STMicroelectronics Q3 2025 Earnings Report

STMicroelectronics EPS Results

• Actual EPS: $0.29
• Consensus EPS: $0.22
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: N/A

STMicroelectronics Revenue Results

• Actual Revenue: $3.19 billion
• Expected Revenue: $3.18 billion
• Beat/Miss: Beat by +$7.83 million
• YoY Revenue Growth: N/A

STMicroelectronics Announcement Details

• Quarter: Q3 2025
• Date: 10/23/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, October 23, 2025
• Conference Call Time: 3:30AM ET

STMicroelectronics (NYSE:STM) is a global semiconductor company headquartered in Geneva, Switzerland, formed through the 1987 merger of SGS Microelettronica and Thomson Semiconducteurs. The company designs, develops and manufactures a broad range of semiconductor products and solutions that serve multiple end markets worldwide. ST’s offerings span from basic components to integrated systems, emphasizing energy-efficient and high-performance devices for modern electronics.

Product categories include microcontrollers (notably the widely used STM32 family), analog and mixed-signal ICs, power MOSFETs and power-management devices, MEMS and sensors, image sensors, and discrete semiconductors. ST also provides application-specific solutions and reference designs for battery management, motor control, secure connectivity and system integration, enabling customers to accelerate product development across consumer, industrial and automotive applications.

The company serves a diverse set of industries, with particular strength in automotive electronics, industrial automation, consumer devices, communications equipment and Internet of Things applications. ST operates an international footprint of research and development centers, manufacturing, assembly and test sites across Europe, the Americas and Asia, supporting global customers and supply-chain needs while investing in advanced process technologies and packaging capabilities.

ST positions itself as a technology partner to OEMs, systems integrators and electronic designers, offering software, development tools and ecosystem support alongside its silicon products. The company’s long-standing presence in the semiconductor sector and broad product portfolio make it a key supplier for firms seeking power-efficient, reliable components for complex electronic systems.

STMicroelectronics Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q3 revenue beat expectations at $3.19B, with Personal Electronics up ~40% sequentially and all end markets except Automotive now showing year‑over‑year growth; management guides Q4 revenue of $3.28B$11.75B, signaling a H2 recovery.
• Neutral Sentiment: Q3 gross margin was 33.2% (slightly below outlook); management expects Q4 margin ~35% but highlighted ~290bps of unused capacity charges and ongoing one‑time restructuring / migration costs, leaving medium‑term margin improvement conditional on capacity reshaping and mix.
• Positive Sentiment: Inventory levels and distribution days improved (DSI down to 135 days from 166), Free Cash Flow was +$130M, and the balance sheet remains solid with net cash ~$2.61B, while the company continued dividends and buybacks.
• Positive Sentiment: Automotive momentum showed sequential growth (~+10%) with multiple design wins (silicon and SiC for inverters, OBCs, eFuses, MCUs and sensors), and ST announced acquisition of NXP’s MEMS sensor business for up to $950M (target close H1 2026) to expand sensor leadership.
• Negative Sentiment: Power & Discrete is under pressure (segment revenue down ~34% Y/Y, segment non‑GAAP margin -15.6%) as SiC faces a transition and low utilization/inventory corrections in Asia; company expects SiC recovery in 2026 but profitability and timing remain uncertain.

Presentation

[Operator]

Ladies and gentlemen, welcome to the STMicroelectronics third quarter 2025 earnings release conference call and live webcast. I am Moira, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing 1 on your telephone. For operator assistance, please press star 0. The conference must not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Jerome Ramel, EVP Corporate Development and Integrated External Communication. Please go ahead.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Moira, thank you everyone for joining our third quarter 2025 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO, and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group and Head of STM Strategy, System Research, Application and Innovation Office. This live webcast and presentation materials can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause STM results to differ materially from management expectations and plans.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results this morning and also in ST most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q3 2025 earnings conference call. I will start with an overview of the third quarter, including business dynamics. I will then hand over to Lorenzo for the detailed financial overview and will then comment on the outlook and conclude before answering your questions. Starting with Q3, we delivered revenues at $3.19 billion, $17 million above the midpoint of our business outlook range, with higher revenues in personal electronics while automotive and industrial performed as anticipated, and CCP was broadly in line with expectations. All end markets but automotive are now back to year-on-year growth. Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within automotive and within industrial, excluding impairments, restructuring charges, and other related phase of costs. Diluted earnings per share was $0.29.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

