Thank you for standing by, and welcome to the GlobalFoundries conference call to review Second Quarter of Fiscal 2025 Financial Results. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Sam Franklin, Vice President, Business Finance and Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries' Second Quarter 2025 Earnings Call. On the call with me today are Tim Breen, CEO; Niels Anderskouv, President and Chief Operating Officer; and John Hollister, CFO. A short while ago, we released GF's second quarter 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 available in 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 tense. 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 filed with the SEC. In terms of upcoming events, please note that we will be participating in fireside chats at the KeyBanc Capital Markets Technology Leadership Forum in Deer Valley on August 11; The Deutsche Bank Technology Conference in Dana Point on August 27; and at the Goldman Sachs Communacopia and Technology Conference in San Francisco on September 8. We will begin today's call with Tim providing a summary update on the current business environment and technologies, Niels will then discuss our recent design wins, highlights and traction across the end markets, following which, John will provide details on our second quarter results and third quarter 2025 guidance. We will then open the call for questions with Tim, Niels and John. [Operator Instructions] I'll now turn the call over to Tim.

Thank you, Sam, and welcome, everyone, to our second quarter 2025 earnings call. I'm pleased to announce that GF delivered strong financial results in the second quarter that exceeded the guidance midpoints for revenue, gross margin and operating margin. Earnings per share exceeded the high end of our guidance range, and these results reflect our continued focus on driving profitability through the cycle. We also made notable progress on other key financial metrics in the quarter, generating $277 million of adjusted free cash flow. Having recently implemented several capacity expansions in capital-efficient manners, GF is poised to capture growth opportunities across our footprint as demand accelerates in critical end markets, while continuing to deliver robust adjusted free cash flow. Thanks to the team's excellent execution, we remain on track to generate over $1 billion of adjusted free cash flow in 2025. In the second quarter, we continued to demonstrate excellent progress in high-growth markets where both the edge and cloud AI transitions are driving the need for secure, high-performance GF technologies. Both our automotive and communications infrastructure and data center end markets demonstrated double-digit percentage year-over-year revenue growth for the third consecutive quarter. As the demand for our differentiated product portfolio aligns with the increasing requirements for high- performance chip solutions in these growth markets, GF is delivering strong design win momentum with existing and new customers. For our automotive and communications infrastructure and data center end markets in 2025, we expect year-over-year growth in the mid-teens and high teens percentage ranges, respectively. Meanwhile, the smart mobile devices and home and industrial IoT end markets have continued to experience a slower recovery as uncertainties brought about by the broader geopolitical environment and global trade tensions have impacted consumer demand and inventory dynamics in these two end markets. To that end,…

Thank you, Tim, and welcome to everyone on the call. As Tim mentioned, we are continuously advancing our commercial partnerships and securing design wins with our customers, of which over 90% were awarded on a sole-sourced basis during the last 4 quarters. Our unique and varied technology portfolio continues to fuel strong design win momentum across each of the end markets we serve. In the second quarter, we secured nearly 200 design wins across our end markets, a new quarterly record and almost double the number from a year ago. With that, let me walk you through the key highlights for the quarter by end market. In automotive, we continue to outgrow the market and capture share as we expand our breadth of offerings in content per vehicle and enable our customers to win with GF's differentiated features and performance. A testament to this strength in the second quarter, our automotive end market grew over 36% year-over-year and comprised nearly 1/4 of total wafer revenue. We're on track for mid-teens percentage automotive revenue growth in 2025. Our leadership in automotive microcontrollers has driven our strong partnerships with customers around the world. We have gained significant design interaction with China domestic fab-based customers, having secured design wins across battery management systems, radar, microcontrollers and power management ICs with a dozen customers over the last 4 quarters. GF automotive products are already shipping to Chinese customers, which will help expand our automotive market share in China. More broadly, we're seeing accelerated design win traction across our portfolio of diversified applications within the automotive. In the second quarter alone, we won designs with 25 unique customers. These include wins across automated driver assist processors, some controllers, display controllers, radar sensors, battery management systems and interior lighting on our 12LP, 22FDX and 130BCD AutoPro…

