore, that the 450k annual wafers that we're bringing online towards the end of this year, but really starting to start producing some real revenue next year. That facility, it will deliver 40 nanometer all the way up to 90 nanometer. It's a sister facility to the one right next to it and so it helps free up some bottleneck capacity in its sister facility. So you're going to see investments in those specific corridors. We've got investments in the 22FDX corridor, which is significantly oversubscribed. And we're also increasing capacity in our FinTech corridor. So I would say if you looked at that $4 billion, I would say it's, I would say skewed a little bit more heavily towards 22 through 65 and then of course, some capacity increases all the way down at 12 nanometer in the FinTech corridor, as well as some higher technologies that are specifically asked for from the market.

Yes, let me make a little bit color around that, too. I think it's worth noting. GF does not put capacity on for GF. GF puts capacity on or our customers. So when you think of our market intention, these growth markets that are attracted to us, we lined up not only our capacity, but we lined up our long-term agreements to that capacity. And so you're absolutely right, it's all self fulfilling, where you hear us in these end markets where we have secular growth or that we've concentrated on. That's where we have capacity. That's where we've signed up customers long-term agreement, because that's the capacity our customers want. It's not capacity we put on for GF.

Tom, that's a great point and it's worth noting now that our customers have now signed up for more than $3.5 billion of customer funding, that's pre-payments and access fees specifically to bring online that capacity that they desperately need.

That's helpful. Thank you. As a followup, I wonder if you could address some of these issues of what's been referred to as structural underinvestment in the non-leading edge nodes. One of your customers was referring to that last night. And I guess we've been hearing it for a while time, Tom, you've been talking about that for a while about structural underinvestment. Is there any way to put any numbers on that? And I think in the context of people being worried about the macro conditions and end demand, getting a sense of what the real gap is between supply and demand in the markets you serve would be helpful?

Yes, I think first let's talk about the capacity that's being put on in the segments we play and just to make it simple, let's say 12 nanometer and above. When we look at how we see the market growing in the high single digits, and when we look at capacity, that's not only been announced, but you actually see kind of activity going on, we think capacity is not, is maybe matching the kind of growth rates we want in an industry. But that doesn't account for the fact that there's still a big gap. And I think that's why you hear about continued underinvestment and it's going to take a while to balance all of this. I think that puts a little bit of resiliency in our business against any temporary softening and from a global macro event. But we do not see in the areas we play a large amount of capacity being put on relative to closing the gap to the demand and growing with the demand. And Dave, maybe a little bit on that IDC report you were just looking at?

Yes, that's right, Tom. Like, it's not just us that see the data the same way. I think IDC recently released a report maybe in the last couple of months that show kind of the long-term utilization of the industry. And I think depending on which year you look at, and it goes from 2021, all the way through 25. I think the lowest utilization rate was something like 96% and I think it went all the way to 105% over demand or not enough capacity. And so, it's not just you have to see it this way, this kind of structural mismatch or matched at best, I think there's others in the industry that are seeing similar things.

And you know, some of the lumpiness of capacity in the past was off a smaller base. So when you added incremental capacity, it meant much more to capacity when we get to the industry to the size we are today, the incremental capacity is not as significant until this idea of we have to build a certain increment. It makes it a little bit more than you need and has to get digested in demand. The bigger we grow as an industry, the less that you'll see that phenomenon.

Thank you. Our next question comes from Mehdi Hosseini with SIG. Your line is open.

Yes, thanks for taking my question. I'm just trying to better understand how the mix is impacting your top line and gross margin. And to that extent, if your ASPs were up by 28%, year-over-year and 5%, Q-over-Q can you perhaps qualitatively or quantitatively helped me understand how these ASPs been impacted by the change in the mix?

Dave, you go first and then I'll add a little.

Sure. One, let me just provide some clarification. ASPs year-over-year we're up 19% and volume was up 14% and that's specifically first quarter 2022 to first quarter 2021. And when we look at our ASPs, I think really the underlying question that you're really getting at, and I'm going to infer a little bit here is gross margin. And really, when you look at ASPs and gross margin, what you're really asking is, how differentiated is your solution, because the more differentiated you are, the more value that you create, well then the more value that you can capture. And so, I think there are -- we don't specifically guide by end market segment profitability, but I do think that you can look at some milestones, you can look at some proof points, and you can point them directionally towards increased profitability. I think one would be single source design wins and single source revenues. So as Tom mentioned in his commentary, single source revenue grew year-over-year, that's Q1 2022 to Q1 2021 48%. So single source revenue is about two thirds of our total GF revenue, single source design wins, about 80% of our design wins are single source. And so regardless of which technology platform you're looking at, for GF, whether it's FDX, or SiGe, or RF SOI and the other platforms that we have, the more content, the more value that GF brings, the better the ASP, the better the gross margin. Tom, is there anything you'd add to that?

