JPMorgan Downgrades GlobalFoundries Inc. (GFS) to Neutral, 'Deeper Cycle Bottom, Customer And Competitor Challenges Not Comprehended In Market Expectations'

JPMorgan analyst Harlan Sur downgraded GlobalFoundries Inc. (NASDAQ: GFS) from Overweight to Neutral with a price target of $56.00 (from $65.00).

The analyst comments "We are downgrading GFS to Neutral with a $56 price target as specialty/mature node foundry manufacturing activity (utilizations) in a broad set of markets continues to decline, potentially lagging semiconductor industry recovery trends by 1-2 quarters and is not adequately reflected in current consensus CY24 expectations (before today, our CY24 revenue/EPS estimates on GFS were already 8% /22% lower versus consensus expectations, respectively). Furthermore, we believe that GlobalFoundries’ FinFET customers (AMD, Qualcomm, Marvell, etc) at 12nm-16nm nodes are migrating away to lower geometry nodes, which GFS does not support, and the team may not be back filling these migrations as quickly as they are losing them. We estimate that plain-vanilla 12nm and higher FinFET capacity mix still represents about 20-25% of the company’s total revenues. Furthermore, it appears that certain of the team’s RF customers could potentially migrate away mid-to-longer term as future technology/product roadmaps may not be aligning. Finally, US/Europe/Japan domestic specialty/mature foundry manufacturing competition is heating up as TSMC and UMC (recent partnership announcement with Intel on mature node technology at Intel’s US fabs) continue to expand their capacity footprint outside of Taiwan. Taking into account the aforementioned dynamics, we further lower our EPS estimates on lower utilizations in the 1H of the year (resulting in lower GMs) and we now model CY24 revenues declining 6% (versus consensus at +3%) and EPS declining 25% (versus consensus at +3%). Our new PT of $56 implies limited upside in the stock from current levels, and when combined with customer/competitor concerns, we believe the stock will, at best, perform in-line with our coverage universe of stocks over the next 12-18mos."

For an analyst ratings summary and ratings history on GlobalFoundries Inc. click here. For more ratings news on GlobalFoundries Inc. click here.

Shares of GlobalFoundries Inc. closed at $55.27 yesterday.

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