Thank you, Niels. For the remainder of the call, including guidance, other than revenue, cash flow, net interest income and second quarter CapEx, I will reference non-IFRS metrics, which are included in today's press release and accompanying slides. As Tim noted, our second quarter results exceeded the midpoints of the guidance ranges we provided in our last quarterly update. We delivered second quarter revenue of $1.688 billion, which represented a 6% increase over the prior quarter and an increase of 3% year- over-year. We shipped approximately 581,000 300-millimeter equivalent wafers in the quarter, up 7% sequentially and up 12% from the prior year period. ASP or average selling price per wafer was down high single-digit percentage year-over-year due to product mix, pricing adjustments and a reduction in customer underutilization payments from the prior year period. Wafer revenue from our end markets accounted for approximately 90% of total revenue. Non-wafer revenue, which includes revenue from reticles, nonrecurring engineering, expedite fees and other items, accounted for approximately 10% of total revenue for the second quarter. Let me now provide an update on our revenues by end markets. In line with our strategy, we continue to align our business to secular growth drivers and diversify our end market position. Smart mobile devices represented approximately 40% of the quarter's total revenue. Second quarter revenue increased approximately 17% sequentially and decreased approximately 10% from the prior year period. In the second quarter, revenue for the home and industrial IoT markets represented approximately 18% of the quarter's total revenue. Second quarter revenue decreased approximately 9% sequentially and increased approximately 2% from the prior year period. Automotive remained a strong growth driver for us and represented approximately 22% of the quarter's total revenue. Second quarter revenue increased approximately 19% sequentially and 36% from the prior year period.…

Thanks, John. At GF, our unwavering commitment is to serve as a trusted partner to our customers with our broad suite of differentiated essential chip technologies, and I'm encouraged by the ramp in the design wins, including many in exciting new applications that support the megatrends that will pull our industry into the future, including the permeation of AI, the criticality of power and the transition to next-generation connectivity, all areas perfectly aligned with GF strengths. In addition, our unique and flexible global capacity not only ensures supply resilience and flexibility, it allows us to be wherever our customers need us. Our targeted China manufacturing strategy completes this picture and enables us to participate in growth across the industry. Overall, we are confident in our rock-solid foundation and long-term growth prospects of our core business. but we don't plan on stopping there. As our customers look for more technology solutions to enable their own success, we will expand our portfolio with acquisitions such as MIPS that bring critical capabilities to accelerate our business in the AI transition. None of this will be possible without the dedication and hard work of our employees. I'm looking forward to what we can achieve together. With that, let's open the call for Q&A. Operator?

Certainly. And our first question for today comes from the line of Joseph Moore from Morgan Stanley.

Great. With regards to Q3 I understand the headwinds you guys are talking about, but it looks like some of your foundry peers are guiding a little bit more optimistically. Can you just talk about what types of headwinds you're seeing? And how much follow through there may be beyond the third quarter?

Yes. Sure, Joe. This is John. I'll take that one for a start. So our base case for the year remains growth in fiscal 2025. Tim and Niels touched on it some in the prepared commentary, but just kind of breaking that down by end market, we expect solid growth in both automotive and communications infrastructure and data center end markets for the year at mid-teens and high teens, respectively, for both of those end markets. We do expect smart mobile to be down for the year and IoT to be modestly down for the year as our consumer-facing end markets in those areas are managing inventories as we work through the year. On the third quarter, in particular, on the automotive end market, we expect year-on-year growth in automotive for the third quarter. We do have a certain customer who is managing inventory toward the end of year for final deliveries in 2025. So that is -- we'll have our automotive down slightly in the third quarter. We do expect smart mobile to be up again sequentially in the third quarter. So that -- there's some overall commentary on the trends for the year on top line growth.

That's helpful. Thank you. And then for my follow-up, I wanted to explore the China-for-China strategy a little bit. Can you talk about who are the sort of partners that you're working with there? Is that -- it seems like that's interesting to a lot of people. Is it the sort of Western auto OEMs? Is it Western semiconductor companies? Is it Chinese companies? Just who is kind of going to be your lead customer as you start to manufacture in China through this partnership?

