STMicroelectronics Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 24, 2025

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.
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Earnings Conference Call
STMicroelectronics Q2 2025
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Operator

Ladies and gentlemen, welcome to the STMicroelectronics 2nd Quarter 2025 Earnings Release Conference Call and live webcast. I am Moira, the call's co-operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing Star and 1 on your telephone. For operator assistance, please press Star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jerome Ramel, Executive Vice President, Corporate Development and Integrated External Communications. Please go ahead.

Jerome Ramel
Jerome Ramel
EVP, Corporate Development and Integrated External Communications at STMicroelectronics

Thank you, Moira. Thank you, everyone, for joining our 2nd Quarter 2025 Financial Results Call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO, and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research and Application, and Innovation Office. This live webcast and presentation material can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans.

Jerome Ramel
Jerome Ramel
EVP, Corporate Development and Integrated External Communications at STMicroelectronics

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

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q2 2025 Earnings Conference Call. I will start with an overview of the 2nd Quarter, including business dynamics. I will then hand over to Lorenzo for the detailed financial overview. We will then comment on the outlook and conclude before answering your questions. Starting with Q2. We delivered revenues at $2.77 billion, $56 million 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.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Our book-to-bill came back below parity, driven by some specific customer dynamics. 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 3rd Quarter versus the 2nd 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 converters and onboard chargers designs, as well as with our smart power and smart fuel solutions for electric vehicle power systems. In a continuing challenging automotive market environment, we remained focused on building our pipeline of business and solid execution of our roadmaps in power and distributed for car electrification. In car digitalization, we saw further traction with our portfolio of automotive microcontrollers.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

We are making good progress in executing our roadmap with many new products set to launch in 2025 and 2026 across our ARM-based Stellar and STM32A product families. We are also continuing to see strong design in momentum globally with both large-scale OEMs and Tier 1 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. A notable win here was a high-volume airbag solution with a world leader in automotive electronics 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.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

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 improvements, confirming that Q1 was a bottom. 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 and distribution overall, we are now back to a normal situation in China, close to normalization in other ASEAN countries, and improving but still above normal in other geographies.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

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 3rd Quarter compared to the 2nd Quarter. During the quarter, we made strong progress with our design 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. For data servers. We announced that we are working closely with NVIDIA on a new high-power density DC-DC architecture for AI data centers that will operate at 800 volts DC. This will enable higher power density, more compact designs, and a lot less cabling and metal parts.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

To deliver the needed solution, ST is putting together a combination of its most advanced technologies enabled by silicon material, 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, our STM32 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 1.5 million unique users on a 12-month rolling basis versus the 1.3 million 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 ITs. This confirms the strength of our product portfolio and our global ecosystem.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

In personal electronics and to a lesser extent in communication equipment and computer peripherals, Q2 revenues were above our expectations. 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 orbit satellite market. In terms of corporate development activities, at the end of May, we held our annual general meeting of shareholders. All proposed resolutions were approved by the shareholders. For sustainability, we have received two notable recognitions for our public commitments, reporting, and environmental and social performance. ST has been recognized in the TimeWorld's Most Sustainable Companies list for the second consecutive year. We have been ranked 25th Most Sustainable Company globally and 1st in the electronics, hardware, and equipment category.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

We have also been recognized for leadership on climate and water security by the Global Environmental Nonprofit CDP, with a place on its A list for tracking climate change and a rating of A minus for water security. Now, over to Lorenzo, who will present our key financial figures.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Thank you, Jean-Marc, and good morning, everyone. Let's start with a detailed review of the 2nd Quarter, starting with the revenues on a year-over-year basis. By reportable segment. Analog products MEMS and sensor was down 15.2%, mainly due to a decrease in analog, to a lesser extent a decrease in imaging, while MEMS grew double-digit. Power and distributed product decreased 22.2%. Embedded processing revenues declined 6.5%, mainly due to custom processing. RF and optical communication declined 17.9%. By end market. Automotive declined by about 24%. Industrial by about 8%, while personal electronics, communication equipment, and computer peripherals each declined by about 5%. Year-over-year sales to OEMs decreased 15.3% and 12% to distribution. On a sequential basis, all segments contributed to the growth. Embedded processing, power and distributed, and RF and optical communication reported double-digit growth, respectively 14.1%, 12.9%, and 10.1%. Analog products MEMS and sensor also grew by 5.9%.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

