Q3 2025 STMicroelectronics NV Earnings Call

October 23, 2025

Jean-Marc Chery: Sam.

Speaker #2: Ladies and gentlemen , welcome to the SG microelectronics . Third quarter 2020 Earnings Release conference call and live webcast . I am Moyra the chorus call operator .

Myra: Ladies and gentlemen, welcome to the STMicroelectronics Q3 2025 earnings release conference call and live webcast. I am Myra, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star 1 on your telephone. For operator assistance, please press star 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communication. Please go ahead.

Operator: Ladies and gentlemen, welcome to the STMicroelectronics N.V. Third Quarter 2025 Earnings Release Conference call and live webcast. I am Moira, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing N1 on your telephone. For operator assistance, please press N0. The conference must not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communication. Please go ahead.

Speaker #2: I would like to remind you that all participants will be in listen only mode , and the conference is being recorded . The presentation will be followed by a Q&A session .

Speaker #2: You can register for questions at any time by pressing star and one on your telephone . For operator assistance , please press star and Zero .

Speaker #2: The conference must not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communication.

Speaker #2: Please go ahead .

Speaker #3: Thank you . Mara . Thank you everyone for joining our third quarter 2020 financial results call . Hosting the call today is Jean-Marc Chery President and Chief Executive Officer joining Jean-Marc on the call today are Lorenzo Grandi president and CFO and Marco Cassis , president , analog Power and Discrete mEMS and sensors group .

Jean-Marc Chery: Thank you, Maura, thank you everyone for joining our third quarter 2025 financial redo call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, Creditor and CFO, and Marco Cassis, President, Analog, Power & Discrete, MEMS & Sensors Group, and Head of STMicroelectronics Strategy, System Research, Application, and Innovation Office. These live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results this morning and also in ST most recent regulatory filings for a full description of these risk factors.

Jerome Ramel: Thank you, Moira. Thank you everyone for joining our Q3 2025 financial results call. Hosting the call today is Jean-Marc Chéry, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO, and Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensors Group, and Head of STMicroelectronics Strategy, System Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST investor relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans.

Speaker #3: And head of STMicroelectronics strategy , system research and application and Innovation Office . This live webcast and presentation materials can be accessed on SG investor Relations website .

Speaker #3: A replay will be available shortly after the conclusion of this call . This call will include forward looking statements that involve risk factors that could cause results to differ materially from management expectations and plans .

Speaker #3: We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results . This morning , and also in estimates .

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

Speaker #3: We reference our regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up.

Jean-Marc Chery: Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO. Thank you, Jerome. Good morning everyone and thank you for joining ST for our Q3 2025 earnings conference call. I will start with an overview of the third quarter including business dynamics. I will then hand over to Lorenzo for the detailed financial overview and will then comment on the outlook and conclude before answering your questions. Starting with Q3, we delivered revenues at $3.19 billion, $17 million above the midpoint of our business outlook range, with higher revenues in personal electronics, while automotive and industrial performed as anticipated and CCP was broadly in line with expectations. All end markets but automotive are now back to year-on-year growth.

Speaker #3: Now , I'd like to turn the call over to Jean-Marc Chery president and CEO .

Speaker #4: Thank you . Jerome . Good morning everyone , and thank you for joining us for our Q3 2025 earnings conference call . I will start with an overview of the third quarter , including business dynamics .

Jean-Marc Chéry: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q3 2025 Earnings Conference Call. I will start with an overview of Q3, including business dynamics. I will then hand over to Lorenzo for the detailed financial overview and will then comment on the outlook and conclude before answering your questions. Starting with Q3, we delivered revenues at $3.19 billion, $17 million above the midpoint of our business outlook range, with higher revenues in personal electronics, while automotive and industrial performed as anticipated and CCP was broadly in line with expectations. All end markets, but automotive are now back to year-over-year growth. Gross margin of 33.2% was slightly below the midpoint of our business outcome range, reflecting product mix within automotive and within industrial.

Speaker #4: I will then head over to Lorenzo for the detailed financial overview , and will then comment on the outlook and conclude before answering your questions .

Speaker #4: So starting with Q3 , we delivered revenues at $3.9 billion , $17 billion above the midpoint of our business outlook range , with higher revenues in personal electronics .

Speaker #4: While automotive and industrial performed as anticipated and CCP was broadly in line with expectations . All end markets but automotive are now back to year on year growth .

Speaker #4: Gross margin of 33.2% was slightly below the midpoint of our business outlook range , reflecting product mix within automotive and within industrial . Excluding impairments , restructuring charges and other related costs .

Jean-Marc Chery: Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within automotive and within industrial, excluding impairments, restructuring charges, and other related phaseout costs. Diluted earnings per share was $0.29. During the quarter, we managed to work down inventories both in our balance sheet and in distribution, and we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3 in automotive. During the quarter, we grew revenues about 10% sequentially in line with expectations, driven by all regions except Americas. Our Group 2 bill came above parity. We expect to grow mid single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of sequential growth. During the quarter, we continue to execute our strategy for car electrification.

Jean-Marc Chéry: Excluding impairments, restructuring charges, and other related phased costs, diluted earnings per share was $0.29. During the quarter, we managed to work down inventories both in our balance sheet and in distribution, we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3. In automotive, during the quarter, we grew revenues about 10% sequentially, in line with expectations, driven by all regions except Americas. Our book-to-bill came above par. We expect to grow mid-single digits in Q4 compared to Q3, which would be the third consecutive quarter of sequential growth. During the quarter, we continued to execute our strategy for car electrification. We had wins with both silicon and silicon carbide devices for electrical vehicle applications, such as traction inverter and on-board charger designs.

Speaker #4: Diluted earnings per share was $0.29 . During the quarter . We managed to walk down inventories both in our balance sheet and in distribution and we generated a positive $130 million free cash flow .

Speaker #4: Let's now discuss our business dynamics during Q3 . In automotive . During the quarter , we grew revenues about 10% sequentially , in line with expectations driven by all regions except Americas .

Speaker #4: Our book to bill came above parity . We expect to grow mid-single digits in the fourth quarter compared to the third quarter , which would be the third consecutive quarter of sequential growth .

Speaker #4: During the quarter . We continued to execute our strategy for car electrification . We had wins with both silicon and silicon carbide devices for electrical vehicle applications such as traction inverters and onboard charger designs .

Jean-Marc Chery: We had wins with both silicon and silicon carbide devices for electrical vehicle applications such as traction inverter and onboard charger designs. One new application where we see silicon carbide being used is inverters for full active suspension. Here, we had a design win with a module solution for a key Chinese electrical vehicle maker. Another key element is a switch to electronic fuses to support zonal and domain architectures both in 12 volt and 48 volts. Here, we added to our pipeline of designs for eFuse controllers with leading electrical vehicle makers and qualified our products for volume ramp. Other wins in the quarter included microcontrollers for DC-DC management in electrical vehicle powertrain, body control modules, and HVAC systems across multiple vehicle models. In car digitalization, we are executing our microcontroller product roadmap with a strong lineup of new solutions across both our Airbase Stellar and MCM32A product families.

Speaker #4: When new application where we see silicon carbide being used is inverters for full active suspension . Here we had a design win with a modular solution for a key Chinese electrical vehicle maker .

Jean-Marc Chéry: One new application where we see silicon carbide being used is inverters for full active suspension. Here, we had a design win with a module solution for a key Chinese electrical vehicle maker. Another key element is the switch to electronic fuses to support zonal and domain architectures, both in 12 volts and 48 volts. Here, we added to our pipeline of designs for our eFuse controller with leading electrical vehicle makers and qualified our products for volume ramp-up. Other wins in the quarter included microcontrollers for DC-DC management in electrical vehicle powertrain, body control modules, and HVAC systems across multiple vehicle models. In car digitalization, we are executing our microcontroller product roadmap with a strong lineup of new solutions across both our Arm-based Stellar and STM32A product families. Designing activity continues globally with engagement from both large-scale automotive OEMs and Tier 1 suppliers.

Speaker #4: Another key element is the switch to electronic fuses to support zonal and domain architectures, both in 12 volts and 48 volts. Here, we headed to our pipeline of designs for our iFuse controller with leading electric vehicle makers and qualified our products for volume ramp-up.

Speaker #4: Other wins is the quarter included microcontrollers for Dc-dc management in electrical vehicle , powertrain , body control modules and HVAC systems . Across multiple vehicle models .

Speaker #4: In car digitalization , we are executing our microcontroller product roadmap with a strong lineup of new solutions across both our air based Stella and Stm32 product families .

Speaker #4: Designing activity continues globally with engagement from both large scale automotive OEMs and tier one suppliers . In legacy applications . We had several significant wins based on our Smart power technologies .

Jean-Marc Chery: Design-in activity continues globally with engagement from both large scale automotive OEMs and tier one suppliers. In legacy applications, we had several significant wins based on our smart power technologies. In applications where we lead, such as airbags, steering, braking solutions with our automotive grade sensors, we continue to see strong design-in momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise cancellation and door control, and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered in a definitive transaction agreement for the acquisition of NXP's MEMS sensor business for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions, including regulatory approvals, and is on track to close in H1 2026.

Jean-Marc Chéry: In legacy application, we had several significant wins based on our smart power technologies in application where we lead, such as airbags, steering, and braking solutions. With our automotive-grade sensors, we continue to see strong designing momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise cancellation and door control, and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered in a definitive transaction agreement for the acquisition of NXP's MEMS sensor business for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions, including regulatory approvals, and is on track to close in H1 2026.

Speaker #4: In application , where we lead , such as airbags , steering and braking solutions . With our automotive grade sensors . We continue to see strong designing momentum and growing opportunities .

Speaker #4: Wins in the quarter included mEMS sensors for road noise cancellation and control , and both maps and imaging sensors for in-cabin monitoring . Shortly after our results announcement in July , we announced that we entered into a definitive transaction agreement for the acquisition of Nxp's mEMS sensor business for a purchase price of up to $950 million in cash .

Speaker #4: Complementing and expanding our current leading technology and product portfolio , the transaction remains subject to customary closing conditions , including regulatory approvals and is on track to close in H1 2026 .

Speaker #4: In industrial revenues were in line with expectations showing increase of 8% sequentially and 13% year over year . Back to year on year growth for the first time .

Jean-Marc Chery: In industrial, revenues were in line with expectations, showing an increase of 8% sequentially and 13% year over year, back to year-over-year growth for the first time since the third quarter of 2023. Importantly, inventories in distribution further decreased in Q4. We expect to grow revenues low single digits sequentially, and we continue to decrease inventories in distribution. During the quarter, we saw strong design-in activity for our power analog portfolio across a range of applications. These included factory automation, power systems, medical equipment, motor control, white goods, solar inverters, and metering. We also continue to expand the use of our industrial sensors in robotics, including robots, cobots, and humanoid robots, an area where we see demand for a significant number of some sort. We also had wins in medical devices like insulin pumps and fall detectors.

Jean-Marc Chéry: In industrial, revenues were in line with expectations, showing increase of 8% sequentially and 13% year-over-year, back to year-on-year growth for the first time since Q3 2023. Importantly, inventories in distribution further decreased. In Q4, we expect to grow revenues low single digits sequentially as we continue to decrease inventories in distribution. During the quarter, we saw strong designing activity for our power analog portfolio across a range of applications. These included factory automation, power system, medical equipment, motor control, white goods, solar inverters, and metering. We also continue to expand the use of our industrial sensors in robotics, including robots, cobots, and humanoid robots, an area where we see demand for significant number of sensors.

Speaker #4: Since the third quarter of 2023 . Importantly , inventories in distribution further decreased in Q4 . We expect to grow revenues low single digit sequentially as we continue to decrease inventories in distribution .

Speaker #4: During the quarter , we saw strong design activity for our power analog portfolio across a range of applications . These included factory automation , power system , medical equipment , motor control , white goods , solar inverters and metering .

Speaker #4: We also continued to expand the use of our industrial sensors in robotics , including robots and cobots , and humanoid robots , an area where we see demand for significant number of sensors .

Speaker #4: We also had wins in medical devices like insulin pumps and full detectors . In embedded processing . We continued to win designs with our Stm32 microcontrollers for a wide range of industrial applications , with products from all parts of the portfolio from high end to wireless .

Jean-Marc Chéry: We also had wins in medical devices like insulin pumps and fall detectors. In Embedded Processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications with products from all parts of the portfolio, from high-end to wireless to specialized functions. These included power supply and optical modules for AI servers, industry automation and robotics, energy storage home application shield, metering, and white goods. We have a full pipeline of new products and software coming to market in the next quarters. You will hear more about this during our STM32 Summit in November. For general purpose microcontroller, we grew revenues both sequentially and year-over-year. We are on the right trajectory to return to our historical market share of about 20%-- 23%, sorry.