Yes. Thank you, Joe. This is Tim. It's a great question. I mean our customers have been telling us loud and clear what they need and take for now our non-China customers as one group. For their non-China demand, very clearly, they're not sourcing. In China, their strategy is to remain sourcing globally, and the GF footprint is well suited for that. But for them and especially for those who focus on the automotive end market, they get significant interest from their customers in China to localize a portion of that manufacturing. And so those have been the driver customers for us to work with them why we've been focusing on those specific customers and the specific technologies, microcontrollers, BCD for power management and those kind of applications, very focused on automotive. So that will be the first wave of these transfers. What's interesting is once we announced that, we actually started to get a significant amount of interest from Chinese customers. And what they're looking for is the reverse, but also the flexibility that this optionality provides. So sourcing locally with us in China with our manufacturing partner, but then also serving their non-China, non-Taiwan demand outside China. We actually have design wins in flight right now with Chinese customers for global sourcing, given many of these companies have strong export ambitions. When you net it out, this is why we've been quite clear that for us, China is more of an opportunity than anything else given the differentiation that we have and this unique ability to offer that flexibility.

And maybe if I can just add to that, Tim. Really the advantage here, both for the international customers as well as the Chinese customer is they can do one development, one tape out and take care of both the China market well as the non-China market.

And our next question comes from the line of Harlan Sur from JPMorgan.

Utilizations were around 80% in Q1 and with the growth view -- and that was with a growth view for the full year 90 days ago, I believe team was anticipating taking utilizations up through the year. What were utilizations in Q2? And with just a slightly more muted second half outlook, how is the team thinking about utilizations as you move to the second half of this year?

Harlan, this is John. I'll take that one. So you're right, utilization was around 80% in the first quarter. We did progress into the low 80s in the second quarter with an uptick in wafer volume to 581,000 300-millimeter wafers. And we do see that progressing a bit further as we move our way through the second half of this year into the low- to mid-80s, and that is part of where we see the opportunity to expand our gross margins as we move into the end of the year.

I appreciate that comment. So with utilizations looking like they'll be up slightly in the second half of the year, I know you guys are working with your customers, maybe taking down some ASPs for some extensions on sort of lifetime volumes. So kind of prudent moves with some of your consumer-focused products. I think the prior view by the team that you were pretty confident in driving full year growth and exiting the year on -- with 30% gross margins. But given all of these dynamics, including slightly weaker second half profile, how should we think about the gross margin now exiting this year? Any way to kind of quantify that?

Yes, Harlan, John, again. So first, we delivered on our second quarter gross margin at 25.2%. That was above the midpoint of our guidance range. And for the third quarter -- well, I'll also point out that the second quarter year-on-year compare, if you take into account the fact that we had significant underutilization payments in the second quarter of 2024, was up significantly on a comparative basis in the second quarter of 2025. As we look ahead for our guidance, we do see gross margins expanding to 25.5%. That's up sequentially and year-on-year. So we're making progress on our gross margin improvement. The outlook for the rest of this year would be driven by several factors. One is richer mix in terms of our products as we move into the fourth quarter, a bit of improvement in utilization, as you indicated, as well as some further roll-off of our depreciation in the fourth quarter. And finally, we anticipate strong non-wafer revenue performance in the fourth quarter. Those factors together should deliver significant improvement in gross margin as we move through the fourth quarter.

And maybe, Harlan, since you brought up pricing, I'd like to kind of make a few comments about that. So overall, for the whole enterprise taking 2025 as a whole, on a like-for-like basis, we'll see ASPs down mid-single digits. But if you look at where that's happening, that's very much confined to that smart mobile device segment. And within that segment, very much confined to those customers with whom we have a dual-sourcing arrangement. And we've been very deliberate in thinking through both for the short term but also for the long term, what's the right strategy for GF in terms of supporting that customer and maximizing our share, again, not just for revenue today but also for the longevity of those sockets. So we've been very deliberate. By the way, if you exclude those impacts, then like-for-like pricing for the year for GF will be less than 1% down. So I think it's very fair to conclude the pricing environment overall is very stable, except for these areas where we're making these decisions deliberately in partnership with our customers.

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

I was wondering if you can maybe sort of comment on sort of the inventory levels at your customers that you highlighted in prepared remarks, and especially in IoT and smartphones, would you expect those to be at normal levels in Q4? Or could it take a little bit longer than that?

Yes. Thank you, Jim. I'll take a stab at that. I mean, if you take a big step back, right, if you look at the last 3 years, really '23, '24, '25, we've been closely monitoring inventory as a kind of long-term predictor of health of where we are in the cycle. And obviously, that's been a long duration, but inventories have, in all sectors come down materially. It hasn't always been smooth. And if you look at some of our customers reporting in Q2, there are some others still to report. But you saw actually some small, I'd say, modest upticks in inventory. That tells you something about kind of demand dynamic. And again, I'd say, particularly in the consumer-focused segments where there has been more demand uncertainty as we commented. I think overall, we continue to see the trajectory of inventories normalizing, and actually, we hear from customers that downstream of them, inventories could even be too low, right? And they see some pockets where there could be some tightness that could lead to some demand spikes in the future. So we continue to monitor this closely. It's difficult to call, but we see we're coming to the end of that inventory digestion long period over the last couple of years.