Yes, that's exactly where I was going to go. I think this idea that the leading indicator is design wins and that's running at an 80%, at least it was when we talked about in the roadshow last year. And now you're starting to see the revenue flow through to that higher bar of single source business, which is typically our bread and butter in our more accretive business.

Okay, actually, you framed my question better than I could have framed it. And the point here is the value created and that's the some of the specialty substrate that you offer your customer and you're a single source. So as I look into next year, that mix probably would increase, SiGe would increase, maybe some silicon photonics would start materializing. And I think that's when the concern over excess supply for box silicone at or above 12 nanometer would go away, because it's just a mix shift that is going to accelerate into next year. Is that the right way to think about the model?

Yes, the way that we think about our model is, we want to bring differentiated solutions to the marketplace and we believe we have some real franchises that are differentiated. And so as our single source business grows, as our design wins grow in single source, we drive a higher penetration of single source through our business that becomes more accretive to that. And then of course, we take those higher ASPs and that higher value creation, and we spread them over the same fixed cost footprint, which enables us to get fixed cost absorption, which creates the confidence that we have in our model and our confidence that we can deliver our long-term financials.

Thank you. Our next question comes from Matt Bryson with Wedbush Securities. Your line is open.

Hey, thanks for taking my question. I want to touch upon, I think something Mehdi was asking about and also Chris. In terms of new technologies, with FDX was it always the plan to start second corridor in Dresden or did you pull that forward? It sounded like there's more demand there and potentially that's a greater portion of your mix moving forward than you might have planned. And am I right in assuming that it at least has some positive implications for margins? And then similarly, when you're talking about silicon photonics and revenue doubling this year, is there a point where you see silicon photonics becoming a meaningful portion of revenue? And then again at that point, am I correct in assuming that it has some positive implications on the gross margin side? Thanks.

Yes, let me start, Dave and you can add. Let's start with the silicon photonics. We have a healthy market share in silicon photonics to about a $250 million segment and we see that growing to $2 billion or so over the next five years. And if anything, we see more market share in that, and that's not less. And so, that is an opportunity for us for both growth and more differentiated, profitable growth. You said about FDX and moving the corridor is actually it is from Dresden to New York, it's not the other way around. And you see that was always the plan. But our strategy for the company is for wherever it makes economic and capital expansion sense, to have at least two sites be able to build the same type of capability. And so, we always had a plan somewhere we would want to put 22FDX. The question is, at any given time, where's the right place to put that. And today, our Fab 8 facility represents a great opportunity that that's used the lithography capability that defines the features of the technology, it's the next best place for us to put and build that second corridor here. And so we -- when we think about it, again, it's not just, hey, we need capacity, we think about it in a thoughtful way where we can have our supply chain balanced, and we leverage our assets around for fungibility and to give our customers second sourcing within a single source.

Yes, I think I'd just add that our FDX platform is an SOI platform that's also similar to kind of our RF SOI platform. Those are two platforms for us where we have real franchises. We are increasing capacity pretty significantly in the future on FDX to be able to satisfy the demand there. And then as Tom mentioned, on the silicon photonics side, we have the majority share in that market. We're the only one with a monolithic, integrated solution in that space and we have the majority share in roughly what's a $250 million market today. And we expect as that market grows to roughly $1 billion by 2026, we expect our share to still be a majority share, if not higher than where it is today. So with the customers that we're engaged in, in that space, we're optimistic not only for FDX, but also for silicon photonics for the future.

Thanks.

Our next question comes from Krish Sankar with Cowen and Company. Your line is open.

Yes, hi. Thanks for taking my question. Tom, I just had a big picture question first. You have been in the semiconductor industry long enough and you've seen many cycles. So let's just assume there is a macro correction or recession. I'm kind of curious where will we see it first in GlobalFoundries business, would it be smartphones, auto, IoT, where would you see it first? And then I had a followup.

Yes so, we never get into debate will it be or won't be a cycle. I think we could talk about the cycles. If it is, it is going to be a macroeconmic driven event. It's probably going to be shorter in duration and less in-depth given how it tied semiconductor to the world economy. I think, well you're going to see first would be consumer led, it would be a consumer led event for a macroeconomic event and then it would be consumer led on the semiconductor side. And I think that touches a lot of the end markets we spoke about.

Got it, got it.