All our end markets grew, led by industrial, up by about 15%, followed by automotive, up by about 14%, with communication equipment, computer peripherals, and personal electronics up, respectively, about 6% and 3%. Turning now to profitability. Gross profit in the 2nd Quarter was $926 million, decreasing 28.5% on a year-over-year basis. Gross margin was 33.5%, decreasing 660 basis points year-over-year, mainly due to unfavorable product mix, lower manufacturing efficiency, and to a lesser extent, higher unused capacity charges. Total net operating expenses, excluding restructuring, amounted to $869 million in the 2nd Quarter, in line with our expectations and declining 6% on a year-over-year basis. For the 3rd Quarter of 2025, we expect net OpEx to stand at about $860 million, slightly decreasing quarter on quarter despite the negative currency effect, reflecting our ongoing cost discipline and the first benefits of the resizing of our global cost base.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the 2nd Quarter, we reported a $133 million operating loss, which included $190 million 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 this non-recurring item, which is mostly non-cash, Q2 non-U.S. GAAP operating margin was 2.1% positive, with analog MEMS and sensor at 7.5%, power and distributed minus 12.5%, embedded processing 13.5%, and RF optical communication at 17.9%. Q2 2025 net income was a negative $97 million compared to a positive $353 million in the year-ago quarter. Diluted earnings per share were a negative $0.11 compared to a positive of $0.38.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Excluding the previously mentioned non-recurring items, non-U.S. GAAP net income and diluted earnings per share were respectively a positive $57 million and a positive $0.06. Net cash from operating activities decreased 49.6% in Q2 to $354 million on a year-over-year basis. 2nd Quarter net CAPEX was $465 million compared to the $528 million in Q2 2024. Free cash flow was a negative $152 million in the second quarter compared to a positive $159 million in the year-ago quarter. Inventory at the end of this quarter was $3.27 billion compared to $2.81 billion in Q2 2024. Day sales of inventory at quarter-end was 166 days and slightly above our expectation, mainly due to currency impact, compared to the 167 days for the previous quarter and to 130 days in the year-ago quarter. We expect days of inventory to significantly decrease in the third quarter compared with the second quarter.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Cash dividends paid to stockholders in Q2 2025 totaled $81 million. In addition, ST executed share buybacks of $92 million. ST maintained its financial strength, with a net financial position that remained solid at $2.67 billion as of June 28, 2025, reflecting total liquidity of $5.63 billion and a total financial debt of $2.96 billion. Now back to Jean-Marc, who will comment on our outlook.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Thank you, Lorenzo. Let's move to our business outlook for Q3 2025. We are expecting Q3 2025 revenues at $3.17 billion, plus minus 350 basis points. At the midpoint, our Q3 net revenues will increase 14.6% sequentially and decrease by 2.5% year-over-year, with all end markets, except automotive, back to year-on-year growth. We expect our gross margin to be about 33.5%, plus minus 200 basis points, including about 340 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 non-recurring 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.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

For the full year 2025, we plan to maintain our net CAPEX plan between $2 billion-$2.3 billion, 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. This will enable a continued year-over-year improvement. Our priorities remain supporting our customers to design 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 $800 million range, exiting 2027. Thank you, and we are now ready to answer your questions.

Operator

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

Janardan Menon
Janardan Menon
Managing Director at Jefferies

Hi. Thanks for taking the question. Yeah, my question is mainly on gross margin. Could you just pull out the one-off effect from your manufacturing reshaping program in your Q3 gross margin guidance? I was wondering whether you could comment on how you expect gross margin to evolve into subsequent quarters. I mean, sales are growing and your utilization levels are growing. How would you expect, what would be the various puts and takes that you would expect in gross margin evolution beyond Q3? Thank you.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

I take the question. Thank you for the question, Jonathan. 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. At the midpoint of our sequential basis, gross margin is negatively 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 non-recurring costs related to our manufacturing reshaping program. You asked me more or less to size. I would say that in this 140 basis point, around 20% of this 140 is related to the reshaping of the manufacturing, let's say, program. Clearly, this negative impact is offset by the lower weight of unused capacity charges. In Q2 was 370 basis point impact.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

