BAE Systems and GF team up on U.S. chip production

EditorNatashya Angelica
Published 20/06/2024, 17:18
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MALTA, N.Y. - BAE Systems (LON:BAES) (LON: BA) and GlobalFoundries (NASDAQ: NASDAQ:GFS), also known as GF, have announced a strategic partnership aimed at bolstering the supply of vital semiconductors for U.S. national security programs. This collaboration is set to align their technology roadmaps and develop long-term strategies to enhance semiconductor innovation and manufacturing within the United States.

The partnership's primary goal is to advance the domestic ecosystem for fabricating and packaging secure chips and solutions, particularly for aerospace and defense systems. BAE Systems and GF plan to engage in collaborative research and development across various technological domains, including advanced semiconductor packaging and integration, gallium nitride on silicon chips, silicon photonics, and advanced technology process development.

The agreement between the two companies is not exclusive but builds upon a longstanding relationship, leveraging BAE Systems' expertise in microelectronics for critical defense systems alongside GF's position as a leading semiconductor manufacturer. Both companies have been recognized with planned direct funding from the U.S. government under the CHIPS and Science Act.

Terry Crimmins, president of BAE Systems' Electronic Systems sector, emphasized the importance of a reliable and secure supply chain and the availability of trusted, uncompromised semiconductors for maintaining leadership in microelectronics within the defense sector.

Dr. Thomas Caulfield, president and CEO of GF, expressed pride in deepening the strategic relationship with BAE Systems to strengthen supply chain resiliency and accelerate the development of new essential technologies.

A recent example of the companies' successful collaboration includes BAE Systems' use of GF's 12LP and 12S0 technology platforms for custom radiation-hardened semiconductor solutions for space applications.

These U.S.-made chips are designed to endure the harsh space environment while providing power efficiency and a robust design ecosystem for cost-efficient prototyping. GF's U.S. facilities hold Trusted Foundry accreditation from the U.S. government, allowing them to securely manufacture chips in partnership with the DoD's Defense Microelectronics Activity (DMEA).

The announcement follows a 2023 award to GF from the DoD for a $3.1 billion, 10-year contract to supply securely manufactured, U.S.-made semiconductors for a range of critical aerospace and defense applications, marking the third consecutive 10-year contract between the DoD and GF's Trusted Foundry business team.

The information for this article is based on a press release statement.

In other recent news, GlobalFoundries experienced mixed financial results in the first quarter. The company reported a 16% year-over-year decline in revenue, falling to $1.549 billion due to lower shipments and utilization levels.

Still, GlobalFoundries saw a significant rise in its automotive segment revenue, which grew by 48% and constituted 17% of the total revenue. Despite the overall revenue decline, the company maintains a positive outlook, expecting revenue growth throughout 2024 and placing emphasis on long-term agreements and diversification strategies.

On the earnings front, GlobalFoundries reported a gross profit of $405 million, with an operating margin of 12.1%. Furthermore, the net income was reported at $174 million, with diluted earnings of $0.31 per share. The company also generated $488 million in cash flow from operations, resulting in a free cash flow of $261 million.

In terms of future expectations, analysts project full-year capital expenditure at approximately $700 million. The company is also preparing for industry growth, aiming to double its capacity. These recent developments underscore the company's strategic focus on automotive growth and diversification, despite facing a challenging market.

InvestingPro Insights

GlobalFoundries (NASDAQ: GFS) has been making significant strides in the semiconductor industry, particularly with the recent strategic partnership with BAE Systems to enhance U.S. national security programs. As they continue to develop technologies critical for aerospace and defense systems, here are some insights based on InvestingPro data and tips:

InvestingPro data indicates that GlobalFoundries has a market capitalization of $28.24 billion, with an adjusted price-to-earnings (P/E) ratio for the last twelve months as of Q1 2024 sitting at 29.2. Despite a challenging period with revenue declining by 11.35% over the last twelve months, the company maintains a gross profit margin of 27.87%, reflecting its ability to retain a significant portion of sales as gross profit.

According to InvestingPro Tips, analysts have revised their earnings expectations upwards for the upcoming period, signaling confidence in the company's future performance. Moreover, GlobalFoundries is recognized as a prominent player in the Semiconductors & Semiconductor Equipment industry.

While analysts anticipate a sales decline in the current year and expect net income to drop, the company's liquid assets exceed its short-term obligations, indicating a strong liquidity position. Moreover, the company operates with a moderate level of debt, which is a positive sign for financial stability.

Investors interested in the semiconductor sector may find these insights particularly relevant, especially considering the volatility in stock price movements for GlobalFoundries. For those seeking deeper analysis and more comprehensive metrics, InvestingPro offers additional tips to guide investment decisions.

To explore further, visit https://www.investing.com/pro/GFS and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 9 additional InvestingPro Tips available, providing a richer understanding of GlobalFoundries' financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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