STMicroelectronics Q2 2025 Earnings Report

STMicroelectronics EPS Results

• Actual EPS: $0.06
• Consensus EPS: $0.10
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: N/A

STMicroelectronics Revenue Results

• Actual Revenue: $2.77 billion
• Expected Revenue: $2.71 billion
• Beat/Miss: Beat by +$58.79 million
• YoY Revenue Growth: N/A

STMicroelectronics Announcement Details

• Quarter: Q2 2025
• Date: 7/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 3:30AM ET

STMicroelectronics (NYSE:STM), 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: ST reported Q2 revenues of $2.77 billion, beating the midpoint of its outlook by $56 million thanks to stronger-than-expected Personal Electronics and Industrial sales.
• Neutral Sentiment: Automotive revenues grew 14% sequentially but book-to-bill fell below parity due to a customer-specific shift; ST expects further sequential growth in Q3 and a return to year-over-year gains in Q4.
• Positive Sentiment: Industrial segment outperformed expectations with sequential and year-over-year growth, book-to-bill above 1.0, normalizing channel inventory and a forecast for continued sequential gains in Q3.
• Negative Sentiment: GAAP net loss was $97 million in Q2, including $190 million of impairments and restructuring, resulting in negative free cash flow of $152 million and elevated inventory days.
• Neutral Sentiment: Q3 guidance calls for revenues of $3.17 billion (up 14.6% sequentially, down 2.5% year-over-year), a gross margin around 33.5%, operating expenses of about $860 million, and 2025 CapEx of $2.0–2.3 billion.

Presentation

[Operator]

Ladies and gentlemen, welcome to the ST Microelectronics Second Quarter twenty twenty five Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Geraint Ramel, EVP Corporate Development and Integrated External Communications. Please go ahead.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you, Myra. Thank you everyone for joining our second quarter twenty twenty five 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 Grande, President and CFO and Marco Cassis, President, Analog Power and Discrete, MEMS and Sensor Group and Head of ST Microelectronics Strategy, System Research and Application and Innovation Office. These live webcasts and presentation materials can be accessed on Investor Relations website.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

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 ST's results to differ materially from management's 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 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 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 Chery, ST President and CEO.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q2 twenty twenty five earnings conference call. I will start with an overview of the second 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. So starting with Q2.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

We delivered revenues at $2770000000.00.56000000 dollars above the midpoint of our business outlook range with Automotive slightly below our expectations, which was customer specific, more than offset by higher revenues in Personal Electronics and Industrial. Gross margin of 33.5% was in line with the midpoint of our business outlook range. Let's now discuss our business dynamics during Q2. In Automotive, during the quarter, we grew revenues about 14% sequentially, driven in particular by Asia Pacific excluding China and The Americas. Our book to bill came back below parity driven by some specific customer dynamics.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

While the current situation on trade and tariffs is creating uncertainty on the level of car production, we confirm that Q1 was a low point for automotive revenues. We expect sequential growth in the third quarter versus the second quarter. During the quarter, we continued to execute our strategy for car electrification. We had wins with both silicon carbide and silicon devices and modules for multiple new DC DC converter and onboard charger designs, as well as with our Smart Power and SmartFuse solutions for electric vehicle power systems. In a continuing challenging automotive market environment, we remain focused on building our pipeline of business and solid execution of our roadmaps in Power and Discrete for car electrification.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

In car digitalization, we saw further traction with our portfolio of automotive microcontrollers. We are making good progress in executing our road map with many new products set to launch in 2025 and 2026 across our air based Stellar and STM32A product families. We are also continuing to see strong design win momentum globally with both large scale OEMs and Tier one suppliers. One significant win in Q2 was for a one box braking system by a leading electric vehicle maker in China. Moving to legacy applications, where we have a broad portfolio of application specific products based on our smart power technologies and leading position in multiple domains such as airbags, door zone and braking solutions.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

A notable win here was a high volume airbag solution with a world leader in automotive electronic safety systems, the third generation of a long term partnership. With our automotive grade sensors, we continue to see strong design in momentum and opportunities. Wins in the quarter included MEMS sensors for ADAS, airbag control and infotainment systems as well as an imaging sensor for in cabin monitoring. There are also a growing number of opportunities for sensors to improve the driving experience with applications such as road noise cancellation, occupancy monitoring and seat position sensors. In Industrial, Q2 revenues were above expectations with strong sequential growth and continued year over year improvement, confirming that Q1 was the bottom.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

I would also like to highlight that specifically for general purpose microcontrollers, we are back to year on year growth. In terms of months of inventory in distribution overall, we are now back to a normal situation in China, close to normalization in other Asian countries and improving, but still above normal in other geographies. In Q2, our book to bill ratio remained above 1% and bookings continued to increase sequentially, supporting our expectation of further sequential growth in the third quarter compared to the second quarter. During the quarter, we made strong progress with our designing activity for our power and analog portfolio across a range of applications. These included power systems, industrial fans and drives, motor control, white goods, solar inverters, air conditioning, metering and power for data servers.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