And if I could just chime in. When I think about future visibility, because there's an element of this question that when I did it I think about future visibility, they will, 2022, you know, Tom mentioned that lead times extended sequentially, they've actually extended year-over-year and sequentially book-to-bill closer to 1.5 than it is to 1. And then of course our LTAs which we continue to sign and renew and our customers continue to provide funding and their balance sheet, access to their balance sheets to put capacity on more than $3.5 billion now of their balance sheet at work to be able to deliver capacity increases that the market needs. And so, I look at this environment, and I think, our visibility has never been stronger. I look at the customers and their engagement with us on increasing capacity. And I'm just really encouraged by the single-source design wins and the partnerships that we have with our customers across all of our technology.

Which manifests itself if we have to deal with a macro event and some softening industry, we'll be able to work in a partnership with our customers on how we get through it together.

Got it, got it. Super helpful Tom and David. And this is a followup. Some of the foundries have spoken about raising prices for next year and given the size of your completely sold out your LTAs and you spoke about the pencils, and he who brought the peers, how should we think about pricing for GlobalFoundries in 2023?

David, you start and I'll add.

Sure. As I just mentioned we have incredible visibility into 2023, really on the back of those LTAs that we've signed, I think more recently, we've seen actions in the market by some of our peers to increase prices specifically related to inflation, for example, that's something that we've started speaking to our customers about, in early Q2, and we've been working with them on passing through inflationary costs, so that they have time really to prepare to pass them on to their end customers as well. Again all centered around this partnership, they've bet on us with their single-source design wins. And we're working in partnership with them to pass through some of these inflationary pricing and our contracts allow for that. Tom, anything you'd add?

Yes, I remember how we got here. We talked about why was 2022 the year where you'd see the higher ASPs. It was because we were striking those deals in 2021 and we wanted to give our customers a chance to balance their business to accept that. And this is no different here because we're passing along these inflationary pressures, we're doing it in a way to give our customers the chance to mitigate it in their own P&L. So I think that's the way you should think about pricing. We had a step function increase in pricing, and then the passing along of inflationary increases and I think the market broadly has kind of communicated that those inflationary increases would be somewhere between 5% and 10%.

Thank you. Our last question comes from Raji Gill with Needham & Company. Your line is open.

Yes, thank you, and congrats on the good results. I appreciate you kind of providing some commentary about the inflation and what that impact will be on your revenue. I think you said less than 2%. I'm just wondering if, what are the assumptions and how you are kind of getting to that number? I would assume it's based on obviously, your long-term agreements, and then some sort of analysis based on those agreements. But just curious how you're kind of coming to the conclusion that if there is kind of persistent inflation, you have like, less than -- around a 2% impact on revenue?

Sure Raji. When I mentioned 2% of total revenue, it is really the impact on the P&L itself. So in other words how much impact would that have at the margins at the bottom. And so really, we were just communicating that, as we had set up all these LTAs and contemplated these contracts, we were working in the background to lock in the materials at fixed volumes, fixed prices. We were working on variability in our labor pay, and of course, we were hedging against some of the commodity exposure that we have on input prices, into your energy sources. And so from all those things, we believe that the inflationary pressures in 2022 will have a very minimal impact on our net P&L by the time you get to the bottom line. So that was what we were communicating with that statement in our prepared commentary is minimal impact from inflation, inflationary pressure on our bottom line in 2022.

And that doesn't take into account passing any of that.

That does not take into account passing any additional inflationary increases on to our customers.

Right. I think it was an important point to make to try to address some of those investor concerns. And just my follow up in terms of the gross profit fall though, there was a question from a previous analysts, that there was 100% gross profit fall through from Q4 to Q1. It looks like there's going to be about an 81% gross profit fall through into Q2 based on the guide and you are kind of saying, kind of moderating around 60 [ph] years. Just curious when you're looking at kind of the 60s number does this kind of I guess factor in obviously your ASP agreements? You have a certain level of fixed cost absorption or mix shift what would be kind of the upside drivers to that 60% gross profit falter because you've been exceeding that the last couple quarters?

Thanks Raji.

The 60-ish percent number that I gave you is really a steady state number. So that's over time you can expect essentially variable fall through which ranges between 60-ish and 65%. I think near-term kind of quarter-over-quarter, right, we've talked about this fixed cost absorption and where you can increase capacity and output significantly at a facility. I think Dresden, Germany would be a great example, you can increase output from a facility in a very meaningful way, with a very minimal amount of input cost into that process. And so that's what's leading to the more near-term fall through. And then of course, over time, the steady state number that I was quoting kind of 60-ish, 65% that's the type of variable fall through that you can expect once we hit steady state.

Thank you. I would now like to turn the call back over to Sukhi Nagesh for closing remarks.

Thank you, Sharon. Great, thank you everyone for joining us this afternoon. We look forward to meeting you on the conference circuit this quarter. Have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.