Jean-Marc Chery: In embedded processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications, with products from all parts of the portfolio, from high end to wireless to specialized functions. These included power supply and optical modules for AI servers, industry automation and robotics, energy storage, home appliances, metering, and white goods. We have a full pipeline of new products and software coming to market in the next quarters, and you will hear more about this during our STM32 Summit in November. For general purpose microcontroller, we grew revenues both sequentially and year over year, and we are on the right trajectory to return to our historical market share of about 20% to 23%.

Speaker #4: To specialized functions . These included power supply and optical modules for AI servers , industrial automation and robotics . Energy storage , and applications , metering and white goods .

Speaker #4: We have a full pipeline of new products and software coming to market in the next quarters , and you will hear more about this during our Stm32 to submit in November .

Speaker #4: For general purpose microcontrollers . We grew revenues both sequentially and year over year , and we are on the right trajectory to return to our historical market share of about 20% 23% .

Speaker #4: Sorry . For personal electronics , third quarter revenues were above our expectations . Up 40% sequentially , reflecting the seasonality of our engaged customer programs , but also increased silicon content , which also translated into year over year growth .

Jean-Marc Chery: For personal electronics, third quarter revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, but also increased silicon content, which also translated into year-over-year growth. Further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions, we signed a new license agreement with Metalens. This new agreement broadens our capability to produce advanced metasurface optics, leveraging ST's 300 millimeter semiconductor and optics manufacturing capabilities. This opened up new opportunities from smartphone applications like biometrics, LIDAR, and camera assets to robotic gesture recognition and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up focus on sequential. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high power solution.

Jean-Marc Chéry: For personal electronics, Q3 revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, but also increased silicon content, which also translated into year-over-year growth. Further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions, we signed a new license agreement with MetaLens. This new agreement broadens our capability to produce advanced metasurface optics, leveraging ST's 300 millimeter semiconductor and optics manufacturing capabilities. This opened up new opportunities from smartphone application like biometrics, LiDAR, and camera ASICs to robotic gesture recognition and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up 4% sequentially. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high power solution.

Speaker #4: Further strengthening of our unique position as a sensor supplier , with both mEMS and optical sensing solutions . We signed a new license agreement with Metal Lens .

Speaker #4: This new agreement broadens our capability to produce advanced metasurface optics , leveraging streets 300mm semiconductor and optics manufacturing capabilities . This opens up new opportunities from smartphone applications like biometrics , LiDAR and camera assets to robotic gesture recognition and object detection .

Speaker #4: Revenues for communication equipment and computer peripherals were broadly in line with expectations , and up 4% sequentially . For AI data centers . We are the wins with silicon and silicon carbide devices for high-power solutions .

Speaker #4: Although last quarter we announced that we are working closely with Nvidia on the new architecture for 800 V DC AI data center , leveraging our power flow through by combining silicon carbide , gallium nitride and silicon based technologies with advanced custom design at both chip and package level .

Jean-Marc Chery: Although last quarter we announced that we are working closely with Nvidia on the new architecture for 800 volt DC AI data center leveraging our Power Portfolio by combining silicon carbide, gallium nitride and silicon based technologies with advanced custom design at both chip and package level, I am pleased to announce that we recently completed full power testing on a prototype GAN-based solution, successfully demonstrating over 98% energy conversion efficiency. Silicon photonics is another key technology for future data center and AI factories. ST now heads the Starlight Consortium, a collaborative R&D program across the full value chain with key suppliers and customers to develop high speed optical solutions for data center AI, telecommunication and automotive from the substrate to the final products.

Jean-Marc Chéry: Although last quarter we announced that we are working closely with NVIDIA on the new architecture for 800 volt DC AI data center, leveraging our power portfolio, by combining silicon carbide, gallium nitride, and silicon-based technologies with advanced custom design at both chip and package level. I am pleased to underline that we recently completed full power testing on a prototype GaN-based solution, successfully demonstrating over 98% energy conversion efficiency. Silicon photonics is another key technology for future data center and AI factories. ST now heads the Starlight Consortium, a collaborative R&D programs across the full value chain with key suppliers and customers to develop high-speed optical solutions for data center, AI, telecommunication, and automotive, from the substrate to the final products.

Speaker #4: I am pleased to underline that we recently completed the full power testing on a prototype Gan based solution , successfully demonstrating over 98% energy conversion efficiency .

Speaker #4: Silicon photonics is another key technology for future data centers and AI factories . Street now heads the Starlight Consortium , a collaborative R&D programs across the full value chain with key suppliers and customers to develop high speed optical solutions for data centers .

Speaker #4: AI , telecommunication and automotive . From the substrate to the final products . During Q3 , we have seen an increased demand for photonics ICS prototypes to be launched in the next quarter and beyond .

Jean-Marc Chery: During Q3, we have seen an increased demand for photonics ICs prototypes to be launched in the next quarter and beyond in our 300 millimeter wafer fab. This confirms that photonics ICs will be a revenue growth driver for ST in the near term. In low Earth orbit satellites, we have further strengthened our leadership position in the rapidly growing low orbit satellite broadband market by beginning shipment to a second global customer leveraging our winning combination of BiCMOS technology for front end modules and panel level packaging for user terminals. Our business in this segment is well positioned for steady growth driven by several satellite constellations. Now over to Lorenzo who will present our key financial figures.

Jean-Marc Chéry: During Q3, we have seen an increased demand for photonics ICs prototypes to be launched in the next quarter and beyond in our 300mm wafer fab. This confirm that photonics ICs will be a revenue growth driver for ST in the near term. In low Earth orbit satellites, we have further strengthened our leadership position in the rapidly growing low Earth orbit satellite broadband market by beginning shipment to a second global customer, leveraging our winning combination of BiCMOS technology for front-end modules and panel-level packaging for user terminals. Our business in this segment is well-positioned for steady growth, driven by several satellite constellations. Now over to Lorenzo, who will present our key financial figures.

Speaker #4: In our 300 mm wafer fab, this confirmed that photonics ICs would be a revenue growth driver for the street in the near term. In low Earth orbit, satellites.

Speaker #4: We have further strengthened our leadership position in the rapidly growing low orbit satellite broadband market by beginning shipment to a second global customer , leveraging our winning combination of CMOs technology for front end modules and panel level packaging for user terminals .

Speaker #4: Our business in this segment is well positioned for steady growth , driven by several satellite constellations , though over to Lorenzo . We will present our key financial figures .

Speaker #5: Thank you . Jean-Marc , and good morning everyone . Let's start with a detailed review of the third quarter . Starting with the .

Lorenzo Grandi: Thank you Jean-Marc and good morning everyone. Let's start with a detailed review of the third quarter. Starting with revenues on a year-over-year basis by reportable segment. Analog products, MEMS & Sensors was up 7.0% mainly due to imaging. Power & Discrete products decreased 34.3%. Embedded processing revenues grew 8.7% mainly due to general purpose MCU. RF and optical communication declined 3.4%. By end market, Industrial increased by about 13%, Personal Electronics by about 11%, Communication Equipment and Computer Peripheral by about 7%. Automotive was still decreasing by about 17% but showing some improvement in respect to the 24% decline recorded in the second quarter. Year-over-year sales to OEMs decreased 5.1% while revenues from distribution increased 7.6%, back to year-over-year growth for the first time since the third quarter 2023. On a sequential basis, Power & Discrete was the only segment to decrease by 4 to 3%.

Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of Q3, starting with the revenues on a year-over-year basis by reportable segment. Analog products, MEMS and Sensors was up at 7.0%, mainly due to imaging. Power and Discrete products decreased 34.3%. Embedded Processing revenues grew 8.7%, mainly due to general purpose MCU. RF and Optical Communications declined 3.4%. By end market, industrial increased by about 13%, personal electronic by about 11%, communication equipment, and computer peripheral by about 7%.

Speaker #5: On a year over year basis by reportable segment . Analog products mEMS and sensors was up 7.0% , mainly due to imaging power and discrete products decrease 34.3% .

Speaker #5: Embedded processing revenues grew 8.7%, mainly due to general-purpose Microcontroller Units (MCUs), while RF and optical communication declined by 3.4%. The industrial segment increased by about 13%.

Speaker #5: Personal electronics by about 11% . Communication equipment and computer peripherals by about 7% . Automotive was still decreasing by about 17% , but showing some improvement in respect to the 24% decline recorded in the second quarter .

Lorenzo Grandi: Automotive was still decreasing by about 17%, but showing some improvement in respect to the 24% decline recorded in Q2. Year-over-year sales to OEMs decreased 5.1%, while revenues from distribution increased 7.6% back to year-over-year growth for the first time since Q3 2023. On a sequential basis, Power and Discrete was the only segment to decrease by 4.3%. All the other segments grew, led by Analog products, MEMS and Sensors, up 26.6%, with Embedded Processing up 15.3%, and RF and Optical Communications up 2.4%. All our end markets grew, led by personal electronic, up by about 40%, followed by Automotive, up by about 10%, with industrial and communication equipment, and computer and peripheral up respectively by about 8% and 4%.

Speaker #5: Year over year . Sales to OEMs decreased 5.1% , while revenues from distribution increased 7.6% . Back to year over year growth for the first time since the third quarter of 2023 .

Speaker #5: On a sequential basis . Power and discrete was the only segment to decrease by 4.3% . All the other segments grew , led by analog products , mEMS and sensor , up 26.6% with embedded processing up 15.3% and RF and optical communication up 2.4% .

Lorenzo Grandi: All the other segments grew, led by Analog products, MEMS & Sensors up 26.6%, with Embedded Processing up 15.3% and RF and Optical Communication up 2.4%. All our end markets grew, led by Personal Electronics up by about 40%, followed by Automotive up by about 10%, with Industrial and Communication Equipment and Computer and Peripheral up respectively by about 8% and 4%. Turning now on profitability, gross profit in the third quarter was $1.06 billion, decreasing 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points on a year-over-year mainly due to lower manufacturing efficiencies, negative currency effect, lower level of capacity, reservation fees and to a lesser extent the combination of sales price and product mix. Total net operating expenses excluding restructuring amounted to $842 million in the third quarter.

Speaker #5: All our end markets grew , led by personal electronics , up by about 40% , followed by automotive up by about 10% , with industrial and communication equipment and computer and peripherals up , respectively .

Speaker #5: By about 8% and 4% . Turning now on profitability , gross profit in the third quarter was $1.06 billion , decreasing 13.7% on a year over year basis .

Lorenzo Grandi: Turning now on profitability. Gross profit in Q3 was $1.06 billion, decreasing 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points on a year-over-year, mainly due to lower manufacturing efficiencies, negative currency effect, lower level of capacity reservation fees, and to a lesser extent, the combination of sales price and product mix. Total net operating expenses, excluding restructuring, amounted to $842 million in Q3, broadly stable on a year-over-year. They were better than expected, reflecting notably our continued cost discipline with the first benefits of the resizing of our global cost base. For Q4 of 2025, we expect the net OPEX to stand at about $950 million, increasing quarter-on-quarter, due notably to calendar base effect.

Speaker #5: Gross margin was 33.2 . Decreasing 460 basis points on a year over year , mainly due to lower manufacturing efficiencies , negative currency effect , lower level of capacity , reservation fees , and to a lesser extent , the combination of sales price and product mix .

Speaker #5: Total net operating expenses , excluding restructuring , amounted to $842 million in the third quarter . Broadly stable on a year over year .

Lorenzo Grandi: Broadly stable on a year-over-year, they were better than expected reflecting notably our continued cost discipline with the first benefits of the resizing of our global cost base. For the fourth quarter of 2025, we expect net of tax to stand at about $950 million, increasing quarter on quarter due notably to calendar days effect. This will lead the net OpEx for the full year 2025 to decline by 2.5% compared to 2024 despite unfavorable currency effect. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the third quarter we reported $180 million operating income, which included $37 million for impairment, restructuring charges, and other related phase-out costs. These reflect impairment of assets and restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base.

Speaker #5: They were better than expected, reflecting notably our continued cost discipline with the first benefits of the resizing of our global cost base.

Speaker #5: For the fourth quarter of 2025 , we expect a net opex to stand at about $950 million , increasing quarter on quarter due notably to calendar days effect .

Speaker #5: This will lead net OPEX for the full year 2025 to decline by 2.5% compared to 2024, despite unfavorable currency effects. As a reminder, these amounts are net of other income and expenses and exclude restructuring.