For data servers, we announced that we are working closely with NVIDIA on a new high power density DCDC architecture for AI data centers that will operate at 800 volt DC. This will enable higher power density, more compact designs and a lot less cabling and metal ports. To deliver the needed solution, ST is putting together a combination of its most advanced technologies enabled by silicon materials, silicon carbide and gallium nitride as well as smart power processes like BCD using galvanic isolation. Our portfolio of industrial sensors also gained momentum in applications like container tracking, white goods and livestock monitoring. Moving to embedded processing.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Our SCM32 microcontrollers have continued to gain traction with the broad developer community. Use of our software ecosystem continues to grow strongly and we are now close to 1,500,000 unique users on a twelve month following basis versus the 1,300,000 unique users for 2024. As mentioned earlier, in Q2, we were back to year over year growth for our general purpose microcontrollers with both sequential and year over year growth in the high teens. This confirms the strength of our product portfolio and our global ecosystem. In Personal Electronics and to a lesser extent in Communication Equipment and Computer Peripherals, Q2 revenues were above our expectations.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

We continue to be excited by growth opportunities in our engaged customer programs, driven by both increased content in Personal Electronics and the expanding low earth orbiting satellite market. In terms of corporate development activities, at the May, we held our Annual General Meeting of Shareholders. All proposed resolution were approved by the shareholders. For sustainability, we have received two notable recognition for our public commitments, reporting and environmental and social performance. ST has been recognized in the Time World's Most Sustainable Companies list for the second consecutive year.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

We have been ranked twenty fifth most sustainable company globally and first in the electronics, hardware and equipment category. We have also been recognized for leadership on climate and water security by the global environmental non profit CDP with a place on its A list for tracking climate change and a rating of A- for water security. Now over to Lorenzo, who will present our key financial figures.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Thank you, Jean Marc, and good morning everyone. Let's start with a detailed review of the second quarter, starting with the revenues on a year over year basis. By reportable segment, analog product MEMS and sensor was down 15.2%, mainly due to a decrease in analog to lesser extent a decrease in imaging, while MEMS grew double digit. Power and Discrete product decreased 22.2%. Embedded processing revenues declined 6.5%, mainly due to custom processing.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

RF and optical communication declined 17.9%. By end market, automotive declined by about 24%, industrial by about 8%, while personal electronic communication equipment and computer peripheral each declined by about 5%. Year over year sales to OEMs decreased 15.312% to distribution. On a sequential basis, all segment contributed to the growth. Embedded processing, power and discrete and RF and optical communication reported double digit growth respectively 14.1%, 12.910.1%.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Analog products, MEMS and sensor also grew by 5.9. All our end markets grew, led by industrial, up by about 15%, followed by automotive, up by about 14%, with communication equipment, computer peripheral and personal electronic hub, respectively, about 63%. Turning now to profitability. Gross profit in the second quarter was $26,000,000 decreasing 28.5% on a year over year basis. Gross margin was 33.5%, decreasing six sixty basis points year over year, mainly due to unfavorable product mix, lower manufacturing efficiency and to a lesser extent, unused capacity charges.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Total net operating expenses, excluding restructuring, amounted to $869,000,000 in the second quarter, in line with our expectations and declining 6% on a year over year basis. For the third quarter of twenty twenty five, we expect net OpEx to stand at about $860,000,000 slightly decreasing quarter on quarter despite the negative effect, reflecting our ongoing cost discipline and the first benefits of the resizing of our global cost base. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the second quarter, we reported 133,000,000 operating loss, which included $190,000,000 for impairment, restructuring charges and other related phase out costs, reflecting impairment of asset and restructuring charges predominantly associated with the previously announced company wide program to reshape our manufacturing footprint and resize our global cost base. Excluding these non recurring items, which is mostly non cash, Q2 non U.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

S. GAAP operating margin was 2.1% positive, with analog MEMS and sensor at 7.5%, power and discrete minus 12.5%, embedded processing 13.5% and RF optical communication at 17.9%. Q2 twenty twenty five net income was a negative $97,000,000 compared to a positive $353,000,000 in the year ago quarter. Diluted earnings per share were negative at $0.11 compared to a positive of $0.38 Excluding the previously mentioned non recurring items, non U. S.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

GAAP net income and diluted earnings per share were respectively a positive $57,000,000 and a positive $0.06 Net cash from operating activities decreased 49.6 in Q2 to $354,000,000 on a year over year basis. Second quarter net CapEx was $465,000,000 compared to the $528,000,000 in Q2 twenty twenty four. Free cash flow was a negative $152,000,000 in the second quarter compared to a positive $159,000,000 in the year ago quarter. Inventory at the end of this quarter was $3,270,000,000 compared to $2,810,000,000 in Q2 twenty twenty four. Day sales of inventory at quarter end was one hundred and sixty six days and slightly above our expectation, mainly due to currency impact compared to the one hundred and sixty seven days for the previous quarter quarter and to one hundred and thirty days in the year ago quarter.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