In Q3, it's more in the range of 340 basis point. And some improving manufacturing efficiency, even if we have to remind you that in Q3, this efficiency is still suboptimal. We have some basis point 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. These are the main drivers, I would say, that are impacting our gross margin in the third quarter. In respect to what is the expectation moving forward, directionally, based on the current level of euro dollar that we say is 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.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

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. 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
Janardan Menon
Managing Director at Jefferies

Understood. So do you 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
Jean-Marc Chery
President and CEO at STMicroelectronics

We expect our revenue in Q4 to grow sequentially.

Janardan Menon
Janardan Menon
Managing Director at Jefferies

Understood. Thank you.

Jerome Ramel
Jerome Ramel
EVP, Corporate Development and Integrated External Communications at STMicroelectronics

Thank you, Jonathan. Next question, please.

Operator

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

Joshua Buchalter
Joshua Buchalter
Director of Equity Research - Semiconductors 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 could have been pulling in parts. Have you seen any changes downstream? Thank you.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

No, when we see our dynamic from the beginning of the year. Basically, the good news is that in Q3, all our, let's say, verticals will grow sequentially and year-over-year, except the automotive, specific to one customer. I would have been delighted that Q3 would have been the turning point, but we are about minus 2% year-over-year, which is $80 million. Be aware that 90% of this $80 million gap versus the turning point is, in fact, intangible. It is a capacity fee reservation from a car maker that has decreased by $70 million. From a product perspective, customer demand, we are basically at the turning point, which is very positive. Now, about our customer engaged programs and our market. In personal electronics, in computer equipment, communication equipment, computer peripheral, basically, okay, we have no surprise, no change. In industrial, you know that is more fragmented. It is distribution.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Clearly, now we are in the upcycle. The speed of the turning point, okay, will depend on the macroeconomy. Automotive, okay, what is the situation we have to manage and acknowledge? We know that basically in front of us, we have a market of 90 million vehicles, out of which 30 million 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. We are not protected time to time, quarter to quarter, to have one customer-specific change. This is what happened clearly in Q2 and is confirmed in Q3. This is only this automotive market we have to pay attention.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

What makes us confident moving forward is the strength of our product portfolio, clearly our large customer base. I repeat, in automotive, in Q3, we grow sequentially, not yet year-over-year, but in Q4, we will grow again sequentially.

Joshua Buchalter
Joshua Buchalter
Director of Equity Research - Semiconductors at TD Cowen

Okay, but you did not observe any pull-ins in the June quarter?

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

No.

Joshua Buchalter
Joshua Buchalter
Director of Equity Research - Semiconductors at TD Cowen

Okay. Thank you. For my follow-up, I got a few inbounds from investors regarding the Mobileye founder relationship with TSMC. When that came out earlier in the month, could you maybe speak to which parts you're still providing? I realize the IQ 5 and 6 are on 7 nanometer, how we should expect that customer to trend over the next few years. Maybe speak to the engagement there. Thank you.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

No, it is well known we use the technology of TSMC starting IQ 5 generation. But IQ 5, IQ 6, and IQ 7, ST, okay, did the design and all, let's say, the enablement and the support, okay, the engineering support. From this announcement, okay, we don't expect any surprise from our revenue for the next three-five years at least.

Joshua Buchalter
Joshua Buchalter
Director of Equity Research - Semiconductors at TD Cowen

Got it. Thank you. Appreciate the caller.

Jerome Ramel
Jerome Ramel
EVP, Corporate Development and Integrated External Communications at STMicroelectronics

Thanks, Josh. Next question, please.

Operator

The next question comes from the line of François Bouvignies from UBS. Please go ahead.

