STMicroelectronics Q1 2025 Earnings Report

STMicroelectronics EPS Results

• Actual EPS: $0.07
• Consensus EPS: $0.05
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

STMicroelectronics Revenue Results

• Actual Revenue: $2.52 billion
• Expected Revenue: $2.55 billion
• Beat/Miss: Missed by -$34.03 million
• YoY Revenue Growth: N/A

STMicroelectronics Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 3:30AM ET

STMicroelectronics (NYSE:STM) N.V., together with its subsidiaries, designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through Automotive and Discrete Group; Analog, MEMS and Sensors Group; and Microcontrollers and Digital ICs Group segments. The Automotive and Discrete Group segment offers automotive integrated circuits (ICs), and discrete and power transistor products. The Analog, MEMS and Sensors Group segment provides industrial application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs); general purpose analog products; custom analog ICs; wireless charging solutions; galvanic isolated gate drivers; low and high voltage amplifiers, comparators, and current-sense amplifiers; MasterGaN, a solution that integrates a silicon driver and GaN power transistors in a single package; wireline and wireless connectivity ICs; touch screen controllers; micro-electro-mechanical systems (MEMS) products, including sensors or actuators; and optical sensing solutions. The Microcontrollers and Digital ICs Group segment offers general purpose and secure microcontrollers; and radio frequency (RF) products. It also offers application-specific standard products for analog, digital and mixed-signal applications. In addition, the company provides assembly and other services. It sells its products through distributors and retailers, as well as through sales representatives. The company serves automotive, industrial, personal electronics and communications equipment, and computers and peripherals markets. STMicroelectronics N.V. was incorporated in 1987 and is headquartered in Geneva, Switzerland.

STMicroelectronics Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, welcome to the ST Microelectronics First Quarter twenty twenty five 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 and A session. The conference must not be recorded for publication or broadcast.

[Operator]

At this time, it's my pleasure to hand over to Jerome Bramel, EVP, Corporate Development and Integrated External Communications. Please go ahead.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, everyone, for joining our first quarter twenty twenty five financial results call. Hosting the call today is Jean Marc Cheri, 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 Sensor Groups and Head of ST Microelectronics Strategy, System Research and Application and Innovation Office. The live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

This call will include forward looking statements that involve risk factors that could cause SG results to differ materially from management expectations and plans. 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 SGMO's recent regulatory filing for a full description of these risk factors. Also to ensure all participants have an opportunity to ask questions during the Q and 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 Cherie, ST President and CEO.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q1 twenty twenty five earnings conference call. I will start with an overview of the first quarter, including business dynamics and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q1.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In a persistently uncertain environment, our first quarter net revenues were in line with the midpoint of our business outlook range, driven by higher revenues in Personal Electronics, offset by lower revenues in Automotive and Industrial compared to expectations. Q1 gross margin was slightly below the midpoint of our business outlook range, mainly due to product mix. On a year over year basis, Q1 net revenues decreased 27.3% to $2,520,000,000 Gross margin decreased to 33.4% from 41.7%. Operating margin decreased to 0.1% from 15.9% and net income decreased 89.1 to $50,000,000 50 6 million dollars Let's now discuss our business dynamics during Q1. In Automotive, we expect Q1 to be the low point of our Automotive revenues.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

During the quarter, we saw lower revenues across all geographies. The current situation on trade and tariffs is creating uncertainty in car production levels, leading to a slight downward revision of forecast for the year, more pronounced for Electrical Vehicle volumes. Despite this, our book to bill ratio was above 1%. In dollar terms, bookings were also up significantly quarter on quarter. During the quarter, we continued to execute our strategy in car electrification.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We had wins with both silicon carbide and silicon devices and modules for new onboard charger and traction inverter designs as well as with our Smart Power and SmartFuse solutions for electric vehicle power systems. We remain focused on solid execution in power and discrete for car electrification in the continuing challenging market environment. In car digitalization, we saw further traction with our portfolio of automotive microcontrollers. Automotive microcontrollers are one of our revenue growth drivers beyond the medium term horizon. We are confirming strong progress in executing our roadmap with many new products set to launch in 2025 and in 2026 across our STELAR and STM32A product families.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We're also continuing to see strong designing momentum in China, EMEA and The Americas with both large scale OEMs and Tier 1s. During Q1, our Stellar P microcontroller family was selected in a dual inverter powertrain application by a fast growing OEM in China. And we continue to expand our business with our current high volume automotive microcontrollers in applications like high vacuum air compressed systems. To support the challenges of developing software defined vehicle, we recently announced our Extermeasible Memory offer for stellar microcontrollers. ST's proprietary PCM technology enables the smallest memory cell size for the automotive market.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thanks to this, our customer can benefit from increased headroom to continuously innovate their products over time and in the field, while also simplifying logistics. In ADAS, we saw our customer Mobileye IQ 6H being adopted to improve safety and driving comfort in high volume vehicles. This enables entry driving, smart parking and improved occupant and pedestrian detection with a single integrated system. We also introduced our newest family of global navigation satellite system, receivers aimed at advanced driving systems for ADAS and autonomous driving. They are the industry's first to integrate multi constellation and a quad point signal processing in a single die.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