We expect days of inventory to significantly decrease in the third quarter compared with the second quarter. Cash dividends paid to stockholders in Q2 twenty twenty five totaled $81,000,000 In addition, ST executed share buybacks of $92,000,000 ST maintained its financial strength with a net financial position that remained solid at 2,670,000,000.00 as of 06/28/2025, reflecting total liquidity of $5,630,000,000 and a total financial debt of $2,960,000,000 Now back to Jean Marc, who will comment on our outlook. Thank you, Lorenzo. Let's move to our business outlook for Q3 twenty twenty five. So we are expecting Q3 twenty twenty five revenues at $3,170,000,000 plusminus three fifty basis points.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

At the midpoint, our Q3 net revenues will increase 14.6% sequentially and decrease by 2.5% year over year with all end markets, but automotive back to year on year growth.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

We expect our gross margin to be about 33.5% plusminus 200 basis points, including about three forty basis points of unused capacity charges. Compared to the second quarter, gross margin is also impacted by about 140 basis points of negative sequential impact resulting mainly from currency effect and from the start of the nonrecurring costs related to our manufacturing reshaping program. 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, we plan to maintain our net CapEx plan between $2,000,000,000 and $2,300,000,000 mainly to execute the reshaping of our manufacturing footprint. To conclude, we expect Q3 revenues to show solid sequential growth driven by a cyclical recovery and our engaged customer programs.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

This will enable a continued year over year improvement. Our priorities remain supporting our customers to designing our products, accelerating new product introduction and executing our company wide program to reshape our manufacturing footprint and resize our global cost base. Finally, I confirm we are executing our plan to deliver annual cost savings in the high triple million dollar range exiting 2027. Thank you and we are now ready to answer your questions.

[Operator]

We will now begin the question and answer session. The first question comes from the line of Jean Marc D'Armenon from Jefferies. Please go ahead.

[Janardan Menon, Managing Director at Jefferies]

Hi. Thanks for taking the question. Yes, my question is mainly on gross margin. I was could you just pull out the one off effect from your manufacturing reshaping program in your Q3 gross margin guidance? And then I was wondering whether you could comment on how you expect gross margin to evolve into subsequent quarters.

[Janardan Menon, Managing Director at Jefferies]

I mean, sales are growing and utilization levels are growing. So how would you expect what would be the various puts and takes that you would expect gross margin evolution beyond Q3? Thank you.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

I'll take the question, Giovanni. Thank you for the question, Jonathan. But in terms of the gross margin of Q3, first of all, I want to clarify the gross margin, but pricing are not collapsing. Let's say, pricing are in line with what was our expectation. So at the midpoint of our sequential basis gross margin is negative impacted, as we said, by this 140 basis point that is resulting mainly from currency effect and to a lesser extent from the start of nonrecurring costs related to our manufacturing pre shipping program.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

You asked me more or less to size, I would say that in this 140 basis point around 20% of this 140 basis is related to the reshaping of the manufacturing, let's say, program. Please, this negative impact is offset by the lower weight of unused capacity charges. In Q2, was three seventy basis point impact. In Q3, it's more in the range of three forty basis points. And some improving manufacturing efficiency, even if we have to remind you that in Q3 these efficiencies still suboptimal.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

We have some basis points that is related to the fact that we have not yet let's say at the best our efficiency. The combination of price and mix, I would say that is pretty neutral to the gross margin on a sequential basis, let's say. So these are the main drivers, would say that are impacting our gross margin in the third quarter. But irrespective to what is the expectation moving forward, directionally based on the current level of euro dollar that we say spot in the range of 1.17 that in Q4 should bring us in an effective rate that is in the range of 1.15 for euro dollar, we should see a nice improvement in respect to Q3, driven by less unused capacity charges, enhanced manufacturing efficiency, partially of course offset by weaker U. S.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Dollar. Clearly, in Q4, gross margin will depend ultimately on the level of revenues and where it will be positioned, let's say, the euro dollars. At this stage, it's a little bit more difficult to be more specific than that.

[Janardan Menon, Managing Director at Jefferies]

Understood. So you do have any visibility on Q4? Would you at this stage expect that your revenue further improve in Q4? Or is it too early to call that?

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

We expect our revenue in Q4 to grow sequentially.

[Janardan Menon, Managing Director at Jefferies]

Understood. Thank you.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you, Jonathan. Next question please.