Lorenzo Grandi: This will lead the net OPEX for the full year 2025 to decline by 2.5% compared to 2024, despite unfavorable currency effect. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In Q3, we reported a $180 million operating income, which included $37 million for impairment, restructuring charges, and other related phase-out costs. This reflect impairment of asset and the restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base.

Speaker #5: In the third quarter . We reported a $180 million operating income , which included $37 million for impairment restructuring charges and other related fees .

Speaker #5: Out costs . This reflects impairment of assets and restructuring charges predominantly associated with the previously announced company wide program to reshape our manufacturing footprint and resize our global cost base .

Speaker #5: Excluding these not recurring item , which is partially not cash , Q3 non-U.S. GAAP operating margin was 6.8% with analog products , memes and sensor at 15.4% .

Lorenzo Grandi: Excluding this non-recurring item, which is partially non-cash, Q3 non-U.S. GAAP operating margin was 6.8%, with Analog products, MEMS & Sensors at 15.4%, Power & Discrete at -15.6%, Embedded Processing at 16.5%, and Direct Optical Communication at 16.6%. This quarter 2025, the net income was $237 million compared to $351 million in the year-ago quarter. Diluted earnings per share were $0.26 compared to $0.37, excluding the previously mentioned non-recurring items. Non-U.S. GAAP net income and diluted earnings per share were respectively $267 million and $0.29. Net cash from operating activity decreased 24.1% on a year-over-year basis in the third quarter to $549 million. Third quarter net CapEx was $401 million compared to the $565 million in Q3 2024. Free cash flow was a positive $130 million in the third quarter compared to the $136 million in the year-ago quarter.

Lorenzo Grandi: Excluding this not recurring item, which is partially not cash, Q3 non-U.S. GAAP operating margin was 6.8%, with Analog products, MEMS and Sensors at 15.4%, Power and Discrete products at -15.6%, Embedded Processing at 16.5%, and the rest Optical Communication at 16.6%. This quarter, 2025, the net income was $237 million compared to $351 million in the year-ago quarter. Diluted earnings per share were $0.26 compared to $0.37. Excluding the previously mentioned non-recurring items, non-U.S. GAAP net income and diluted earnings per share were respectively $267 million and $0.29.

Speaker #5: Power and discrete are at -15.6%. Embedded processing is at 16.5%, and the rest, optical communication, is at 16.6%. This quarter, to 2025.

Speaker #5: The net income was $237 million , compared to $351 million in the year ago quarter . The earnings per share were $0.26 , compared to $0.37 excluding the previously mentioned non-recurring items .

Speaker #5: non-U.S. GAAP net income and diluted earnings per share were , respectively , to $167 million and $0.29 . Net cash from operating activities decreased 24.1% on a year over year basis .

Lorenzo Grandi: Net cash from operating activity decreased 24.1% on a year-over-year basis in Q3 to $549 million. Q3 net CapEx was $401 million compared to the $565 million in Q3 2024. Free cash flow was a positive $130 million in Q3 compared to the $136 million dollar in the year ago quarter. Inventory at the end of Q3 was $3.17 billion, a reduction of about $100 million dollar compared to the end of Q2.

Speaker #5: In the third quarter, net revenue was $549 million. Third quarter net CapEx was $401 million, compared to $565 million in Q3 2020.

Speaker #5: For free cash flow was a positive $130 million in the third quarter , compared to the $136 million in the year ago quarter .

Speaker #5: Inventory at the end of the third quarter was $3.7 billion , a reduction of about $100 million compared to the end of the second quarter .

Lorenzo Grandi: Inventory at the end of the third quarter was $3.17 billion, a reduction of about $100 million compared to the end of the second quarter.

Speaker #5: Days . Sales of inventory at the quarter end were 135 days , slightly better than our expectations . And compared to 166 days for the previous quarter and 130 days in the year ago quarter .

Lorenzo Grandi: Days sales of inventory at the quarter end were 135 days, slightly better than our expectation, compared to 166 days for the Q2 and 130 days in the year ago Q3. Cash dividends paid to stockholders in the Q3 totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintained its financial strength with a net financial position that remain solid at $2.61 billion as at the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth to mention that in the course of the Q3, we repaid fully in cash $750 million for the first tranche of our 2020 convertible bond.

Jean-Marc Chery: Days.

Lorenzo Grandi: Sales of inventory at the quarter end were 135 days, slightly better than our expectation and compared to 166 days for the previous quarter and 130 days in the year ago quarter. Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintained its financial strength with a net financial position that remained solid at $2.61 billion as at the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth to mention that in the course of the third quarter we repaid in full in cash $750 million for the first tranche of our 2020 convertible bond. Now back to Jean-Marc who will comment on our outlook.

Speaker #5: Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, executed share buybacks amounted to $91 million, estimating its financial strength with a net financial position that remained solid at $2.61 billion as of the end of September 2025. This reflects total liquidity of $4.78 billion and total financial debt of $2.7 billion.

Speaker #5: It is worth to mention that in the course of the third quarter , we repaid full in cash $750 million for the first tranche of our 2020 convertible bond .

Speaker #5: Now , back to Jean-Marc , who will comment on our outlook .

Lorenzo Grandi: Now back to Jean-Marc, who will comment on our outlook.

Speaker #4: Thank you . Lorenzo . Let's move to our business outlook for Q4 2025 . So we are expecting revenues at $3.28 billion , an increase of 2.9% sequentially , plus or -350 basis points .

Jean-Marc Chery: Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. We are expecting revenues at $3.28 billion, an increase of 2.9% sequentially, plus or minus 350 basis points. We expect our gross margin to be about 35% plus or minus 200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs. Compared to the current situation, the midpoint of this outlook translates in full year 2025 revenues of about $11.75 billion. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%.

Jean-Marc Chéry: Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. We are expecting revenues at $3.28 billion, an increase of 2.9% sequentially, ±350 basis points. We expect our gross margin to be about 35% ±200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. The midpoint of this outlook translates in full year 2025 revenues of about $11.75 billion. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%.

Speaker #4: We expect our gross margin to be about 35%, plus or minus 200 basis points, including about 290 basis points of unused capacity charges.

Speaker #4: This business outlook does not include any impact from potential further changes to global trade tariffs compared to the current situation . The midpoint of this outlook translates in full year 2025 .

Speaker #4: Revenues of about $11.75 billion . This represents a 22.4% growth in the second half compared to the first half , confirming signs of market recovery .

Speaker #4: Gross margin for the full year is expected to be about 33.8% . Finally , to optimize our investments in the current market conditions , we have reduced our net CapEx plan now slightly below $2 billion for full year 2025 compared to a range of 2 to $2.3 billion previously to conclude in the fourth quarter , we expect to report further sequential revenue improvement with revenues now broadly stabilized on a year over year basis , as well as an increased gross margin .

Jean-Marc Chery: Finally, to optimize our investments in the current market conditions, we have reduced our net CapEx plan, now slightly below $2 billion for full year 2025 compared to a range of $2 to $2.3 billion previously. To conclude, in the fourth quarter, we expect to report further sequential revenue improvement. With revenues now broadly stabilized on a year-over-year basis as well as an increased gross margin while continuing to decrease inventories in distribution, we are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint, and definitively our product mix improvement.

Jean-Marc Chéry: Finally, to optimize our investments in the current market conditions, we have reduced our next CapEx plan, now slightly below $2 billion for full year 2025, compared to a range of $2 to 2.3 billion previously. To conclude, in Q4, we expect to report further sequential revenue improvements, with revenues now broadly stabilized on a year-over-year basis, as well as an increased gross margin, while continuing to decrease inventories in distribution. We are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint, and definitively our product mix improvement.

Speaker #4: While continuing to decrease inventories in distribution, we are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint, and, definitively, our product mix improvement.

Speaker #4: In the context marked by signs of market recovery . Our strategic priorities remain clear , accelerating innovation , executing our company wide program to reshape our manufacturing footprint and resize our global cost base , which remains unscheduled to deliver the targeted savings and strengthening free cash flow generation .

Jean-Marc Chery: In a context marked by signs of market recovery, our strategic priorities remain clear: accelerating innovation, executing our company Y program to reshape our manufacturing footprint and resize our global cost base, which remain on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you, and we are now ready to answer your questions.

Jean-Marc Chéry: In a context marked by signs of market recovery, our strategic priorities remain clear, accelerating innovation, executing our company-wide program to reshape our manufacturing footprint and resize our global cost base, which remain on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you. We are now ready to answer your questions.

Speaker #4: Thank you. We are now ready to answer your questions.

Speaker #2: We will now begin the question and answer session . Anyone who wishes to ask a question or make a comment may press star and one on their touch tone telephone .

Operator: We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press Star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Enter. Participants are requested to use only handhelds while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question or a comment may press N1 at this time. The first question comes from the line of Francois Bouvignies from UBS. Please go ahead.

Myra: We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press Star and One on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Star and Two. Participants are requested to use only hands while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question or a comment may press Star and One at this time. The first question comes from the line of Francois-Xavier Bouvignies from UBS. Please go ahead.

Operator: We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press Star and One on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Star and Two. Participants are requested to use only hands while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question or a comment may press Star and One at this time. The first question comes from the line of Francois Bouvignies from UBS. Please go ahead.

Speaker #2: You will hear a tone to confirm that you have entered the queue . If you wish to remove yourself from the question queue , you may press star and two participants are requested to use only hand while asking a question .

Speaker #2: In the interest of time , please limit yourself to one question only . Anyone who has a question or a comment may press star one at this time .

Speaker #2: The first question comes from the line of Francois Bouvignies from UBS . Please go ahead .

Speaker #6: Thank you very much . My first question is on the top line . I mean , you guided plus 3% quarter on quarter , 2.9 .

Jean-Marc Chery: Thank you very much. My first question is on the top line. I mean you guided +3% quarter over quarter, 2.9% to be precise. It seems to be below your seasonal at +7% quote unquote, if I'm not wrong. I mean you can remind us maybe the seasonality. Can you explain us as to why you are a bit below seasonal in Q4 for the top line and the drivers? Secondly, on the gross margin.

Francois-Xavier Bouvignies: Thank you very much. My first question is on the top line. I mean, you get it +3% quarter-over-quarter, 2.9 to be precise. It seems to be below your seasonal at, you know, +7% quarter-over-quarter, if I'm not wrong. I mean, you can remind us maybe the seasonality. Can you explain us as to why, you know, you are a bit below seasonal in Q4 for the top line and the drivers? Secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-over-quarter. How sustainable it is, gross margin? I mean, if you have any seasonality product mix, you know, should we extrapolate this dynamic of 35% into the first half of 2026?

Francois Bouvignies: Thank you very much. My first question is on the top line. I mean, you get it +3% quarter-over-quarter, 2.9 to be precise. It seems to be below your seasonal at, you know, +7% quarter-over-quarter, if I'm not wrong. I mean, you can remind us maybe the seasonality. Can you explain us as to why, you know, you are a bit below seasonal in Q4 for the top line and the drivers? Secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-over-quarter. How sustainable it is, gross margin? I mean, if you have any seasonality product mix, you know, should we extrapolate this dynamic of 35% into the first half of 2026?

Speaker #6: To be precise . It seems to be below your seasonal at , you know , plus 7% quarter on quarter . If I'm not wrong .

Speaker #6: I mean , you can remind us maybe the seasonality . Can you explain us as to why , you know , you are a bit below seasonal in Q4 for the top line and the drivers .

Speaker #6: And then secondly , on the gross margin , I mean , it's nice to see this improvement of 180 basis points quarter on quarter .

Lorenzo Grandi: I mean, it's nice to see this.

Jean-Marc Chery: Improvement of 180 basis points quarter on quarter. How sustainable is this gross margin? I mean, if you have any seasonality, product mix, you know, should we extrapolate this dynamic of 35% into 1H26? Just trying to understand, you know, the work you have done. Gross margin, how sustainable it is at least in 1H26 would be great. Thank you. We'll take the revenue seasonality and gross margin. Now, on the revenue seasonality of Q4, basically there are two effects. The first effect is on automotive because on automotive, even if we will grow quarter over quarter 6%, year on year it is still minus 12%. Why? Because 80% of this performance gap is explained by two reasons. It is a decrease of capacity reservation fees compared to last year and it is overall volume of one important customer of STMicroelectronics N.V. in the field of electrical vehicle.

Speaker #6: How sustainable it is is , of course , margin . I mean , if you have any seasonality , product mix , you know , should we extrapolate this dynamic of 35% into the first half of 26 ?

Speaker #6: Just trying to understand , you know , the work you have done on gross margin , how sustainable it is , at least in the first half of 26 , would be great .

