Q2 2024 STMicroelectronics NV Earnings Call

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Moira: Please hold the line; the conference will begin shortly. Ladies and gentlemen, welcome to the STMicroelectronics second quarter 2024 earnings release conference call and live webinar. I am Moira, the Coruscant Operator.

Speaker Change: Ladies and gentlemen.

Speaker Change: Welcome to the S. T Microelectronics second quarter 2024 earnings release conference call and live webcast.

Moira: I am Moira the chorus call operator, I would like to remind you that all participants who had been decent multi mode and the conference has been recorded.

Moira: 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 remote control. For operator assistance, please press star and z. The conference must not be recorded for publication.

Speaker Change: The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star one on your telephone for operator assistance. Please press Star Zero The conference must not be recorded for publication or broadcast at this time, it's my pleasure to hand over to <unk>.

Moira: At this time, it's my pleasure to hand over to Céline Berthier, Group Vice President, Head of Investor Relations. Thank you, Mayra, and good morning. Thank you everyone for joining our second quarter 2024 financial results conference call. I think the call today is Jean-Marc Chéry, ST's President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President of Finance, Purchasing, ERM, and Resilience, and Chief Financial Officer, and Marco Cassis, President of Analog, Power, and Discrete, MEMS, and Census Group, and Head of STMicroelectronics Strategies, System Research and Applications, and Innovation Office. These live webcasts and presentation materials can be accessed on the SC Investor A replay will be available shortly after the conclusion of the session.

Speaker Change: Group Vice President head of Investor Relations. Please go ahead Madam.

Speaker Change: Thank you, Matt and good morning.

Celine Berthier: This goal will include forward-looking statements that involve risk factors that could cause SDS results to differ materially from management expectations and plans. We encourage you to review the safe ABO statement contained in the press release that was issued with the results this morning and also INES-T's most recent regulatory findings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session.

Speaker Change: Thank you everyone for joining our second quarter 2020 full financial results conference call.

Speaker Change: Hosting the call today, Joe Machete, St's, President and Chief Executive Officer.

Speaker Change: Joining Jean Marc on the call today are Lorenzo Grandi, President of finance, the chassis DRM and resilient chief financial operation.

Speaker Change: And macro catchy president and power in D. C mentioned, sensus, Luke and edges estimate quite a 'twenty strategy, she simply industrial applications and the innovation.

Speaker Change: These slides webcast and presentation materials can be accessed on ESG Investor Relations website.

Speaker Change: A replay will be available shortly after the completion of the school.

Speaker Change: This call will include forward looking statements that involve risk factors that could cause st's results to differ materially from management's expectation and plans.

We encourage you to review the Safe Harbor statement contained in the press release that was issued 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.

Speaker Change: Understood to ensure all participants have an opportunity to ask questions. During the Q&A session. Please.

Speaker Change: Please limit yourself to one question and a brief follow weapon.

Jean-Marc Chéry: Please limit yourself to one question and a brief follow-up. And now, I would like to turn the call over to Jean-Marc, SC's President and CEO. Thank you, Céline.

Jean Marc: And now I'd like to turn the call over to Jean Marc St's, President and CEO.

Jean Marc: Thank you celina good.

Jean-Marc Chéry: Good morning everyone, and thank you for joining ESPI for our Q2 2024 earnings conference call. Let me begin with some opening comments, starting with Q2. Second quarter net revenues of $3.23 billion. We are above the midpoint of our business outlook range, driven by higher revenues in personal electronics. Partially offset by lower than expected revenues in automotive. However, the gross margin of 40.1% was in line with expectations. On a year-over-year basis, Q2 Net Revenues decreased 25.3%, mainly driven by a decline in industrial and, to a lesser extent, in automotive.

Jean Marc: Good morning, everyone.

Speaker Change: Thank you for joining U S. G four walk through 2020 for Belmond.

Speaker Change: <unk> Court.

Jean Marc: Yes.

Jean-Marc Chéry: Ghost margin decreased to 40.1% from 49%. Operating margin decreased to 11.6% from 26.5%, and net income decreased 64.8%, to 353 million dollars, on a sequential basis. Net revenues decreased 6.7%, for the first half of 2024.

Speaker Change: Let me begin with some opening comments.

Jean Marc: Starting with Q2.

Jean Marc: Second quarter on medical use of $3 $23 billion.

Jean Marc: Well above the midpoint of halal business outlook range.

Jean Marc: Driven by higher revenues in personal electronics.

Jean Marc: Partially offset by lower than expected revenues in automotive.

Jean Marc: Gross margins of 41% was in line with expectation.

Jean Marc: On a year over year basis, Q2, net revenues decreased 25, 3%.

Jean Marc: Mainly driven by a decline in the industry and to a lesser extent in otology.

Jean Marc: Gross margin decreased to 41% 49%.

Jean Marc: Operating margin decreased to 11, 6%.

Jean Marc: 26, 5%.

Jean Marc: Our net income decreased 64, 8% to $353 million.

Jean Marc: On a sequential basis net revenues decreased six 7%.

Jean Marc: For the first half of 2024.

Jean-Marc Chéry: Net revenues decreased 21.9% year-on-year, $6.7 billion, mainly driven by a decrease in the microcontrollers and power and discrete segments. We reported a gross margin of 40.9%, an operating margin of 13.8%, and net income of $865 million. During the quarter,

Jean Marc: Net revenues decreased 21, 9% sure they'll Yale to $6 7 billion.

Speaker Change: Mainly driven by your decreases the Microcontrollers.

Speaker Change: <unk>.

Speaker Change: And discrete Sigma.

Speaker Change: We reported gross margin of 49% operating margin.

Speaker Change: 38% and net income of 800 to HUD.

Speaker Change: $65 million.

Speaker Change: Thanks.

Speaker Change: During the quarter.

Jean-Marc Chéry: Contrary to our prior expectations, customer orders for industrial DINUT input declined for Q3 2024. Our third quarter business outlook is for net revenues of about $3.25 billion at the midpoint, decreasing 26.7% year-over-year and increasing 0.6% sequentially. Gross margin is expected to be about 38%, impacted by about 350 basis points of unused capacity charges.

Speaker Change: <unk> two <unk>.

Speaker Change: <unk> expectations.

Speaker Change: To the audience for industry Yoda does not improve.

Speaker Change: And automotive demand decline.

Speaker Change: For Q3 2024.

Speaker Change: Our third quarter business outlook, you saw metal values of about $3 25 billion at the midpoint.

Speaker Change: Decreasing 26, 7%, Tiago, Yale and increasing 0.6% sequentially.

Speaker Change: Gross margin is expected to be about 38%.

Speaker Change: Impacted by about 300 blood and 50 basis points.

Speaker Change: The used capacity charges.

Jean-Marc Chéry: For the full year 2024, Overall, In-Q2 customer order bookings did not materialize as expected. Therefore, we now anticipate a delayed recovery in the freehold and a lower-than-expected increase in automotive revenues in the second half of the year versus the first half of the year. We will now drive the company based on the plan for full year 2024 of the news, in the range of $13.2 billion to $13.7 billion. Within this plan, we expect a gross margin of about 40%.

Speaker Change: For the full year 2024.

Speaker Change: Overall EQ to customer order bookings.

Speaker Change: Did not met.

Speaker Change: As expected.

Speaker Change: Therefore, we now anticipate the delayed recovery in this field.

Speaker Change: And the lower than expected increase in automotive revenues in the second vessel the Yale best used as feedstock.

Speaker Change: We will know drives the companion based on the plan for full year 2020 fall over us in the range of $13 2 billion.

Speaker Change: <unk> 13 7 billion.

Speaker Change: We then display we expect a gross margin of about 40%.

Speaker Change: Yes.

By segment.

Jean-Marc Chéry: [inaudible] on a year-over-year basis. Analog product mention sensor was down 10%, which may lead you to imagine. Power and discrete products decreased 24.4%, with a decline both in power and in discrete products. Microcontroller revenues declined 46%, mainly due to general purpose microcontrollers.

Speaker Change: Although year over year basis.

Speaker Change: Product mentioned, some sale was down 10%.

Mainly due to energy.

Speaker Change: While oil and discrete products decreased 24, 4% with a decline both the boil any discrete products.

Speaker Change: Microcontrollers revenues declined 46 systems, mainly.

Mainly due to <unk> microcontrollers.

Jean-Marc Chéry: And digital ICs and RF products declined 7.6%, with a decrease in HEDAS, more than offsetting an increase in RF communication by NMarket. Industrial decline by more than 50%, Automotive by about 15%, and personal electronics by about 6%. Why?

Speaker Change: And digital Ic's and RF products declined seven 6% with a decreasing that head us more than offsetting an increase in RF communications.

Speaker Change: By end market.

Speaker Change: Industrial declined by more than 50%.

Speaker Change: Automotive by about 15% in peso the clinique by about 6%.

Speaker Change: Why.

Jean-Marc Chéry: Communication Equipment and Computer Peripherals increased by about 2%. Excluding the impact of the change in product mix in an engaged customer program, Personal Electronics was up about 40%. Year over year, sales decreased 14.9% to OEMs, and 43.7% to distribution. Overall, Q2 net revenues decreased 6.7% sequentially, with a decline of 4.3% in analog products, MEMS, and sensors, and 8.8% in power and discrete products.

Communication equipment and computer bidding for all increased by about 2%.

Speaker Change: Excluding the impact of the changing product mix in the loan engaged customer programs.

Speaker Change: <unk> was up about 14%.

Speaker Change: <unk> sales decreased 14, 9% to <unk>.

Speaker Change: Yes.

Speaker Change: $43 seven piston two distributions.

Speaker Change: Overall due to the Covid use decreased six 7% sequentially with a decline of four 3% in analog products medicines ourselves eight 8% in power discrete products.

Jean-Marc Chéry: 15.7% in microcontrollers, while digital ICs and RF products increased 8.6%. By end market, industrial was down about 17% sequentially, automotive down about 8%, and personal electronics down about 5%, while communication equipment and computer peripherals were up about 15%. Gross profit was 1.3 billion dollars, decreasing 38.9% year-over-year.

Speaker Change: Eight 7% in Microcontrollers wireless digital Ics and RF products increased eight 6%.

Speaker Change: By end market industrial was down about 17% sequentially.

Speaker Change: Automotive is down about 8% and personal.

Speaker Change: Personal electronics down about 5%.

Speaker Change: Why the communication equipment and computer shareholder was up.

Speaker Change: About 15%.

Speaker Change: Yeah.

Speaker Change: Gross profit was $1 3 billion.

Speaker Change: Decreasing 38, 9% <unk>.

Jean-Marc Chéry: Gross margin decreased to 40.1% compared to 49% in the same quarter last year. The decrease was mainly due to the combination of product mix and sales price and higher unused capacity charges. Operating margin was 11.6% compared to 26.5% in the year-ago period. All reportable segments were down on a year-over-year basis, with the main decline in microcontrollers and power and DC. On a year-over-year basis, Q2 net income decreased 64.8% to $353 million.

Speaker Change: Gross margin decreased to 41% compared to 49% in the same quarter last year.

Speaker Change: The decrease was mainly due to the combination of product mix.

Speaker Change: Sales price and higher unused capacity charges.

Speaker Change: Operating margin was 11, 6% comp.

Speaker Change: Compared to 26, 5% in Google.

Speaker Change: <unk> valued.

Speaker Change: All reportable segments were down on a year over year basis.

Speaker Change: With the man decline in Microcontrollers and power and discrete.

Speaker Change: Although year over year basis, Q2, net income decreased 64, 8% to <unk> 50 trillion dollar.

Jean-Marc Chéry: Compared to $1 billion, it's $2.5 billion. Earnings per diluted share decreased 64.2%, to $0.38 compared to $1.06. Net cash from operating activities decreased, at $702 million in Q2 versus $1.31 billion in the year-ago quarter.