[Operator]

The next question comes 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. There's obviously a lot of uncertainty out there given the geopolitical environment. I was wondering if you could maybe speak to any potential changes in your customers' order patterns or the prospect of any potential customers who are who could have been pulling in parts. Have you seen any changes downstream? Thank you.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

When we see our dynamic from the beginning of the year, basically, the good news that in Q3, all our, let's say, verticals will grow sequentially and year on year, except the automotive specific to one customer. And I would have been delighted that Q3 would have been the turning point, but we are about minus 2% year over year, which is US80 million dollars Well, be aware that 90% of this US80 million dollars gap versus the turning point is in fact intangible. It is a capacity fee reservation from carmaker that has decreased by $70,000,000 So from product perspective, customer demand, we are basically at the turning point, which is very positive. Now about our customer engaged programs in our market. In personal electronics, in computer equipment, communication equipment, computer peripheral, basically, okay, we have no surprise, no change.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Well, in Industrial, you know that is more fragmented. It is distribution. Well, clearly now we are in the up cycle. Well, will the speed of the turning point, okay, will depend on the macro economy. Automotive.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Automotive, okay, what is the situation we have to manage and acknowledge? Well, we know that basically in front of us, we have a market of 90,000,000 vehicles, out of which 30,000,000 vehicles are battery electrical vehicle and hybrid electrical vehicle. The challenge we have managed altogether is that the competition landscape, the mix inside the automotive market is much, much less stable than two, three years ago. Why? Because there is a strong dynamic between Chinese competition, European changing mind about electrical car, America as well and so on.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

So we are not protected time to time quarter to quarter to have once customer specific change. And this is what happened clearly in Q2 and is confirmed in Q3. Well, so this is only this automotive market. We have to pay attention. But what will make us confident moving forward is the strength of our product portfolio, clearly our large customer base.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

And I repeat, in automotive, in Q3, we grow sequentially, not yet year over year, but in Q4, we will grow again sequentially.

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

Okay. But you did not observe any pull ins in the June?

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

No.

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

Okay. Thank you.

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

And then for my follow-up, I got a few inbounds from investors regarding the Mobileye foundry relationship with TSMC when that came out earlier in the month. Could you maybe speak to which parts you're still providing? And then maybe I realize the IQ five and six are on seven nanometer. How we should expect that customer to trend over the next few years and maybe speak to the engagement there?

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

No, it is well known. We use the technology of TSMC starting IQ five generation. But IQ five, IQ six and IQ seven, ST, okay, did the design and all, let's say, the enablement and the support, okay, the engineering support. So from this announcement, okay, we don't expect any surprise from our revenue for the next three, five years at least.

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

Got it. Thank you. Appreciate the color.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thanks, Josh. Next question please.

[Operator]

The next question comes from the line of Francois Bouvigny from UBS. Please go ahead.

[François-Xavier Bouvignies, Head - Europe Tech Hardware & Semiconductor at UBS]

Thank you very much. So my question would be, Jean Marc, early June, I believe you said that you would reach at least the midpoint of the guidance in Q2. And I guess when you said that you had in mind to do better than just roughly in line like you did today. And then you said you would maybe without tariff grow year over year and now you're getting from minus 2.5% year over year. So what happened since early June?

[François-Xavier Bouvignies, Head - Europe Tech Hardware & Semiconductor at UBS]

I mean, seems that things deteriorated. And if I understand correctly, is it only a customer program? And just trying to understand what happens in June for because it seems a bit short of what maybe you would have hoped. I just want to understand the moving parts. Thank you.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Well, thank you for your question. Well, I anticipated it a little bit in my former answer. Look at facts. What is the dynamic on your year over year growth for ST? So Q1 was minus 27%, Q2 minus 40% and we land close to minus 20%, so minus 2% basically in Q3 at the midpoint of our guidance.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

So it's US80 million dollars gap. Well, I repeat, this US80 million dollars for your consideration because what is important is customer demand, volume, so the flow of product. Well, 90% of this gap is related to intangible. Well, yes, intangible is revenue, but it is not okay flow of product. It does not measuring the capability of ST to address its addressable market.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

So this is a positive point. But I would have expect, okay, to compensate this 90% of intangible by a stronger dynamic, okay, on automotive. Well, unfortunately, okay, we have one customer specific change in the forecast of Q3 that prevent us to move to this position. But on automotive, again, the sequential growth in Q3 will be pretty solid because we expect, okay, let's say, high single digit growth in automotive in Q3 and we will grow again in Q4. So yes, there is one customer specific, but nothing related to the overall market dynamic.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

I repeat what I said a few minutes ago. Now we have to acknowledge that for a while, we will have in front of us an automotive market moving forward growing. Again, 90,000,000 vehicles, at least one third is related to a mix of battery based electrical and hybrid electrical, but with competition landscape changing at a very dynamic way. We have to manage and we are not protected time to time to have one customer specific. And yes, okay, not at the level of our expectation.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Well, this we can manage, but this is a situation we have to face that is completely different than a few years ago. So I of course regret okay to not be on the turning point of Q3. But again I repeat 90% of the gap is intangible. The rest is really customer specific. The good news is Industrial, Personal Electronics, Computer, Peripheral and Communication Equipment grew significantly year over year.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Automotive grew significantly on a sequential basis and we grow again in Q4.