With our automotive grade sensors, we have a number of wins for ADAS vehicle, angle detection and occupancy monitoring applications. Also, this is a clear growth opportunity for us in the mid term. In Industrial, we expect Q1 to be the low point in terms of revenues. In Q1, orders were also up versus Q4 and overall inventory decreased, particularly for Smart Industrial and to a lesser extent Power Energy. By region, the improvement in inventory was driven by Asia, while we have not seen a significant improvement in Europe and in Americas.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Our book to bill ratio was above one. During the quarter, we had wins for our power and analog portfolio across a range of applications. This included motor control, industrial drives, white goods, solar panels, air conditioning and data switches. At the March, we signed a development and manufacturing agreement for gallium nitride technology with Innoscience. It includes a joint development initiative on GaN power technology as well as a reciprocal agreement allowing each company to use the other front end manufacturing capacity.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

This allows ST to accelerate our roadmap in GaN power technology to complement our silicon and silicon carbide offering. For ST, this is a further step in the China for China operating model coming on top of the joint venture with Salon for front end manufacturing of silicon carbide and the foundry agreement with ACF Grace on multiple technologies including 40 nanometer node. In embedded processing, our SCM32 microcontrollers continued to gain traction with the broad developer community. Facing the current challenging market conditions, we were able to reconfirm our number one ranking on the general purpose microcontroller market in 2024. With a market share that has consistently grown sequentially from Q2 twenty twenty four onward.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In 2024, our software ecosystem grew 30% to over 1,300,000 unique users and we continue to see a strong growth trend in the first quarter of twenty twenty five. '1 area of particularly strong growth is in edge AI projects developed on our tools. Over the past twelve months, we saw over 160,000 projects more than twice the number in the previous twelve months. We continue to reinforce our portfolio and ecosystem with new innovative products leveraging our proprietary 14 nanometer and 18 nanometer process node technologies. In twenty twenty five-twenty twenty six, we plan to introduce 18 new lines leveraging embedded non wall light type memory technologies at and below 40 nanometer.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Between '25 and '27, the percentage of our STM32 revenue coming from this advanced product at 40 nanometer and below will double, reinforcing our leadership in this market segment. Based on our design in momentum, we are equipped to grow faster than the market going back to well above 20% market share. In Personal Electronics, Q1 was slightly better than expected, while Communication Equipment and Computer Peripherals was in line with our expectations. Here, our engaged customer programs are progressing to the plan. Our high level of innovation and ability to execute with MEMS and optical sensing as well as with our analog technology portfolio are a key competitive advantage enabling us to win and grow our business.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

And our specialized proprietary technologies also position us for growth in low earth or mild satellites and data centers. For example, during the quarter, we introduced new technologies to enable higher performance optical interconnect in data centers and AI clusters. Our silicon photonics and next generation BiSimOS Popularity technologies bring better performance to address the ongoing evolution of optical interconnect for customers like Amazon Web Services. Well, finally, in terms of corporate development activities, during Q1 ST announced the detail of its three years program to reshape the manufacturing footprint and resize the global cost base. We also confirmed the annual cost savings target in the high triple digit million dollar range exiting 2027.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