Speaker Change: Compared to 1 billion dollar in the yoga cocktail.

Speaker Change: <unk> <unk> diluted share decreased 64, 2%.

Speaker Change: Two zero by $38 compared to one <unk>.

Speaker Change: Net cash from operating activities decreased.

At $782 million in Q2 <unk>.

Speaker Change: <unk>, one <unk> 1 billion dollar in the year ago quarter.

Jean-Marc Chéry: Net capex in the second quarter was $528 million compared to $1.07 billion in the year-ago quarter. Pre-cash flow was $159 million compared to $209 million in the year-ago quarter. Inventory at the end of the second quarter was $2.81 billion, compared to $3.05 billion in the year-ago quarter. Days, sales of inventory at quarter end were 130 days, compared to 122 days in the previous quarter and 126 days in the year-ago quarter.

Speaker Change: Net capex in December quarter was $528 million compared to 1.07 billion dollar in the year ago quarter.

Speaker Change: Free cash flow was 159 million dollar co pay up to two nine.

Speaker Change: 9 million.

Speaker Change: In the year ago quarter.

Speaker Change: Inventory at the end of the second quarter was 2.8.

Speaker Change: <unk> billion dollar.

Speaker Change: Compared to $3 <unk> 5 billion in Zillow group context.

Speaker Change: Days sales of inventory.

Speaker Change: Quarter head well why don't the 30 days compared to 122 days in the previous quarter and 126 days in the year ago quarter.

Speaker Change: Okay.

Jean-Marc Chéry: During the second quarter, ST paid $73 million in cash dividends to stockholders, and we executed an $88,000,000 share buyback, completing our $1.04 billion share repurchase program launched in 2021. On June 21, 2024, ESTI announced the launch of a new share buyback plan totaling up to $1.1 billion to be executed within a three-year period. Estee's net financial position of $3.2 billion as of June 29, 2024, reflects a total liquidity of $6.29 billion and total financial debt of $3.09 billion.

Julien: Julien the signal across the U S T paid $73 million of cash dividends to stockholders.

Speaker Change: We executed an eight.

Speaker Change: <unk> got our share buyback.

Speaker Change: Completing one double fault BDO dollar share repurchase program launched in 2021.

Speaker Change: On June 21 2024.

Speaker Change: <unk> announced the launch of a new share buyback plan totaled totaling.

Speaker Change: Up to $1 1 billion to be executed within a three year failure.

Speaker Change: As to the net financial position of $3 2 billion dollar.

June 29 2024.

Speaker Change: Reflect a total liquidity of $6 29 billion.

Speaker Change: And total financial debt of $3 <unk> billion dollars.

Jean-Marc Chéry: I will now go through a short update on some of our strategic focus areas. As mentioned, contrary to our prior expectations, we saw a decline in automotive demand during the quarter. This was characterized by some reduction in backlog already in Q2, and reduced forecasts from some of our customers, including adjustments related to electrical vehicle production, and with inventory adjustments going along the supply chain. We continue to execute our strategy supporting car electrification during the quarter. We have multiple wins in power discrete with both silicon carbide and IGBT technologies for traction inverters at leading car manufacturers.

Speaker Change: I will now go through a short update on some of our strategic focus Rs.

Speaker Change: As mentioned <unk> two overall prior expectation we saw a decline in the <unk> during the quarter.

Speaker Change: This was <unk> by some reduction in backlog already in Q2.

Speaker Change: And reduce forecasts of <unk>, Inc.

Speaker Change: Including adjustments related to electrical vehicle can you Shouldnt decrease.

Speaker Change: And with inventory adjustments going along the separation.

Speaker Change: We continue to execute our strategy supporting charter contribution during the quarter.

Speaker Change: We had multiple weeks and power discrete with both silicon carbide and ICT technologies.

Speaker Change: Flexion in vessels at leading car manufacturers.

Jean-Marc Chéry: We also want business with our automotive smart power technology for power domain control, a new electrical and electronic architecture. We announce a long-term silicon carbide supply agreement with GE Auto for silicon carbide power devices in their batteries for electric vehicles. We have also established a joint lab to share knowledge and explore innovative solutions related to evolving automotive architecture. In car digitalization, we saw further momentum with our portfolio of automotive microcontrollers. This includes wins with our later generation Stellar NCUs in a body domain application with a leading European carmaker, as well as other MCU wheels for battery management, and HVAC system. For automotive sensors, we introduce a 6-axis module that enables a cost-effective solution for functional safety applications, such as precise positioning in navigation systems and digitally stabilizing cameras, LIDARs, and RADARs.

Speaker Change: We also won business with a long list of achievements Snapple will stick the regime for cobalt domain controllers.

Speaker Change: A new electrical and electronic architectures.

Speaker Change: Okay.

Speaker Change: We announced a long term silicon carbide supply agreement with GE, our tool for Silicon carbide pro rata devices in there Betsy for electrical vehicles.

Speaker Change: We have also established a joint lab to share knowledge and explore innovative solutions.

Speaker Change: <unk> to equity automotive Akshay tools.

Speaker Change: The calendar utilization, we saw further momentum with our portfolio of automotive Microcontrollers.

Speaker Change: Does this include Luis Zavala later shouldn't I should still allow us to use in the <unk> domain application with a leading European carmaker.

Speaker Change: As well as also MCU weeks for battery management.

Speaker Change: In HVAC systems.

Speaker Change: These are two boutiques. So we introduced a six axis boat ULA that ebay versus Augusta <unk> solution.

Functional safety applications, such as criticize it positioning in navigation systems.

Speaker Change: Digital is stabilizing cameras lidar and write offs.

Speaker Change: Yes.

Jean-Marc Chéry: Our Design with Activity in Smart Mobility highlights the robustness of our technology and product portfolio, positioning ST to leverage the structural growth of this schema. However, during the quarter, the anticipated stabilization of G-MODE did not materialize as expected, and customer orders did not improve, in particular for general purpose microcontrollers.

Speaker Change: Our design win activity Snafu, BTT highlights the whole process of technology and product portfolio.

Speaker Change: Positioning <unk> to leverage this particular growth of this key market.

Speaker Change: Do you need to see Youre doing.

Speaker Change: During the quarter, the OTC baited stabilization of demand.

Speaker Change: Did not materialize as expected.

Speaker Change: And just on the orders did not improve.

Speaker Change: In particular for general purpose Microcontrollers.

Jean-Marc Chéry: We continue to see weakness in the market for short cycle businesses, such as power tools, residential solar, lighting, and appliances, and more resilience in longer cycle businesses, such as energy storage, grid, electrical vehicle charging, and process automation. This has resulted in entering the second half with a weaker backlog than expected. In the shop there

Speaker Change: We continue to see weakness in the market.

Speaker Change: For short cycle businesses.

Speaker Change: Such as power tools resident showed solar lighting and appliances.

Speaker Change: At moment ddl's in longer cycle business.

Speaker Change: Such as energy storage grid, electrical vehicle charging and process automation.

Speaker Change: This resulted entering as a single <unk>.

Speaker Change: In the weaker backlog than expected.

Speaker Change: Industrial sales.

Jean-Marc Chéry: We are facing a longer and more pronounced correction in the industrial market than we anticipated. Your Progressive Weakening of NVMEN, amplified by a severe inventory correction along the industrial market value chain. In this environment, we continue to work with our customers to design our products of today and to invest in R&D to be the next generation of products. A good example is what we are doing to build on our leading position in industrial embedded processing solutions.

Speaker Change: We are facing a little girl and bulk cornells couric should introduce field than what we anticipated.

Speaker Change: You will see weakening of <unk>.

Speaker Change: Refi by a severe inventory correction <unk> industrial bucket value chain.

Speaker Change: Is this all the elements we continue to work with our customers to design in our product today and to invest in R&D to be the next generation of products.

A good example of this.

Speaker Change: Is what we are doing to build on our leading position in industry.

Speaker Change: Further processing solutions.

Jean-Marc Chéry: SC was presented at the HADUEL Unbedded World Show in Germany, where over 5,000 people visited our booth. There, we received very positive customer feedback on the new products and solutions we announced shortly before, including low-cost wireless and high-performance microcontrollers, as well as new 64-bit microprocessors for industrial applications. We also announced an innovative smart sensor with edge AI processing for motion tracking in industrial and robotics applications.

As soon as present as a headwind, albeit a dwarf show in Germany, well over 5000 people visited the logos.

Speaker Change: We received very positive customer feedback on the new products and solutions, we announced shortly before.

Speaker Change: Including Lucas weigh on asset ICF almost microcontrollers.

Speaker Change: As well as new 64 bit microprocessors.

Speaker Change: <unk> applications.

Speaker Change: We also announced a new go to achieve our slots and so with edge AI. He puts his seat for Moshe trucking industry or vertical.

Speaker Change: Clinical boutiques application.

Jean-Marc Chéry: We also introduced the first embedded SIM in the industry to meet the incoming GSM-A standard for eSIM IoT deployment and management of large numbers of connected devices in support of the proliferation of secure cloud-connected autonomous things. Finally, we also continue to build momentum on Edge AI enablement for our customers. In early June, the ST Edge AI suite came online, bringing together tools, software, and knowledge to simplify and accelerate HDI Application Development. The suite supports both optimization and deployment of machine learning algorithms, starting from data collection to final deployment on hardware, streamlining the workflow for different types of users.

Speaker Change: We also introduced the first under the Sema in the industry to meet the incoming she is a slowdown for EC Iot deployments.

Speaker Change: This simplifies the management of large numbers of connected devices each support of the proliferation of secure cloud connected to the Moose piece.

Speaker Change: Yeah.

Speaker Change: Finally, we also continued to build momentum on <unk> in early June the S.

Speaker Change: S T H AI is street, Cambridge hotline brink.

Bringing together tools software knowledge to simplify and accelerate edge AI application development.

Speaker Change: The street supports both optimization and deployment of machine learning algorithm.

Speaker Change: Starting from data collection to final debridement or now the whale.

Speaker Change: Streamlining the workflow for detail of Susan's.

Speaker Change: Yes.

Jean-Marc Chéry: We are confident that our ongoing design and development efforts with customers and distributors in the industrial sector will position ST to capitalise on the net, market upcycle more efficiently. In-Personnel Electronics Communication Equipment and Computer Peripherals, Our engaged customer programs are running as expected. Moving now to manufacturing, in May, we announced a strategic update with the construction of a new high-volume, 200 mm silicon carbide manufacturing facility in Catania, Italy. This facility will make power devices and modules, and will include both device manufacturing, testing, and packaging. In conjunction with the Silicon Carbide Substrate Manufacturing Facility, being prepared on the same site, these facilities will collectively form Estee's Silicon Carbide Corporation.

Speaker Change: We are confident that our ongoing design and development efforts with <unk> and distributors in the industry or sector will position <unk> to capitalize on the mid.

Speaker Change: Market upcycle.

Speaker Change: <unk> could you just communication equipment and computer peripherals.

Speaker Change: Gauge customer programs are working as expected.

Jean-Marc Chéry: This development will fulfill our vision of a fully vertically integrated manufacturing hub for the mass production of silicon carbide devices, all within a single location. The program is projected to be a 5 billion euro multi-year investment, including 2 billion euros of support provided by the State of Italy under the framework of the European Union SHIPS Act. During the quarter, we also announced the extension of the existing multi-year 150 mm silicon carbide substrate and wafer supply agreement with Seacrystals.

Speaker Change: Moving now to manufacturing in May we announced a strategic update with the construction of our new <unk> two <unk> manufacturing facility in Catania, Italy.

Speaker Change: This facility will make both devices and modules.

Speaker Change: It will include both device manufacturing and testing and packaging.

Speaker Change: In conjunction with our Silicon carbide subsides manufacturing facility being prepaid or just send site.

Speaker Change: These facilities will collectively for St's silica come by Congress.

Speaker Change: This development will fulfill our vision of a fully vertically integrated manufacturing.