[François-Xavier Bouvignies, Head - Europe Tech Hardware & Semiconductor at UBS]

That's very helpful. Thank you, Jean Marc. And just to clarify, this customer change, is it a market share shift? I mean, it structural? Or is it just an order inventory or forecast adjustments? It temporary or longer term?

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

It is absolutely not a market share loss. It is specific to the customer. I cannot comment, but I am pretty sure that long term this customer will recover.

[François-Xavier Bouvignies, Head - Europe Tech Hardware & Semiconductor at UBS]

Got it. Thank you very much.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thanks, Olivier. Next question please.

[Operator]

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

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

Yes, hi. Thanks for letting me on. My question is regarding Q4. You mentioned Jean Marc that you will grow sequentially in Q4. But will you based on what you see today, will you be able to grow year on year in Q4 across the board at the company, excluding some of these issues you've had in Q3 based on what you see today?

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

And I mean following up on your earlier response, do you see an impact in this guidance from the new U. S. Rules on EVs, etcetera, which could have an impact on silicon carbide or any of your other businesses? Thank you.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Thank you, Sandeep, for the question. What I can the fact we have in our hand is that the backlog that is positioned on Q4 today, if we compare exactly at the same date the quarter of Q3, it is showing So a significant sequential if the booking of Q3 because I repeat, okay, we are also facing market situation that are turning up from a cyclical point of view, but also the visibility is pretty short. But it is clear that if we have a booking dynamic in Q3 on a similar path of what we have seen in Q2 and in Q1. Now we should expect in Q4 to grow sequentially and then okay to be at the turning point or very close to the turning point. But again this is the mechanics okay, we are following.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

So yes, we expect to grow sequentially in Q4 taking into account the portfolio. And under the assumption, we will see a booking dynamic similar of what we have seen in Q1 and Q2. Finally, okay, we should be in position to grow year over year in Q4. But again, we will not be protected against something specific customer that decide, okay, to decrease inventory because he want to prefer, okay, to protect 2023. So we are not protected this singularity, okay, with some customer.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Overall, it means what? It means the trend is positive, the dynamic is positive, STs come back on a growth trajectory. But the overall environment and specifically the market of automotive is not strong enough to generate okay a buffer of backlog in order to absorb all the variation. So altogether of course, we have to communicate very carefully and accurately to monitor this dynamic. So this is the point. The other point of the question was

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

what was the second part?

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

The other part of the question was on whether any of the dynamics you're seeing in Q3 and then beyond are to do with the new U. S. Tax bill, which has implications on EVs?

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

No. It's nothing significant specific to this point. Again, what we are acknowledging and reviewing our mid plan on silicon carbide and electrical vehicle is a dynamic. But I guess everybody has acknowledged and understand that compared to three years ago in 2025, the volume of electrical car is basically 5,000,000 car less that was forecasted five years ago. So what is important is to look the trend.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Then the second trend is a mix between battery based and hybrid vehicle. So we have to understand, okay, with all the set of regulation constraints that worldwide are implemented and then the competition of the Chinese carmaker, all this trajectory of growth will move. And this is what's matter for us in order to design our manufacturing capacity. What I can say in silicon carbide, the main important for us now is to close the six inches as fast as we can, start the eight inches, adjust the capacity to the market demand. And we confirm that we strongly believe that we can keep 30% market share on this market.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Different past two, three years ago for sure. But okay, we adapting ourselves and silicon carbide midterm, okay, will be a growth driver of the company.

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

Thank you.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Do you have any follow ups, Sandeep?

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

Yes. No, I'm fine. Thank you.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you. Next question please.

[Operator]

The next question comes from the line of Stefan Uri from ODDO BHF. Please go ahead.

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

Yes. Good morning, everyone. I have two questions. First one is about the comments you made earlier about the gross margin. I think you used the term nice gross margin improvement to be expected in Q4.

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

And I just wanted maybe to come back on the reasons for that and also the impact of the ForEx if the dollar stays And I have a follow-up. Thank you.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

I take this question. Thank you for this question. Clearly, let's say, what are the drivers that we do expect in Q4 to substantially, let's say, help a sequential increase in our gross margin. On one side, clearly, we were expected that our unused capacity charges will decline in respect to what we have in Q3. This is expected Q3.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Have to say that if you compute the new capacity charge in $1,000,000 let's say you see that in Q3 are at the end similar to the one that we had in Q2. This is due to the fact that in Q3, we will, let's say, put a stronger control on our inventory. We do expect to achieve something in the range in terms of days for our inventory, one hundred and forty days. So means that at the end, unloading charges still are significant in during this quarter, will decrease in next quarter in Q4. The other element that you have to take in mind is that Q3 is still impacted by a negative efficiency.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Yes, from our manufacturing. Yes, it's improving when we look, let's say, the sequential dynamic moving from Q2 to Q3, but still is not at the optimal level. We will continue to improve in Q4. So this means that this is another driver that will help, let's say, the improvement of our gross margin in the next quarter. But this is assuming that, let's say, the exchange rate will stay substantially similar to the one that we have today.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Clearly, there will be some negative impact because the impact of our hedging policy will be a little bit lower than what we have, let's say, in the current quarter. But at the end, let's say, most of the negative impact of the exchange rate has been already reflected in the Q3 gross margin. So this will not be unless there is still another big movement in the euro dollar, it should not be, let's say, another element, assuming I repeat that we stay more or less at the level of the spot that we have today. So these are the dynamic that we see moving from Q3 to Q4 for our gross margin. So some improvement related to these impacts.