Francois-Xavier Bouvignies: Just trying to understand, you know, the work you have done on gross margin, how sustainable it is, at least in the first half of 2026 would be great. Thank you.

Francois Bouvignies: Just trying to understand, you know, the work you have done on gross margin, how sustainable it is, at least in the first half of 2026 would be great. Thank you.

Speaker #6: Thank you .

Speaker #4: Well , we'll take the revenue , seasonality and the gross margin . No . On the on the revenue seasonality of Q4 , basically , there is a there is two to effect , well , the first effect is , is on automotive because on automotive , even if we will , we will grow on a quarter over quarter , 6% .

Jean-Marc Chéry: We take the revenue seasonality and the gross margin. No, on the revenue seasonality of Q4, basically, there is two effects. Well, the first effect is on automotive. Because on automotive, even if we will grow on a quarter-over-quarter 6%, but year-on-year it is still minus 12%. Why? Because, okay, 80% of this performance gap is explained by two reasons. It is a decrease of our capacity reservation fees compared last year. You know, it is the overall volume of one important customer of ST in the field of electrical vehicle. This is what is explaining why in Q4 we are below the seasonality.

Speaker #4: But you know , here it is still -12% . And why ? Because okay , 80% of this performance gap is explained by two reasons .

Speaker #4: It is a decrease in our capacity reservation fees compared to last year. And you know, it is the overall volume of one important customer of S.T.

Speaker #4: in the field of electrical vehicle . So this is what is explaining why in Q4 we are below the seasonality . The second explanation to be below the seasonality in Q4 is because in industrial , we continue to decrease the inventory in distribution .

Jean-Marc Chery: This is what is explaining why in Q4 we are below the seasonality. The second explanation to be below the seasonality in Q4 is because in industrial we continue to decrease the inventory in distribution. Our POP revenue recognition is significantly below the POS. However, on the other, let's say, verticals like personal electronic, communication equipment, computer, peripheral and other legacy on automotive or industrial in the field of power energy, basically we are at the seasonality.

Jean-Marc Chéry: The second explanation to be below the seasonality in Q4 is because in industrial, we continue to decrease inventory in distribution. Our POP, our revenue recognition, is significantly below the POS. However, on the other, let's say, verticals, like personal electronic, communication equipment, computer peripheral, and other legacy on automotive, or industrial in the field of power energy, basically, okay, we are at the seasonality we expect.

Speaker #4: So our pop revenue recognition is significantly below the POS . However , on the other , let's say , verticals like personal electronics , communication equipment , computer peripherals and other legacy on automotive or industrial in the field of power and energy .

Speaker #4: Basically , okay , we are at the seasonality . We we expect .

Lorenzo Grandi: Expect about gross margin in Q4. The gross margin, the main positive driver, let's say when we look at the sequential increase of our margin moving from the result of Q3 and the expectation of Q4, is clearly improved manufacturing efficiency. That is, if you remember, let's say in the first half and also in Q3, we were impacted by a significant negative impact on the efficiency, manufacturing efficiency that was due to the very low level of production that we had, especially in the first half. There is also some improvement in terms of unused capacity charges when we look, let's say, to how we will move moving in the first half of next year. We have to remind that clearly there are two negative effects that will impact moving forward.

Speaker #5: About gross margin in Q4 . The gross margin , the main positive driver , let's say , when we look at the sequential increase of our gross margin moving from a the result of Q3 and the cessation of Q4 is clearly improved manufacturing efficiency .

Lorenzo Grandi: About gross margin. In Q4, the gross margin, the main positive driver, let's say, when we look at the sequential increase of our gross margin moving from the result of Q3 and the expectation of Q4, is clearly improved manufacturing efficiency. That is, if you remember, let's say, in the first half and also in Q3, we were impacted by a significant negative impact on the manufacturing efficiency that was due to the very low level of production that we had, especially in the first half of the year. There is also some improvement in term of unused charges. When we look, let's say, to how we will move, moving in the first half of next year. We have to remind that, clearly there are two negative effects that we will impacted moving forward.

Speaker #5: That is , if you remember , let's say in the first half and also in Q3 , we were impacted by a significant negative impact on the efficiency , manufacturing efficiencies .

Speaker #5: That was due to the very low level of production that we had , especially in the first half of the year . There is also some improvement in terms of a charges when when we look , let's say , to to how we will move and moving in the , in the first half of next year .

Speaker #5: But we have to remind that clearly there are two negative effects that we will impacted moving forward . One effect is related to the fact that there will be some reduction entering 2026 on the capacity reservation fees , and definitely you know that in the first half of the year , there is some seasonality in terms of our revenues .

Lorenzo Grandi: One effect is related to the fact that there will be some reduction, entering 2026 of the capacity reservation fees. Definitely, you know that in the first part of the year, there is some seasonality in term of our revenues, let's say, respect to the second part of the year. Don't forget that there is also the renegotiation of the pricing that will impact, even if we see today not a significant drop. We think that it will be something in the range of low single digit, mid-single digit decline. On the positive side, we will have, let's say, still continued positive impact on manufacturing and reduce, continue to reduce level of unsaturation.

Lorenzo Grandi: One effect is related to the fact that there will be some reduction entering 2026 of the capacity reservation fees, and definitely you know that in the first part of the year there is some seasonality in terms of our revenues with respect to the second part of the year. Don't forget that there is also the renegotiation of the pricing that will impact. Even if we see today not a significant drop, we think that it will be something in the range of low single digit, mid single digit decline. On the positive side, we will have, let's say, still continued positive impact on manufacturing and continue reduced level of unsaturation. At this stage, it's a little bit too difficult to size, let's say, the level of gross margin because it will depend also on the level of the revenues.

Speaker #5: Let's say , with respect to the second part of the year and then don't forget that there is also the renegotiation of the pricing that will impact , even if we see today not a significant drop .

Speaker #5: We think that it will be something in the range of low single digit mid single digit decline on the positive side , we will have , let's say , still continue positive impact on , on on manufacturing and reduce , continue , reduce level of unsaturation at this stage is a little bit to difficult to size .

Lorenzo Grandi: At this stage, it's a little bit too difficult to size, let's say, the level of gross margin, because will depend also on the level of the revenues. This is directionally the trend that we will have moving, entering, in the, in the next year.

Speaker #5: Let's say the level of gross margin , because it will depend also on the level of the revenues . But this is . The directionally the trend that we will have moving entering in the in the next year .

Lorenzo Grandi: This is the direction, the trend that we will have moving entering in the next year.

Speaker #3: Thank you .

Speaker #6: Thank you very much .

Jean-Marc Chery: Thank you very much. Moira, next question please.

Jean-Marc Chéry: Thank you.

Francois-Xavier Bouvignies: Thank you very much.

Francois Bouvignies: Thank you very much.

Speaker #3: Next question please .

Jean-Marc Chéry: Moira, next question, please.

Speaker #2: The next question comes from the line of Joshua Buchhalter from TD Cohen . Please go ahead .

Operator: The next question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead.

Myra: The next question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead.

Operator: The next question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead.

Speaker #7: Hey guys . Good morning and thank you for taking my question . Maybe to follow up on the on that last one . Could you maybe spend a couple minutes talking about how you're thinking about managing utilization rates right now ?

Lorenzo Grandi: Hey guys, good morning, and thank you for taking my question.

Joshua Buchalter: Hey, guys. Good morning, and thank you for taking my question. Maybe to follow up on that last one, could you maybe spend a couple of minutes talking about how you're thinking about managing utilization rates right now? It seems like, you know, you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and/or on your balance sheet, given the comments? You know, you mentioned you're going into some negative seasonality into Q1, but it sounds like utilization rates are gonna be up in Q4 and Q1. Could you maybe just spend a couple of minutes talking about what you're seeing there? Thank you.

Jean-Marc Chery: Maybe to follow up on that last one, could you maybe spend a couple.

Lorenzo Grandi: Minutes talking about how you're thinking about managing utilization rates right now?

Speaker #7: It seems like you're taking things back up . Are you at the point where you feel comfortable building a little bit of inventory downstream and or on your balance sheet , given the comments ?

Jean-Marc Chery: It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and or on your balance sheet, given the comments you mentioned? You're going into some negative seasonality into Q1, but it sounds like utilization rates are.

Speaker #7: You know , you mentioned you're going into some negative seasonality into one Q but it sounds like utilization rates are going to be up in the fourth quarter .

Lorenzo Grandi: Going to be up in the fourth quarter and the first quarter.

Speaker #7: And the first quarter . Could you maybe just spend a couple minutes talking about what you're seeing there ? Thank you .

Jean-Marc Chery: Could you maybe just spend a couple minutes.

Lorenzo Grandi: Minutes talking about what you're seeing there? Thank you. Now for the inventory. Clearly, let's say as you have seen, we try to keep control on the level of inventory in the current quarter. We think to stay substantially stable in number of days. This is our expectation in respect to Q3. The positive point is that entering in the next year, clearly, let's say as I said, that there is our seasonality, the normal seasonality. That means that in general the inventory in the first half of the year is a little bit higher also in number of days irrespective to the second part of the year. You have to consider that entering next year, let's say we start to have some decrease in terms of overall capacity linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure.

Speaker #5: Now for the inventory . Clearly , let's say as you have seen , we try to keep control on the level of inventory in in the in the current quarter , we think to stay substantially stable in number of days .

Lorenzo Grandi: No. For the inventory, clearly, let's say, as you have seen, we try to keep control on the level of inventory. In the current quarter, we think to stay substantially stable in number of days. This is our expectation in respect to Q3. The positive point is that entering in the next year, clearly, let's say, as I said, that there is our seasonality, the normal seasonality. That means that in general, the inventory in the first half of the year is a little bit higher also number of days in respect to the second part of the year.

Speaker #5: This is our expectation in respect to Q3 . But the positive point is that entering in in the in the next year , clearly , let's say , as I said , that there is our seasonality , the normal seasonality , that means that in general , the inventory in the first half of the year is a little bit higher .

Speaker #5: Also in number of days in respect to the second part of the year , then you have to consider that entering next year , let's say we start to have some decrease in terms of overall capacity linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure .

Lorenzo Grandi: You have to consider that, entering next year, let's say we start to have some decrease in terms of overall capacity, linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure. This will somehow mitigate the level of unused moving in 2026. This is, let's say, one of the drivers that we see in terms of progressively improve in terms of the utilization rate together, of course, with some growth in terms of revenues.

Speaker #5: This will somehow mitigate the level of unused moving into 2026 . This is , let's say , the one of the drivers that we see in terms of progressively improve in terms of the utilization rate together .

Lorenzo Grandi: This will somehow mitigate the level of unused moving in 2026. This is, let's say, one of the drivers that we see in terms of progressively improve in terms of the utilization rate together of course with some growth in revenues.

Speaker #5: Of course , with the with some growth in terms of revenues .

Speaker #3: Do you have any .

Speaker #7: Follow up ? Got it . Thank you . Yeah . Thank you . I was hoping to ask about the industrial segment . So it looks like book to Bill went back to parity .

Jean-Marc Chery: Do you have anything? Okay, got it. Thank you.

Jean-Marc Chéry: Do you have any follow-up?

Joshua Buchalter: Okay, got it. Thank you. Yeah, thank you. I was hoping to ask about the industrial segment. It looks like book-to-bill went back to parity. Anything major going on there? Any geographies that are better or worse? Maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume we're sort of shipping back to normal now? Thank you.

Lorenzo Grandi: Yeah, thank you. I was hoping to ask about the industrial segment.

Jean-Marc Chery: It looks like book to bill.

Lorenzo Grandi: Went back to parity. Anything major going on there? Any geographies that are better or worse, and maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume we're sort of shipping back to normal now?

Speaker #7: Anything major going on there any geographies that are better or worse . And maybe how would you categorize the health of the general purpose microcontroller business underneath ?

Speaker #7: There ? Basically , should we assume we're sort of shipping back to normal now ? Thank you .

Jean-Marc Chery: Thank you. In industrial, we see a different dynamic. When we grow on some subsegments, we see a growth and dynamic more pronounced for power energy. Basically, all subsegments of this one are growing, and it is going more definitively than the smart industrial, meaning the factory automation. We can say that robotics is so far good, but overall, the factory automation is really soft, more than all the industrial which are volume driven, meaning consumer driven. The upcycle is pretty soft. The takeaway we can have on the industrial is what is related to power energy infrastructure and robotics is now upcycle pretty solid. What is related to volume and consumer is a very soft upcycle. It looks like inventory is digested, but the visibility is pretty short, is pretty low. That's the reason why the customers are still putting orders on short term.