Speaker Change: For the best project should of Silicon carbide devices.

Speaker Change: Or within a single location.

Speaker Change: The poll Gaba is projected to be 5 billion, you will see our investments, including 2 billion euros supported provider support provided by the state of Italy in the framework of the European Union ships Act.

Speaker Change: Yeah.

During the quarter, we also announced the expansion of the existing with tier one of about 50 million EBITDA of silicon carbide substrates.

Speaker Change: First supply agreement with secret stops.

Jean-Marc Chéry: Now let's move to our third quarter 2024 financial outlook and a workbench for the full year 2024. 4Q3, We expect net revenues of about $3.25 billion at the midpoint, representing a year-over-year decline of 26.7% and sequential growth of 0.6%. Q3 gross margin is expected to be about 38% at the midpoint, impacted by about 350 basis points of unused capacity charges.

Speaker Change: Now, let's move to our third quarter 2020 financial outlook and our plans for the full year 2024.

Speaker Change: For Q3.

Speaker Change: We expect that global use of about $3 25 billion dollar at the midpoint.

Speaker Change: <unk> casualty you year over year decline of 26, 7%.

Speaker Change: And the sequential growth of seven 6%.

Speaker Change: Q3 gross margin is expected to be about 38% at the midpoint impacted by about 350 basis points of unused capacity charges.

Jean-Marc Chéry: For 2024, Entering the second half with our current Q3 and year-end backlog and with ongoing market dynamics, we have further revised our plan for 2024 revenues, which we now see in the range of $13.2 billion to $13.7 billion, representing a decline of about 22% at the midpoint compared to 2023. Within this plan... We expect a gross margin of about 40 percent impacted by about 270 basis points of unused capacity charges at the midpoint of our 2024 full-year indication, to CoQ. Following an unprecedented chip shortage situation, the current semiconductor cycle is impacted by a number of factors.

Speaker Change: For 2024 and.

Speaker Change: <unk> has signaled with our Q on Q3 and year end backlog.

Speaker Change: And with ongoing market in EMEA.

Speaker Change: We have further revised our plan for 2020 swap revenues.

Speaker Change: Which we don't see they're all just 13 $2 billion to $13 7 billion.

Speaker Change: Luke, resulting a decline of about 22 percentage points compared to 2023.

Speaker Change: Within this plan.

Speaker Change: So we expect a gross margin of about 40% impacted about 270 basis points of unused capacity charges at the midpoint of our 2024 Fujihara indication.

Speaker Change: To conclude.

Speaker Change: Okay.

Speaker Change: Following an unprecedented ships shortage situation as of Q1.

Speaker Change: Semiconductor cycle is impacted by a number of factors.

Jean-Marc Chéry: The desynchronization between the various end markets in terms of demand normalization or weakening, and inventory adjustments or corrections. The available capacity, moving from tension to excess, and the non-linear acceleration of structural trends towards sustainability in areas like renewable energies, electrification of mobility, right-to-repair, and second-hand devices. This backdrop clearly affects the automotive and industrial land market.

Speaker Change: The <unk> between the values and market in terms of demand normalization or weakening.

Speaker Change: And in this silly adjustments of corrections.

Speaker Change: The available capacity moving contention to access.

Speaker Change: And the non linear acceleration of structural trends.

Speaker Change: Sustainability is all he is like renewable energies electrification of mobility <unk> E been in Sugarland and devices.

Speaker Change: This backdrop clearly affects the automotive and industrial end markets.

Jean-Marc Chéry: As we have pointed out in our strategy, both of these markets are undergoing a deep transformation, also driven by a number of megatrends. This, coupled with the current cycle dynamics I have just mentioned, is bringing both opportunities and challenges in the short, medium, and longer term for ST and for our customers and colleagues. In the short to medium term, we are working to best adapt our operating plans to this complex situation. We have already implemented measures and are adjusting them in response to the evolving situation.

Speaker Change: As we have pointed to in our strategy. Both of these markets are undergoing a deep transformation also driven by a number of mega trends.

Speaker Change: This compared with a two hour cycle in our mix I have just mentioned.

Speaker Change: These linking both opportunities and challenges in the short medium and longer term.

Speaker Change: <unk> and <unk> will equally.

Speaker Change: In the short to medium term, we are working to best adapt avoid passing brands through this complex situation, we have already implemented measures and as you see them in the response to the evolving situation.

Jean-Marc Chéry: In the medium to long term, we continue to be convinced that this transformation will provide the basis for our growth ambition. We will be hosting a Capital Market Days, sorry, Market Day, on November 20th in Paris to provide additional updates. It will be an in-person event, and we will also webcast it live.

Speaker Change: Medium to long term, we continue to be convinced that this transformation.

Speaker Change: We'll provide the basis for our wealth growth omission.

Speaker Change: Yeah.

Speaker Change: We would be our senior capital market days.

Dave: Market, Dave Sorry on November 20 in values to provide an update.

Dave: It will be in person event, and we will also webcast at lunch.

Moira: Thank you, and we are now ready to answer your questions. We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press the star and 1 on their touch screen. You will hear a tone to confirm that you have answered. If you wish to remove yourself from the question queue, you may press start and... Participants are requested to use only their hands while asking a question.

Thank you and we are no ready to answer your questions.

Speaker Change: We will now begin the question and answer session anyone who wishes to ask a question or make a comment. Please press star then one on their Touchtone telephone you would hear a ton to confront that you've answered a queue.

Speaker Change: If you wish to remove yourself from the question queue, you May press star two.

Participants are requested to use only handsets when asking a question anyone who has a question or a comment May press star one at this time.

Moira: Anyone who has a question or a comment may press star and 1 at this time. The first question is from Jérôme Ramell from BNP Paribas Exxon. Please go ahead. Yeah, good morning. One question, Jean-Marc, you mentioned the gross margin and the impact of the underloading cost, but also a little bit of price. Could you update us on the pricing environment globally speaking and specifically for industrial and automotive? Thank you. To Jérôme, I will let Lorenzo comment. Good morning. Good morning, everybody. Good morning, Jérôme.

Speaker Change: The first question is from Jerome Ramel from BNP Paribas. Please go ahead.

Jerome Ramel: Yeah good money.

Mike: And one question for Mike You mentioned on the gross margin impact at the umbrella of doing a cost, but also a little bit of price could you update us on the pricing environment for globally speaking and specifically for industrial and it was too much here. Thank.

Jerome Ramel: Thank you.

Jerome Ramel: Joe.

Mike: Related to the Owens will commence as a slate.

Speaker Change: Good morning, good morning, everybody and good morning, Jerome <unk> in Panama.

Lorenzo Grandi: But in terms of price, I would say that it is consistent with what we said also last quarter. We don't see, at this stage, let's say, a significant difference in the price environment. Of course, it's different than last year.

Speaker Change: I wouldn't say that that thesis consistent on what to be <unk>. So last quarter, we don't see at this stage and it's a significant difference in the price environment of course is different than last year now what we see is that there is some pressure on the pricing of that overall for the company.

Lorenzo Grandi: Now, what we see is that there is some pressure on pricing, but overall, for the company, it remains in the low single digits. There is some difference between the market, it's higher, let's say, in respect to industrial, definitely, it's higher, especially when we look at our product line of microcontrollers, here we are more in the mid-single digit, while when we look at automotive, it remains in the There is no particular, as I said before, difference in respect to what we were expecting last quarter. Thank you.

Speaker Change: Remains at low single digit berries.

Speaker Change: Some defensive between the market is a higher let's say at least.

Speaker Change: EMA aiming bashing I'd definitely desire, especially when we look at our.

Although <unk> microcontrollers that yeah, we are.

Speaker Change: More in the meat.

Speaker Change: D G SEC.

Speaker Change: Why when we look at the market to remain.

Speaker Change: Remains at a low single digit that varies know ecolab as I said before the Francine respect that what we were expecting.

Speaker Change: This quarter.

Jean-Marc Chéry: And maybe a quick follow-up. Jean-Marc, you said in the short term there's some overcapacity for the industry and for you. How are you addressing it in terms of capex and maybe a ramp-up of the different manufacturing sites you had in mind? Thank you.

Speaker Change: Sure.

Speaker Change: And maybe as a quick follow up.

Speaker Change: How much you cut on the short term basis.

Speaker Change: Get back to queue.

Speaker Change: 43 and for you.

Speaker Change: How are you addressing it and in terms of Capex and maybe a ramp up here.

Speaker Change: Good day.

Speaker Change: Yeah.

Speaker Change: I think Mike Thank you.

Jean-Marc Chéry: We are adjusting the working hours of our manufacturing already definitively in Q3 definitively, and it will follow in Q4. That's the reason why, OK, we have... After the revalidation of our sales and operating plan, we have immediately adjusted this activity. And, of course, we are cutting all the discretionary costs.

Speaker Change: We are we are adjusting.

Speaker Change: Walking overall four wall manufacturing.

Speaker Change: Alrighty.

Speaker Change: In Q3 definitive D and <unk>.

Speaker Change: It will follow in Q4 that those NYU.

Speaker Change: We have.

Speaker Change: <unk> revised down of our access and the Apache plan, we are in the mid <unk> this activity.

Speaker Change: And of course with <unk>.

Speaker Change: Gucci or the discretionary costs.

Jean-Marc Chéry: And as I mentioned already, we have put the company on a hiring freeze. This is a conjunctural measure. Now, what is important for us is to focus, to come back on the run rate of our value we had last year. If I may have a remark, in respect of the capex, we confirm that we are going to spend this year something in the range of 2.5 billion, and this is mainly addressing our conversion to, let's say, the 12-inch and, let's say, for the silicon carbide. You know, we have the plan, as we were mentioning before about the campus, to move rapidly our silicon carbide from the 150 millimeter to the Thank you. Thank you very much, Yaron.

Speaker Change: And as I mentioned already we.

Puts us a compelling yield increase.

Speaker Change: Bose This is a conjunct Joel.

Speaker Change: Michelle now Okay, what is important sources to produce.

Speaker Change: To come back on <unk>, we'd be over last year.

Speaker Change: If I may add a handful of them asking with respect to the capex that we confirm that we are going to expand that Dci something that angle to the five below that and this is mainly addressing our commercial let's.

Let's say the <unk> chip.

Speaker Change: The.

Speaker Change: April silicon carbide that even though we have in Atlanta.

Speaker Change: As we were mentioning before about that the comparable set to more of a rapid D. Our silicon carbide from day 150 millimeter 100 meetings.

Speaker Change: These are the main and it's a project that we're having these <unk> in these capex.

Speaker Change: And to the entire event and these are confirmed.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Thank you very much next question please.

Moira: Next question, please, Moreira. The next question is from Francois Bovigny from UBS. Please go ahead.

Speaker Change: The next question is from <unk> <unk> from UBS. Please go ahead.

Jean-Marc Chéry: Thank you very much. My first question is on the industrial and microcontrollers in our purpose, mainly. Obviously, it's sharply down, and I think there is kind of this talking happening. However, there is this discussion on the market that maybe you would have much higher inventories than maybe two peers, you know, when you listen to peers. I mean, Renesas, I mean, Microchip and TI, they said through the worst and that they are proactively, you know, or they did proactively manage inventories in the channel.

Speaker Change: Thank you very much my first question is on the industrial and Microcontrollers are now purpose mainly.

Speaker Change:

Speaker Change: Obviously, it's choppy down and I think there is kind of a destocking happening.

Speaker Change: However, there is this discussion in the market that maybe you would have much higher inventories that maybe two P. As you know when you tend to pay us.

Speaker Change: So I mean.

Speaker Change: Microchip and T. I, just said that through the tender and that they are proactively you know they did proactively manage inventories in the channel.