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

Okay. Thank you very much. And the follow-up is about the industrial market because we talked a lot this morning about the weakness of automotive revenues compared to the expectations. But I just wanted to understand what is the driver for the recovery in Industrials. Is it inventory replenishment, pull in, sorry, or real demand behind that?

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

And yes, if you can give some color, that would be helpful. Thank you.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Well, first of all, know that a significant part of the industrial market for us is done through the distribution. So what is positive is POS. So the sales of our distributor increased in Q2 both sequentially and year on year. And our POP were below the POS. So we are seeing a dynamic where the revenue recognition we have the POP is below the POS.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

The POS is growing both sequentially and year over year. So inventory at distribution are going to a normalization, I have to say, in Asia Pacific, excluding China, back totally to normal in China and still a bit higher than normal, okay, in EMEA and America. But the dynamic is again industrial distribution, POS growing both sequentially and year over year. POP, as I described, below the POS. So it is not inventory replenishment.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

It is real demand. Then after from other OEM pretty fragmented, clearly the growth is driven by a more smart industrial for us and in a lesser extent for power and energy. Now we don't see, I repeat, also this is the opportunity I say that any effect of pulling on industrial, especially from China for ST. So there is zero pulling in China from Chinese customer or distributor for ST. So we are immune against that.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

And as far as products are related, one of the main driver, which is very encouraging news is the general purpose. The general purpose microcontroller again went back to both sequential growth and year over year high teens, So showing the strength of our portfolio and ecosystem. But today it is not the same case on general purpose analog. Why? Because on general purpose analog, we have still some other inventory that we are controlling with our PoP and Power Discrete a little bit similar.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

So this is basically the key driver of the industrial market. Distribution because of POS and demand, Then the Smart and Industrial, lesser extent, power energy. From product, it is a general purpose microcontroller. And in a less extent, for sure, purpose analog and power and discrete because still some of our inventory that we are controlling. So we control our POP.

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

Okay. Thank you very much.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you, Stephane. Next question, please.

[Operator]

The next question comes from the line of Gian Marco Bonacina from Banca Acros. Please go ahead.

[Gianmarco Bonacina, Head of Equity Research at Banca Akros]

Yes, good morning. A couple of questions. The first one is on gross margin again. I think early June, as Gian Marco said that when the company will reach again 3,600,000,000.0 to €3,800,000,000 that could be about 600 basis point improvement, I guess, over the level of Q2 or Q1, I'm not sure. So given the euro dollar now is approaching 120, can we expect this level of improvement maybe going into next year or the year after could be a little bit lower, so maybe 400 to 500 basis points?

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Thank you for your questions. So I'll pass to Lorenzo to answer.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Clearly, we were modeling our gross margin, if you remember, and we will say that the level of our, let's say, model intermediate model $18,000,000,000 we were modeling with an exchange rate in the range of 1.09, let's say. Clearly, when we are at this level, there is an impact that you see when we move from this 1.09 that substantially was the one of last quarter. Now we are moving to 115. We have an impact that we size between 120, we said 140 basis points, including also some small adjustment. Clearly, let's say, moving an exchange rate, the spot rate, this will worsen.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Let's say, you have to consider that, yes, there is the negative impact of the FX, but still we have, let's say, some leverage, let's say, in term of gross margin. Because today, we are still impacted by significant amount of annual charge and when we will be at that level of revenues, these will substantially disappear. So we are talking about three forty basis points in Q3. Then you have also to consider that there is a negative impact related to the manufacturing efficiency that is not yet at the optimal, let's say, 11. Then there is another impact that we needed to consider that is somehow, let's say, impacting negatively our gross margin that we are not still in an optimized mix.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

It means that, let's say, for instance, our, let's say, level of overall industrial that is at the end, let's say, the one that is more accretive to our gross margin, still stay at the level that is not the one that we should be in our, let's say, portfolio of revenues. It is now more closer to 20%, 21% than the 25, 26% that we do expect, let's say, in a more normal situation for our company. So all these elements, we do expect that we will improve our gross margin. Clearly, let's say, it remains that the model was, let's say, done an FX that was 109. So we need also to see where the Thank position in exchange

[Gianmarco Bonacina, Head of Equity Research at Banca Akros]

you. Just a quick follow-up more strategically on China because we read the June an article in DigiTimes saying that Chinese automakers are moving to align with government directives by planning to use, let's say, domestically developed and manufactured automotive chips. And the article mentioned that in case there was a choice between a fully China chip and one designed by a foreign firm at fabricated in China, many automakers will opt for the former. So can you remind us roughly how much is your exposure in terms of sales to Chinese OEM and Tier one? And we know that you have a strategy China for China.