The reshaping and modernization of ST's manufacturing operations aim to achieve two main objectives: Preutilizing planned investment towards future RID infrastructure such as 300 millimeter silicon and 200 millimeter silicon carbide wafer fabs to enable them to reach a critical scale and maximizing the productivity and efficiency of legacy 150 millimeter capabilities and mature 200 millimeter capabilities. This program is expected to see up to 2,800 people leaving the company globally on a voluntary basis over three years on top of normal attrition. This is expected to occur mainly in 2026 and 2027. To conclude, for sustainability, we issued our first annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2024.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We remain on track for our commitment to becoming carbon neutral by 2027 on Scope one and two and on Product Transportation, Business Travel and Employee Commuting for Scope three. Our carbon neutrality program includes a concurrency strategy covering the reduction of direct and indirect greenhouse gas emissions and the sourcing of 100% renewable electricity by 2027. Now over to Lorenzo, who will present our key financial figures.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Thank you, Jean Marc. Good morning, everyone. Before commenting Q1 results, let me remind you that following ST's reorganization into two product groups and four reportable segments announced in January 2024, we have made further progress in reorganizing our global product portfolio. This results in some adjustment to our reportable segments effective starting 01/01/2025, without modifying subtotals at product group level. Therefore, from Q1 twenty twenty five, we report revenues and operating income according to those four adjusted reportable segments.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

For more details, please refer to the appendix of the earnings press release we published today. And now let's start with a detailed review of the first quarter, starting with revenues on a year over year basis. By reportable segments, Analog Products, MEMS and Sensors, AMS, was down 23.9%, mainly due to a decrease in Analog. Power and Discrete Products decreased 37.1%. Embedded Processing, A and P, revenues declined 29.1, mainly due to general purpose and automotive MCU.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

RF and optical communication declined 19.2%. By end market, automotive declined by about 39%, industrial by about 32%, personal electronics by about 11% and communication equipment and computer peripheral increased by about 1%. On a year over year, sales to OEMs decreased 25.731.2% to distribution. On a sequential basis, revenue decreased 20.7% in AMS, 34.1% in Power Discrete, 26% in A and P and 16.5% in RF and OC. By end market, automotive declined by about 34%, industrial by about 18%, personal electronics by about 17% and communication equipment and computer peripherals by about 40%.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Turning now to profitability. Gross profit in the first quarter was $841,000,000 decreasing 41.7% on a year over year basis. Gross margin was 33.4%, decreasing eight thirty basis points year over year, mainly due to product mix and to a lesser extent to higher unused capacity charges and lower sales price. Total net operating expenses, excluding restructuring, amounted to $830,000,000 in the first quarter. This was better than anticipated, reflecting the continued strict monitoring of our expenses in the current market environment.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

In the second quarter of twenty twenty five, we expect net OpEx to stand between $860,000,000 and $870,000,000 a 6% year over year decline. As a reminder, these amounts are net of other income and expenses and exclude restructuring. First quarter operating income was $3,000,000 Q1 operating margin was 0.1% with AMS at 7.7%, P and D minus 6.9%, E and P at 8.9% and RF and OC at 13.9%. Q1 twenty twenty five net income was $56,000,000 compared to the $530,000,000 in the year ago quarter. Earnings per diluted share were $06 compared to the $0.54 Net cash from operating activity decreased 33.2% in Q1 to $574,000,000 First quarter net CapEx was $530,000,000 compared to the $967,000,000 in Q1 twenty twenty four.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Free cash flow was positive $30,000,000 in the first quarter compared to a negative $134,000,000 in the year ago quarter. Inventory at the end of this quarter was 3,010,000,000 compared to the $2,690,000,000 in Q1 twenty twenty four. Days of sales of inventory at the quarter end was one hundred and sixty seven days, in line with our expectation compared to one hundred and twenty two days for both the previous quarter and the year ago quarter. Cash dividend paid to stakeholders in Q1 twenty twenty five totaled $72,000,000 In addition, executed share buyback of $92,000,000 ST maintained its financial strength with a net financial position that remained solid at $3,080,000,000 as of 03/29/2025, reflecting total liquidity of $5,960,000,000 and total financial debt of $2,880,000,000 Now back to Jean Marc, who will comment on our outlook.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thank you, Lorenzo. Now let's move to our business outlook for Q2 twenty twenty five. In the first quarter, our book to bill ratio improved with both automotive and industrial above parity. We are expecting Q2 twenty twenty five revenues at $2,710,000,000 plusminus three fifty basis points. At the midpoint, our Q2 twenty twenty five net revenues will decrease by 16.2% year over year and increase 7.7% sequentially.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We expect our gross margin to be about 33.4% plusminus 200 basis points impacted by about four twenty 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. For the full year 2025, considering the level of uncertainty for the economy globally and for ST end markets specifically, we are not providing an indication for the full year 2025 revenues. We plan to maintain our net CapEx plan for 2025 between $2,000,000,000 and $2,300,000,000 mainly to execute the reshaping of our manufacturing footprint. To conclude, while we see Q1 twenty twenty five at the bottom, in the current uncertain environment, we are focusing on what we can control.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We are maintaining strict expense control while protecting R and D, continuously innovating to enhance and accelerate the competitiveness of our product and technology portfolio. We are on track with our company wide program to reshape our manufacturing footprint and we confirm that the cost savings target is in the high triple digit million dollar range exiting 2027. ST medium term growth drivers remain solid. Specifically, they will come from MEMS and optical sensing solutions, general purpose microcontrollers, analog and device for low earth or mild satellite communication. While we see a lower and delayed growth in power and discrete due primarily to the well known electrification market dynamics.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We anticipate additional further growth beyond the medium term horizon, thanks to automotive microcontrollers and AI applications at the edge and for power management and cloud optical interconnect in data centers and AI clusters. We will do so by leveraging our product and technology portfolio and roadmap and our competitive reshaped manufacturing footprint. Thank you. And we are now ready to answer your questions.

