What STMicroelectronics (STM) Said on Its Q3 Earnings Call

Key Points

• Strong third-quarter performance: STMicroelectronics reported $3.76 billion in revenue, above the midpoint of its outlook, with non-U.S. GAAP EPS of $0.37. Industrial revenue rose 40% year over year, while communication equipment and computer peripherals surged 64%, driven by AI data centers and low-earth-orbit satellites.
• AI and satellite demand are accelerating: ST expects about $1.3 billion in AI data-center revenue in 2026 and projects data-center revenue to more than double in 2027. Satellite communications revenue is also expected to reach or exceed 2026’s record level, with capacity potentially limiting growth.
• Positive outlook and margin plans: The company forecast fourth-quarter revenue of $4.15 billion at the midpoint and expects approximately $14.5 billion in full-year 2026 revenue. Manufacturing restructuring is expected to deliver more than 400 basis points of structural gross-margin improvement by late 2027 or early 2028.

STMicroelectronics NYSE: STM reported third-quarter 2026 revenue above the midpoint of its outlook, citing strengthening demand across industrial markets and continued growth in artificial intelligence data centers and low-earth-orbit satellite communications.

Revenue totaled $3.76 billion, with gross margin of 37.3% and non-U.S. GAAP diluted earnings per share of $0.37. Chief Executive Officer Jean-Marc Chery said revenue outperformance was driven principally by communication equipment and computer peripherals, including AI data-center and satellite-related products, as well as communications and personal electronics.

The company generated $351 million in free cash flow during the quarter. Inventory increased modestly to support expected fourth-quarter revenue growth, while distributor inventory declined and remained below STMicroelectronics’ standard target, management said.

Demand, bookings and end-market performance

Chery said the recovery in the company’s served markets continued to gain momentum in the third quarter. Sequential bookings increased and the overall book-to-bill ratio remained “well above two,” with ratios above one across all end markets. Communication equipment and computer peripherals, as well as industrial, each had book-to-bill ratios well above three, according to management.

The company’s backlog stood at more than $20 billion at the end of the quarter, representing roughly five quarters of revenue at the midpoint of its fourth-quarter guidance. Chery said this level of backlog provided “appropriate visibility” for operations, although it remained below the peaks seen in 2022 and 2023.

• Automotive: Revenue was flat sequentially and rose 5% year over year. ST cited demand for application-specific ICs and sensors used in core automotive systems, electric powertrains and advanced driver-assistance systems.
• Industrial: Revenue increased 12% sequentially and 40% from a year earlier, supported by general-purpose microcontrollers, analog products and power-conversion devices.
• Personal electronics: Revenue rose 12% sequentially but declined 4% year over year. Management said the stronger-than-expected third quarter did not reflect a customer pull-in.
• Communication equipment and computer peripherals: Revenue climbed 14% sequentially and 64% year over year, primarily reflecting AI data-center and low-earth-orbit satellite communications demand.

By reportable segment, year-over-year revenue rose 8.8% in Analog Products, MEMS and Sensors; 11.3% in Power and Discrete Products; 24.1% in Embedded Processing; and 46.2% in RF & Optical Communications.

AI data-center and satellite growth drivers

Management said AI data-center products remain a major company-specific growth driver. STMicroelectronics expects approximately $1.3 billion in AI data-center revenue during 2026, with more than 85% coming from RF-related products, including microcontrollers, silicon photonics and electronic ICs based on BiCMOS technology.

Chery said the company expects data-center revenue to more than double in 2027, with further growth anticipated in 2028. Rémy El-Ouazzane, president of the company’s Microcontrollers, Digital ICs and RF Products Group, said microcontroller revenue in data centers is expected to double year over year in 2027. He added that silicon photonics is expected to become a meaningful portion of revenue next year, while BiCMOS contributions should become more visible in 2028.

El-Ouazzane said ST plans to increase silicon-photonics capacity by more than four times year over year, describing customer electro-optical yields as strong. In low-earth-orbit satellite communications, he said 2027 revenue should be at least as high as, and potentially higher than, the record level expected in 2026. The business could be constrained by capacity rather than demand, he said.

Margins and manufacturing restructuring

Third-quarter gross profit was $1.40 billion, up 32.2% year over year. Gross margin improved 410 basis points from a year earlier and 250 basis points sequentially, aided by lower unused-capacity charges and a better product mix.

However, third-quarter gross margin included roughly 60 basis points of unused-capacity charges and 40 basis points of nonrecurring costs tied to the company’s manufacturing reshaping program. CFO Lorenzo Grandi said the company remains committed to an intermediate gross-margin model of 44% to 46% after completing the manufacturing transition.

The company expects more than 400 basis points of structural gross-margin improvement from reshaping its manufacturing footprint. Grandi said the benefit is expected to emerge toward the end of 2027 or in early 2028, subject in part to customer qualification timing as ST closes four legacy fabs and transfers production to newer facilities.

ST reported third-quarter operating income of $367 million, including $55 million in impairment, restructuring and related phase-out costs, plus $7 million in purchase-price-allocation effects from the acquisition of NXP’s MEMS sensor business. Non-U.S. GAAP operating income was $429 million, representing an 11.4% margin.

Fourth-quarter and full-year outlook

For the fourth quarter, STMicroelectronics forecast revenue of $4.15 billion at the midpoint, plus or minus 350 basis points. That would represent sequential growth of 10.5% and year-over-year growth of 24.7%. The company expects gross margin of about 39%, plus or minus 200 basis points, including approximately 40 basis points of unused-capacity charges.

The outlook excludes potential effects from further changes in global trade tariffs. At the midpoint of its fourth-quarter outlook, ST expects full-year 2026 revenue of about $14.5 billion, up 22.8% year over year, with gross margin of roughly 36.4% and non-U.S. GAAP gross margin of approximately 36.6%.

Management also said it was comfortable delivering at least current consensus estimates for first-quarter 2027 revenue and gross margin, despite the quarter having 86 calendar days. The company expects 2027 operating expenses to rise, though Grandi said the increase should be accompanied by an improved expense-to-sales ratio as savings programs and lower startup costs partly offset investment in new opportunities and wage inflation.

Separately, Chery said the supervisory board requested that he be reappointed for an additional year as chairman of the managing board, president and CEO, subject to shareholder approval at the 2027 annual meeting. ST also announced organizational changes effective Jan. 1, 2027, including the appointment of El-Ouazzane as chief technology officer and Marco Cassis as chief strategic officer.

About STMicroelectronics (NYSE:STM)

STMicroelectronics N.V. NYSE: STM is a global semiconductor company that designs, develops, manufactures and markets a broad range of integrated circuits and other semiconductor products. Its offerings support applications in automotive, industrial, personal electronics, communications equipment and computer systems.

The company's product portfolio includes microcontrollers, analog and power semiconductors, sensors, microelectromechanical systems (MEMS), connectivity products and automotive chips.

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