François Bouvignies
François Bouvignies
Head of Europe Tech Hardware/Semiconductor at UBS

Thank you very much. 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. I guess when you said that you had in mind to do better than just roughly in line like you did today. You said you would maybe, with our tariff, grow year-over-year, and now you are guiding for minus 2.5% year-over-year. What happened since early June? I mean, it seems that things deteriorated. If I understand correctly, is it only a customer program? I am just trying to understand what happened since June 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
Jean-Marc Chery
President and CEO at STMicroelectronics

Thank you for your question. 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? Q1 was -27%, Q2 -40%. We land close to -0, so -2%, basically, in Q3 at the midpoint of our guidance. It is a $80 million gap. I repeat. This $80 million for your consideration, because what is important is customer demand, product, volume, so the flow of product. 90% of this gap is related to intangible. Yes, intangible is revenue, but it is not flow of product. It does not measure the capability of ST to address its addressable market. This is a positive point. I would have expected to compensate this 90% of intangible by a stronger dynamic on automotive. Unfortunately, we have one customer-specific change in the forecast of Q3 that prevents us from moving to this position.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

On automotive, again, the sequential growth in Q3 will be pretty solid. We expect, let's say, high single-digit growth in automotive in Q3, and we will grow again in Q4. Yes, there is one customer-specific, but nothing related to the overall market dynamic. 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 million vehicles, at least one-third is related to a mix of battery-based electrical and hybrid electrical, but with competition landscape changing in a very dynamic way. We have to manage, and we are not protected time to time to have one customer-specific. Yes, okay, not at the level of our expectation. This we can manage, but this is a situation we have to face that is completely different than a few years ago.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

I, of course, regret 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 grow significantly year-over-year. Automotive grows significantly on a sequential basis. We grow again in Q4.

François Bouvignies
François Bouvignies
Head of Europe Tech Hardware/Semiconductor at UBS

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

Jean-Marc Chery
Jean-Marc Chery
President and CEO 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 Bouvignies
François Bouvignies
Head of Europe Tech Hardware/Semiconductor at UBS

Got it. Thank you very much.

Jerome Ramel
Jerome Ramel
EVP, Corporate Development and Integrated External Communications at STMicroelectronics

Thank you, François Bouvignies. Next question, please.

Operator

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

Sandeep Deshpande
Sandeep Deshpande
Analyst at J.P. Morgan

Yeah, hi. Thanks for letting me on. My question is regarding Q4. You mentioned, Jean-Marc, that you will grow sequentially in Q4, but 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, 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, etc., which could have an impact on silicon carbide or any of your other businesses? Thank you.

Jean-Marc Chery
Jean-Marc Chery
President and CEO 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 significant sequential growth. If the booking at Q3, because I repeat, we are also facing market situations that are turning up from a cyclical point of view, but also the visibility is pretty short. 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, we should expect in Q4 to grow sequentially, and then to be at the turning point or very close to the turning point. Again, this is the mechanics we are following.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Yes, we expect to grow sequentially in Q4, taking into account the portfolio, and under the assumption we will see a booking dynamic similar to what we have seen in Q1 and Q2. Finally, we should be in position to grow year-over-year in Q4. Again, we will not be protected against something specific to a customer that decides to decrease inventory because he wants to prefer to protect 2026. We are not protected, this singularity with some customers. Overall, it means what? It means the trend is positive, the dynamic is positive, ST's come back on a growth trajectory, but the overall environment, and specifically the market of automotive, is not strong enough to generate a buffer of backlog in order to absorb all the variation. Altogether, of course, we have to communicate very carefully and accurately to monitor this dynamic. This is the point.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

The other point of the question was?

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

What was the second part?

Sandeep Deshpande
Sandeep Deshpande
Analyst at J.P. Morgan

Yeah, 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
Jean-Marc Chery
President and CEO at STMicroelectronics

No, nothing significant specific to this point. Again, what we are acknowledging and reviewing is our mid-plan. On silicon carbide and electric vehicle, it is a dynamic. I guess everybody has acknowledged and understood that compared to three years ago, in 2025, the volume of electric cars is basically 5 million cars less than what was forecasted five years ago. What is important is to look at the trend. The second trend is a mix between battery-based and hybrid vehicles. We have to understand, okay, with all the set of regulation constraints that worldwide are implemented, and the competition of the Chinese carmaker, all this trajectory of growth will move. This is what matters for us in order to design our manufacturing capacity.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

What I can say on silicon carbide, the main important thing for us now is to close the 6-inch as fast as we can, start the 8-inch, adjust the capacity to the market demand, and we confirm that we strongly believe that we can keep 30% market share on this market. Different paths two or three years ago, for sure, but okay, we are adapting ourselves, and silicon carbide mid-term will be a growth driver of the company.