Jean-Marc Chéry: So, my question is, I would explain why you saw the industrial downturn a bit later than everybody else, and maybe why it's sharper in terms of downside. So, my question is, do you, what's your view on this comment that maybe you have a higher inventory relative to peers that would explain this sharper decline and, more importantly, how it plays out, you know, for the rest of the year, how long this understocking would last for you? That would be my first question.

Speaker Change: So my question is like that would explain why you saw a bit later than everybody else you know the industrial downturn and maybe why it's shopper in terms of downside. So my question is do you. What's your view on this comment that maybe you have higher inventory that you have to pass that.

Speaker Change: With expanded sharper decline and more importantly, how it.

Speaker Change: Plays out for the rest of the year, how long ago.

Speaker Change: This I'm just talking what would last for you that would be my first question.

Speaker Change: Okay.

Speaker Change: Q.

Jean-Marc Chéry: OK, thank you. Well, I will not comment on the benchmark with our competitor. First of all, TI, they have a different go-to-market approach with distribution. And they have much more inventory in the home.

Speaker Change: No comment.

Speaker Change: As a as a benchmark with our competitor.

Speaker Change: First of all <unk> zebu, Michelle on the go to market approach with the distribution and the <unk>.

Much more inventory in the home.

Speaker Change: Both language shipper invites which exited them bill in detail and for the ozone competitor when that when those covenants now, albeit we are we are let's say.

Jean-Marc Chéry: About the microchip, I invite you to check the number in detail. And for the other competitor, I will not. No, but we, we, uh, we, uh, let's say, uh... First of all, OK, we have the widest product portfolio of microcontrollers and, again, we are addressing all regions in the world and, as I mentioned in my speech, we are really addressing as well short cycle business and more long cycle business. On the short cycle business, in fact... The hand demand fluctuated a lot during the recent quarter for different reasons.

Speaker Change: For Sogou it okay, we have the widest.

Speaker Change: Product book to for you.

Speaker Change: On microcontroller oil and again, we are addressing our orange, though as shown on the world.

Speaker Change: As I mentioned in my.

Speaker Change: Speech.

Speaker Change: We are a leader that I see as well a short cycle business and more long cycle business on the soft short cycle business.

Speaker Change: In fact.

Speaker Change: The end demand.

Speaker Change: Appreciated a lot.

Speaker Change: Julian.

Julian: The recent quarter.

Julian: 40 shoulder season, and the and the inventory is not only.

Jean-Marc Chéry: And the inventory is not only in our distribution channel and not only at EMS. It's in the value chain at the system maker and includes the end customer. So that's the reason why, first of all, it has taken much longer than the others to first absorb the excess of inventory at the end customer or system maker. And now, yes, there is still, let's say, some excess of inventory at distributors and EMS.

Julian: Our distribution channel.

Julian: <unk>.

Speaker Change: <unk> is a is.

Julian: In the value chain at system maker and including.

Julian: At the end customer so is that the reason why first of all it does take a much stronger.

Julian: That deal was allocate to first episode.

Julian: Excess of inventory at the end customer our system maker and no. Yes. There is still let's say some of the excess of inventory at distributors at MFS.

Jean-Marc Chéry: The point I would like to recall for this business... This business is the one that suffers the most during the shortage of semiconductors, under the pressure of car makers, tier one, and big industrial companies working in the field of energy, power conversion, and... I have to say, energy transportation, electrical vehicles, charging... Just for the most part.

Julian: The point I would like to record for this business.

Speaker Change: This business is a business, which suffered the most joins a shortage of semiconductor on the pressure of carmakers and tier one and big industry or working in the field of energy for web conversion and the.

Speaker Change: I have to say.

Speaker Change: Energy <unk> transportation electrical vehicle charging just fulfill the most that's the reason why you're okay. When we allocated we started to allocate the capacity we have I repeat we negotiated with them one GW and noncancelable also so.

Jean-Marc Chéry: That's the reason why, okay, when we allocated, we started to allocate the capacity we had. I repeat, we negotiated with them warranted volume and a non-cancellable order. So, up to March 2023, we ship according to the backlog they give us, and these orders were not cancelable. Most likely, we have assessed that already at this period of time, their end markets were already on a, let's say, down cycle. And that is the reason why they have continued to accumulate inventory.

Speaker Change: So at least up to March 2023, we ship a coding backlog they give to us.

Speaker Change: This will not considerably.

Speaker Change: Most likely we have assessed said that all of the DRG cellulose time. They are end market were already on the let's say.

Speaker Change: Don cycle and that is the reason why is the efficacy due to accumulated inventory. So when we have completely removes this policy of not inconsiderable. Although of course, we have just adopted.

Jean-Marc Chéry: So when we have completely removed this policy of non-consensual order, of course, we have just adopted a new policy and started to decrease our POP, and so on and so forth. But it will take time. Why?

Speaker Change: Nucor's sheet and started to decrease <unk>, so and so forth, but it will take time and it will take time and why because it is not only an inventory correction, which is also the old.

Jean-Marc Chéry: Because it is not only an inventory correction; it is also a real economic problem for this short cycle business. Now we see a different path for the long cycle business. I repeat, so renewable energy, what is related to electrification of mobility, what is related to charging stations, and so on.

Speaker Change: Economical problem for this short cycle business now, we see a different paths for the longer.

Speaker Change: Cycled business ICP each saw renewable energy.

Speaker Change: What is weighted towards electrification of mobility, which is the charging station and so on you all saw in the sub debt extend some inventory you will present, but we expect that starting Q4. This will start to grow again. So the reason why U S. G.

Jean-Marc Chéry: Here also, to a certain extent, some inventory was present, but we expect that, starting Q4, this will start to grow again. So the reason why ST has a profile a little bit longer in terms of restart is related, first, to our wide exposure on General Purpose Micro, and we have the widest portfolio.

Speaker Change: Our profile a little bit longer in Denver.

He stopped.

Speaker Change: The first two are worldwide exposure on generic <unk>, Michael we observe risers for two for you. The fact that in 'twenty two 'twenty three up to March we have not considered all their policy that increased the inventory for sure that no we have to digest that unfortunately in 'twenty for this business.

Jean-Marc Chéry: The fact that in 22, 23, up to March, we have a non-consumer order policy that increases the inventory, for sure, that now we have to digest. Unfortunately, in 24, these businesses have a problem with demand, end demand. That's the reason why it takes longer.

Speaker Change: This is a program of demand and Zimmer that the reason why you take logo fulfill SDK, we behave very similarly.

Jean-Marc Chéry: For the rest, OK, we behave very similarly, our competitor, and they have a similar profile in terms of business recovery. For the benchmark, be careful of the reverse. Thank you, Jean-Marc.

Ah well competitor and the other similar profile at a demo for.

Speaker Change: Business FICO relief ownership, while enforce the benchmark.

Speaker Change: Be careful of the rebel.

Jean-Marc Chéry: And maybe my follow-up, if I may, is on the automotive business. You mentioned that it weakened. I mean, maybe you could explain a bit more in detail what exactly is happening in terms of the automotive business. And if you could remind us what you expect for the Automotive and Industrial businesses for the full year, what your full year is based on, for which division it would be great, and I will leave it there. Thank you.

Speaker Change: Alright. Thank you so much and maybe my follow up if I may.

Speaker Change: The automotive.

Speaker Change: You mentioned that if we can I mean, maybe you could explain a bit and it does what exactly.

Speaker Change: Is happening in terms of with a much even if you could remind us what you are.

Speaker Change: For automotive industrial for the full year, what's your free always based on 400 GB Center would be great and then we'll leave it there. Thank you, but other tumor T. The there is a nice entry point.

Jean-Marc Chéry: On the automotive front, there are, let's say, three points. Point number one... Let's classify it by legacy. Starting in May, we have seen our main tier one, let's say, pulling out the consignment stock, less pieces because, you know, the third one now, they came back with a carmaker with two weeks of call-off. So they have very short-term visibility.

Speaker Change: Point number one.

Speaker Change: Let's classify on legacy.

Speaker Change: On legacy starting in May.

Speaker Change: We have seen.

Speaker Change: Our main tailwind.

Speaker Change: Let's say.

Speaker Change: Pulling out the consignment stock less species, because you know the tier one now as they come back with <unk> with two week or so is the other very short term disability and and starting end of May is tough for us to pull out from our consignment stock less pieces.

Speaker Change: So as a consequence, they can sell some federal deal. So all <unk> in Q2, we have been impacted about less revenue that is the forecast that was based on the work backlog about $100 million is.

Jean-Marc Chéry: And starting in May, they start for us to pull out less pieces from our consignment stock. So, as a consequence, they can sell some frame orders. So already in Q2, we have been impacted by less revenue than the forecast. That was based on our backlog, about $100 million. Point number one. The point number two, still on this legacy business and let's say usual application in the automotive industry, they have... [inaudible] So that's the reason why we have been obliged to revise down the forecast for the automotive legacy business, which has already impacted Q2 about, let's say, $100 million, and let's say about $350-$400 million for H2O. The second point is the growth for what are related electrical We will grow all our components related to electrical vehicles in H2, but less than forecasted. And do you know why?

Speaker Change: Point number one point number two still on this legacy business.

Speaker Change #100: Let's say.

Speaker Change #100: Usual applications.

Speaker Change #100: Look there.

Speaker Change #100: They are.

Speaker Change #100: Declined Okay is your forecast for <unk>. So that's the reason why we have been obliged to revise down the forecast for automotive legacy already impacted in Q2 about let's say a $101 million and.

Speaker Change #100: Let's say about <unk> $400 million four ish.

The second point is the growth for what is related electrical vehicle.

Speaker Change #101: We will go in a store.

Speaker Change #102: All of our components related to electrical vehicle, but less than forecasted and you know why because.

Jean-Marc Chéry: Because the production of electrical vehicles in the world has been adjusted now below 13 million cars. However, I confirm that H2 will be a growth driver for ST for all the components related to electrical vehicles, particularly silicon carbide, and especially everywhere in China and also with our main customers. That's the reason why we confirm our silicon carbide revenue at about $1.3 billion this year. Then, the third element is what we already mentioned that is a little bit, let's say, increasing.

Speaker Change #102: Projection of electrical vehicle in the World has been adjusted now below $13 million of cap IQ.

Speaker Change #103: I confirm that <unk> will be a growth driver for <unk> for all the components.

Speaker Change #103: Due to electrical vehicles, particularly for silicon carbide, and particularly <unk>.

Speaker Change #103: Well, Okay in China, and also with our main customer there.

Speaker Change #103: That's the reason why we confirm our silicon carbide <unk> about $1 3 billion dollar this issue well.

Dennis: Dennis just sell the <unk> element.

Speaker Change #105: <unk> is what.

What we already inbound should that is a little bit.

Speaker Change #106: Let's say.

Speaker Change #106: And Crazy you, though that last a wonderful Ahmed custom therefore it.

Jean-Marc Chéry: You know that last year, one of our main customers for ADAS built a certain level of inventory. He is adjusting this inventory a little bit more in Q3. So, all in all, the automotive business for ST will grow in H2, I have to say 4% versus H1, about $100 million, with the growth on electrical vehicles with silicon carbide offset by the adjustment of the legacy from our tier 1 and some inventory adjustments from our main customer in ADAS. So, this is what we face in H2 and the automotive business. Thank you, Jean-Marc. Thank you very much. Next question, Moira. The next question is from Stefan Huri from Oddo. Please go ahead. Yes, hello, good morning.

These are substandard Angola inventory is that you see in Q3, a little bit more the inventory reserves. So all in all <unk>.

Speaker Change #107: To achieve for ISG will go in a suit.

Speaker Change #107: You have to stay focused on.

Speaker Change #108: This research was about 100 million dollar reserve rules on electrical June.

Speaker Change #108: We silicon carbide offset third adjustment.

Speaker Change #108: I just meant of their legacy for our tier one add some inventory adjustment from our Medicare avail in others. So this is what we face in our stores authority.

Speaker Change #109: Thank you so much.

Nathan: Sure next question Nathan.