That's helpful. And then as a follow-up, can you maybe just kind of expand on the MIPS acquisition. What is the strategic importance of that acquisition for you? What customers did you kind of consult with in terms of before you announced that acquisition? And maybe talk about are there any different revenue models you expect to recognize as a result of that?

Yes, I'll take the first crack and then I'll ask John to add a little bit on the financial model of MIPS and MIPS type businesses. Obviously, we're very excited about this acquisition. It's a great fit for the GF portfolio. And there's a couple of reasons for that. MIPS has a long track record, a fantastic leadership team, really cutting-edge IP in processes. There are really some strong advantages around multi-threaded cores, software and subsystems, particularly targeted that physical AI space. And if you listen to industry pundits, people talk about things like everything that moves will be autonomous in the future, we strongly believe that. And MIPS is extraordinarily well positioned to capitalize on that from an IP perspective. So we love the business. We love what it can do, and it's a strong fit for GF customer base. And actually, the overlap of customers is very, very strong. In fact, many of GF's leading customers are already engaged with MIPS or, in some cases, have reached out post the acquisition to say, listen, let's explore, let's do more together. So we think of this as a way to accelerate our customer engagement to deepen it in new ways and to also increase our differentiation. And it has the added benefit of with an in-house team like MIPS, we'll get an in-house customer, if you like, for our technologies that's giving us real-time feedback on performance so we can continue to tune our technology platforms for the edge AI applications in order to be the best we can be for those platforms. Maybe I'll ask John to comment a little bit on the financial model.

Yes, sure, Jim. So we see this as -- on a full year run rate basis in the neighborhood of $50 million to $100 million addition of top line for GF. That's very exciting. Really happy to see us get this acquisition completed. This will be IP-based, high-margin revenue stream for us, which over time can lead to greater hardware sales as well. And we see the revenue opportunity over the coming years getting into hundreds of millions of dollars of incremental revenue for GlobalFoundries again, which would be accretive to our gross margin.

And our next question comes from the line of Ross Seymore from Deutsche Bank.

I just wanted to pivot back to answer, I think it was John that gave to an earlier question about a couple of things. Specifically, you said the base case remains for growth in revenue this year. And then you also mentioned non-wafer revenue as part of another question, as being strong this year. Could you clarify a little bit on those? And then I guess what I'm really getting at is, it seems like given your second quarter guidance is a little bit more cautious for a number of reasons. It seems to imply a big fourth quarter and wondered if that's incorrect read and if it is, why is the optimism kind of changing versus the third quarter?

Yes, Ross, this is John. You are understanding us and you got it right, the base case is for growth this year. And we do see a strong fourth quarter outlook for our non-wafer revenue, and that's really driven by NRE programs as well as tape-outs, strong tape-out quarter, is anticipated in the fourth quarter, which is a great precursor or leading indicator for hardware sales going forward. So that's what we see for the fourth quarter. And as we indicated, particularly in the automotive end market, year-on-year growth in the third quarter, but we do see it modestly down sequentially in the third quarter as certain customers are managing their inventory to the end of the year.

Got it. And then I guess on the tariff side of things, and I know this is nobody's crystal ball is particularly that good in this, but you guys talked about a little bit of caution. You have your China-for-China strategy. To the extent you sell the pull-ins, was that something -- I would have thought the pull-ins would have potentially led to upside in your business in the second quarter, and you had a fine quarter, but it didn't seem to upside that much. Is the worry that there was some pull-ins inherent in your original guide, and that's where the conservatism comes going forward? I just want to get a little more color on where you saw pull-ins in the duration of that headwind.