During the quarter, we managed to work down inventories both in our balance sheet and in distribution, and we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3. In automotive, during the quarter, we grew revenues about 10% sequentially in line with expectations, driven by all regions except Americas. Our book-to-bill came above parity. We expect to grow mid-single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of sequential growth. During the quarter, we continued to execute our strategy. For car electrification, we had wins with both silicon and silicon carbide devices for electric vehicle applications such as traction inverter and onboard charger designs. One new application where we see silicon carbide being used is inverters for full active suspension.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Here, we had a design win with a module solution for a key Chinese electric vehicle maker. Another key element is a switch to electronic fuses to support zonal and domain architectures both in 12 volt and 48 volts. Here, we added to our pipeline of designs for our E-Fuse controller with leading electric vehicle makers and qualified our products for volume ramp up. Other wins in the quarter included microcontrollers for DC-DC management in electric vehicle powertrain, body control modules, and HVAC systems across multiple vehicle models. In car digitalization, we are executing our microcontroller product roadmap with a strong lineup of new solutions across both our Airbase Stellar and STM32A product families. Designing activity continues globally with engagement from both large scale automotive OEMs and tier one suppliers. In legacy application, we had several significant wins based on our smart power technologies.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

In applications where we lead such as airbags, steering and braking solutions with our automotive grade sensors, we continue to see strong designing momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise cancellation and door control and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered into a definitive transaction agreement for the acquisition of NXP's MEMS sensor business for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions including regulatory approvals and is on track to close in H1 2026.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

In industrial, revenues were in line with expectations, showing increase of 8% sequentially and 13% year over year, back to year on year growth for the first time since the third quarter of 2023. Importantly, inventories in distribution further decreased in Q4. We expect to grow revenues low single digits sequentially as we continue to decrease inventories in distribution. During the quarter, we saw strong designing activity for our power analog portfolio across a range of applications. These included factory automation, power systems, medical equipment, motor control, white goods, solar inverters and metering. We also continue to expand the use of our industrial sensors in robotics including robots and cobots and humanoid robots, an area where we see demand for significant number of sensors. We also had wins in medical devices like insulin pumps and fall detectors.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

In embedded processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications with products from all parts of the portfolio from high end to wireless to specialized functions. These included power supply and optical modules for AI servers, industry automation and robotics, energy storage, home applications, metering and white goods. We have a full pipeline of new products and software coming to market in the next quarters, and you will hear more about this during our STM32 Summit in November. For general purpose microcontroller, we grew revenues both sequentially and year over year, and we are on the right trajectory to return to our historical market share of about 20%-23%.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

For personal electronics, third quarter revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, but also increased silicon content, which also translated into year over year growth. Further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions, we signed a new license agreement with Metalenz. This new agreement broadens our capability to produce advanced metasurface optics, leveraging ST's 300mm semiconductor and optics manufacturing capabilities. This opened up new opportunities from smartphone applications like biometrics, LiDAR, and camera assets to robotic gesture recognition and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up 4% sequentially. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high power solutions.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Although last quarter we announced that we are working closely with Nvidia on a new architecture for 800 volt DC AI data center, leveraging our power portfolio by combining silicon carbide, gallium nitride, and silicon based technologies with advanced custom design at both chip and package level.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

I am.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Pleased to underline that we recently completed full power testing on a prototype GaN-based solution, successfully demonstrating over 98% energy conversion efficiency. Silicon photonics is another key technology for future data center and AI factories. ST now heads the STARLight Consortium, a collaborative R&D program across the full value chain with key suppliers and customers to develop high-speed optical solutions for data center AI, telecommunications, and automotive from the substrate to the final products. During Q3, we have seen an increased demand for photonics ICs prototypes to be launched in the next quarter and beyond in our 300-mm wafer fab. This confirms that photonics ICs will be a revenue growth driver for ST in the near term.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