Speaker #4: In industrial we see a different dynamic when we go on the some subsegments . We see a growth and dynamic mark for power , energy , basically all subsegments okay .

Jean-Marc Chéry: In industrial, we see different dynamic. When we go on the some subsegment, we see a growth and dynamic more pronounced for power energy. Basically all subsegment, okay, of this one are growing. It is growing more definitively than the smart industrial, means the factory automation. We can say that robotics is so far good, but overall factory automation is really soft. More than all the industrial which are volume driven, means consumer driven, the up cycle is pretty soft. The takeaway we can have on the industrial is what is related power energy, infrastructure, and robotics is now up cycle pretty solid. What is related volume and consumer is a very soft up cycle.

Speaker #4: Of of this one are growing . And it is growing more definitively than the smart industrial means . The factory automation . We can say that robotics is so far good .

Speaker #4: But overall the factory automation is is is really , really soft . But then all the industrial , which are volume driven means consumer driven .

Speaker #4: The cycle is , is , is pretty soft . So so the takeaway we can have on a on on the industrial is what is related power , energy infrastructure and robotics is , is now upcycle pretty pretty solid .

Speaker #4: What is related volume and consumer is a very soft upcycle . Looks like inventory are digested but the visibility is pretty short . It's pretty low .

Jean-Marc Chéry: Looks like inventory are digested, but the visibility is pretty short, is pretty low. That's the reason why the customer are still putting order on the, on short term. Well, here, our decision is to continue to manage the distribution very closely and continue to adjust our POP below their POS forecast to continue to decrease inventory. Inventory of general purpose microcontroller came back what we classify normal, means a level of months of inventory that enable short-term business. Well, we have still some pocket of other inventory on some specific product like Power and Discrete or sometimes general purpose microcontroller. We are going in the right, in the right direction.

Speaker #4: So that's the reason why the customer are still putting orders on on short term . But here our our decision is to continue to manage the distribution very closely and continue to adjust our pop below .

Jean-Marc Chery: Here, our decision is to continue to manage the distribution very closely and continue to adjust our pop below their POS forecast to continue to decrease inventory. Inventory and general purpose microcontroller came back. What we classify as normal means a level of months of inventory that enables short term business. We have still some pockets of other inventory on some specific products like power discrete or sometimes general purpose microcontroller, but we are going in the right direction. This is the dynamic we are seeing on the industrial market.

Speaker #4: Their POS forecast to continue to decrease the inventory , inventory and general purpose microcontroller came back . What we classified normal means level of months of inventory that enable short term business .

Speaker #4: But we have still some pockets of over inventory on some specific product like power , discrete or sometimes general purpose microcontroller . But but we are going in the in the right .

Speaker #4: In the right direction . So this is the dynamic okay . We , we are seeing on on industrial market .

Jean-Marc Chéry: This is the dynamic, okay, we are seeing on the industrial market. Thank you, George. Myra, next question, please.

Speaker #3: Thank you .

Speaker #4: Josh .

Lorenzo Grandi: Thank you, Josh.

Speaker #3: My next question please .

Jean-Marc Chery: Moira, next question please.

Speaker #2: The next question comes from Tristan Guerra from Baird . Please go ahead .

Operator: The next question comes from Tristan Guerra from Baird. Please go ahead.

Myra: The next question comes from Tristan Gerra from Baird. Please go ahead.

Operator: The next question comes from Tristan Gerra from Baird. Please go ahead.

Speaker #8: Hi . Good morning . I wanted to see how linear is the reduction in capacity reservation fees that you expect in 26 from the 150 to 200 million reduction that you're looking at for this year .

Lorenzo Grandi: Hi, good morning.

Tristan Gerra: Hi, good morning. wanted to see how linear is the reduction in capacity reservation fees that you expect in 2026 from the $150 million to $100 million reduction that you're looking at for this year. Is there a big drop in Q1, or is it going to be pretty linear throughout all of next year?

Jean-Marc Chery: Wanted to see how linear is the reduction in capacity reservation fees that you expect in 2026 from the $150 million to $100 million reduction that you're looking at for this year. Is there a big drop in Q1 or is it going to be pretty linear throughout all of next year?

Speaker #8: Is there going to be a big drop in Q1, or is it going to be pretty linear throughout all of next year?

Speaker #5: In terms of capacity reservation fees, it works in this way: let's say substantially the capacity reservation fees that are ruled by contract with the carmakers are quite constant over the year in terms of millions of dollars.

Lorenzo Grandi: In terms of capacity reservation fees, it works in this way, let's say substantially. The capacity reservation fees that are ruled by contract with the carmakers are quite constant over the year in terms of million dollars. You can have a little bit higher, a little bit lower during the various quarter of the year, but they are not linearly going down. They are substantially quite flattish, I would say, quarter after quarter. Clearly, when the contract expires, that is at the end, for instance, of 2025, many of these contracts are expiring. You have the decline, and then the decline remains. The level that you get in the first quarter will remain substantially similar all.

Lorenzo Grandi: In terms of capacity reservation fees, it works in this way. Let's say substantially the capacity reservation fees that are ruled by contract with the car makers are quite constant over the in terms of million dollars. Yes, you can have a little bit higher, a little bit lower during the various quarter of the year. They are not linearly going down. Let's say they are substantially quite flattish, I would say, quarter after quarter. Clearly, when the contract expires, that is, at the end, for instance, of 2025, many of these contracts are expiring. Yes, you have the decline, it remains the level that you get in Q1 will remain substantially similar all over the other quarters. This is the way that it works.

Speaker #5: But yes , you can have a little bit higher , a little bit lower during the various quarter of the year . But they are not linearly going down .

Speaker #5: Let's say they are substantially , quite flattish . I would say quarter after quarter , clearly , when the contract expires , that is , at the end , for instance , of the 2025 , many of these contracts are expiring .

Speaker #5: Well then , yes , you have the decline and then the decline . It remains the level that you get in the first quarter will remain substantially similar all over the the the other quarters .

Jean-Marc Chery: Over.

Lorenzo Grandi: The other quarters, this is the way that it works. What we will see in Q1 will be this reduction, and then after that it will stay stable, more or less stable during the course of 2026 at the level of capacity reservation.

Speaker #5: So this is the way that it works . So what we will see in in Q1 , that will be this reduction . And then the after that it will stay stable , more or less stable during the course of 2026 at the level of capacity reservation .

Lorenzo Grandi: What we will see in Q1 will be this reduction, and then after that it will stay stable, more or less stable during the course of 2026 at the level of capacity reservation.

Speaker #3: Do you have another one ?

Jean-Marc Chery: Do you have another one?

Jean-Marc Chéry: Do you have another one?

Speaker #8: Yeah , thanks . Just a quick follow up . Of course . It's going to depend on on on demand . But any any sense of or when you think pop can get back in line with point of sales in industrial next year .

Operator: Yes, thanks.

Tristan Gerra: Yeah. Thanks. Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of or when you think POP can get back in line with point of sales, in industrial next year?

Jean-Marc Chery: Just a quick follow up. Of course it's going to depend on.

Operator: End demand, but any sense of or.

Jean-Marc Chery: When you think POP can get back in line with point of sales?

Operator: Industrial next year.

Speaker #3: With .

Jean-Marc Chéry: Well, globally, POP will be aligned with the POS. Each time our product line reach the target of inventory we don't want to exceed. This is, okay, a lesson we learned from the past. Now we are really disciplined on this point. You cannot see the POP overall. We have to look the POP in detail by product line. I repeat now on microcontroller is pretty well aligned. Now our POP is really driven by the end demand, POS and by region, I have to say, where China, APAC, America are pretty okay and Europe still soft. Well, from the other product line, okay, we are still in a mode where the POP is below the POS.

Speaker #4: Some globally pop will be aligned with with a POS each time our product line reach the target of inventory . We don't want to exceed .

Jean-Marc Chery: Globally, POP will be aligned with the positive. Each time our product line reaches the target of inventory we don't want to exceed, this is okay. A lesson we learned from the past, and now we are really disciplined on this point. You cannot see the population. We have to look at the POP in detail by product line, and I repeat, no. Our microcontroller is pretty well aligned, so our POP is really driven by the hand demand POS and by region. I have to say, where China, APEC, America, pretty okay, and Europe still soft. For the other product line, we are still in the mode where the POP is below the POS. However, we expect to go back to normal in H1 2026, most likely Q2. Thank you, Tristan.

Speaker #4: This is okay lesson we learned from the past and and now we are really disciplined on this point . So you cannot see the pop overall .

Speaker #4: We have to look the pop in detail by product line . And I repeat . Now on microcontroller is pretty well aligned . So no , our Pop is really driven by the handyman POS and by region .

Speaker #4: I have to say where China America are pretty okay . And Europe still soft . Well , and for the other product line okay , we are still in a in a mode where the pop is below the POS , or whether we expect to go back normal in H1 2026 .

Jean-Marc Chéry: However, we expect to go back normal in H1 2026, most likely Q2. Thank you, Tristan.

Speaker #4: Most likely Q2 .

Speaker #3: Thank you .

Speaker #8: Thank you very much .

Operator: Thank you very much.

Tristan Gerra: Thank you very much.

Speaker #3: Next question please .

Jean-Marc Chery: Moira, next question please.

Jean-Marc Chéry: Myra, next question, please.

Jean-Marc Chéry: Moira, next question, please.

Speaker #2: Next question comes from Stefan from Adobe . Please go ahead .

Operator: The next question comes from Stephane Houri from Oddo BHF. Please go ahead.

Myra: Next question comes from Stephane Houri from Oddo BHF. Please go ahead.

Operator: Next question comes from Stephane Houri from Oddo BHF. Please go ahead.

Speaker #9: Yes. Good morning, everyone. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year.

Jean-Marc Chery: Yes, good morning everyone. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and also an expectation of 2026. What are you reducing at the moment, and how do you look at 2026 in terms of CapEx at the moment where you're transforming your tool from 200 millimeter to 300 millimeter?

Stephane Houri: Yes, good morning, everyone. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and also in expectation of 2026. What are you reducing at the moment, and how do you look at 2026 in term of CapEx at the moment where you're transforming your tool from 200 millimeter to 300 millimeter? Thank you.

Speaker #9: I guess this is in the course of managing your , your , your your capacity by the end of the year . And also an expectation of 2026 .

Speaker #9: But what are you reducing at the moment, and how do you look at 2026 in terms of CapEx at the moment, where you're transforming your tool from 200mm to 300mm?

Speaker #9: Thank you .

Lorenzo Grandi: Thank you.

Speaker #4: Okay . We reduce the CapEx . In fact , there is to , to to dynamics . There is a dynamic driven by ocean .

Lorenzo Grandi: No, we reduce the CapEx. In fact there is two dynamics. There is a dynamic driven by Ocean, where, you know, we want to close the 200 millimeter fab, so Agrate and Pol. Of course, okay, we need to put the CapEx to increase the capacity at the right level in Agrate 300 and in Pol 200. Here we have not specially limited the dynamic because the demand is pretty solid. More than the other main important action is a CapEx for 200 millimeter conversion on silicon carbide because we will close the 150 millimeter.

Jean-Marc Chéry: No, we reduce the CapEx. In fact there is two dynamics. There is a dynamic driven by Ocean, where, you know, we want to close the 200 millimeter fab, so Agrate and Pol. Of course, okay, we need to put the CapEx to increase the capacity at the right level in Agrate 300 and in Pol 200. Here we have not specially limited the dynamic because the demand is pretty solid. More than the other main important action is a CapEx for 200 millimeter conversion on silicon carbide because we will close the 150 millimeter.

Jean-Marc Chery: We reduce the CapEx. In fact, there are two dynamics, there is a dynamic driven by ocean.

Speaker #4: Where , you know , we want to close the two 200mm fab . So a great end cold . And of course okay we need to put the CapEx to increase the capacity at the right level in 300 and and in 200 .

Lorenzo Grandi: Where.

Jean-Marc Chery: You know, we want to close the 200 millimeter firm, so Agrate and Crolles. Of course, we need to put the CapEx to increase the capacity at the right level in Agrate 300 and in Crolles to avoid. Here we have not specially limited the dynamic because the demand is pretty solid. The other main important action is the CapEx for 200 millimeter conversion on silicon carbide because we will close the 150 millimeter. Here we have limited the CapEx divided by the demand, which is below what we expected one year ago. The main impact of capacity limitation is on, let's say, silicon carbide. After, it is more spread across test assembly, where we clearly adjust the capacity to what we need and no more. Generally speaking, it is more adaptation to mix rather than volume increase. You have a follow-up, Stefan? Yes, a small one.