[Gianmarco Bonacina, Head of Equity Research at Banca Akros]

So do you see this as, let's say, enough to, let's say, offset this potential headwind that this article was mentioning? Thank you.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

So waiting to deliver the exact numbers. Yes, I confirm that we built our strategy for China for China that I repeat is encompassing not only manufacturing localized, but also design, application labs, customer support, competence center in order, okay, to be seen as a Chinese player, I have to say. Well, this strategy is, let's say, very active on power, so silicon carbide and microcontroller. And we do believe that will be a strategy enabling ST to compete against local player, okay, and to be perceived by official authorities as local player. But we are not proven that some specific company owned by the state in fact, okay, will apply strictly this kind of rules.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

But overall, okay, our Chinese customer as all are pragmatic. If we offer them a supply chain, local application support, design, quality labs, reliability labs, okay, they will manage us as local player. So we do believe our strategy, okay, will mitigate a lot, okay. This effect, yes, again, if there is some specific company honored by the state, okay, we it will be difficult to prevent this kind of dynamic. And then about the exposure,

[Lorenzo Grandi, President & CFO at STMicroelectronics]

our revenues to Chinese customer quarter in China is in the range of depends on the quarter, of course, but it depends, let's say, but it's in the range between 13%, 14% of our total revenues. What we sell to the headquarter Chinese customer.

[Gianmarco Bonacina, Head of Equity Research at Banca Akros]

Okay. Just in for automotive, right?

[Lorenzo Grandi, President & CFO at STMicroelectronics]

No, this is the total. But for automotive, it's very similar. I would say that at the end, let's say, when you take automotive Okay.

[Gianmarco Bonacina, Head of Equity Research at Banca Akros]

13% over 40x percent. Okay.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you. Next question please.

[Operator]

The next question comes from the line of Lee Simpson from Morgan Stanley. Please go ahead.

[Lee Simpson, Analyst at Morgan Stanley]

Thanks for fitting me in.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Hi Lee.

[Lee Simpson, Analyst at Morgan Stanley]

Can you hear me?

[Operator]

We can hear Okay. You

[Lee Simpson, Analyst at Morgan Stanley]

Good morning, everyone. So I just wanted to ask about general purpose microcontrollers and the pricing there. I did look from our channel checks as though things were very strong in April, stable in May, but somewhat erratic going through June. So I just wanted to get a sense for how you thought the pattern was for pricing on general purpose microcontrollers into the second half and if indeed this might vary by region? And then the second question I had was really on the timing of readiness for the 800 volt DCDC supply for the PSU.

[Lee Simpson, Analyst at Morgan Stanley]

We are hearing that it's quite difficult to meet that spec as delivered by NVIDIA and whether or not you had confidence that you could hit the full 800 volt supply? Thanks.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Thank you for your questions. So Lorenzo will comment on the price, and I will let Marco to comment on the NVIDIA opportunity.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Sebastian, on the pricing pricing in general purpose microcontroller, what I can tell you is that above, we see really, let's say, low single digit pricing part. We have not detected any strange behavior, I have to say. But clearly, let's say, maybe region by region, the dynamic is a little bit different. But at the end, I can confirm that, let's say, on the general purpose, this is the what we see today. Use nothing particularly, let's say, strange in term of behavior.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

And yes, you may have some socket in which maybe there is a competition a little bit more aggressive and so on. But at the end, I would say we are with a price in the range of low single digit that is what we have seen since the beginning of the year. Nothing particularly different. So Marco, on

[Marco Cassis, President of Analog, MEMS & Sensors Group at STMicroelectronics]

the Yes. On the internal world, yes, you're right. Sure, it is challenging from the in terms of specification, as you know, at least our proof of concept, which is in the hands of NVIDIA and which we are working very closely with them. It's a combination of different components. So you have the GaN, have the SiC, you have the galvanic isolation drivers to drive to the board overall.

[Marco Cassis, President of Analog, MEMS & Sensors Group at STMicroelectronics]

I'm confident it's some of the components are more mature than others. So the wide band gap material are fine. We're still working to develop drivers, Galvanica is ready to make sure that the overall performance will be there. It's a work in progress. So far, so good.

[Marco Cassis, President of Analog, MEMS & Sensors Group at STMicroelectronics]

We have things to fix, but I think that I do not see real roadblocks at this stage that we cannot handle. Of course, it's a work in progress.