In low Earth orbit satellites, we have further strengthened our leadership position in the rapidly growing low orbital and broadband market by beginning shipment to a second global customer, leveraging our winning combination of BiCMOS technology for front-end modules and panel-level packaging for user terminals. Our business in this segment is well positioned for steady growth driven by several satellite constellations. Now over to Lorenzo, who will present our key financial figures.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Thank you Jean-Marc and good morning everyone. Let's start with a detailed review of the third quarter, starting with the revenues on a year-over-year basis by reportable segment. Analog products, MEMS and sensor was up 7.0% mainly due to imaging. Power and discrete products decreased 34.3%. Embedded processing revenues grew 8.7% mainly due to general purpose MCO. RF and optical communication declined 3.4%. By end market, industrial increased by about 13%, personal electronic by about 11%, communication equipment and computer peripheral by about 7%. Automotive was still decreasing by about 17% but showing some improvement in respect to the 24% decline recorded in the second quarter. Year over year, sales to OEMs decreased 5.1% while revenues from distribution increased 7.6%. Back to year-over-year growth for the first time since the third quarter 2023. On a sequential basis, power and discrete was the only segment to decrease by 4.3%.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

All the other segments grew, led by analog products, MEMS and sensor up 26.6% with embedded processing up 15.3% and RF and optical communication up 2.4%. All our end markets grew, led by personal electronics up by about 40% followed by automotive up by about 10%, with industrial and communication equipment and computer and peripheral up respectively by about 8% and 4%. Turning now on profitability, gross profit in the third quarter was $1.06 billion, decreasing 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points on a year-over-year mainly due to lower manufacturing efficiencies, negative currency effect, lower level of capacity reservation fees and to a lesser extent the combination of sales price and product mix. Total net operating expenses excluding restructuring amounted to $842 million in the third quarter.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Broadly stable on a year-over-year, they were better than expected reflecting notably our continued cost discipline with the first benefits of the resizing of our global cost base. For the fourth quarter of 2025 we expect net of tax to stand at about $950 million, increasing quarter on quarter due notably to calendar days effect. This would lead the net OpEx for the full year 2025 to decline by 2.5% compared to 2024 despite unfavorable currency effect. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the third quarter we reported $180 million operating income, which included $37 million for impairment, restructuring charges, and other related phase-out costs. These reflect impairment of assets and restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Excluding this non-recurring item, which is partially non-cash, Q3 non-U.S. GAAP operating margin was 6.8%, with analog products, MEMS and sensor at 15.4%, power and discrete at -15.6%, embedded processing at 16.5%, and the ref optical communication at 16.6%. This quarter 2025, the net income was $237 million compared to $351 million in the year-ago quarter. Diluted earnings per share were $0.26 compared to $0.37, excluding the previously mentioned non-recurring items. Non-U.S. GAAP net income and diluted earnings per share were respectively $267 million and $0.29. Net cash from operating activity decreased 24.1% on a year-over-year basis in the third quarter to $549 million. Third quarter net CapEx was $401 million compared to $565 million in Q3 2024. Free cash flow was a positive $130 million in the third quarter compared to $136 million in the year-ago quarter.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Inventory at the end of the third quarter was $3.17 billion, a reduction of about $100 million compared to the end of the second quarter. Days sales of inventory at the quarter end were 135 days, slightly better than our expectation and compared to 166 days for the previous quarter and 130 days in the year-ago quarter. Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintains its financial strength with a net financial position that remained solid at $2.61 billion as at the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth to mention that in the course of the third quarter we repaid in full in cash $750 million for the first tranche of our 2020 convertible bond.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Now back to Jean-Marc who will comment on our outlook.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. We are expecting revenues at $3.28 billion, an increase of 2.9% sequentially, ±350 basis points. We expect our gross margin to be about 35%, ±200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs. Compared to the current situation, the midpoint of this outlook translates in full year 2025 revenues of about $11.75 billion. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Finally, to optimize our investments in the current market conditions, we have reduced our net CapEx plan, now slightly below $2 billion for full year 2025 compared to a range of $2 billion-$2.3 billion previously. To conclude, in the fourth quarter, we expect to report further sequential revenue improvement, with revenues now broadly stabilized on a year over year basis as well as an increased gross margin while continuing to decrease inventories in distribution. We are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint, and definitively our product mix improvement in a context marked by signs of market recovery.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Our strategic priorities remain clear: accelerating innovation, executing our company wide program to reshape our manufacturing footprint and resize our global cost base, which remain on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you, and we are now ready to answer your questions.