[Operator]

We will now begin the question and answer The first question comes from Francois Bouvigny from Bouvigny. Please go ahead.

[Francois Bouvignies, Director - Equity Research at UBS Group]

Thank you very much. So the first question that is in everybody's mind and you saw it with TI yesterday is how much your Q2 is driven by tariff pulling? So effectively, you are plus 7% quarter on quarter guiding on the revenue side. And I was wondering if you saw any strange behavior or unusual behavior as maybe the industry is trying to get some inventories ahead of a tariff. So just wanted to have your view on that.

[Francois Bouvignies, Director - Equity Research at UBS Group]

If you could provide any data that you have seen during the quarter that would support any pulling or not would be helpful. That's my first question.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

No. We have not seen a specific pulling update on the tariff. The Q2 forecast and guidance has been built smoothly in Q1 with our backlog we had entering in the year plus a booking plan that has been achieved on a very linear So no specific pull in, okay, due to tariff for Q2.

[Francois Bouvignies, Director - Equity Research at UBS Group]

Thank you, Jean

[Francois Bouvignies, Director - Equity Research at UBS Group]

Marc. And maybe, yes, the second question is on your inventories. I mean, if I look at your inventory in the balance sheet, it's back to all time high from when I look at my model, both on the absolute side on the days of inventories. And I was wondering what does it mean for the gross margin because it looks like it will take some time to clear these inventories. And with the uncertain environment on the top line, I was just wondering, the consensus having gross margin increasing significantly in H2, is it fully realistic, I mean, to have a significant improvement in gross margin given where the inventories are?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

I take this question about the inventory. Yes, it's true that our inventory in ending Q1 is, let's say, at one hundred and sixty seven days is actually, let's say, on the high side. But this was expected, as you know, let's say, the revenue in Q1 also due to the particularly in unfavorable calendar, the length of the quarter was a little bit, let's say, was lower than our normal trend. But at the end, do expect to start already in this quarter to reduce the level of our inventory. We expect it to go slightly down in term of days, more in the range of one hundred and sixty days, consider that during this quarter, we are also preparing the ramp up for the personal electronics for So yes, clearly, let's say, we have a path of reduction of this inventory, let's say, over the year.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Then I would say that, yes, clearly, this is something that we are monitoring strictly. And indeed, also during this quarter, we will have in one of our sites still one week of closure in order to keep under control this level of inventory.