Speaker #4: But here we have not especially limited the dynamic because the demand is pretty solid . Well then the other main important action is , is CapEx for 200 millimeter conversion on silicon carbide , because we will close the 150 millimeter .

Speaker #4: But here we have limited the CapEx driven by the demand , which is below what was we expected . Okay , one year ago .

Lorenzo Grandi: Here we have limited the CapEx derived by the demand which is below what was we expected, okay, one year ago. The main impact of a capacity limitation is on, let's say, silicon carbide. After, it's more spread across test assembly where we currently adjust the capacity at what we need and no more. Generally speaking is more adaptation to mix rather than volume increase. You have a follow-up, Stephane?

Jean-Marc Chéry: Here we have limited the CapEx derived by the demand which is below what was we expected, okay, one year ago. The main impact of a capacity limitation is on, let's say, silicon carbide. After, it's more spread across test assembly where we currently adjust the capacity at what we need and no more. Generally speaking is more adaptation to mix rather than volume increase. You have a follow-up, Stephane?

Speaker #4: So the main impact of capacity . Limitation is , is on a , let's say , silicon carbide , but then after it's it's more spread across test assembly where we clearly just the capacity at what we need .

Speaker #4: And no more . And generally speaking is more adaptation to . Mix rather than a volume increase .

Speaker #3: You have a follow up .

Speaker #10: Okay .

Speaker #9: Yes . A small one . Just to to ask you if with the the next period situation , you do receive , you know , phone calls or you know , kind of orders from your customer or you see nothing for the moment .

Stephane Houri: Okay. Yes, a small one. Just to ask you if with the Nexperia situation you do receive, you know, phone calls or, you know, kind of rush orders from your customer or you see nothing for the moment? Thank you.

Jean-Marc Chery: Just to ask you if with the NXP situation you do receive phone calls or kind of rush orders from your customer or you see nothing for the moment. Thank you. We are sure that the carmaker and the tier one of the automotive industry have clearly taken the lesson of the previous short-term period, and they have enabled many sources to prevent such issues. Of course, as the other semiconductor player, STMicroelectronics is part of this process. More than that, I have no comment. Okay, thank you. Thank you, Stefan. Moira, next question please.

Speaker #9: Thank you .

Speaker #4: We are sure that the car maker and the Tier One of the automotive industry have clearly taken the lessons from the previous shortage period, and they have enabled many sources to prevent such issues.

Lorenzo Grandi: No, but we are sure that the car maker and the Tier 1 of the automotive industry have clearly taken the lesson of the previous shorter period, and they have enabled many source to prevent such issues. And of course, okay, as the other semiconductor player, STMicroelectronics is part of this process. But more than that, I have no comment.

Jean-Marc Chéry: No, but we are sure that the car maker and the Tier 1 of the automotive industry have clearly taken the lesson of the previous shorter period, and they have enabled many source to prevent such issues. And of course, okay, as the other semiconductor player, STMicroelectronics is part of this process. But more than that, I have no comment.

Speaker #4: And of course , as the other semiconductor players , Stmicro is is part of this process . But more than that , I have no comment .

Speaker #9: Okay .

Speaker #10: Thank you .

Stephane Houri: Okay, thank you.

Speaker #3: Thank you, Stefan. Moira, next question, please.

Lorenzo Grandi: Thank you, Stephan. Myra, next question, please.

Jean-Marc Chéry: Thank you, Stephan. Moira, next question, please.

Speaker #2: Next question comes from Didi from Bank of America. Please go ahead.

Operator: Next question comes from Didier Scemama from Bank of America. Please go ahead.

Myra: Next question comes from Didier Scemama from Bank of America. Please go ahead.

Operator: Next question comes from Didier Scemama from Bank of America. Please go ahead.

Speaker #11: Yes . Good morning . Thanks for taking my question . I am first question maybe on your on your inventory and related to that on what you're thinking about in terms of factory loadings for the first half .

Jean-Marc Chery: Yes, good morning. Thanks for taking my question. I have the first question maybe on your inventory and related to that, on what you're thinking about in terms of factory loadings for the first half. I think one of your peers already announced last week or earlier this week, sorry, that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery. It looks like your inventory is tracking about 30, 40, and 50 days above where they used to be. Are you thinking about taking down further factory utilization in the first half?

Didier Scemama: Yes, good morning. Thanks for taking my question. I have first question maybe on your inventory and related to that, on what you're thinking about in terms of factory loadings for the first half. I think one of your U.S. peers already announced last week or earlier this week, sorry, that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery. I think it looks like your inventory are tracking about 30, 40 and 50 days above where they used to be. Are you thinking about taking down further factory utilization in the first half, I guess?

Speaker #11: I think one of your USP already announced last week or earlier this week . Sorry , that they would reduce factory loadings to to reduce inventory , especially in the context of a shallow recovery .

Speaker #11: So I think it looks like your inventory is tracking about 30, 40, and 50 days above where they used to be. So are you thinking about taking down further factory utilization in the first half?

Speaker #11: I guess ?

Lorenzo Grandi: I guess now in terms of inventory, I would say that yes, you're right, it's a little bit higher in respect to what was our historical ending of the year. That is a little bit higher. At the end, I think that when we look next year, I think the dynamic of our, we will continue to keep under control the inventory. The dynamic of the inventory will, let's say, be as usual, a little bit increasing during the first half of the year to go back and to decrease in the second part of the year. In terms of, let's say, unloading factory utilization, I think that moving in 2026 there will be an improvement. Notwithstanding, we will continue to keep under control our inventory.

Speaker #5: But in terms of inventory , I would say that yes , you're right , it's a little bit higher in respect to what was our historical ending of the year .

Lorenzo Grandi: In terms of inventory, I would say that, yes, you're right, it's a little bit higher in respect to what was our historical ending of the year. That is a little bit higher. At the end, I think that, when we look next year, we will continue to keep under control the inventory. The dynamic of the inventory will, let's say, be as usual, a little bit increasing during the first half of the year to go back and to decrease in the second part of the year. In terms of, let's say, unloading factory utilization, I think that moving in 2026, there will be an improvement. Notwithstanding, we will continue to keep under control our inventory.

Speaker #5: That is a little bit higher . But at the end , I think that when we look next year , I think the dynamic of our we will continue to keep under control the inventory , the dynamic of the inventory will .

Speaker #5: Let's say , be , as usual , a little bit increasing during the first half of the year to go back and to decrease in the second part of the year in terms of , let's say , unloading and factory utilization , I think that the moving in 2026 , there will be an improvement notwithstanding , we will continue to to to keep under control our inventory .

Speaker #5: This improvement that I was saying before is due to the fact that we do expect some , let's say , increase in terms of our revenues .

Lorenzo Grandi: This improvement, as I was saying before, is due to the fact that we do expect some, let's say, increase in term of our revenues, looking at the evolution of the market. The other element is that we started to, let's say, reduce capacity in some of our fabs. The one that we aim, let's say, to progressively close in the course of the by the end of 2027. We will start of course, to move out some equipment and this will reduce the capacity and this will reduce the level of the unused.

Lorenzo Grandi: This improvement, as I was saying before, is due to the fact that we do expect some, let's say, increase in terms of our revenues looking at the evolution of the market. The other element is that we started to, let's say, reduce capacity in some of our fabs that we aim, let's say, to progressively close in the course of the, by the end of 2027. We will start, of course, to move out some equipment and this will reduce the capacity and this will reduce the level of the unused.

Speaker #5: Looking at the evolution of the market and the and the other element is that we started to , let's say , reduce capacity in some of our fabs .

Speaker #5: The one that we we aim , let's say , to progressively close in the course of the by the end of 2027 . So we will start , of course , to move out some equipment .

Speaker #5: And this will reduce the capacity . And this will reduce the level of the unused .

Speaker #11: Got it . And then I think last quarter you said that the gross margins were impacted by , if I remember correctly , roughly 70 basis points of the 140 at 70 basis points of FX headwinds and 70 basis points of , you know , related to basically the manufacturing transition from 6 to 8 and 8 to 12 .

Jean-Marc Chery: Got it. I think last quarter you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140. You had 70 basis points of FX headwinds and 70 basis points related to basically the manufacturing trans. From 6 to 8 and 8 to 12. Is there any of that in Q4?

Didier Scemama: Got it. Then I think last quarter you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140 at 70 basis points of FX headwinds and 70 basis points of, you know, related to basically the manufacturing transition from 6 to 8 and 8 to 12. Is there any of that in Q4?

Speaker #11: Is there any of that in Q4?

Speaker #5: No , no , let's say moving from Q2 to Q3 , let's say the FX was was overall an impact of 140 basis points .

Lorenzo Grandi: No, no. Let's say moving from Q2 to Q3, the FX was overall an impact of 140 basis points. Q2, Q3, related to the combination of these two effects, but very different, something in the range of 120 basis points towards the FX and around 20 basis points was the impact of these extra costs related to our programs. In this quarter, clearly the FX is a minor impact because it's quite stable. It's a little bit negative because we move from 1.14 to 1.15, ranging in the range of 20 basis points negative impact. It's not so material. While these extra costs related to the activity to reduce the capacity and to start to move products from one side to the other is impacting our gross margin expected for Q4 between 30 to 40 basis points.

Lorenzo Grandi: No, no. Let's say moving from Q2 to Q3, let's say the FX was overall an impact of 140 basis points Q2, Q3, let's say, related there to the combination of these two effects, but very different. Let's say something in the range of 120 basis points was the FX and around 20 basis points was the impact of these extra costs, let's say, related to our programs. Now, let's say in this quarter, clearly the FX is a minor impact because it's quite stable. It's a little bit negative because we moved from 1.14 to 1.15.

Speaker #5: Q3 , Q2 , Q3 , let's say . Related to the combination of these two effects , but very different . Let's say something that 120 basis points was the FX and around 20 basis points was the impact of these extra costs .

Speaker #5: Let's say related to the our programs . Now , let's say in this quarter , clearly the effects is a minor impact because it's quite stable .

Speaker #5: It's a little bit negative because we move from 114 to 115 . But is a ranging in the range of 20 basis points .

Lorenzo Grandi: is ranging in the range of 20 basis points negative impact. It's not, it's not so material. While these extra costs related to the activity to reduce the capacity and to start to move products from one side to the other, is impacting our gross margin expected for Q4 between 30 to 40 basis point. This is the 30-

Speaker #5: To negative impact . It's not a it's not so material . While these extra cost related to the activity to to reduce the capacity and to start to move products from one side to the other , is impacting our gross margin expected for Q4 , between 30 to 40 basis points .

Speaker #5: This is so the third .

Lorenzo Grandi: The 30 is impacted by something ranging between 30 to 40 basis points of extra cost.

Speaker #11: Understood .

Jean-Marc Chéry: Okay, understood.

Didier Scemama: Okay, understood.

Speaker #5: By something ranging between 30 to 40 basis points of extra cost .

Lorenzo Grandi: impacted by something ranging between 30 to 40 basis points of extra cost.

Lorenzo Grandi: Impacted by something ranging between 30 to 40 basis points of extra cost.

Speaker #11: Understood . And just to clarification , because it wasn't clear , your opex guide for Q4 is 9.5 , right ? It's not 950 .

Jean-Marc Chery: Understood. Just a clarification because it wasn't clear. Your OpEx guide for Q4 is $915 million, right? It's not $950 million.

Jean-Marc Chéry: Understood. Just a clarification because it wasn't clear. Your OPEX guide for Q4 is 9.5, right? It's not 950.

Didier Scemama: Understood. Just a clarification because it wasn't clear. Your OPEX guide for Q4 is 9.5, right? It's not 950.

Speaker #5: No , no , it's 9.15 . And this is driven by the fact that we have a negative calendar days impact for two reasons .

Lorenzo Grandi: No, no, it's 915. This is driven by the fact that we have a negative calendar days impact for two reasons. The calendar is longer, and the vacation in Europe is, let's say, less than what we benefited from in the course of the previous quarter. On the other side, we will continue with our, let's say, program to reduce headcount in expenses, and this will bring us some benefit.

Lorenzo Grandi: No, no, it's 915. This is driven by the fact that we have a negative calendar days impact for two reasons. The calendar is longer, and the vacation in Europe is, let's say, less than what we benefit in the course of the previous Q. On the other side, we will continue with our, let's say, program to reduce account in expenses, and this will bring us some benefit.

Speaker #5: The calendar is longer and the vacation in Europe is , let's say , less than what we benefit in the in the course of the previous quarter .

Speaker #5: On the other side , we will continue with our , let's say , program to reduce headcount in expenses . And this will bring us some benefit .

Speaker #11: Thank you so much .

Jean-Marc Chery: Thank you so much. Thank you. Didier Moira, next question, please.