[Operator]

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question or a comment may press star and 1 at this time. The first question comes from the line of Francois Bouvignies from UBS. Please go ahead.

[Francois Bouvignies, Research Analyst at UBS]

Thank you very much. My first question is on the top line, I mean you guided plus 3% quarter on quarter, 2.9% to be precise. It seems to be below your seasonal at, you know, plus 7% quote unquote, if I'm not wrong. I mean, you can remind us maybe the seasonality. Can you explain to us as to why, you know, you are a bit below seasonal in Q4 for the top line and the drivers? Secondly, on the gross margin, I mean it's nice to see this improvement of 180 basis points quarter on quarter. How sustainable is this gross margin? I mean, if you have any seasonality, product mix, you know, should we extrapolate this dynamic of 35% into 1H26? Just trying to understand, you know, the work you have done on gross margin, how sustainable it is at least in 1H26 would be great. Thank you.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

We'll take the revenue seasonality, and on the revenue seasonality of Q4, basically there are two effects. The first effect is on automotive because on automotive, even if we will grow quarter over quarter 6%, year on year it is still minus 12%. Why? Because 80% of this performance gap is explained by two reasons. It is a decrease of capacity reservation fees compared to last year, and it is overall volume of one important customer of STMicroelectronics in the field of electric vehicle. This is what is explaining why in Q4 we are below the seasonality. The second explanation to be below the seasonality in Q4 is because in industrial we continue to decrease inventory in distribution, so our POP revenue recognition is significantly below the POS.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

However, on the other verticals like personal electronic, communication equipment, computer peripheral, and other legacy on automotive or industrial in the field of power energy, basically we are at the seasonality we expect.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

About gross margin in Q4, the gross margin, the main positive driver, let's say when we look at the sequential increase of our gross margin moving from the result of Q3 and the expectation of Q4, is clearly improved manufacturing efficiency. That is, if you remember, let's say in the first half and also in Q3, we were impacted by a significant negative impact on the manufacturing efficiencies that was due to the very low level of production that we had, especially in the first half of the year. There is also some improvement in terms of new charges when we look, let's say, to how we will move in the first approach next year. We have to remind that clearly there are two negative effects that will impact moving forward.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

One effect is related to the fact that there will be some reduction entering 2026 of the capacity reservation fees, and definitely you know that in the first part of the year there is some seasonality in terms of our revenues, let's say irrespective to the second part of the year. Do not forget that there is also the renegotiation of the pricing that will impact. Even if we see today not a significant drop, we think that it will be something in the range of low single digit, mid single digit decline. On the positive side, we will have, let's say, still continued positive impact.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

On.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Manufacturing and continue to reduce level of unsaturation. At this stage, it's a little bit too difficult to size, let's say, the level of gross margin because it will depend also on the level of the revenues. This is directionally the trend that we will have moving entering in the next year. Thank you.

[Francois Bouvignies, Research Analyst at UBS]

Thank you very much.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Moira, next question please.

[Operator]

The next question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead.

[Joshua Buchalter, Senior Equity Research Analyst at TD Cowen]

Hey guys, good morning and thank you for taking my question. Maybe to follow up on that last one, could you maybe spend a couple minutes talking about how you're thinking about managing utilization rates right now? It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and or on your balance sheet, given the comments you mentioned, you're going into some negative seasonality into 1Q, but it sounds like utilization rates are going to be up in the fourth quarter and the first quarter. Could you maybe just spend a couple minutes talking about what you're seeing there?

[Joshua Buchalter, Senior Equity Research Analyst at TD Cowen]

Thank you.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Now for the inventory, clearly let's say as you have seen, we try to keep control on the level of inventory in the current quarter. We think to stay substantially stable in number of days. This is our expectation in respect to Q3. The positive point is that entering in the next year, clearly let's say as I said, that there is our seasonality, the normal seasonality. That means that in general the inventory in the first half of the year is a little bit higher also in number of days irrespective to the second part of the year. You have to consider that entering next year, let's say we start to have some decrease in terms of overall capacity linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure. This will somehow mitigate the level of unused moving in 2026.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

This is let's say one of the drivers that we see in terms of progressively improve in terms of the utilization rate together of course with some growth in thermal revenues.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Do you have any?