[Francois Bouvignies, Director - Equity Research at UBS Group]

And what does it mean for gross margin for H2? I mean, if it was coming down, does it mean that gross margin will can it go up as well?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

In Q2, our guidance for the gross margin as you have seen is substantially to stay flat in respect to the first quarter. There are few components of this dynamic of the gross margin. On one side, it's clearly, let's say, the gross margin is impacted negatively by the manufacturing efficiency that we had during Q1. Manufacturing efficiency during Q1 was impacted by the significant number of days of closure that we have done in our fabs and in our back end plant. You know that when you have this kind of, let's say, actions to close the sites, not all the efficiency, let's say, not all the negative impact of disclosure is captured by the unloading charges.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

There are some impact that is negatively impacting the efficiency, and this is reflected in the dynamic of the second quarter gross margin. On top of that, there is an unfavorable impact on the euro dollar moving from 1.06 to 1.08. This is offset on the other side by the improvement in the product mix. Product mix is improving as personal electronics is declining, automotive is improving in the second quarter, it's improving also industrial. This is offsetting, let's say, the negative impact that we have related to the manufacturing that rightly you say is coming from substantially from our inventory.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Why I would say that in term of pricing, we don't see any significant high pressure in term of pricing. It's the normal trend that usually we experience quarter after quarter.

[Francois Bouvignies, Director - Equity Research at UBS Group]

You very much.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Francois Xavier. Moira, can we move to the next question please?

[Operator]

Yes, sir. The next question is from Jean Robert Menon from Jefferies. Please go ahead.

[Janardan Menon, Managing Director at Jefferies India]

Yes. Hi, good morning. Thanks for taking the question. Yesterday, going back to Texas Instruments, they were sounding quite bullish about the industrial business. They said that they're seeing a broad recovery across segments and geographies and all their customers are at low levels of inventory.

[Janardan Menon, Managing Director at Jefferies India]

Those comments seem a little bit more bullish than the comments you've just made today on industrial. I'm just wondering why there would be a difference between the two. Is it that they have a more direct sales model and we'll see the improvement in the earlier than through the distribution channel where you are selling some more? And when we talk about second half, would the level of recovery of industrial microcontrollers be a key factor, the level of in terms of your gross margin outlook into the second half?

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So I take the question for the revenue. Well, it is clear that for Industrial, we see some positive trend. I repeat that our Q1 book to bill was above one. In terms of orders, dollar, okay, we were also up. More clearly, we have seen some inventory down in the Smart Industrial and to a lesser extent in Power and Energy.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

And also we see some positive dynamic by region, so especially in Asia, but still no improvement in Europe, particularly in America. So it's point number one. Point number two, you know that our industrial market, let's say, go to market is mainly related to general purpose microcontroller. And there is still a situation of over inventory on general purpose going in the right direction, but at a slower pace than what we expected, okay, a few months ago. Well, about H2, well, as I have said, we will not provide any indication about H2.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Why? Because of the uncertainty of the environment, the low visibility we have. But however, okay, we already communicated that we are pretty confident about our engaged customer program in personal electronics and in communication equipment and computer peripheral. Definitively, this increase in H2 versus H1 related to this engaged customer program will not represent the full H2 growth versus H1. Another part, okay, should be related to industrial market definitively, but it's too early to confirm this indication.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

But it is something that probably will happen.

[Janardan Menon, Managing Director at Jefferies India]

Understood. But you are confirming that Q1 is the bottom in Industrial, so it should be higher than Q1 at least?

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We confirm Q1 is the bottom in Industrial, yes.

[Janardan Menon, Managing Director at Jefferies India]

Thank you.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Any follow-up to Nadenh?

[Janardan Menon, Managing Director at Jefferies India]

So if the second half is on the personal electronics where you have engaged customer ramp into the second half. And just going back to the gross margin issue where your personal electronics has lower gross margins than industrial automotive. So just from that perspective, would the level of improvement, all things being equal, just assuming that there is no big tariff impact in the second half, would your gross margin improvement be somewhat more muted?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

In the second part of the year, clearly, at this stage, it's a little bit difficult to give any precise indication in terms of gross margin where we will land. But clearly, we have some elements that we can share with you. Clearly, the impact of the growing in terms of personal electronic and with the significant content in terms of silicon will definitely help significantly our, let's say, reduction in terms of unloading charges and also improving in our manufacturing efficiency. And this is clearly a positive benefit that we will have in the second part of the year. Clearly, in the second part of the year, as we were mentioning before, there will be improvement, expected improvement in the Industrial that is very accretive for us in terms of gross margin.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