Yes. Thank you, Ross. So I'll comment on this. And I think we haven't seen very significant direct pull-ins at our level, right? And we haven't seen those orders change in a material way in Q2. Obviously, our customers have talked about some of their own dynamics and each one has had a bit of a different story of how they've seen it depending on the market. We think the overall overlay of tariff impact is consumer confidence and perhaps, if anything, a slight dent in short-term consumer confidence around ordering patterns. And we saw that particularly like we said, in the smart mobile device and IoT market, and I think that's consistent with what others are seeing. I think the bigger question for us on tariffs is really the longer-term opportunity. And I think what has definitely changed, I'd say, dramatically in 2025 and has been accelerating is really the inbound interest from customers to say, I need to now diversify my sourcing. I need U.S. manufacturing. We were very clear when we announced our long-term strategic investment plans, not just that we have those plans, but that a lot of major customers were very seriously backing those plans with projects and so on and all the customers we announced have active projects with us today. And I think as those move forward from the initial conversations to the design wins to the ramps, we'll be able to update on all of those. But I think that's how we think of the tariff story more broadly is the strategic implications for GF from a long-term growth and market share gain perspective.

And our next question comes from the line of Chris Caso from Wolfe Research.

I guess the first question I want to talk about some of the ASP declines you were seeing in auto -- in mobile rather and some of the actions that you were taking there. Could you go into a little more detail of the reason for the actions that you've taken there? And how that affects GlobalFoundries as you go into calendar '26? How much additional volume do you expect to get from those actions? And what impact is that going to have on revenue and margins as you go into next year?

Thank you, Chris. I mean maybe to just go a little bit deeper into it, as we said, this has been very much focused on the mobile space and there are reasons for that in terms of the dynamics of the market. And it's actually very much with a few customers where we are operating on a dual source basis, where we have decisions to make around what share we would like to have, how those customers grow in different applications is transitioning. And we make deliberate calls in partnership with them around what's the right way to maximize our revenue opportunity. And that's not just a tactical step for this year. That's also a long-term step for securing longevity in a number of those sockets. So we're not ready yet to quantify kind of '26, obviously not going to guide at this stage. But we see this as a strong upside around maintaining GF relevance in those technologies at higher share levels, and our customers are obviously pleased with that outcome as well.

And just as a follow-up on maybe...

Maybe I can just add to the share gains that we're targeting here, both short and long term, and I think that's an important detail to add. So some of these are long-term agreement oriented.

Right. Okay. And just as you look into next year, it looks like you're going to exit the year with utilization, I guess, in the 80s or so. Also contemplating some of what you're doing in mobile, where do you stand on a capacity standpoint right now? And for how long is GlobalFoundries going to be able to keep the CapEx at relatively low levels and presumably drive some cash flow as you go into next year?

Yes. Macro picture, obviously, without getting too specific about 2026 financially at this stage, we definitely see the megatrends we've been underwriting to be continuing going into the year. You look across the markets that we are serving. We see the data center market, the CID market for us continued to deliver strong growth. Niels mentioned a couple of those ramps that are really from a standing start moving into the hundreds of millions of dollars, growth rates of sort of 2x year-on-year, and we see really at the early innings of that. So there are some secular drivers there that are compelling. We see a continued really strong story in automotive as we grow into new applications. Again, we more than doubled automotive sensing in 2025 over 2024. And that's a new category. A lot of people think of us as an MCU player, but actually our car content is growing and diversifying into new areas, like sensing, including radar, including imaging, but also areas like battery management and other applications. So there's a lot of content growth. There's a lot of diversification within those end markets. And then even within IoT within smart mobile, again, we're seeing content growth. We're seeing areas where we're taking share of new applications. And those are also beneficiaries of that U.S. sourcing dynamic that we talked about earlier. All of this to say, we see a pretty strong secular demand growth going into the next couple of years. We do that at a time where we have a very advantaged footprint, right? We finished some significant expansions in the last couple of years. So we're sitting with available capacity, able to ramp quickly globally. And then for the areas we will invest, we benefit from significant level of support. And in the U.S. alone, in The Big Beautiful Bill, increasing the ITC from 25% to 35% on top of our chips support, which, as we mentioned, we're already engaging with and receiving state-level incentives, we're talking that more than 50% of our CapEx to be supported by those government programs, which gives us a very good confidence on driving scale in a very capital-efficient way. And so it's a bit early to talk about the actual CapEx number for next year. There are pockets. We see really good demand. We will definitely invest behind those. But I think the macro story is great footprint, well positioned for that growth. And when the investments do come, they're going to come with a lot of support for efficiency given those government programs.

And maybe if I can just add a couple of things from a tactical standpoint. We've spent the last few years on building a very capital- efficient strategy around tool sameness across the factories, which enable us to be capital efficient as we move out and expand on that front. So I think as we look at some of these initiatives we put in place over the last few years, we expect to continue to be very capital efficient, and we expect to stay within the model that we laid out earlier.