Sandeep Deshpande
Sandeep Deshpande
Analyst at J.P. Morgan

Thank you.

Jerome Ramel
Jerome Ramel
Executive Vice President, Corporate Development and Integrated External Communications at STMicroelectronics

Do you have any follow-up, Sandeep?

Sandeep Deshpande
Sandeep Deshpande
Analyst at J.P. Morgan

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

Jerome Ramel
Jerome Ramel
Executive Vice President, Corporate Development and Integrated External Communications at STMicroelectronics

Thank you. Next question, please.

Operator

The next question comes from the line of Stephane Houri from ODDO BHF. Please go ahead.

Stéphane Houri
Stéphane Houri
Head of Equity Research at ODDO BHF

Yes. Good morning, everyone. I have two questions. The 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. I just wanted maybe to come back on the reasons for that and also the impact of the forex if the dollar stays at this level. I have a follow-up. Thank you.

Lorenzo Grandi
Lorenzo Grandi
President and 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 annual capacity charges will decline in respect to what we have in Q3. This is expected Q3. I have to say that if you compute the annual capacity charge in million dollars, let's say you see that in Q3 at the end is similar to the one that we had in Q2. This is due to the fact that in Q3 we will, let's say, put strong control on our inventory. We do expect to achieve something in the range in terms of days for our inventory, 140 days.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

It means that at the end, unloading charges still are significant during this quarter, will decrease in the next quarter in Q4. The other element that you have to take in mind is that Q3 is still impacted by a negative efficiency. Yes, from our manufacturing end, yes, it is improving when we look at, 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. This means that this is another driver that will help, let's say, the improvement of our gross margin in the next quarter. This is assuming that, let's say, the exchange rate will stay substantially similar to the one that we have today.

Lorenzo Grandi
Lorenzo Grandi
President and 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. At the end, let's say, most of the negative impact of the exchange rate has been already reflected in the Q3 gross margin. 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. These are the dynamics that we see moving from Q3 to Q4 for our gross margin. Some improvement related to these impacts.

Stéphane Houri
Stéphane Houri
Head of Equity Research at ODDO BHF

Thank you very much. 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. I just wanted to understand what is the driver for the recovery in industrials. Is it inventory replenishment, pulling, sorry, or real demand behind that? If you can give some color, that would be helpful. Thank you.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

First of all, you know that a significant part of the industrial market for us is done through the distribution. What is positive is POS. The sales of our distributor increased in Q2, both sequentially and year-over-year. Our POP were below the POS. We are seeing a dynamic where the revenue recognition we have, the POP, is below the POS. The POS is growing both sequentially and year-over-year. Inventory in distribution is 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 in India and Americas. The dynamic is, again, industrial distribution, POS growing both sequentially and year-over-year, POP, as I described, below the POS. It is not inventory replenishment. It is real demand.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

After, from other OEM, pretty fragmented, clearly the growth is driven by a more smart industrial for us, and to a lesser extent for power and energy. We do not see, I repeat, also this is the opportunity, I said that any effect of pulling on industrial, especially from China for ST. There is zero pulling in China from Chinese customers or distributors for ST. We are immune against that. As far as products are related, one of the main drivers, 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, showing the strength of our portfolio and ecosystem. 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
Jean-Marc Chery
President and CEO at STMicroelectronics

This is basically the key driver of the industrial market distribution because of POS and demand. Then the smart industrial, lesser extent power energy from product, it is a general purpose microcontroller, and to a lesser extent, for sure, general purpose analog and power and discrete because still some other inventory that we are controlling. We control our POP.

Stéphane Houri
Stéphane Houri
Head of Equity Research at ODDO BHF

Okay. Thank you very much.

Jerome Ramel
Jerome Ramel
Executive Vice President, Corporate Development and Integrated External Communications at STMicroelectronics

Thank you, Stephane. Next question, please.

Operator

The next question comes from the line of Gianmarco Bonacina from Banca Akros. Please go ahead.