Speaker Change #111: The next question is from Stefan <unk> from <unk>. Please go ahead.

Jean-Marc Chéry: I have a question about your main customer and the Engage customer program. Could you give us some visibility on your expectations for the second half? There has been, you know, noise around better volumes for a smartphone and also some potential gain of content, so if you can clarify that for us.

Speaker Change #112: Yes, Hello, good morning.

Speaker Change #113: A question about your.

Stefan: Named customer engaged customer program. If you can give us some visibility on your expectations for the for the second half there has been noise.

Speaker Change #115: Noise around the better volumes for the for the for a.

Speaker Change #116: Smartphone and also and also some potential gain of condensers skin.

Speaker Change #117: For us thank you.

Jean-Marc Chéry: Thank you. But you have already seen the impact in Q2, because in Q2 we exceeded... (inaudible) In Q4, for the time being, we see a decrease versus Q3. So far, the plans they gave to us are stabilized. About the content of semiconductors in ST, I repeat, the second half this year and the first half next year are the lowest points in terms of content of ST in our main customer. Why?

Speaker Change #118: But you have all of the decisions impacting Q2, because in Q2, we exceeded.

Speaker Change #119: The beat the midpoint of our.

Speaker Change #119: When you have a new guidance.

Speaker Change #120: Six 2%, a clinique sense, thanks to our med customer.

Speaker Change #120: That's been offset.

Speaker Change #120: Just mentioned.

Speaker Change #120: Bye Bye <unk>.

Speaker Change #120: In Q3, we have we have a solid forecast.

Speaker Change #120: For them.

Speaker Change #120: And now as usual Q3 is our is our is our biggest quarter. While in Q4, we will have for the time being we see a decrease versus Q3's ball. So far now the blood that they give to us stabilized.

Speaker Change #120: <unk> is a content of semiconductor in ESG.

Speaker Change #121: I repeat civil Dodge for sure and fill starts next year.

Speaker Change #122: Is <unk>.

Lois: Lois point in Denver for contents.

Speaker Change #124: <unk> Costa Bill why because we have lost as a seamless.

Jean-Marc Chéry: Because we have lost this famous optical module. But I can confirm to you that, starting in H2 2025, the content of ST in our devices for our main customer will increase because we win some designs. Thank you. And maybe some clarification on what you said earlier about the cost at the moment where you are now. Are you saying that you are going to limit the expansion of R&D and maybe cut SG&A a little bit going forward?

Lois: Optical module.

Lois: But April came to us at starting age to 2025 ZIP content of ESG in our raw devices for our men custom mill will increase because we have some design.

Speaker Change #126: Okay. Thank you and maybe a clarification on what you said earlier about the.

Speaker Change #130: The Cros.

In the moment, where where you are now or are you, saying that you're going to.

Speaker Change #125: I lead the expansion of R&D, and maybe cut a little bit the SG&A going forward. Thank you.

Jean-Marc Chéry: Today, in R&D, we don't cut our R&D programs because all these programs are engaged and completely consistent with our strategy. I see we have already cleaned and disengaged the product line we wanted to disengage many years ago. So all the programs are strictly under control and executed under the decision of the Executive Committee.

Lois: And today.

Speaker Change #127: On <unk>, we don't get to Kols and R&D programs because all these program are on gauge and completely consistent okay.

Speaker Change #127: With our strategy.

Speaker Change #127: See we are already clear.

Speaker Change #128: And he is engaged are declining we want to disengage, let's say many years ago. So all the program are strictly under control and executed.

Speaker Change #128: The decision of the Executive Committee. So now we continue to execute them of course.

Jean-Marc Chéry: So now we continue to implement them. Of course, I also repeat that from the organization we put in place early this year, we have already extracted some synergy and productivity that enable our capability to run this R&D program, minimizing or stopping any hiring. We just, let's say, focus some hiring on the critical profile of experts. On the HG&A, of course, we have put it on a very strict, Thank you very much. Next question, please, Moira. The next question is from Sandeep Deshpande from J.P. Morgan. Yeah, hi. Thanks for letting me on.

Speaker Change #128: Also I repeat that.

Speaker Change #128: Organization, we have put in place an easy shale, we have already expected.

Speaker Change #129: The CLC and productivity that enable a wealth capability towards the 70 core gum.

Speaker Change #129: Minimizing a stoping.

Speaker Change #129: Eddie.

Speaker Change #131: We just.

Speaker Change #131: Fukuda, some hiring on critical profile of expense.

Speaker Change #131: On the SG&A of groups and here we are.

Speaker Change #132: We executed on a very strict protocol.

Operator: Kosovo, okay.

Speaker Change #134: Okay. Thank you very much.

Operator: Next question please, Mauren. She next question is from Sandeep Deshpande from JPMorgan. Please go ahead.

Speaker Change #133: Next question please.

Speaker Change #135: The next question is from Sandeep Deshpande from Jpmorgan. Please go ahead.

Jean-Marc Chéry: I'd actually like to go into, you know, you've reduced your full year guidance by about $1.5 billion for the full year and now again. How does that divide up into automotive, and industrial? And you said in the quarter that you saw some weakness in the automotive market. Can you quantify how much weakness you saw and do you see that continuing into the current? But the Pareto of the variance between the two guidance, the famous $1 billion delta, is about 40% automotive and 60% industrial.

Sandeep Deshpande: Yeah, hi. Thanks a very young.

Sandeep Deshpande: Yeah, Hi, Thanks anything young.

Sandeep Deshpande: I'd like to actually go into, you know, you've reduced your full year guidance by about a billion, 50 of all the full year tomorrow again.

Speaker Change #139: I'd like to actually growing.

Sandeep Deshpande: Renewal still prudent guidance.

Speaker Change #137: Guidance by about a billion 54, therefore, the other bio again, how does that divided up into automotive industrial and you said in the quarter that you saw some weakness would be automotive market can you quantify how much you saw and do you see that continuing into the current quarter.

Unnamed Speaker: How does that divide up into automotive, industrial, and you've said in the quarter that you saw some weakness in the automotive market? Can you quantify how much weakness you saw, and do you see that continuing into the current quarter? My, the, the, the Pareto of, of the variance between the two guidance, the maximum billion dollar delta is about 40 percent automotive, 60 percent industrial. I repeat, on, on automotive, all ready in Q2, about $100 billion dollars; the rest is on H2, and mainly on what we call legacy, legacy business, and partially on the address as it's, again, I repeat, what is related to silicon carbide, okay? We'll go, but at the lower pace that what was expected.

Speaker Change #138: But as is our baidu of <unk>.

Speaker Change #138: The volumes between the two guidance.

Speaker Change #140: Similar to <unk> beyond the Delta is about 40% of the Motiva, 60% in this field IEP.

Jean-Marc Chéry: I repeat, on the automotive front. Already in Q2, about 100 million dollars; the rest is in H2, and mainly on what we call the legacy business and partially on ADAS as well. Again, I repeat, what is related to silicon carbide will go, but at a lower pace than what was expected.

Speaker Change #140: Automotive.

Speaker Change #140: Already in Q2.

Speaker Change #140: Albert.

Speaker Change #140: $100 million zone.

Speaker Change #140: Ah is an issue.

Speaker Change #141: And mainly on the what we call our legacy legacy business and partially on the ADESA Asics.

Speaker Change #141: Again, I repeat what is related to silicon carbide will grow but at a lower pace than what was expected.

Jean-Marc Chéry: On industrial, which is about 60%, no impact on Q2. On Q2, we did an execution consistent with our forecast. The point is that in Q2, we didn't enter booking for industrial billable for 2024 at the expected level. So that's the reason why we have cut our forecast by about $600 million.

Unnamed Speaker: On industrial, which is about 60 percent, no impact on Q2. On Q2, we have done an execution, consistent with our forecast.

Speaker Change #142: Ali do steel.

Speaker Change #142: Which is about 60%.

No impact.

Speaker Change #143: On Q2 on Q2, we have done in execution are consistent with our forecast the point is that in Q2.

Unnamed Speaker: The point is that in Q2, we didn't enter booking for industrial, be level, for 20, 20, 4, at the expected level, so that the reason why we have, we have cut our forecast by about $6 billion dollars, and also, we have seen the POS, in front of our distributor, let's say, decrease it, and taking to account the feedback they gave to us, we don't expect now to increase our POP EQ3, on, on the contrary, we will continue to decrease the POP on Q3 on industrial, to decrease our inventory at distribution level, but we expect our POP to increase in Q4, so this is the, the, the dynamic, so the takeaway is about 40 percent of the one billion automotive, already 100, about 300 in Q2, and about 600 billion US dollars for industrial, why, because, okay, no order in Q2, and POS still decreasing in Q2, so postponing in Q4, the restart of the distribution field.

Speaker Change #144: We didn't until Bukenya.

Speaker Change #145: And Youll see youll be label.

Speaker Change #145: For 2024.

Speaker Change #145: Third level. So that's the reason why we have we have good.

Speaker Change #145: Our forecast by about $6 1 million U S. Dollar and also we have seeds.

Jean-Marc Chéry: And also, we have seen the POS..., or forward distributor, let's say, decreasing, and, taking into account the feedback they gave us, we don't expect to increase our POP in Q3. On the contrary, we will continue to decrease the POP in Q3 on industrial to decrease the inventory at the distribution level. But we expect our POP to increase in Q4. So this is the dynamics. So the takeaway is about 40% of the 1 billion automotive, already 100, about 100 in Q2, and about 600 million US dollars for industrial. Why?

Speaker Change #145: Also lower distributor.

Speaker Change #146: That said the crazy.

Speaker Change #146: And.

Speaker Change #147: Taking to account to the feedback they gave to US we don't expect no two increased <unk> three.

Speaker Change #147: <unk>, we will continue to decrease of <unk> <unk>.

Speaker Change #148: <unk> an industry order to decrease the inventory of distribution level, but we expect <unk> to increase in Q4.

Speaker Change #148: <unk>.

Speaker Change #148: So as a takeaway is.

Speaker Change #149: But 40% of the what the automotive all of it the weather the weather about one another one in Q2 and awards of 601 million USD offering this field why because okay no deal in Q2 and strategically.

Jean-Marc Chéry: Because, OK, no order in Q2, and POS is still decreasing in Q2. So postponing the restart of the distribution of POS until Q4. Understood. Thank you.

Speaker Change #149: Still decreasing in Q2, so fully in Q4 as the restart of the distribution peers.

Jean-Marc Chéry: And a follow-up question is on the automotive industry. We are hearing from many automotive companies that they are seeing weakness in the market. So do you think that orders, more than revenue now, you gave me this view on revenue, will continue to be weak in autos for the next few quarters? Well, we received from Tier 1 what they say is a delivery forecast, okay? Now the delivery forecast they gave to us is encompassing all the adjustments we have already seen in Q1 that has been a bit amplified in Q2.

Unnamed Speaker: And Mr. Thank you, and follow question is on automotive. We are hearing from many automotive companies that they are seeing weakness in the market, so do you think that the order is more than the revenue now? You gave me this new revenue, will continue to be weak and close to it for the next few quarters. But we received from the tier 1, the delivery forecast. Now the delivery forecast that gave to us is encompassing all the adjustments we have already seen in Q1 that has been a bit amplified in Q2. Now, we have our backlog. As I said, the tier 1 they are working with two weeks close from Carmecure, of course. Okay, this is something that we have to put on the restricted scrutiny and we monitor, okay, with all our customer, okay, the dynamic of the shipment and the orders they put on us.

Speaker Change #150: Understood. Thank you I have follow up question is on automotive.

Speaker Change #151: We're hearing from many automotive company that they are seeing weakness in the market. So do you think that the order is more than the revenue value gave me. This new revenue will continue to be weak in the auto for the quarter.

Speaker Change #150: Yes.

Speaker Change #152: But we really see from the from the <unk> is as I said did easily forecast okay now.