And our next question comes from the line of C.J. Muse from Cantor Fitzgerald.

I guess first question, implicitly with the vision for growth in '25, you're calling for revenues up 8% or more into the December quarter. So curious, with the benefit of greater non-wafer revenues there. Can you kind of quantify what the uplift to gross margins looks like, particularly when we reflect the lower ASP kind of impact from smart mobile?

Yes. C.J., it's John. The ASP dynamic plays with utilization as well. So those can somewhat offset each other really in terms of the actual gross margin outcome of some of those decisions. And as Tim and Niels indicated, it's important from a share gain perspective to maintain our momentum in those -- in that opportunity. As far as the fourth quarter and where the gross margin can head, we'll see how the quarter progresses here, but I do anticipate a significant improvement from third quarter to fourth quarter in gross margin driven by the factors I talked about earlier with stronger product mix, we've got some of the non-wafer revenue coming through as well as some additional improvement in both depreciation and utilization.

Perfect. And then maybe just a follow-on to that. I think a quarter ago, you talked about hope for exiting the year with a 30% gross margin. So curious, what are your -- what are the moving parts in your mind today for how we should be thinking about 2026 gross margins? And as part of that, based on kind of the design wins you have today, how are you thinking about the growth rate for smart mobile next year?

Yes, I'll take the first part, C.J. So all the drivers that we just talked about remain intact. We've got growth in high-margin businesses like our comms infrastructure and data center with silicon photonics and satellite communications. These are robust opportunities for us, showing strong growth as well as improved factory utilization, our ongoing cost improvements and relatively efficient capital profile that's allowing us to leverage the installed base of wafer fabrication capacity that we have with a relatively light CapEx.

Maybe, C.J., just on the mobile trajectory, again, a bit early to call very specifically. But again, all those growth drivers we've talked about for mobile, both that are for the market, but also idiosyncratically to GF, I think, are very much intact. And so we continue to see reasons for the market to grow overall, especially the premium handset, new form factors, new devices, there definitely are some refresh cycle dynamics that at some point will play through. And so we're bullish on that. Niels also talked about things like smart glasses as long-term drivers, new form factors. Hard to call how quickly. I think that's still a when, not an if, though, in terms of penetration. So we're quite bullish on overall market growth, especially taking a multiyear view. But I think we're even more bullish on our own execution in that space with taking more share. We talked about areas like haptics, display, imaging, power management, all critical features in the smart mobile device sector, including our strong base in connectivity, which still is a challenge, right, getting more and more bands in less in their space isn't easy, and that's an area we've historically had strength and continue to innovate. So I think we're actually bullish longer term on the category as an end market.

And our next question comes from the line of Vivek Arya from Bank of America Securities.

My first one, just a few Q4 clarifications. What is the percentage of sales contribution from non-wafer revenue? How much is the tailwind from lower depreciation, and I thought I heard you endorse the 30% gross margin exit rate from Q4, but I just wanted to double check that. So basically, non-wafer revenue contribution , tailwind from lower depreciation, and are you comfortable with the 30% gross margin exit rate from Q4?

Yes, Vivek, this is John. So on the non-wafer revenue, typically, that's running roughly 10% of our revenue. We expect it to be up from that in the fourth quarter, a couple of points, call it, 12%, 13% of the mix in the fourth quarter. And if you look at the three factors I described of, product mix, the non-wafer revenue as well as the combined effect of depreciation and utilization, you can roughly think of more or less 1 point each there of contribution. So whether we get all the way to 30%, we'll see, but I think we can get -- we can make a lot of progress towards that goal in the fourth quarter.

Right. And from my follow-up, automotive, it has been a very strong area for you, but auto production has not been that great. I understand the content aspect of it. But what is the risk that we find that your auto customers have taken on excess inventory? Like what is your visibility, Tim, into the deployment of all these wafers into a product just because there's a big gap between your growth versus auto production?