Gianmarco Bonacina
Head of the Equity Research Division at Banca Akros

Yes. Good morning. A couple of questions. The first one is on gross margin again. I think early June, Gianmarco, you said that when the company will reach again $3.6 billion-$3.8 billion, that could be about 600 basis point improvement, I guess, over the level of Q2 or Q1. I'm not sure. Given the euro dollar now is approaching 1.20, can we expect this level of improvement maybe going into next year or the year after could be a little bit lower, so maybe 400-500 basis points?

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Thank you for your question. I pass to Lorenzo to answer.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Clearly, when we were modeling our gross margin, if you remember, and we will say that. The level of our, let's say, model, intermediate model in billion dollars, 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 1.15. 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 at the spot rate, this will worsen.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Anyway, 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 terms of gross margin. Because today, we are still impacted by a significant amount of annual charge. And when we will be at that level of revenues, this will substantially disappear. We are talking about 340 basis points in Q3. 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, level. There is another impact that we need to consider that is somehow, let's say, impacting negatively our gross margin that we are not still in an optimized mix.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Means that, let's say, for instance, our, let's say, level of overall industry that is at the end, let's say, the one that is more creative to our gross margin still stay at the level that is not the one that we should be in our, let's say, portfolio revenues. It is now more closer to 20-21%, and then 25-26% that we do expect, let's say, in a more normal situation for our company. 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 at an FX that was 1.09. We need also to see where the position exchange rate.

Gianmarco Bonacina
Head of the Equity Research Division at Banca Akros

Thank you. Just a quick follow-up more strategically on China because we read at the end of 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. The article mentioned that in case there was a choice between a fully China chip and one designed by a foreign firm but fabricated in China, many automakers will opt for the former. Can you remind us roughly how much is your exposure in terms of sales to Chinese OEM and tier one? We know that you have a strategy China for China. Do you see these as, let's say, enough to, let's say, offset this potential headwind that this article was mentioning? Thank you.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

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

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

We do believe our strategy, okay, will mitigate a lot, okay, this effect. Yes, again, if there is some specific company owned by the state, okay, it will be difficult to prevent this kind of dynamic. About the exposure.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

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

Gianmarco Bonacina
Head of the Equity Research Division at Banca Akros

Okay. Just in for automotive, right?

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

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

Gianmarco Bonacina
Head of the Equity Research Division at Banca Akros

13% of 40X%.

Gianmarco Bonacina
Head of the Equity Research Division at Banca Akros

Thank you.

Jerome Ramel
Jerome Ramel
Executive Vice President, Corporate Development and Integrated External Communications at STMicroelectronics

Thank you. Next question, please.

Operator

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

Jerome Ramel
Jerome Ramel
EVP, Corporate Development and Integrated External Communications at STMicroelectronics

Hi Lee.

Lee Simpson
Lee Simpson
Analyst at Morgan Stanley

Can you hear me?

Operator

We can hear you now.

Lee Simpson
Lee Simpson
Analyst at Morgan Stanley

Okay. Morning, everyone. 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. 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. The second question I had was really on the timing of readiness for the 800-volt DC-DC supply for the PSU. We are hearing that it is 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
Jean-Marc Chery
President and CEO at STMicroelectronics

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

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Sebastian, on the pricing in general purpose microcontroller, what I can tell you is that we see really, let's say, a low single-digit pricing path. We have not detected any strange behavior, I have to say. Clearly, let's say, maybe region by region, the dynamic is a little bit different. At the end, I can confirm that, let's say, on the general purpose, this is what we see today. Nothing particularly, let's say, strange in terms of behavior. Yes, you may have some socket in which maybe there is a competition a little bit more aggressive and so on. 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.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

So Marco.

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

Yes, on the 800-volt, yes, you're right. Surely, it is challenging. In terms of specification. As you know, at least our proof of concept, which is in the hands of NVIDIA and on which we are working very closely with them, is a combination of different components. So you have the GaN, you have the SiC, you have galvanic isolation drivers to drive the board overall. I'm confident. Some of the components are more mature than others. So the wide-bandgap material are fine. We're still working to develop drivers, galvanic isolated, to make sure that the overall performance will be there. It's a work in progress. So far, so good. 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
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 2026, early 2027 as a sales impact rather than anything sooner?