Speaker Change #153: <unk> did you really forecast they gave to us.

Speaker Change #154: On capacity Yogi <unk> adjustments, we have already seen in Q1 that has been a bit amplify in the in Q2 now we have a well backlog that we as I say that.

Jean-Marc Chéry: Now we have our backlog. As I said, Tier 1, they are working with a two-week call-off from Carmaker. Of course, this is something that we have to put under strict scrutiny. And we monitor, okay, with all of our customers, the dynamic of the shipment and the order they put on us. On electric vehicles, I think it's a different story.

Speaker Change #155: So its you are what they are working with two weeks Cola Hong <unk> of groups, who cases season. Some signals that we have to put our Douglas Creek could you need.

Speaker Change #156: And as we monitor all key with <unk> is in a mix of of the shipments and the deal that they put on us.

Unnamed Speaker: On the restricted vehicle, I think it's a different story. Here, now, okay, the adjustment has been done and we do believe that, okay, we will deliver or we are about $1.3 billion, but yes, on the automotive, the market is dynamic, it's more an inventory adjustment. But according to some, let's say, an analyst for the automotive industry, it looks like the production of vehicles is confirmed around 90 million vehicles, but we do believe that if it is confirmed, the inventory adjustment is basically done, so the backlog we have in front of us is really available. However, we have to monitor the situation in a very dynamic way.

Speaker Change #157: OLED could be queued, I think you'd said the shelf silly.

Jean-Marc Chéry: Here, now, the adjustment has been done, and we do believe that we will deliver about 1.3 billion dollars. But yes, the automotive market is dynamic. It's more an inventory adjustment. Well, according to some, let's say, analysts for the automotive industry, it looks like the production of a vehicle is confirmed around 90 million vehicles.

Speaker Change #158: Yeah I'll now walk is the adjustment has been done and we do believe that we will deliver.

Speaker Change #158: About one <unk>.

Speaker Change #158: <unk> contributed the balance sheet, but just the total achieved as the market is in a league is more of an inventory adjustment.

Speaker Change #159: I called genius.

Let's say at least.

For the <unk> III <unk>.

Speaker Change #159: It looks like.

Speaker Change #159: Production of <unk>.

Speaker Change #159: Is confirmed.

Speaker Change #159: All of that 90 million the day June one.

Jean-Marc Chéry: Well, we do believe that if it is confirmed, the inventory adjustment is basically done. So the backlog we have in front of us is valuable. However, we have to monitor the situation in a very dynamic way. Thank you. The next question is from Sebastian Kstavobi, from Kepler.

Speaker Change #159: While we do lead even if it is Phil is the inventory adjustment is basically done so the backlog we have in for the first is hardly ever OA.

Speaker Change #159: We have <unk> situations or the video GW.

Speaker Change #159: By the way.

Thank you. Thank you Sir next question please.

Operator: Thank you for the next question, please, Moira. The next question is from Sebastian Gustavovic, which is from Carmecure. Please go ahead.

Speaker Change #159: The next question is from Sebastian <unk>.

Speaker Change #159: Capex.

Jean-Marc Chéry: Please go ahead. Yeah, hello everyone, and thanks for taking my question. On the OPEX for Q3 and 2024, how should we model the OPEX for the next two quarters? Are you expecting to have some benefit from some specific cost saving impact? Yeah. Tough question.

Speaker Change #160: Please go ahead.

Sebastian Gustavovic: Yeah, hello everyone, and thanks for taking my question. On to your back for curfew in 2024, I hope we will model your back in the next two quarters.

Sebastian: Yes, Hello, everyone and thanks for taking my question on <unk> for <unk> 'twenty 'twenty, four and how should we move into next two quarters are you expecting to have some benefit from.

Unnamed Speaker: Are you expecting to have some very fit of specific cost-giving impact?

Speaker Change #162: <unk> cost given the impact.

Unnamed Speaker: Yeah, of question, thank you. Yes, I answer about the of back, well, in this, as we were commenting before, now in this market environment, we will continue to have strict control of our expenses. You see that in respect to our expenses that we consider, including other income and expenses, came lower than we were expecting entering the quarter. This was also due to the fact that we were realizing that difficulties that we were facing for the second half.

Speaker Change #163: Yeah. Good question. Thank you.

Lorenzo Grandi: Yes, I answer about OPEX. Well, in this, as we were commenting before now, in this market environment, we will continue to have strict control of our expenses. You see that, in respect to our expectation in Q2, rating expenses, which we consider net, including other income and expenses, came lower than we were expecting entering the quarter. This was also due to the fact that we were realizing the difficulties that we were facing in the second half.

Speaker Change #163: Yes.

Speaker Change #164: I asked about that the Opex about in these as we were commenting before an R&D center.

Speaker Change #165: The market environment.

Speaker Change #165: And we will continue to add state control of our expenses Youll see that day in respect to our expectation in Q2.

Speaker Change #165: Yeah.

Speaker Change #165: Operating expenses.

Speaker Change #166: We can see that map, including other income and expenses.

Speaker Change #166: Came at lower band that we werent expecting anchor in the quarter. This was also due to the fact that we were realizing in difficulties.

Lorenzo Grandi: But for Q3, we now estimate something in terms of expenses between $905 million and $115 million. This means that we will continue to keep control. You know that during Q3, we had a positive impact of the seasonal vacations, especially in Europe, that is helping us with this. When I look at the total year, I think that also thanks to the fact that other income and expenses should increase in respect to last year, so it means that this year we expected something in the range of $150 million.

Speaker Change #166: Facing for the second half.

Unnamed Speaker: But for Q3, we now estimate the something in terms of expenses between 935 and 115 million dollars. So, means that we will continue to keep control.

Pamela: For Q3, we do not we now estimate the songs <unk> Pamela expansive said between nine 9 billion, implying 916, and median <unk> said that we will continue to keep control. You'll know that you were in Q3, we added the positive impact of that.

Unnamed Speaker: You know that during Q3, we have the positive impact of the seasonal vacation, especially when I look at the total year. I think that those who, thanks to the fact that other income and expenses should increase in respect to LSDR. So, I mean that this year we expect something in the rank of when I'm repeating the dollar positive. Our expenses are overall in the year with likely increasing respect to LSDR. A very modest increase in respect to LSDR. And for Q4, what do you see here, fix?

Speaker Change #168: Seasonally higher vacation is patient neurofeedback designs the NASA on visa.

Speaker Change #169: When I look at the total yeah I think that also thanks to the fact that that debt.

Speaker Change #170: Other income and expenses should increasingly respectfulness, yeah. So means that PCR, we expect something that ankle whenever the PCE.

Lorenzo Grandi: Our expenses overall in the year were slightly increasing in respect to last year, a very modest increase in respect to. And for Q4, where do you see OPEC? You can do the math. In the end, we will stay substantially flat.

Speaker Change #170: Our expansive sense overall in the year, we slightly increasing respectful last year and that.

Speaker Change #170: <unk> modest increasingly backwards.

Speaker Change #171: And for Q4, what do you see the Opex.

Lorenzo Grandi: There will be some increase in respect to very mild, very mild on a few percentage points. And over the year, you can model something similar to what was the net OPEX of 2023 with a very mild, at this time. And in terms of dynamics for Q3, where do you see your revenue trending in Q3, by division or by vertical, to understand a little bit the different dynamics to bottom in your flat-ish, I would say, secondary revenue growth for the group? Thank you.

Unnamed Speaker: Well, you can make it a matter. The end of the week stays substantially flatter. There will be some increasing respect to each very mild. Very mild on the very few percent exposed.

Speaker Change #172: You can make any matter again, and then when we stay substantially flat there will be some increasing in these metrics.

Speaker Change #173: Bear in mind that in mind on the ready and a few percentage points and Dolby.

Unnamed Speaker: And over the year you can model something similar to what was the neto pex of 2013 with a very mild increase in respect to LSDR. In terms of dynamics for Q3, where do you see your revenue trending Q3 by division for biberticals to understand a little bit the different dynamic to determine your flat issue. It's a control of the global for the group.

Speaker Change #173: You can model something similar to what was the net opex of 2023 with a battery might increase.

Speaker Change #173: Respect to last year.

Speaker Change #174: And in terms of the dynamics for Q3, where do you see your revenue trending in Q3 by division by verticals to understand their needs to be the different dynamic.

Speaker Change #174: But Tom in your Slide you showed C. C controller revenue growth for the group in Q I know on a.

Unnamed Speaker: Thank you. So, I come back from my video after the reason. Well, if you buy a market first, so compare to Q2 on automotive, we expect to grow 4 percent. It's a control.

Jean-Marc Chéry: I'll come back on revenue after Lorenzo. But if you buy a market first, so compared to Q2, for automotive, we expect to grow 4% sequentially. On industrial, unfortunately, as I said, because of a lack of visibility and weaker backlog, we continue to decrease by minus 17%. On personal electronics, we will grow by 17%. This is the seasonality effect and the engaged customer program we have with our main customers. And on communication equipment and computer peripherals, we will decrease by minus 8%. It's related to the legacy business.

Speaker Change #175: I come back on the.

Speaker Change #176: Revenue is still good.

Speaker Change #176: But issue by end market first.

Speaker Change #177: Compared to Q2 on the tumor T that we expect to grow 4% sequentially.

Unnamed Speaker: On industrial, in front of LSDR, because of lack of visibility and with curve backlog, we continue to decrease minus 17 percent. Personal electronic, we will grow 17 percent. Well, this is a seasonality effect. And I guess that's my problem. We have you on our main customer.

Speaker Change #177: On industry four <unk>.

Speaker Change #177: The key as I said because of.

Speaker Change #179: Lack of visibility and we feel backlog will continue to decrease minus 17%.

Speaker Change #179: Our best in electronic we will grow 17% more diseases seasonality effect.

Speaker Change #181: <unk>, we have resumed our main customer.

Unnamed Speaker: And on communication equipment and computer peripherals, we will decrease minus 8 percent. It's related to all the business; we are able to achieve progressively.

Speaker Change #181: And on the on the communication equipment and computer peripheral.

Speaker Change #177: Sure.

Speaker Change #177: We will we will decrease.

Speaker Change #178: Minus 8%.

Speaker Change #177: Each.

Speaker Change #177: Related to the legacy.

Speaker Change #185: I guess he business. We are these only gets you to progressively.

Jean-Marc Chéry: We are disengaging progressively. If we move to reportable segments, so analog mains and sensors will be flattish, almost flattish, 0.2%. Power & Discrete will increase 12.9%, driven by a silicon carbide MOSFET.

Unnamed Speaker: We move to reportable segments. So, analog means, and sensor will be flatish at the most flatish, 0.2 percent. My power and discrete will increase 12.9 percent driven by silicon carbide MOSFET. Our CPUs in Q3 will slightly increase 1.3 percent, but general purpose will continue to decrease, an offset by auto-MCU and CQMCU. And on digital and radio frequency, it will decrease minus 17.8 percent, but mainly it is related to Hadas. It is a dystoking of our customer that my company partially anticipates it. So, this is the whole dynamic by a market and by reportable segments.

Speaker Change #177: We moved two reportable segments.

Speaker Change #182: So analog Mems and some sore.

Speaker Change #177: We are.

Speaker Change #180: Be flattish at most flattish at one 2%.

Speaker Change #183: We will provide discrete will increase at 12, 9%.

Speaker Change #180: Bye.

Speaker Change #180: The silicon carbide MOSFET.

Jean-Marc Chéry: Our MCUs in Q3 will slightly increase by 1.3%, but general purpose will continue to decrease and be offset by the auto MCU and secure MCU. And on digital and radio frequency, it will decrease by minus 17.8%. But mainly, it is related to HEDAS.

Speaker Change #184: She uses.

Speaker Change #184: Q3 will slightly increased one 3%.

Speaker Change #184: But <unk> will continue to decrease in the <unk>.