[Joshua Buchalter, Senior Equity Research Analyst at TD Cowen]

Okay, got it. Thank you.

[Joshua Buchalter, Senior Equity Research Analyst at TD Cowen]

Thank you.

[Joshua Buchalter, Senior Equity Research Analyst at TD Cowen]

I was hoping to ask about the industrial segment. It looks like book to bill went back to parity. Is anything major going on there? Are any geographies better or worse, and maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume we're sort of shifting back to normal now?

[Joshua Buchalter, Senior Equity Research Analyst at TD Cowen]

Thank you.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

In industrial we see different dynamic. When we go on some sub segment we see a growth and dynamic market pronounced for power energy. Basically all sub segments of this one are growing and it is going more definitively than the smart industrial means the factory automation. We can say that robotics is so far good, but overall the factory automation is really soft. More than all the industrial which are volume driven means consumer driven. The up cycle is pretty soft. The takeaway we can have on the industrial is what is related power energy infrastructure and robotics is now upcycled pretty, pretty solid. What is related volume and consumer is a very soft upcycle. Looks like inventory are digested, but the visibility is pretty short, is pretty low. That's the reason why the customer are still putting order on short term.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Here our decision is to continue to manage the distribution very closely and continue to adjust our pop below their POS forecast to continue to decrease inventory. Inventory and general purpose microcontroller came back what we classified normal means a level of months of inventory that enable short term business. We have still some pocket of other inventory on some specific product like power discrete or sometimes general purpose microcontroller. We are going in the right direction. This is the dynamic we are seeing on industrial market.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Josh. Moira, next question, please.

[Operator]

The next question comes from Tristan Guerra from Baird. Please go ahead.

[Tristan Guerra, Analyst at Baird]

Hi, good morning. Wanted to see how linear is the reduction in capacity reservation fees that you expect in 2026 from the $150 million-$200 million reduction that you're looking at for this year. Is there a big drop in Q1, or is it going to be pretty linear throughout all of next year?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

In terms of capacity reservation fees, it works in this way. Let's say substantially, the capacity reservation fees that are ruled by contract with the carmakers are quite constant over the year in terms of million dollars. You can have a little bit higher, a little bit lower during the various quarters of the year, but they are not linearly going down. Let's say they are substantially quite flattish, I would say, quarter after quarter. Clearly, when the contract expires, that is at the end, for instance, of 2025, many of these contracts are expiring. Yes, you have the decline, and then the decline remains. The level that you get in the first quarter will remain substantially similar all over the other quarters. This is the way that it works.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

What we will see in Q1 will be this reduction, and then after that it will stay stable, more or less stable, during the course of 2026 at the level of capacity reservation.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Do you have another one?

[Tristan Guerra, Analyst at Baird]

Yes, thanks. Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of or when you think POP can get back in line with point of sales in industrial next year?

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Globally, POP will be aligned with POS. Each time our product line reaches the target of inventory we don't want to exceed, this is okay. A lesson we learned from the past, and now we are really disciplined on this point. You cannot see the POP overall; we have to look at the POP in detail by product line. I repeat, no. Our microcontroller is pretty well aligned, so our POP is really driven by the end demand POS and by region. I have to say, where China, APEC, America are pretty okay, and Europe is still soft. For the other product line, we are still in a mode where the POP is below the POS. However, we expect to go back to normal in H1 2026, most likely Q2.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Tristan.

[Tristan Guerra, Analyst at Baird]

Thank you very much.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Moira, next question please.

[Operator]

The next question comes from Stéphane Huri from ODDO BHF. Please go ahead.