Jean-Marc Chéry: Thank you so much.

Didier Scemama: Thank you so much.

Speaker #3: Thank you, DJ. Next question, please.

Lorenzo Grandi: Thank you, Didier. Moira, next question, please.

Jean-Marc Chéry: Thank you, Didier. Moira, next question, please.

Speaker #2: The next question comes from Sandeep Deshpande from JP Morgan . Please go ahead .

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

Myra: The next question comes from Sandeep Deshpande, from J.P. Morgan. Please go ahead.

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

Speaker #12: Yeah . Hi . Good morning . Thanks for letting me on . My question is regarding the trends into the first quarter . I mean , you normally have a weaker first quarter and thus , you know , would you expect the utilization rates to go down and given all these other factors you've talked about in the earlier questions , which are there ?

Jean-Marc Chery: Yes.

Sandeep Deshpande: Yeah. Hi, good morning. Thanks for letting me on. My question is regarding the trends into the Q1. I mean, you normally have a weaker Q1, thus, you know, would you expect the utilization rates to go down? Given all the other factors you've talked about in the earlier questions, which are there is a downtick associated with the capacity reservation fees. Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment? I have a quick follow-up after that.

Lorenzo Grandi: Hi, good morning. Thanks for letting me on. My question is regarding the trend into the first quarter. I mean, you normally have a weaker first quarter, and thus, you know, would you expect the utilization rates to go down?

Jean-Marc Chery: Given all the other factors you've talked about in the earlier questions, there.

Speaker #12: There is a downtick associated with with the with the capacity reservation fees . Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment ?

Lorenzo Grandi: Is a downtick associated with the capacity reservation fees. Should we expect your gross margin in the first half of the year to be weaker than where it is at the moment? I have a quick follow up after that. Yeah, in terms of gross margin, it is true that in the first half the seasonality is not favorable. Yes, there are the lower capacity reservation fees. On the other side, in respect to where we stand today, our expectation is that the level of unused charges will decrease. The decrease is not due to the fact that we aim to increase our inventory. There is some seasonality in our inventory. The decrease, as I was trying to explain before, is mainly driven by the fact that we start to reduce the capacity.

Speaker #12: And and I have a quick follow up after that ?

Speaker #5: Yeah, in terms of gross margin, it is true that in the first half we have seasonality that is not favorable. And yes, there are the lower capacity reservation fees.

Lorenzo Grandi: Yeah. In term of gross margin is true that, in the first half, the seasonality is not favorable. Yes, there are the lower capacity reservation fees. On the other side, in respect to where we stand today, our expectation is that the level of unused charges will decrease. The decrease is not due to the fact that we aim to increase our inventory. There is some seasonality in our inventory, but the decrease, as I was trying to explain before, is mainly driven by the fact that we start to reduce the capacity. It means that we will start to some transfer of equipment.

Speaker #5: On the other side in respect to where we stand today , our expectation is that the level of unused charges will decrease . The decrease is not due to the fact that we aim to increase our inventory .

Speaker #5: There is some seasonality in our inventory , but the decrease , as I was trying to explain before , is mainly driven by the fact that we start to reduce the capacity .

Speaker #5: So it means that we will start to some transfer of equipment . And this or let's say in are not utilization of equipment due to the fact that we progressively in some fab , we started to reduce the the capacity aimed at the end .

Lorenzo Grandi: It means that we will start to transfer some equipment and this, or let's say not utilization of equipment, is due to the fact that we progressively, in some fabric, started to reduce the capacity aimed at the end, let's say to move to close this step. We will start and this will progressively impact our capacity and to some extent our unused capacity.

Lorenzo Grandi: This, or let's say, not utilization of equipment due to the fact that we progressively in some fabric, we started to reduce the capacity aimed at the end, let's say, to move to close this step. We will start, and this will progressively impact our capacity and for some extent, our unused capacity.

Speaker #5: Let's say to move to close this , this fact . So we will start and this will progressively impact our , our , our capacity .

Speaker #5: And for some extent, our new capacity.

Speaker #12: Thanks. I mean, a follow-up to that essentially quickly on that would be: is there a number of days in Q1 lower than in Q4, or is it anything different?

Jean-Marc Chery: Thanks. I mean, a follow up to that.

Sandeep Deshpande: Thanks. I mean, a follow-up to that, essentially quickly on that would be, is your number of days in Q1 lower than in Q4, or is it anything different? My main question is about 2026 overall. I mean, on the revenue. Do you have any new engaged programs with your customers which will improve revenue significantly, either in first half or into the second half, particularly?

Lorenzo Grandi: Essentially, quickly on that, would be is your number of days in Q1 lower than in Q4 or is it anything different? My main question is about 2026 overall. I mean, on the revenue, do you have any new engaged programs with your customers which will improve revenue significantly either in the first half or into the second half? Particularly, no. I confirm, Sandeep, that in Q1, Q1 will be shorter in terms of the number of days than Q4. Q4 is longer in terms of days than the normal 91. The calendar next year, Q1 will be shorter than the normal 91, is a little bit the same trend that we have seen this year, let's say, in terms of calendar. Yes, I confirm that there is a shorter calendar in Q1.

Speaker #12: And my main question is about 2026 overall . I mean , on the revenue , do you have any new engaged programs with your customers which will improve revenue significantly , either in first half or in the second half , particularly ?

Speaker #5: No , I confirm , Sandeep , that in Q1 , Q1 will be shorter in terms of number of days . Thank you for Q4 , is is longer in terms of days than than than normal .

Lorenzo Grandi: No. I confirm, Sandeep, that in Q1 will be shorter in terms of the number of days than Q4. Q4 is longer in terms of days than the normal 91. The calendar next year, Q1 will be shorter than the normal 91. It's a little bit the same trend that we have seen this year, let's say, in terms of calendar. Yes, I confirm that there is a shorter calendar in Q1.

Speaker #5: 91 and the calendar next year , Q1 will be shorter than the normal 91 . It's a little bit the same trend that we have seen this year , let's say , in terms of calendar .

Speaker #5: So yes , I confirm that there is a there is a shorter calendar in Q1 .

Speaker #4: But first of all , okay , about next year , 2026 Q1 with the current visibility , we have the loading of the backlog .

Jean-Marc Chéry: First of all, okay, about next year, 2026 Q1, with the current visibility we have of the loading of the backlog we have seen in Q3, and we are seeing today. We don't see a specific reason why we will not be at the usual seasonality of Q1 revenue versus Q4, which is, generally speaking, really slightly above minus 10%. Well, moving forward, of course, we'll that it's evident depends the market dynamic. I would like to say that for 2026. Well, first of all, okay, in the second half, we will clearly see the normalization of inventory everywhere. We really expect that in H2 2026, we will have no over inventory, point number one.

Jean-Marc Chery: First of all, about next year 2026 Q1, with the current visibility we have, the loading of the backlog we have seen in Q3 and we are seeing today, we don't see a specific reason why we will not be at the usual seasonality of Q1 revenue versus Q4, which is generally speaking really slightly above minus 10%. Moving forward, of course, that depends on the market dynamic. I would like to say that for 2026, in the second half we will clearly see the normalization of inventory everywhere. We really expect that in H2 2026 we will have no other inventory, point number one.

Speaker #4: We have seen in Q3 , and we are seeing today , but we we we don't see a specific reason why we will not be as the usual seasonality of Q1 revenue versus Q4 , which is a generally speaking , really slightly above minus 10% .

Speaker #4: Well , then moving forward , of course , we will . But it's evident depends on market dynamics . But I would like to say that for 2026 , well , first of all okay , in the second half we will clearly see the normalization of inventory everywhere .

Speaker #4: We really expect that in H2 2026 , we will have no over inventory . Point number one , point number two next year , compared to 2025 .

Jean-Marc Chery: Point number two, next year compared to 2025, the silicon carbide will be a year of growth because 2025 is a year of transition where basically we have cumulative headwinds related to one specific customer, some program not going at the expected speed in Europe, and we are not especially still present in China. Next year will be a growth driver. After, we have our exposure to fast growing segments, clearly that already give us sign of growth like ADAS with our main customer that already provided some, let's classify, upside, and MEMS as well. Definitively, one point is our increasing content in terms of value and silicon in our main customer. All in all, we do believe that Q1, we have no sign that the seasonality will be impacted by other factors that we do not control.

Jean-Marc Chéry: Point number 2, next year, compared to 2025, the silicon carbide will be a year of growth because 2025 is a year of transition, where basically, okay, we have cumulative headwinds related to one specific customer, some program not going at the expected speed in Europe. you know, we are not specially still present in China. But SiC next year will be a growth driver. Well, then after we have our exposure to fast-growing segments, clearly, that already give us sign of growth like ADAS, with our main customer that already provided some, let's classify upside and MEMS as well. And definitively, one point is our increasing content in term of value and silicon in our main customer.

Speaker #4: The silicon carbide will be a year of growth because 2025 is the year of transition , where basically , okay , we have a cumulative headwinds related to one specific customer .

Speaker #4: Some program not going at the at the expected speed in Europe . And , you know , we are not specialists still present in China , but seek next year will be a growth driver .

Speaker #4: Well then after we have our exposure to fast growing segment , clearly that already give us a sign of growth . Like Adas with with our main customer that already provided some .

Speaker #4: Let's classify upside and maps as well . And definitively one point is our increasing content in terms of value and silicon in our main customer .

Speaker #4: So all in all , we do believe that Q1 we have no sign that the seasonality will be will be impacted by other factor that we do not control .

Jean-Marc Chéry: All in all, we do believe that Q1, we have no sign that the seasonality will be impacted by other factor that we do not control. In H2, we will be as well as the usual seasonality of growth H2 versus H1. Do we grow more like here? This year we grow 23% and the usual seasonality 16% H2 versus H1. Well, here we need to have a little bit more booking in Q1 and in Q2 to confirm. My takeaway is, yes, we will have, let's say idiocratic growth driver on top of the, let's say, upcycle of the market that we are seeing today, even if this upcycle market of automotive and industrial should be classified at this stage soft, okay?

Speaker #4: And in H2, we will see, as well as the usual seasonality of growth, H2 versus H1. Do we grow more like last year?

Jean-Marc Chery: In H2, we will be as well as the usual seasonality of growth, H2 versus H1. Do we grow more? Because this year we go 23% and the usual seasonality is 15% H2 versus H1. Here we need to have a little bit more booking in Q1 and in Q2 to confirm. My takeaway is yes, we will have, let's say, idiosyncratic growth driver on top of the, let's say, upcycle of the market that we are seeing today, even if this upcycle market of automotive and industrial should be classified at this stage soft, with some sub segments pretty dynamic like the one related to infrastructure. Thank you. Thank you so much.

Speaker #4: Because this year we grow 23%, and the usual seasonality is 15% H2 versus H1. Well, here we need to have a little bit more booking in Q1 and in Q2 to confirm.

Speaker #4: So my takeaway is yes , we will have let's say idiosyncratic growth driver on top of the let's say upcycle of the market that we are seeing today .

Speaker #4: Even if this upcycle market in automotive and industrial should be classified at this stage as soft, okay. And with some subsegments, it is pretty dynamic, like the one related to infrastructure.

Jean-Marc Chéry: With some sub-segments pretty dynamic like the one related to infrastructure.

Speaker #3: Thank you .

Speaker #12: Thank you so much. Very clear.

Jerome Ramel: Thank you.

Lorenzo Grandi: Thank you so much. Very clear.

Sandeep Deshpande: Thank you so much. Very clear.

Lorenzo Grandi: Very careful.

Jerome Ramel: Thank you, Philippe. Moira, next question, please.

Jean-Marc Chéry: Thank you, Sandeep. Moira, next question, please.

Speaker #3: Next question please .

Jean-Marc Chery: Moira, next question please.

Speaker #2: The next question comes from the line of Jonathan Menon from Jefferies . Please go ahead .

Operator: The next question comes from the line of Janardan Menon from Jefferies. Please go ahead.

Myra: The next question comes from the line of Janardan Menon from Jefferies. Please go ahead.

Operator: The next question comes from the line of Janardan Menon from Jefferies. Please go ahead.

Speaker #13: Hi . Good morning . Thanks for taking the question . I just wanted to go back go to the power discrete business where your margins are still very weak at -15% in the third quarter .

Lorenzo Grandi: Hi, good morning. Thanks for taking the question. I just wanted to go back to the Power & Discrete business where your margins are still very weak at minus 15% in the third quarter. What can be the drivers to improve that? You talked about silicon carbide improving in Q3, I'm sorry, in 2026. Would that revenue come mainly from your Sanan JV to Chinese customers? Will that help your overall profitability given low utilizations in Europe? Do you need to take any further action to try and improve the profitability there in Power & Discrete, given the kind of competitive environment in that industry? My follow up is just a small clarification on a previous answer. Your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down, etc.