So I would say that these elements are elements that are supporting for us some, let's say, expected improvement moving from the first half to the second half. Clearly, let's say, there are also some headwinds that we have to take into consideration. One may be the dynamic of FX that clearly, let's say, in this environment is not, let's say, helping us. And the other element that we have to take into consideration is the fact that as we have said many times, the capacity reservation fees will progressively go down, also moving from the first half to the second half. Anyway, I have to say that it's fair to say that, let's say, the level of gross margin that we have seen in Q1 and in Q2 will be the bottom for our gross margin.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Gross margin will improve moving Q3 and Q4.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So finishing on this year, the revenue, what I can confirm to you is that company will grow revenue at the midpoint of our guidance 7.7%. Well, Industrial will do as well, very similar than the average of the company in terms of growth. The main detractor of the growth of Q2 versus Q1 is the usual seasonality for ST on personal electronics. But it's a good sign that for the first time since many quarters now that sequentially the industrial market we address will grow about 8% sequentially.

[Janardan Menon, Managing Director at Jefferies India]

That's very clear. Thank you so much.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Jonathan. And Moira, we can move to the next question please.

[Operator]

The next question is from Joshua Buchalter from TD Cowen. Please go ahead.

[Joshua Buchalter, Director - Equity Research at TD Cowen]

Hey guys, thank you for taking my question. I appreciate all the color on the inventory on the balance sheet. I was wondering if you can maybe provide additional details on how you're viewing downstream inventory in the channel. I think you had been mentioned entering the year, you were sort of at two months more than you were hoping. Was there any progress on that front in aggregate getting channel inventory lower during the quarter and sort of where you see things now?

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Yes.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Yes, I take this question about the inventory. This time inventory that you are mentioning is the inventory in the channel. But during the last quarter in Q1, we have seen substantially one dynamic, very clear, reduction of inventory in the channel, mainly in Asia. This was, let's say, evident while for what concern EMEA and America, we have not yet seen any significant reduction of our inventory in the channel. Let's say that today, even if we have seen, let's say, some improvement in the course of last quarter, still we have some excessive inventory in the channel.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

This is clear. We do expect, let's say, that in Q2, with this dynamic in term of industrial and expectation of our, let's say, POS, so the sales of our distributor to our final market to have a significant step down in term of inventory. So for the time being, what I can say is that, yes, there is still some excess of inventory. This inventory should progressively go down, let's say, this excess of inventory should progressively go down to a normal, let's say, situation already starting in the current quarter.

[Joshua Buchalter, Director - Equity Research at TD Cowen]

Okay. Thank you for the color there. And then maybe Jean Marc, I was hoping you could comment bigger picture on how you feel ST's position to sort of handle the backdrop where the global trade environment is different than it has been in the past, in particular from a manufacturing standpoint. Have your conversations with your customers changed much over the last few weeks? I know you're not guiding any changes, but I'd be curious to hear how your customers are viewing you guys given your significant manufacturing footprint internally, but also it being in Europe, like are you viewed as sort of a neutral third party in this?

[Joshua Buchalter, Director - Equity Research at TD Cowen]

Or any details you can give us on the flexibility of your manufacturing footprint across your locations would be helpful as well. You.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

No, we have engaged since many quarters now adjustment of our manufacturing footprint. Basically, is two legs. One is the most visible one clearly is our China for China strategy where now we have with our joint venture, we sell a wafer fab that will be ready by end of the year for mass production for silicon carbide. We have this strategic agreement with Innoscience for GaN. And then, okay, we have a long term agreement with HASHIS Grace, both for microcontroller, analog technology and other power.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So clearly, first, okay, we have worked since many quarters to have a China for China manufacturing infrastructure and ecosystem. Then with our customer, with already anticipated the reverse dynamic means we move already in our wafer fab either in Europe or in Singapore and respectively from our assembly plant and test out of China or out of Taiwan, thanks to our infrastructure in The Philippines, in Malaysia, in Malta and in Morocco. Honestly and transparently, what happened early April didn't change drastically anything. We have not seen any panic about customer or immediate reaction. I think, okay, it's urgent to wait and see because, okay, adaptation of the supply chain or decision to modify or structurally the supply chain is very easy EV, sorry EV, sorry, in term of qualification, in term of transfer of product and so on and so forth.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So we have not seen immediate reaction or very, let's say, classified emotional reaction about that. But I repeat, we have engaged a modification of our footprint structurally since many, many quarters. That's the reason why, okay, of course, we are waiting what will happen moving forward. But we do believe that the company is well equipped to face, okay, this situation.