[Stéphane Houri, Head of Equity Research at ODDO BHF]

Yes. Good morning everyone. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and also an expectation of 2026. What are you reducing at the moment, and how do you look at 2026 in terms of CapEx at a point where you're transforming your tool from 200 mm to 300 mm? Thank you.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

We reduce the CapEx. In fact, there are two dynamics. There is a dynamic driven by our plan where, you know, we want to close the 200-mm fab, so Agrate and Crolles. Of course, we need to put the CapEx to increase the capacity at the right level in Agrate 300 and in Crolles 200. Here, we have not specially limited the dynamic because the demand is pretty solid. The other main important action is a CapEx for 200 mm conversion on silicon carbide because we will close the 150 mm. Here, we have limited the CapEx driven by the demand, which is below what we expected one year ago. The main impact of capacity limitation is on, let's say, silicon carbide. After that, it is more spread across test assembly, where we clearly adjust the capacity to what we need and no more.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Generally speaking, it is more adaptation to mix rather than volume increase.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

You have a follow-up, Stéphane?

[Stéphane Houri, Head of Equity Research at ODDO BHF]

Yes, a small one.

[Stéphane Houri, Head of Equity Research at ODDO BHF]

Just to ask you if with the next NXP situation you do really receive phone calls or kind of rush orders from your customer, or you see nothing for the moment. Thank you.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

We are sure that the carmaker and the tier one of the automotive industry have clearly taken the lesson of the previous short term period, and they have enabled many sources to prevent such issues. Of course, as the other semiconductor player, STMicro is part of this process. More than that I have no comment.

[Stéphane Houri, Head of Equity Research at ODDO BHF]

Okay, thank you.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you. Stéphane. Moira, next question please.

[Operator]

Next question comes from Didier Scemama from Bank of America. Please go ahead.

[Didier Scemama, Managing Director and Senior Analyst at Bank of America]

Yes, good morning. Thanks for taking my question. I have the first question maybe on your inventory and related to that, on what you're thinking about in terms of factory loadings for the first half. I think one of your peers already announced last week or earlier this week, sorry, that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery. It looks like your inventory is tracking about 30, 40, and 50 days above where they used to be. Are you thinking about taking down further factory utilization in the first half?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

I guess now in terms of inventory, I would say that yes, you're right, it's a little bit higher in respect to what was our historical ending of the year. A little bit higher. At the end, I think that when we look next year, I think the dynamic of our, we will continue to keep under control the inventory. The dynamic of the inventory will, let's say, be as usual, a little bit increasing during the first half of the year to go back to decreasing the second part of the year in terms of, let's say, unloading factory utilization. I think that moving in 2026 there will be an improvement, notwithstanding we will continue to keep under control our inventory.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

This improvement, as I was saying before, is due to the fact that we do expect some, let's say, increase in terms of our revenues looking at the evolution of the market. The other element is that we start to, let's say, reduce capacity in some of our fabs that we aim, let's say, to progressively close in the course of the by the end of 2027. We will start, of course, to move out some equipment and this will reduce the capacity and this will reduce the level of use them.

[Didier Scemama, Managing Director and Senior Analyst at Bank of America]

Got it. I think last quarter you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140 at 70 basis points of FX headwinds and 70 basis points of, you know, related to basically the manufacturing transition from 6 to 8 and 8 to 12. Is there any of that in Q4?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

No, no. Moving from Q2 to Q3, the FX was overall an impact of 140 basis points. Q2 to Q3, related to the combination of these two effects, but very different. Something in the range of 120 basis points was the FX and around 20 basis points was the impact of these extra costs related to our programs. In this quarter, clearly the FX is a minor impact because it's quite stable. It's a little bit negative because we move from 1.14 to 1.15, ranging in the range of 20 basis points negative impact. It's not so material. While these extra costs related to the activity to reduce the capacity and to start to move products from one side to the other is impacting our gross margin expected for Q4 between 30 basis points-40 basis points.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

This is the 30, something ranging between 30 to 40 basis points of extra cost. Understood.

[Didier Scemama, Managing Director and Senior Analyst at Bank of America]

Just a clarification because it wasn't clear. Your OpEx guide for Q4 is $915 million, right? It's not $950 million.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

No, no, it's $915 million. This is driven by the fact that we have a negative calendar days impact for two reasons. The calendar is longer, and the vacation in Europe is, let's say, less than what we benefited in the course of the previous quarter. On the other side, we will continue with our, let's say, program to reduce account in expenses, and this will bring us some benefit.

[Didier Scemama, Managing Director and Senior Analyst at Bank of America]

Thank you so much.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you. Didier, next question please.

[Operator]

The next question comes from Sandeep Deshpande from JPMorgan. Please go ahead.