Janardan Menon: Hi. Good morning. Thanks for taking the question. I just wanted to go back, go to the Power Discrete business where your margins are still very weak at -15% in Q3. What can be the drivers to improve that? You talked about silicon carbide improving in Q3, sorry, in 2026. Would that revenue come mainly from your Sanan JV to Chinese customers? Will that help your overall profitability given low utilizations in Europe? Do you need to take any further action to try and improve the profitability there in Power Discrete given the kind of competitive environment in that industry?

Speaker #13: So what can be the drivers to to improve that ? You talked about silicon carbide improving in in Q3 . I'm sorry , in 2026 .

Speaker #13: But where would that revenue come mainly from? Your joint venture to Chinese customers, and will that help your overall profitability given low utilizations in Europe?

Speaker #13: And do you need to take any further action to try and improve the profitability there in power districts , given the kind of competitive environment in that industry ?

Speaker #13: And then my follow up is just a small clarification on the on a previous answer , your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down , etc.

Janardan Menon: My follow-up is just a small clarification on the on a previous answer. Your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down, et cetera, does that continue till you reach the end of that journey, which is when you fully close down your 200 millimeter transition to 300 millimeter? Or does that drop off before that? Thanks.

Speaker #13: does that continue till you reach the end of that journey , which is when you fully close down your 200 millimeter and transition to 300 millimeter .

Lorenzo Grandi: Does that continue till you reach the end of that journey, which is when you fully close down your 200 millimeter and transition to 300 millimeter, or does that drop before that? Thanks.

Speaker #13: Or does that drop off before that? Thanks.

Speaker #4: So Lorenzo will comment about the improvement driver of power discrete profitability . While Marco will comment on the on the dynamic of power and discrete revenue , because as as I have already anticipated in my last answer , okay , clearly silicon carbide for us in 25 is a transition period .

Jean-Marc Chery: Lorenzo will comment about the improvement driver of Power & Discrete profitability, while Marco will comment on the dynamic of Power & Discrete commodule. As I have already anticipated in my last answer, clearly silicon carbide for us in 2025 is a transition period.

Jean-Marc Chéry: Lorenzo will comment about the improvement driver of Power and Discrete profitability, while Marco will comment on the dynamic of Power and Discrete revenue because as I have already anticipated in my last answer, clearly silicon carbide for us in 2025 is a transition period. Well then, Lorenzo, you answer the first, the last.

Speaker #4: When Lorenzo, you answer the last.

Speaker #5: Well , yes , I can take it clearly . Well , I will let Marco to explain what are the drivers . But at the end , let's say clearly next year we do expect the recovery in terms of the top line , and this will help , you know , this year we were impacted by a significant inefficiency in our manufacturing environment for the power and discrete in general .

Lorenzo Grandi: Yes, yes. Well, yes, I can take it. Well, I will let Marco to explain what are the drivers, but at the end, let's say clearly next year we do expect a recovery in term of the top line. At least we learn that, you know, this year we were impacted by a significant inefficiency in our manufacturing environment for the Power and Discrete in general, and for the silicon carbide in particular, due to the fact that we were working a very low level of saturation for these steps. Clearly, there are the following drivers that we expect to recover in term of profitability. Having a higher level of revenues clearly will help to better load our infrastructure.

Lorenzo Grandi: Yes, I can take it clearly. I will let Marco explain what are the drivers. At the end, let's say clearly next year we do expect a recovery in terms of the top line. That is we learned. This year we were impacted by a significant inefficiency in our manufacturing environment for the Power & Discrete in general and for the silicon carbide in particular due to the fact that we were working at a very low level of saturation for these steps. Clearly, there are the following drivers that we expect to recover in terms of profitability. Having a higher level of revenues clearly will help to better load our infrastructure. Don't forget that silicon carbide will be the first to move, let's say in the course of next year, from the 6 inch to the 200 millimeter to the 8 inch.

Speaker #5: And for the silicon carbide in particular , due to the fact that we were working a very low level of saturation for the steps .

Speaker #5: Clearly, there are the following drivers that we expect to recover in terms of profitability. Having a higher level of revenues clearly will help to better load our infrastructure.

Speaker #5: Then don't forget that silicon carbide , it will be the first to move . Let's say in the course of next year from the six inch to the 200 millimeter to the eight inch , and this will bring clearly , let's say , some positive in the medium term in terms of profitability moving up in terms of revenues will improve significantly .

Lorenzo Grandi: Don't forget that silicon carbide, it will be the first to move, let's say, in the course of next year from the 6 inch to the 200 millimeter to the 8 inch. This will bring clearly, let's say, some positive in the medium term in term of profitability. Moving up in term of revenues will improve significantly our expense to sales ratio that today clearly has been impacted by the fact that revenue are quite depressed. At the end, these are the main drivers that we see together with the fact that we are improving and we are moving to the next generation of silicon carbide that give also some benefit in term of performance for what concern, let's say, the profitability.

Lorenzo Grandi: This will bring clearly, let's say, some positive in the medium term in terms of profitability. Moving up in terms of revenues will improve significantly our expense to sales ratio that today clearly has been impacted by the fact that revenue are quite depressed. At the end, these are the main drivers that we see together with the fact that we are improving and we are moving to the next generation of silicon carbide that give also some benefit in terms of.

Speaker #5: Our expense to sales ratio , that clearly has been impacted by the fact that revenue are quite depressed . So at the end , these are the main drivers that we see together with the fact that we are improving and we are moving to the next generation of silicon carbide , that gives also some benefit in terms of performance for what concerns , let's say the profitability before to to give the to pass to Marco .

Jean-Marc Chery: Performance.

Lorenzo Grandi: For what concern, let's say the profitability before to give to pass to Marco. I just clarified the point of this extra 30 basis points on gross margin. Yes, this is mainly related to the duplication of mask related to the, let's say, qualification of processes. This will continue. The amount will be more or less in this range over, for sure, the next part of 2026 and probably also in the second part because we will continue with this program. This will be probably peaking in the first half 2026, it will go down. Yes, this is something that we need to expect to have as we have this activity, this activity to migrate our products from one fab that is going to be closed to another fab.

Lorenzo Grandi: Before to give to Marco, I just clarify the point of this extra 30 basis points on gross margin. Yes, this is mainly related to the duplication of mask, related to the, let's say, qualification of processes. This will continue, the amount will be more or less in this range or over for sure the next part of 2026 and probably also in the second part because we will continue with this program. This will be probably peaking in the first half 2026, it will go down. Yes, this is something that we need to expect to have as we have this activity to...

Speaker #5: I just clarify the point of of this extra 30 basis point on gross margin . Yes . This is mainly related to the duplication of mask related to the , let's say , qualification of processes .

Speaker #5: But this will continue the end . The amount will be more or less in this range over for sure . The next part of the 2026 , and probably also in the second part , because we will continue with this program .

Speaker #5: This will be probably peaking in the first half , 2026 . Then it will go down by yes , this is something that we need to expect to have a as we have this activity to to this activity , let's say to migrate our products from one fab that is going to be closer to another fab .

Lorenzo Grandi: This activity, let's say, to migrate, our products from one fab that is gonna to be closer to another fab.

Speaker #14: Okay. So we take on the dynamics. We will have basically two dynamics in 2026 that will help to start the growth.

Marco Cassis: Okay. We take on the dynamics. We have basically two dynamics in 2026 that will help to restart the growth. First of all, as Jean-Marc has said, during the first half of 2026, we will keep reducing and will be clean in terms of inventory in Power and Discrete. Here, I'm speaking mainly about the non-silicon carbide portion, and this will allow the market dynamics next year to restart having a year-over-year growth. Specifically, on silicon carbide, as Jean-Marc has already anticipated, 2025 is a transition year, meaning is that we are experiencing lower volumes and inventory correction from our main customers. I would like to underline this is happening while we still are maintaining stable our commercial and contractual level market share. This is happening since the beginning of 2025.

Jean-Marc Chéry: Okay. We take on the dynamics. We have basically two dynamics in 2026 that will help to restart the growth. First of all, as Jean-Marc has said, during the first half of 2026, we will keep reducing and will be clean in terms of inventory in Power and Discrete. Here, I'm speaking mainly about the non-silicon carbide portion, and this will allow the market dynamics next year to restart having a year-over-year growth. Specifically, on silicon carbide, as Jean-Marc has already anticipated, 2025 is a transition year, meaning is that we are experiencing lower volumes and inventory correction from our main customers. I would like to underline this is happening while we still are maintaining stable our commercial and contractual level market share. This is happening since the beginning of 2025.

Jean-Marc Chery: Okay, we take on the dynamics.

Lorenzo Grandi: We'll have basically two dynamics in.

Jean-Marc Chery: 2026 that will help to start the growth. First of all, as Jean-Marc Chery said, during the first half of 2026 we will keep reducing and will be clean in terms of inventory in Power & Discrete. Here I'm speaking mainly about the non-silicon carbide portion.

Speaker #14: First of all , we as Jean-Marc has said during the first half of 2026 , we will keep the reducing and will be clean in terms of inventory in power industries .

Speaker #14: Here , I'm speaking mainly about the non silicon carbide portion and this will allow the market dynamics next year to restart having a nearly year over year growth , specifically on silicon carbide , Asian markets or anticipated 2025 is a transition year .

Lorenzo Grandi: This will allow the market dynamics next year to restart having year-over-year growth. Specifically on the silicon carbide, as Jean-Marc has already anticipated, 2025 is a transition year. Meaning is that we are experiencing lower volumes and inventory correction from our main customers. I would like to underline this is happening while we still are maintaining stable our commercial contractual level market share.

Speaker #14: Meaning is that we are experiencing lower volumes and inventory correction from our main customers . I would like to underline this is happening while we still are maintaining stable our commercial contractual level , market share .

Speaker #14: This is happening since the beginning of 2025 and during 2025 . We are these dynamics is not yet offset by Europe and China .

Jean-Marc Chery: This is happening since the beginning of 2025.

Lorenzo Grandi: During 2025 these dynamics are not yet offset by Europe and China. There is yet not strong contribution from the electrification programs in Europe and China. During next year we will start seeing.

Marco Cassis: During 2025, these dynamics is not yet offset by Europe and China. There is yet not strong contribution from electrification, from the electrification programs in Europe and China. During next year, we will start seeing growth in these two regions that will help the 2026 overall growth of the silicon carbide versus 2025. I hope that this answer your question.

Jean-Marc Chéry: During 2025, these dynamics is not yet offset by Europe and China. There is yet not strong contribution from electrification, from the electrification programs in Europe and China. During next year, we will start seeing growth in these two regions that will help the 2026 overall growth of the silicon carbide versus 2025. I hope that this answer your question.

Speaker #14: So there is yet not strong contribution from electrification , from the electrification programs in Europe and China during next year , we will start seeing growth in these two regions that will help the 2026 overall growth of the silicon carbide versus 2025 .

Jean-Marc Chery: Growth in these two regions that will help the 2026 overall growth of the.

Lorenzo Grandi: Silicon carbide versus 2025.

Speaker #14: I hope that these answer your question.

Jean-Marc Chery: I hope that this answers your question. Yes.

Speaker #13: Yes . Thank you very much .

Lorenzo Grandi: Yes. Thank you very much.

Janardan Menon: Yes. Thank you very much.

Lorenzo Grandi: Thank you very much.

Speaker #3: Thank you , Jonathan . Thank you everyone . This is ending our call for this quarter . So thank you for being with us today .

Jean-Marc Chery: Thank you Jonathan. Thank you everyone. This is ending our call for this quarter. Thank you for being with us today, 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 a question there. Thank you very much.

Jerome Ramel: Thank you, Donata. Thank you, everyone. This is ending our call for this quarter. Thank you for being with us today, and we remain here at your disposal should you need any follow-up question. Sorry for the one that didn't have time to ask a question there. Thank you very much.

Jean-Marc Chéry: Thank you, Janardan. Thank you, everyone. This is ending our call for this quarter. Thank you for being with us today, and we remain here at your disposal should you need any follow-up question. Sorry for the one that didn't have time to ask a question there. Thank you very much.

Speaker #3: And we remain here at your disposal . So you need any follow up questions . Sorry for the ones that you don't have time to ask a question there .

Speaker #3: Thank you very much .

Speaker #2: Ladies and gentlemen , the conference is now over . Thank you for choosing call . And thank you for participating in the conference .

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

Myra: 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.

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

Jean-Marc Chery: It.

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