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

This is too early to say. It's a big change in terms of architecture. 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
Lee Simpson
Analyst at Morgan Stanley

Very clear. Thank you.

Jerome Ramel
Jerome Ramel
Executive Vice President, Corporate Development and Integrated External Communications at STMicroelectronics

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

Operator

The last question for today is from Sebastien Sztabowicz from Kepler Cheuvreux. Please go ahead.

Sébastien Sztabowicz
Sébastien Sztabowicz
Head of IT Hardware and 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, a bit less than two months of excess of inventory. I would be curious to know where we are today. The second one is linked to the pricing environment in China, and specifically on silicon carbide. We are seeing some price war raging between the EVOEMs there. How do you see prices for silicon carbide building there? And do you have any kind of feasibility on your designs that are expected to ramp in China on silicon carbide from 2026? Or is it too early to know what will be the pace of ramp of those designs? Thank you.

Jean-Marc Chery
Jean-Marc Chery
President and CEO 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
Lorenzo Grandi
President and CFO at STMicroelectronics

Yeah. In respect to the inventory, I would say that during Q3, our inventory in distribution has progressed in the right direction. It's true that when we were meeting, let's say, in Q2 after our earning release of the Q1 quarter, let's say, our inventory in average was with an 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. It's not across the board in the sense that now we see some families, like for instance, general purpose, that are normalized in terms of inventory, especially in some regions, we are really at the normal level, even slightly before. Maybe there is some difference region by region.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Other families are suffering still a little bit more in terms of normalization of the inventories, likely 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 expectations. Still some excess, but moving in the right direction in terms of reduction.

Marco Cassis
Marco Cassis
President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of Strategy, System Research and Application, and Innovation Office 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. Generation 4 is introduced. We are working for the Generation 5. 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 6 to 8 inches. Specifically in China, we are going to have our manufacturing in Sanand that will start at the end of this year, 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
Marco Cassis
President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of Strategy, System Research and Application, and Innovation Office at STMicroelectronics

All these components together should materialize in a growth on the Chinese market. Clearly, the dynamics are strong, but I think we are pretty well equipped to counteract the dynamics that we do 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
Jean-Marc Chery
President and CEO at STMicroelectronics

We anticipate 2026, okay, to be again after the point of 2025, okay, a year of growth for silicon carbide.

Sébastien Sztabowicz
Sébastien Sztabowicz
Head of IT Hardware and Semis Sector Research at Kepler Cheuvreux

Okay, thank you.

Jerome Ramel
Jerome Ramel
Executive Vice President, Corporate Development and Integrated External Communications 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 to the investor relationship. Thank you very much.

Jean-Marc Chery
Jean-Marc Chery
President and CEO at STMicroelectronics

Thank you. Bye-bye.

Lorenzo Grandi
Lorenzo Grandi
President and CFO at STMicroelectronics

Thank you.

Operator

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

Executives
    • Jerome Ramel
      Jerome Ramel
      Executive Vice President, Corporate Development and Integrated External Communications
    • Lorenzo Grandi
      Lorenzo Grandi
      President and CFO
    • Jerome Ramel
      Jerome Ramel
      EVP, Corporate Development and Integrated External Communications
    • Marco Cassis
      Marco Cassis
      President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of Strategy, System Research and Application, and Innovation Office
    • Jean-Marc Chery
      Jean-Marc Chery
      President and CEO
Analysts
    • Janardan Menon
      Managing Director at Jefferies
    • Sébastien Sztabowicz
      Head of IT Hardware and Semis Sector Research at Kepler Cheuvreux
    • Joshua Buchalter
      Director of Equity Research - Semiconductors at TD Cowen
    • Sandeep Deshpande
      Analyst at J.P. Morgan
    • François Bouvignies
      Head of Europe Tech Hardware/Semiconductor at UBS
    • Lee Simpson
      Analyst at Morgan Stanley
    • Stéphane Houri
      Head of Equity Research at ODDO BHF
    • Gianmarco Bonacina
      Head of the Equity Research Division at Banca Akros
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