[Sandeep Deshpande, Analyst at JPMorgan]

Yeah, hi, good morning. Thanks for letting me on. My question is regarding the trends into the first quarter. I mean you normally have a weaker first quarter. Would you expect the utilization rates to go down? Given all the other factors you've talked about in the earlier questions, there is a downtick associated with the capacity reservation fees. Should we expect your gross margin in the first half of the year to be weaker than where it is at the moment? I have a quick follow up after that.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Yeah, in terms of gross margin, it is true that in the first half the seasonality is not favorable, and yes, there are the lower capacity reservation fees on the other side. Irrespective of where we stand today, our expectation is that the level of unused charges will decrease. The decrease is not due to the fact that we aim to increase our inventory. There is some seasonality in our inventory. The decrease, as I was trying to explain before, is mainly driven by the fact that we start to reduce the capacity. It means that we will start some transfer of equipment and this, or let's say not utilization of equipment, is due to the fact that we progressively, in some fabs, started to reduce the capacity aimed at the end, let's say, to move to close this fab.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

We will start, and this will progressively impact our capacity and to some extent our annual capacity.

[Sandeep Deshpande, Analyst at JPMorgan]

Thanks.

[Sandeep Deshpande, Analyst at JPMorgan]

I mean, a follow-up to that essentially, quickly on that, would be is your number of days in Q1 lower than in Q4, or is it anything different? My main question is about 2026 overall. I mean, on the revenue, do you have any new engaged programs with your customers which will improve revenue significantly, either in the first half or into the second half? Particularly, no.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

I confirm, Sandipa, that in Q1, Q1 will be shorter in terms of number of days than Q4. Q4 is longer in terms of days than the normal 91, and the calendar next year, Q1 will be shorter than the normal 91. It's a little bit the same trend that we have seen this year, let's say, in terms of calendar. Yes, I confirm that there is a shorter calendar in Q1.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

First of all, about next year 2026 Q1, with the current visibility, we.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Have.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

The loading of the backlog we have seen in Q3 and we are seeing today, but we don't see a specific reason why we will not be at the usual seasonality of Q1 revenue versus Q4, which is generally speaking really slightly above minus 10%. Moving forward, of course.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

But.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

It's evident depends on market dynamic. I would like to say that for 2026, first of all, in the second half we will clearly see the normalization of inventory everywhere. We really expect that in H2 2026 we will have no other inventory point number one. Point number two, next year compared to 2025, the silicon carbide will be a year of growth because 2025 is a year of transition where basically we have cumulative headwinds related to one specific customer, some program not going at the expected speed in Europe. You know, we are not specially still present in China, but seek next year will be a growth driver. After, we have our exposure to fast growing segment clearly that already give us sign of growth like advanced driver-assistance systems with our main customer that already provided some, let's classify, upside and MEMS as well.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Definitively one point is our increasing content in terms of value and silicon in our main customer. All in all, we do believe that Q1 we have no sign that the seasonality will be impacted by other factors that we do not control. In H2 we will be as well as the usual seasonality of growth H2 versus H1. Do we grow more like because this year we grew 23% and the usual seasonality is 15% H2 versus H1. Here we need to have a little bit more booking in Q1 and in Q2 to confirm.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

My takeaway is yes, we will have, let's say, idiopsychotic growth driver on top of the, let's say, upcycle of the market that we are seeing today, even if this upcycle market of automotive and industrial should be classified at this stage soft, and with some sub segments pretty dynamic like the one related to infrastructure.

[Sandeep Deshpande, Analyst at JPMorgan]

Thank you, thank you so much.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Very careful.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Moira, next question please.

[Operator]

The next question comes from the line of Jonathan from Jefferies. Please go ahead.

[Operator]

Hi, good morning. Thanks for taking the question. I just wanted to go back to the power discrete business where your margins are still very weak at minus 15% in the third quarter. What can be the drivers to improve that? You talked about silicon carbide improving in Q3, I'm sorry, in 2026. Would that revenue come mainly from your Sanan JV to Chinese customers? Will that help your overall profitability given low utilizations in Europe? Do you need to take any further action to try and improve the profitability there in power discretes, given the kind of competitive environment in that industry? My follow up is just a small clarification on a previous answer. Your 30 basis points-40 basis points of manufacturing inefficiency from the conversion and shutting down, etc.

[Operator]

Does that continue till you reach the end of that journey, which is when you fully close down your 200 mm and transition to 300 mm, or does that drop off before that?

[Operator]

Thanks.

[Jean-Marc Chery, President and CEO at STMicroelectronics]

Lorenzo, with a comment about the improvement driver of power discrete profitability, while Marco will comment on the dynamic of power and discrete revenue, because as I have already anticipated in my last answer. Clearly, silicon carbide for us in 2025 is a transition period. Lorenzo, you answered the last question well.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Yes, I can take it clearly. I will let Marco explain what are the drivers. At the end, let's say clearly next year we do expect a recovery in terms of the top line. At least we learned that this year we were impacted by a significant inefficiency in our manufacturing environment for the power and discrete in general, and for the silicon carbide in particular, due to the fact that we were working at a very low level of saturation for these steps. There are the following drivers that we expect to recover in terms of profitability. Having a higher level of revenues clearly will help to better load our infrastructure. Don't forget that silicon carbide will be the first to move, let's say in the course of next year from the 6 inch to the 200mm to the 8 inch.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

This will bring, clearly, some positive in the medium term in terms of profitability. Moving up in terms of revenues will improve significantly our expense to sales ratio that today has been impacted by the fact that revenues are quite depressed. At the end, these are the main drivers that we see together with the fact that we are improving and we are moving to the next generation of silicon carbide that gives also some benefit in terms of performance for what concerns the profitability. Before I pass to Marco, I just clarify the point of this extra 30 basis points on gross margin. Yes, this is mainly related to the duplication of mask related to the qualification of processes. This will continue.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

The amount will be more or less in this range for sure over the next part of 2026 and probably also in the second part, because we will continue with this program. This will probably be peaking in the first half of 2026, then it will go down. This is something that we need to expect to have as we have this activity, this activity to migrate our products from one fab that is going to be closed to another fab.

[Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group and Head of Strategy, System Research, Application, and Innovation Office at STMicroelectronics]

Okay, we take on the dynamics. We'll have basically two dynamics in 2025 that will help to start the growth. First of all, as Jean-Marc has said, during the first half of 2025 we will keep reducing and will be clean in terms of inventory in power in this grid. Here I'm speaking mainly about the non-silicon carbide portion. This will allow the market dynamics next year to restart having year-over-year growth, specifically on silicon carbide. As Jean-Marc has already anticipated, 2025 is a transition year. Meaning is that we are experiencing lower volumes and inventory correction from our main customers. I would like to underline this is happening while we still are maintaining stable our commercial contractual level of market share. This is happening since the beginning of 2025. During 2025 these dynamics are not yet offset by Europe and China.

[Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group and Head of Strategy, System Research, Application, and Innovation Office at STMicroelectronics]

There is yet not strong contribution from the electrification programs in Europe and China. During next year we will start seeing growth in these two regions that will help the 2026 overall growth of the silicon carbide versus 2025. I hope that this answers your question.

[Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group and Head of Strategy, System Research, Application, and Innovation Office at STMicroelectronics]

Yes.

[Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group and Head of Strategy, System Research, Application, and Innovation Office at STMicroelectronics]

Thank you very much.

[Jerome Ramel, EVP Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Jonathan. Thank you, everyone. This is ending our call for this quarter, so thank you for being with us today. We remain here at your disposal should you need any follow-up questions. Sorry for the ones that didn't have time to ask a question there. Thank you very much.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Participants

Executives

• Jerome Ramel, EVP Corporate Development and Integrated External Communication
• Jean-Marc Chery, President and CEO
• Lorenzo Grandi, President and CFO
• Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group and Head of Strategy, System Research, Application, and Innovation Office

Analysts

• Sandeep Deshpande, Analyst at JPMorgan
• Analyst at Jefferies
• Joshua Buchalter, Senior Equity Research Analyst at TD Cowen
• Stéphane Houri, Head of Equity Research at ODDO BHF
• Francois Bouvignies, Research Analyst at UBS
• Didier Scemama, Managing Director and Senior Analyst at Bank of America
• Tristan Guerra, Analyst at Baird