Speaker Change #184: <unk> bye.

Speaker Change #184: Auto MCU and secure MCU.

Speaker Change #184: And on digital.

Speaker Change #184: And how do your frequency.

Speaker Change #184: It will decrease of minus $17, 8%, but mainly it is related.

Jean-Marc Chéry: OK, it is the destocking of our customer that was partially anticipated. So this is the two dynamics by NMarket and by reportable segments. As you can see, we are very precise. Exactly, thank you. Is it okay if I use this?

Speaker Change #184: Okay.

Speaker Change #187: Or is the destocking of.

Speaker Change #187: Also our custom well that was partially partially anticipated. So as this is two the two GW by end market and by reportable segments. As you can see we are very precisely.

Unnamed Speaker: I will continue with our very precise design.

Speaker Change #184: Thank you.

Speaker Change #184: So if you said this on your lithium.

Jean-Marc Chéry: Yeah, that's the fake thing. Thank you very much. Next question, while you have it, is from Didier Shimama from BOF. Please go ahead, much.

Speaker Change #186: Yeah, that's perfect. Thanks.

Speaker Change #190: Thank you very much next question please.

Speaker Change #188: The next question is from <unk> from <unk>. Please go ahead.

Speaker Change #188: And thank you so much.

Jean-Marc Chéry: A few things. First of all, Jean-Marc, it feels to me like this is a downturn similar to what we saw at the turn of the last century. So it's been a two-year downturn, and I think the lesson we learned from that downturn is that you need to be much more aggressive on cost. So two questions: I know you've said you've sort of implemented a hiring freeze, etc. But, you know, what do you think about your CapEx?

Speaker Change #189: Few things first of all it's our mask I mean, it feels to me like this is a downturn and that's what we saw at the time of the <unk>.

Speaker Change #198: Centuries, so it's a two year downturn and I think the lesson, we learned from that downturn stats it needed to be much more aggressive on cost.

Speaker Change #190: Two questions is a I know you've said you've sort of implemented a hiring freeze et cetera, but.

Speaker Change #194: What do you think about your Capex I know, it's unchanged, but is that prudent at this stage to be spending that much money on capex and adding capacity.

Jean-Marc Chéry: I know it's unchanged, but is it prudent at this stage to be spending that much money on CapEx and still adding capacity? And I would like to come back to the comments you made at a conference recently when you said you were thinking about upgrading your six inch and your eight inch fabs to 300 mil. Should you accelerate that transition given that those fabs, you know, especially those in Europe, perhaps even in Singapore, are in direct competition with, you know, the CapEx being spent in China? So that's my first question, sort of the physical discipline being more aggressive into next year.

Speaker Change #192: And I would like to come back to the comments you made at a conference recently, where you said you were thinking about upgrading your <unk> and your eight inch Fabs with 300000.

Speaker Change #192: Should you accelerate that transition given that those fabs, especially those in Europe, perhaps even in Singapore.

Speaker Change #192: In direct competition with the Capex being spent in China.

Speaker Change #193: So that's my first question is sort of the fiscal discipline being more aggressive into Nextgen I've got a follow up thank you.

Jean-Marc Chéry: And I've got a follow-up. Thank you. Well, it is clear that we are facing the... Let's say the strongest inventory correction we have faced for a long time, or whether I would like to say... Do I like 2 or 3 points? First of all, we continue to be convinced that even if the transformation that our two main markets, industrial and automotive, let's say, will provide, OK, really for ST, the basis for our growth ambition.

Speaker Change #196: Well is it fair that we are facing.

Speaker Change #193: <unk>.

Speaker Change #193: And it says the strongest inventory collection, certainly we will face.

Speaker Change #195: So longer a long time.

Speaker Change #197: Although I would like to say.

Speaker Change #197: Do I like two or three points.

Speaker Change #197: First of all we continue to be convinced that even issue is not completely linear or less is smooth and expected that the transformation that our two main markets in Europe.

Speaker Change #199: A notable achievement.

Speaker Change #199: Let's say will provide.

Speaker Change #199: Ready for ESG.

Speaker Change #199: As a basis for our growth ambition.

Jean-Marc Chéry: Also, supported by some specific, let's say, initiatives, every time we believe we can bring differentiation in the field of personal electronics, or even in the field of a server for AI with a PowerStage or later on in an optical transceiver. So we have our Megatrend there. Then we said that we are convinced that for us, our capability to continuously improve the fundamental value of the company is to convert our activity to 300 millimeters for silicon-based technology. Of course, each time, it is a trend that is mandatory. And to convert to 200 millimeters, the silicon carbide one.

Also are supported by substantial she can.

Speaker Change #199: Let's say initiative. So every time, we believe we can bring Michelle she should.

Speaker Change #200: This use of personal electronics, all including in this field of.

Speaker Change #200: <unk> is a Polish stage or later on.

Speaker Change #201: Chico Costco. So so we have a bigger trend there.

Speaker Change #201: We said that we.

We are currently.

Speaker Change #201: For us.

Speaker Change #201: Our capability to continuously improve the fundamental value of the company is to convince.

Speaker Change #201: Overall activity to 300 millimeter for silica based technology of course each time.

Speaker Change #201: Yes.

Speaker Change #201: A trend that is in <unk>.

Speaker Change #201: And to go Vas.

Speaker Change #201: Two 200 millimeter.

Speaker Change #201: The silicon carbide.

Speaker Change #201: Yeah.

Jean-Marc Chéry: That's the reason why, this year, we have confirmed the committed CAPEX and the engagement we have with some suppliers to go in this direction. Now, the third point for us as a priority is to assess the baseline and in order to understand at which speed we will come back okay to 2023 revenue. Well, there's a, Under the light of these three points, it is clear that the acceleration of the conversion, respectively, to 200 millimeters to 300 millimeters, and acceleration of the 150 to the 200 millimeters in silicon carbide is the best trade-off to minimize our capex at the right level. This is what we are working on.

Speaker Change #201: That's the reason why it is this year.

Speaker Change #202: Okay, we have consumer.

Speaker Change #202: <unk>, Capex and new engagement with <unk> with <unk>.

Speaker Change #203: Thank you.

Speaker Change #203: To go in this direction.

Speaker Change #203: Now at some point for us as a priority is to assess.

Speaker Change #203: The baseline and buildup to understand at which speed that we will go back to 2023 2023 languages.

Speaker Change #203: Well desert.

Speaker Change #204: Or does the light of this three point it is clear on that.

Speaker Change #205: The acceleration of the Colbert shouldn't respectively to <unk> acceleration of the 150 to 200.

Speaker Change #206: They are doing silicon carbide is the best kind of to revise okay. Overall capex at the highest level is what we are looking at but it is what I said when I say, we are adjusting our assertion that coffee softly with west.

Jean-Marc Chéry: It is what I said when I said we are adjusting our sales and operating plan consistently with what, But I repeat, we are convinced that ST will come back on a closer trajectory. We are convinced that we must convert to 300 millimeters and 200 millimeters, respectively. This is mandatory.

Speaker Change #206: But I repeat we are convinced that <unk> will come back on a growth trajectory. We are convinced that we must go back to <unk> and to advance. The EBITDA respectively. This is one that <unk> of course, okay <unk> as a baseline is as you know because the bucket we will decide.

Jean-Marc Chéry: Of course, acknowledging the baseline and the dynamics of the market, we will decide which level of capex we have to cautiously spend but maybe accelerate some conversion with all the implications linked to this conversion. Very good, thank you. My second question is about geopolitics.

Speaker Change #206: Which level of Capex, we are cautiously spent.

Maybe accelerating some conviction with all of these applications linked to this convention.

Speaker Change #207: Very good. Thank you my second question is about geopolitics.

Jean-Marc Chéry: So I think, how are you thinking about the world we might enter into next year with sort of 10% tariffs on all products imported into the U.S.? I mean, one of your competitors is boasting about his domestic US capacity, calling it geopolitically dependable. You've taken the, I would argue, smart decision to partner with a local Chinese company to build your silicon carbide capacity over there, which I think is very differentiated versus your peers.

Speaker Change #208: How are you thinking about the world we might enter into next year sort of 10% tariffs on oil products imported into the U S.

Speaker Change #209: One of your competitor, obviously is boasting about sort of domestic U S capacity.

Speaker Change #210: Geopolitical dependable you've.

Speaker Change #211: You've taken the sort of I would argue smart decision to partner with a local Chinese company to build your silicon carbide capacity over there.

Speaker Change #212: I think it's very differentiated versus your peers.

Jean-Marc Chéry: But what are you thinking about, you know, the need to have maybe local capacity also in the U.S., which you don't have at this stage, or do you think that your automotive and industrial customer base is European enough to not warrant really the need to have capacity in the U.S.? At this stage, the manufacturing strategy that we have adopted, let's say, we have adopted in order to take into account what you mentioned. So China for China, so it's an execution.

Speaker Change #213: But what are you thinking about the need to have multi local capacity also in the U S, which you don't have at this stage or do you think that your automotive and industrial customer basis European enough to not werent really the need to have capacity in the U S.

Speaker Change #214: At this stage, we the manufacturing strategy that he's.

Speaker Change #215: Let's see.

Speaker Change #215: Yes.

Speaker Change #216: In order to take into account what.

Speaker Change #217: You mentioned.

Speaker Change #217: So China for China, So execution, so again I repeat that.

Jean-Marc Chéry: So again, I repeat that we are building an ecosystem in China, let's say, as independent as possible along the value chain, so from raw material device wafer processing, wafer sort, assembly, and test, but including application lab and Design Center. At this stage, we do believe that our European-based or recognized countries reliable for America in terms of location for manufacturing where ST is already implemented are good enough or adequate enough to support and face this decoupling.

Speaker Change #217: We are building an ecosystem in China.

Speaker Change #218: Independence is possible.

Speaker Change #218: The value chain, so portable medallion.

Speaker Change #218: Uh huh.

Speaker Change #218: Device wafer processing were fulfilled.

Speaker Change #218: <unk> desk, but included application level.

Speaker Change #218: Design Center.

Speaker Change #218: At this stage.

Speaker Change #218: We do believe that you will see <unk> base.

Speaker Change #218: All.

Speaker Change #219: He coined nice countries, the reliable for America, and Gamble location for manufacturing, where HTS already implemented.

Speaker Change #218: Oh.

Speaker Change #218: Good enough are adequate.

Speaker Change #218: She booked.

Speaker Change #220: Boston face is the complete.

Jean-Marc Chéry: However, we are always, let's say, open to some partnership with the player in terms of manufacturing arrangements on the model we have in call with the GF or the model we have in Agrate with Tower Jazz. At this stage, there is nothing on the table, but this is the kind of model we are open to. What I can confirm to you at this moment is that we do not intend to build a fab from scratch in the US.

Speaker Change #220: However.

Speaker Change #221: We are always let's say open.

Speaker Change #222: After their ship.

Speaker Change #223: With the player.

Speaker Change #223: E demos manufacturing enhancements.

Speaker Change #223: On the medallion, Okay, we have a <unk>.

Speaker Change #223: <unk> visa.

Speaker Change #224: Visa <unk> and Douglas D. We still just <unk>.

Speaker Change #225: Stage, there is nothing on the table.

Speaker Change #225: But just as a kind of but then we all hope it.

Speaker Change #226: What I can confirm to you at this moment, we do that date, okay to build a fab hopscotch.

Speaker Change #225: In U S.

Jean-Marc Chéry: Why? Because, as you see, we do not have the bandwidth to do it. We have already projected on our plate, like the campus in Catania, to continue Kroll timely, to continue Agra timely, to continue GV with Sanaa in China. We do not intend to build any infrastructure in the US.

Speaker Change #227: Why because I see we have lots of bold we used to do it we are already project okay.

Speaker Change #228: Plate and <unk> Catalunya, Okay to continue core diagonally to continue on <unk> to continue as a GDP slowdown in China, we tend to keep.