[Lee Simpson, Analyst at Morgan Stanley]

Just on that point as a work in progress, it does seem to suggest this is maybe second half twenty twenty six, early twenty twenty seven as a sales impact rather than anything sooner?

[Marco Cassis, President of Analog, MEMS & Sensors Group at STMicroelectronics]

This is too early to say. It's a big change in terms of architecture. And we will do everything we can to be as soon as possible ready to support. We are confident that we can be part of the early adopters, but too early to say.

[Lee Simpson, Analyst at Morgan Stanley]

Very clear. Thank you.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you, Lee. We have time for very quick question for the last one.

[Operator]

The last question for today is from Sebastian Stavovic from Kepler Cheuvreux. Please go ahead.

[Sébastien Sztabowicz, Head - IT Hardware & Semis Sector Research at Kepler Cheuvreux]

Hello, everyone, and thanks for taking my question. Going back to the inventories in the distribution channel, could you please quantify the level of inventories in the channel today? You were mentioning last quarter bit less than two months of excess of inventory. I would I would say curious to know where we are today. The second one is linked to a pricing environment in China and specifically on silicon carbide.

[Sébastien Sztabowicz, Head - IT Hardware & Semis Sector Research at Kepler Cheuvreux]

We are seeing some price war hedging between the EVOEM there. Who do you see prices for silicon carbide building there? And do you have any kind of visibility on your design that are expected to ramp in China on silicon carbide from 2026? Or it's too early to know what will be the pace of ramp of those designs? Thank

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Thank you. Lorenzo will take the question on the channel inventory, and Marco will comment on the silicon carbide in China.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Yes. In respect to the inventory, I would say that during Q3, our inventory and distribution has progressed in the right direction. It's true that when we were meeting, let's say, in Q2 after our earnings release of the Q1 quarter, let's say, our inventory in average was within excess in the range of two months. Now I have to say that has declined at least by one month in average. So we are in average, let's say, still with some excess of inventory.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

It's not across the board in the sense that now we see some families like, for instance, general purpose that are normalized in term of inventory, especially in some regions that we are really at the normal level, even slightly before. Maybe there is some difference region by region. Other family are suffering still a little bit more in terms of normalization of the inventories, like in some product line in analog. But I would say that now the situation in distribution is getting in the right direction. We see now, let's say, the inventory moving down, let's say, and being, let's say, more in line with our target expectation.

[Lorenzo Grandi, President & CFO at STMicroelectronics]

Still some excess, but moving in the right direction in term of reduction.

[Marco Cassis, President of Analog, MEMS & Sensors Group at STMicroelectronics]

On silicon carbide for China, yes, you're right. The price pressure in China on silicon carbide is a strong price pressure, but we are counteracting this, first of all, with accelerating the introduction of the new generations that are bringing advantages both in terms of performances and in terms of the size of the components. So generation four is introduced, are working for the generation five. Let's not forget that we have also a manufacturing footprint that is going to make us competitive also for that market, which means we are moving, as Jean Marc was saying, from six to eight inches and specifically in China, we are going to have our manufacturing in Sanand that will start end of this year and beginning of next one. We are addressing also we are expanding, addressing not only the automotive, but much more now also the industrial market.

[Marco Cassis, President of Analog, MEMS & Sensors Group at STMicroelectronics]

So all these components together should materialize in a growth in on the Chinese market. Clearly, the dynamics are strong, but I think we are pretty well equipped to counteract the dynamics that you will see in that market. China for us will be an important engine of growth in the years to come. I hope this answers your question.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

We anticipate 2026, okay, to be again after the point of '25, okay, a year of growth for silicon carbide.

[Sébastien Sztabowicz, Head - IT Hardware & Semis Sector Research at Kepler Cheuvreux]

Okay. Thank you.

[Jerome Ramel., EVP - Corporate Development & Integrated External Communication at STMicroelectronics]

Thank you. Thank you, Sebastian. Thanks everyone. This concludes our conference call for today. If you have any further questions, please reach out the Investor Relations team. Thank you very much.

[Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee at STMicroelectronics]

Thank you. Bye bye.

[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 & Integrated External Communication
• Jean-Marc Chery, President, CEO & Chair of Managing Board & Executive Committee
• Lorenzo Grandi, President & CFO
• Marco Cassis, President of Analog, MEMS & Sensors Group

Analysts

• Janardan Menon, Managing Director at Jefferies
• Joshua Buchalter, Director - Equity Research at TD Cowen
• François-Xavier Bouvignies, Head - Europe Tech Hardware & Semiconductor at UBS
• Sandeep Deshpande, Service Desk Team Lead at JPMorgan Chase
• Stéphane Houri, Head of Equity Research at ODDO BHF
• Gianmarco Bonacina, Head of Equity Research at Banca Akros
• Lee Simpson, Analyst at Morgan Stanley
• Sébastien Sztabowicz, Head - IT Hardware & Semis Sector Research at Kepler Cheuvreux