Yes, it's a great question, Vivek, I'll comment and add a bit of color. We obviously spend a lot of time, and as you can see from our announcements, not just with the fab semiconductor companies, IBM serving the automotive sector, but also the Tier 1s, our partnerships with Continental, with Bosch, we talked about those in the past. We spent a lot of time with them. We even spent a lot of time with the OEMs. So I think we have a pretty good handle. I think it endorses a few key trends, and you name them. The content growth really is extraordinarily important and secular and continuing because the nature of the product is changing, right? A car is no longer a mechanical device. A car is a super complex electronic engine with a lot of the features being dependent on semiconductors in many different domains. So I think, again, first step is, are the secular trends fully intact. I think the answer is, absolutely. And then you try to understand the inventory dynamics across the chain, and that's where it's a bit more complex. And actually, what we hear, as I mentioned, that the inventory is further down the chain of semiconductors, not in general of cars, but the semiconductors are actually pretty low at the Tier 1 level in particular. And again, it may move through the system in different lumps. But I think the overall chain is actually lighter than it could be. And that actually could lead you to believe there could be upsides on demand as those inventories get restocked. Obviously, rate and pace of restocking, always a difficult thing to call. But we continue to be very strongly supportive of the sector.

So maybe just to add a little bit to that. So we -- since we went public, we have consistently outgrown the automotive market and gained share. And a lot of that has been done based on a very strong automotive microcontroller solution that has enabled us to outgrow the market. On top of that, if you look at the design wins we've had over the last few years, there's been a lot more in automotive power, battery management systems, smart sensors and of course, driver assist overall. So that momentum building on top, we're starting to see what I would call substantial growth, specifically in smart sensors already happening here in 2025 and we expect that to continue as we move forward. So these are technologies like, of course, 22FDX, you've seen several announcements from the radar suppliers in the industry, has almost become the de facto standard for radars. But we're also seeing 12LP finding its way into display controllers. We're even seeing 12LP+ AutoPro getting into next-generation radars, and then, of course, the 130BCD in battery management systems is also a new leg of growth. So if you look at it from a projection standpoint, while we have been outgrowing the market for the last several years, we actually expect based on the solid design win pipeline we've had in the last few years to be able to continue to do that for the coming years in automotive.

Jonathan, we'll just take one last question.

Certainly. And our final question then for today comes from the line of Krish Sankar from TD Cowen.

I had two of them. One of them, MIPS deal. Can you talk a little bit about how you're seeing the RISC-V demand between Asia and Western companies? And then I had a quick follow-up.

Yes. So I think it's interesting. Obviously, the ecosystem is evolving. And if you look at it, there aren't a huge number of very scaled players in RISC-V and that's one of the feedback we get from the ecosystem that they actually want to see serious companies that they trust, like GF backing the ecosystem. And so I think that's a trend that's going to increase demand because people can rely on RISC-V solutions when they're backed by larger companies. I've been around the world talking to customers about MIPS and testing their reactions. As I said, they're very positive. I'd say it's global, Krish, in terms of good reputation in Asia. Markets like Korea, very strong, very strong interest in MIPS, to give you an anecdote. But we see it globally. We see it in Europe, given again the appetite to embrace open-source ecosystem for this cause. And of course, in the U.S. where MIPS has historically been very strong, engaged with a number of customers. So I think it's a global phenomenon, obviously, but too early to call long-term trajectory of that mix, but there's strong demand across the board.

Got you. Very helpful. And then a quick question on your China-for-China. Have we disclosed who the Chinese foundry you're working with is? And how to think about the margin profile of the business? And any concerns on tech transfer or export controls?

Yes. The way we think about this is GF China, right? This is our commitment to support our customers from the China footprint in terms of quality, in terms of delivery. So our promise to them is, everything you'd expect from GF you will get from our manufacturing in China. We'll manage our partner. And as a result, we're not talking about identity as much as the offerings that we're going to be making available to our customers that we're now seeing all of that interest on -- from a margin point of view, it's in line with corporate. Now and in the future, we don't see this as a concern there at all. And obviously, everyone talks about IP protection in China. Part of that went into us selecting the right partner but also putting the right controls in place with how we manage our customers' designs. Our customers are part of that story as well, auditing the end-to-end setup, and they're comfortable. And these are automotive-grade companies who take their IP very seriously. So I think we're going into this very eyes-open but obviously with clear plans in place to manage our partnership.

Thank you. This concludes the question-and-answer session. I'd like to turn the program back to management for any further remarks.

Thank you, Jonathan. Thank you, everyone, for joining us on the call today. We look forward to seeing many of you at the upcoming events that we announced at the beginning of the call, and we'll stay in touch and take many calls as we go through that. Thank you, everyone.

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