Speaker Change #228: And each of us securing U S.

Speaker Change #228: Yes.

Jean-Marc Chéry: Okay, sorry. And just one quick one that's pretty helpful. I think you had floated the idea that M&A was back on the table. Any more updates on that? We are working actively on the right target. We have time for one last question, Moira. The next question is from Joshua Buchalter from TD Cohen. Please go ahead. Hey, guys. Good morning.

Speaker Change #229: Okay, sorry, and just one quick one that's very helpful. I think that floated the idea that M&A was back on the table any more data on that.

Unnamed Speaker: I think you had floated the idea that M&A was back on the table. Any more dates on that? We are working on the right target.

Speaker Change #230: We are working actively on.

Speaker Change #230: <unk> targets.

Speaker Change #231: Thank you.

Operator: We have thanks for a very last question, Moira. The next question is from Joshua Buchalter from TDCO. When, please go ahead.

Speaker Change #232: We have a sense of a very last question Manhattan.

Josh <unk>: The next question is from Josh <unk> from TD Cowen. Please go ahead.

Jean-Marc Chéry: Thanks for squeezing me in. For my first one, last quarter, you were kind enough to give us details, and I think you mentioned that there was two months of channel inventory that you wanted to get down, and it was running above target. I know a lot of it's at EMS and OEMs, but would you mind updating us on maybe either where you feel like levels are entering this quarter, and with, in particular, the down 17 percent industrial guidance for the third quarter, does the rest of the year outlook assume that you get channel inventory back in line during the third quarter? Thank you. Maybe I can; I can take this question.

Joshua Buchalter: Hey, guys. Good morning. Thanks for squeezing me in.

Josh <unk>: Hey, guys. Good morning, Thanks for squeezing me in for my first one last quarter, you were kind enough to.

Joshua Buchalter: From our first one. Last one, are you trying enough to give us details? And I think you mentioned that there was two months of channel inventory that you wanted to get down. And I was running about target. I know a lot of it at UMS and OEMs, but would you mind updating us on maybe either where you feel like levels are out entering this quarter. And with, in particular, the down 17% industrial guidance for the third quarter.

Josh: To give us details in here I think you mentioned that there was two months of channel inventory that you wanted to get down and it was running about target I know a lot of it that E. M S N Oems but would.

Speaker Change #235: Would you mind updating us on maybe either you know where you feel like levels are at entering this quarter and end with in particular, the down 17% industrial guidance for the third quarter. Your does the rest of the year outlook assume that you get channel inventory back in line during the day during the third quarter. Thank you.

Unnamed Speaker: So your does the rest of the year outlook assume that you get channel inventory back in line during the third quarter.

Unnamed Speaker: Thank you. Maybe I can take a this question. But you know, during the second quarter, when we look at the distribution evolution, we see that the POS were not improving. In general, we are not improving. We have seen some areas a little bit better, but in general, we are not improving. So at the end, through that, we were shipping lessons to distribution, and this feasible in the result, especially when we look at the industry. But when we look at the level of inventory, when we look at the situation of the inventory, we would say that is similar to the one exiting to one.

Lorenzo Grandi: You know, during the second quarter, when we look at the distribution Evolution, we see that the POS is not improving. In general, we're not improving. We have seen some areas a little bit better, but in general, not...

Josh: Yes.

Josh: I can I can take this question.

Speaker Change #236: During the second quarter, when we look at the distribution evolution, we see asset.

Speaker Change #237: Sam we're not improving.

Speaker Change #238: In general we're not improving we haven't seen a song that address a little bit better but in general most people saw the EM debt through that that we were.

Lorenzo Grandi: So at the end, through that process, we were shipping less to distribution, and this is visible in the result, especially when we look at the industrial. But when we look at the level of inventory, when we look at the situation of inventory, I would say that it's similar to the one leaving Q1. So I would say that we still don't see significant improvement in this respect, especially because, let's say, POS is not improving.

Speaker Change #238: Shipping less to distribution and <unk>.

Speaker Change #239: <unk> volume there is out there, especially when we look at the industrial.

Speaker Change #238: But when we look at the level of our inventory when we look at that.

Speaker Change #238: The equation on <unk> three I would say that is similar to the one exit <unk>.

Speaker Change #238: In Q1.

Unnamed Speaker: So I would say that still we don't see significant improvement in this respect, especially because, let's say, the POS is not improving. Probably, let's say we will see some sort of mind improvement in Q3.

Speaker Change #238: I would say that still we don't see significant improvement in this respect, especially because safety is not moving.

Lorenzo Grandi: Probably, let's say, we will see some mild improvement in Q3. Our expectation is to start to see some more material improvement in Q4. But for the time being, the situation of inventory remains, as we say, not particularly on the positive side, on the improvement irrespective of the one that we left exiting Q1. But for what concerns inventory in our balance sheet, I can tell you that, day, you see we are in the range of 130 days, will be, most likely, in Q3 similar to the end of Q3.

Speaker Change #238: Well I mean, let's say, we will see some mass online the improvement in Q3, our expectation is to start that you'll see some more.

Unnamed Speaker: Our expectation is to start that you see some more material improvement moving inside the Q4. But for the time being, the situation of the inventory remains, let's say, not particularly on the positive side. On the improvement here is that with the one that we left exiting Q1. But for what concern, the inventory in our balance sheet, I can tell you that today, you see, we are in the range of 130 visitors, 130 days. We will be most likely in Q3, similar at the end of Q3. We will not expect strong improvement during this course, and notwithstanding the unused, the level of production has been reduced.

Speaker Change #238: ADR improvement and we will be engaged in China in Q4, but for the time being the situation of inventory remained says it's a not particularly.

Speaker Change #240: On the positive side on the improvement irrespective they wanted it relaxed exit gain.

Speaker Change #241: Q1 bulk for what concern that being bank put in our balance sheet that I can tell you that that.

Speaker Change #244: Today, you see we are in the range of 130 basis.

Speaker Change #244: I think 30 days.

We'd be most likely in Q3.

Speaker Change #241: Similar at the end of Q3, we do not expect that.

Lorenzo Grandi: We do not expect a strong improvement during this quarter, notwithstanding the unused capacity and the level of production has been reduced, while we will start to see the benefit in Q4. In Q4, we expect it to decrease in the range of at least 10 days, never agitating days in respect to where we are. Thank you for all the color there, Lorenzo. For my follow-up, I wanted to ask about gross margins.

Speaker Change #242: Strong improvement are you winning these Florida, notwithstanding a news that and the level.

Production is being reduced.

Unnamed Speaker: Why we will start to see the benefit in Q4.

Speaker Change #242: Why we stopped that you'll see the benefit in Q4 in Q4, we expect from the states and decrease the range up lease.

Speaker Change #243: As <unk> pain, basing at least back to where we stand today.

Speaker Change #242: Okay.

Unnamed Speaker: Thank you for all the color there. So for my follow-up, I want to ask about first margins. So down the 200 basis points in the third quarter guidance. But I believe it implies that it needs to basically improve another 200 basis points in the fourth quarter.

Speaker Change #246: Thank you for all the color there and then for my follow up I wanted to ask about gross margins go down like 200 basis points in the third quarter guidance, but I believe it implies.

Lorenzo Grandi: So down about 200 basis points in the third quarter guidance, but I believe it implies it needs to basically improve another 200 basis points in the fourth quarter. Anything with mix that we should be aware of, or is that all just utilization rates coming back up that's in your assumption sort of for gross margin improvement in the fourth quarter? But in the fourth quarter, the main driver of the improvement of our gross margin in our model is mainly coming from microelectronics. Of course, we do not expect to have a significant positive impact on pricing. As you know, we are not modeling any improvement in the price environment.

Speaker Change #245: Basically improve another 200 basis points in the fourth quarter.

Unnamed Speaker: Anything with mixed that we should be aware of, or is that all just utilization rates coming back out, but in your assumption, sort of for gross margin improvement in the fourth quarter. Thank you. But in the fourth quarter, the main driver of the improvement of our growth margin in our model is mainly coming from the mix. Of course, we do not expect that we have a significant positive impact in pricing. As you know, we are not modeling any improvement in the price environment. We expect price more or less destabilize in the range of low single digit decline.

Speaker Change #250: Anything with mix that we should be aware of or is that all just utilization rates coming back off thats in your assumptions for gross margin improvement in the fourth quarter. Thank you.

Speaker Change #248: But in the fourth quarter. The main driver of the improvement of our gross margin that are in our modeling is mainly coming from mix.

Speaker Change #247: Of course, if we do not expect this lab and significant positive impact in pricing as you know we are not modeling any any any improvement in the pricing by myself.

Lorenzo Grandi: We do expect the price, more or less, to be stabilized in the range of low single-digit declines. There is a mix that is improving. There will also be the level of unloading. This quarter in Q3, unloading is hitting our gross margin by 350 basis points; it will remain material in Q4 but decline in respect to the one in Q3. So these two components are the main ones that make us model Q4 as an improvement in respect to the current quarter, Q3. Moving back a year, let's say close to 40%.

Lorenzo Grandi: Got it. Thank you. Thank you very much. That was the last question. I would like now to turn the conference back over to Ms. Berthier for closing remarks. I think this is ending our call to... Thank you very much, all of you, for being there, and we remain here at your disposal should you need any follow-up questions. Sorry for the ones that didn't have time to ask.

Speaker Change #251: Expected price more or less be stabilizing using that angel.

Speaker Change #247: Low single.

Speaker Change #249: Single digit decline there is a unique set that is improving there will be also the level of unloading decent this quarter in Q3 and loading is it.

Unnamed Speaker: There is a mix that is improving. There will be also the level of unloading. This quarter in Q3, unloading is eating our growth margin by 350 basis points. It will remain a material also in Q4 but declining in respect to the one of Q3. So these two components are the main ones that make us to modeling the Q4 as an improvement in respect to the current quarter Q3.

Speaker Change #249: Eating our gross margin by 350 basis points.

Speaker Change #252: It will remain a material also in Q4 back to declining irrespective to day one of Q3. So these two components are the main one that.

Speaker Change #252: Make asset modeling the Q4 as an improvement in respect to the.

Speaker Change #252: Current quarter <unk> moving.

Unnamed Speaker: Moving back a year, let's say close to 40%.

Speaker Change #252: Moving back to the or lets say close to 40%.

Unnamed Speaker: Thank you, Lorenzo.

Speaker Change #253: Got it thank you Lorenzo.

Unnamed Speaker: Thank you very much.

Speaker Change #254: Panamax ships with the last question.

Celine Berthier: That was the last question. I would like now to turn the conference back over to Ms. Berthier for closing remarks. I think this is ending. I will call to Ms. Berthier. Thank you very much for being there. Any further questions? Sorry for the one that didn't have time to ask the question there. Thank you very much. Thank you.

Celine Berthier: Thank you very much. Thank you. Thank you. Bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant and thank you for participating in the conference. You may now disconnect your lines. Goodbye. Outro Music [inaudible] Connect the blue board Connect the red board Connect the blue board Connect the red board Connect the red board

Speaker Change #254: That was the last question I would like now to turn the conference back over to MS. Kim Cocklin.

Speaker Change #255: Zero remarks.

Speaker Change #255: Okay.

Speaker Change #256: I think.

Speaker Change #257: This is an in network partner.

Speaker Change #258: We expect to hear thank you very much all of you from it being down and I know as you May know yeah I just.

Speaker Change #259: And your first question is selling is also embedded in that time to ask a question.

Speaker Change #260: Thank you very much. Thank you. Thank you bye bye.

Speaker Change #260: Yes.

Celine Berthier: Ladies and gentlemen, the conference is now over. Thank you for choosing Carrosco, and thank you for participating in the conference. You may now disconnect your lines.

Speaker Change #261: 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.

Celine Berthier: Goodbye.

Speaker Change #261: Okay.

Speaker Change #261: [music].