[Joshua Buchalter, Director - Equity Research at TD Cowen]

Thank you.

[Joshua Buchalter, Director - Equity Research at TD Cowen]

You. Appreciate all the color.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Georges. Moira, we can move to the next question, please.

[Operator]

The next question comes from Stephane Urie from ODDO BHF. Please go ahead.

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

Yes. Good morning. I have a question about your comments on the automotive market. Could you maybe clarify what's your vision about your own revenues on the automotive side this year versus the market? And also you made the difference between electrification and let's say the bulk of the market.

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

Could you clarify this for us? Thank you very much.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Well, in Q1, so we have seen lower revenues in all geographies for automotive and including a mild downward revision for the forecast of the year because you know that automotive industry drivers with a frame order backlog. And clearly, this behavior is more pronounced on electrical vehicles. Well, the positive point is that at the same moment in Q1, our book to bill ratio was above 1% for specifically automotive. And in terms of dollar terms, the booking were also up quarter on quarter. The other positive point for 2025 is we believe that one risk factor has been alleviated.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So the one in Europe because now European Union is proposing some smooth approach, okay, on the three year flexibility for the carmaker to comply with CO2 standard. Now of course, we will wait for the vote, but this is a good news. However, we believe that the current situation on trade and tariff is creating uncertainty on the level of car production clearly and there is still some other risk factor. So taking into account, okay, all this situation, we believe that Q1 is a low point for automotive. Excluding the capacity reservation fees, we expect our auto revenue will decline unfortunately in 2025 versus 2024.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

And you know that the capacity reservation fee will decline substantially in 2025 versus 2024 by almost $300,000,000 Yes. So takeaway is Q1 is the bottom. Full year revenue should decline versus 24,000,000 We have the indication for that. Well, there is still some risk around the production of car. We know that some analysts provide a forecast at 92,400,000 of car produced in 2025, so a slight increase.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

But here, we prefer to remain cautious and wait what will happen in the next few weeks, especially related to the tariffs.

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

Okay. And just a quick follow-up. I know you're not guiding for 2025 obviously, but you haven't changed your CapEx budget, which in general means that basically the outlook according to you hasn't really changed. When you look at the consensus, you see a very strong increase in H2 versus H1, 20% to 25%. Does it mean that this kind of evolution in the second half is still possible?

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Well, there is two points is your question. Well, first of all, I would like to clearly repeat that the main purpose of the CapEx this year is to enable our reshaping plan. We will disengage from 150 millimeter fab and we will disengage from 200 millimeter fabs. That's the reason why, okay, we need to increase our capacity on 300 millimeter fab silicon, respectively 200 millimeter fab silicon carbide is point number one. And to have them at the right scale because it will be a booster for our gross margin.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Respectively, a 300 millimeter fab silicon is much more efficient than a 200 millimeter one and the same for a 200 millimeter silicon carbide. So the first objective of our capital expenditure this year is to enable our reshaping plan. Well, definitively, some part of the CapEx has been dedicated to, as an example, an exchange. The device, okay, that will be introduced as one of the main engaged customer program for H2 in personal electronics, which is an increasing dollar in silicon content in the application, has requested some CapEx to be spent in Q1. So one part of the CapEx of course is mix adaptation, but it is also valid in test and finishing as well.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So I repeat for 2025, the CapEx is mainly sub mix adaptation, which are let's say awarded to us and true. And the main part of the CapEx is to prepare our plan to grow in 2026, '20 '20 '7 in a different reshape manufacturing footprint. This is really the objective of the CapEx. So that's the reason why okay we still give this €2,000,000,000 to €2,300,000,000 range. Well, you see that in Q1, we are basically slightly above $2,000,000,000 run rate.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Well, about H2, well, again, we don't give any indication. We have some visibility. We have a backlog. But you know now our backlog except the normal terms and condition of our sales contract, the backlog is not particularly protected. So could be canceled in case, okay, something happen at the economy, okay, for end of the year or 2026.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So that's the reason why, okay, we have been cautious. However, what we can say, we can say that taking into account our engaged customer program, taking into account what I say on automotive that Q1 is a bottom. Even if the full year will not show a growth, taking into account the trend of the inventory on Industrial, we should expect to have H2 better than H1.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thank you.

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

Okay. You very much.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Mario, can we move to the next question please?

[Operator]

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

[Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase]

Yes, hi. Thanks for letting me on. My first question is about tariffs. There have been some retaliatory tariffs from China on U. S.

[Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase]

Product as such. Does this has SDC had any impact because of these retaliatory tariffs on their demand for for their your product from China at all? And whether there have been any changes in the environment because of this? And I have a quick follow-up.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Sandeep, can you repeat the question, please?

[Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase]

Yes. My question is about the Chinese retaliatory tariffs on product from The U. S. As such really. Given that the retaliatory tariffs, there could be potential for tariffs on U.

[Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase]

S. Semiconductor companies shipping into China. So does this have any potential impacts on ST Micro?

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Well, as I told you, it is clear that with the current situation on tariff, our peers that are the fabs in U. S. For sure will be or could be penalized with some customer. But again, our American peers generally speaking are supplying to Chinese customer product with value and with some stickiness. So again, I repeat what I have said a few minutes ago, we don't see immediate panic reaction or emotional reaction versus the situation.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Why? Because indeed the situation is frozen for some days now. I do believe that customers and partners are waiting all the situation. We'll move forward. But definitively, let's remain pragmatic.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

If some customer came to us and has taken decision in the past to allocate socket to our competitor for various reasons. And if today our product comply with the specification and comply in term of performance and price and so on, yes, certainly, we will acknowledge some trend that ST could be a new vendor solution taking into account this tariff increase for American peers in China.

[Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase]

Thank you. And my quick follow-up is on again on your auto business. Can you talk about how your share has evolved at your major silicon carbide customer in the first quarter? And if we can assume that any share loss that has occurred has already been factored into numbers or whether we will see further share loss at that customer through the rest of this year?

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

I will comment and Marco Cassis will complement. So what we say, we have repeated since a few quarters. The way we have established, okay, the business relation with our main customer for silicon carbide was a warranty about some share, okay? And it is automotive industry. And for automotive industry, it's a normal, let's say, process to have multi source, to have at least two source.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So for us, it was super well known that at a certain moment, okay, when the second source will be qualified and efficient, okay, our main customer will manage his manufacturing and supply chain with two sources. We are in this situation. So we have absolutely not lost market share because of any reason, okay? We are simply coming back on a normal share consistently with what we contractually signed, okay, with our customer. Well, then after, okay, where we pay attention is more about volume of car sold by our main customer, production, inventory and so on and so forth.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

But here, okay, you know we cannot comment. So, Martin, you want to add something?

[Marco Cassis, President of Analog, Power & Discrete, MEMS & Sensors and Head of Strgy, Syst Res & Apps, Innovation at STMicroelectronics]

No, I just confirm what you just said. We moved towards the contractual market share that we have with our major customers, and there will be no erosion of market share going forward. And on the longer trend, we confirm that we will be present in the silicon carbide market at least with a 30% or above market share overall.

[Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase]

Thank you.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Sandeep. Unfortunately, we don't have any time for more questions. This is ending our call for this quarter. Thank you very much all of you for being there and we remain here at your disposal should we need any follow-up questions. Sorry for the one that didn't have time to ask the question there.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you very much.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Bye bye.

[Lorenzo Grandi, President and CFO at STMicroelectronics]

Thank you. Bye.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thank you. Bye.

Participants

Executives

• Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication
• Jean-Marc Chery, President, CEO & Member of Managing Board
• Lorenzo Grandi, President and CFO
• Marco Cassis, President of Analog, Power & Discrete, MEMS & Sensors and Head of Strgy, Syst Res & Apps, Innovation

Analysts

• Francois Bouvignies, Director - Equity Research at UBS Group
• Janardan Menon, Managing Director at Jefferies India
• Joshua Buchalter, Director - Equity Research at TD Cowen
• Stephane Houri, Head of Equity Research at ODDO BHF
• Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase