STMicroelectronics Q4 2025 STMicroelectronics NV Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 STMicroelectronics NV Earnings Call
Jean-Marc Chery: Sa.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics Full-Year 2025 Earnings Release Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants have been placed 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 may not be recorded for publication or broadcast at this time.
Speaker #1: I am Sandra, the course co-operator. I would like to remind you that all participants have been placed in listen-only mode, and the conference is being recorded.
Speaker #1: The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone.
Speaker #1: For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communication.
Operator: It is my pleasure to hand over.
Operator: To Jerome Ramel, EVP Corporate Development and Integrated External Communication. Please go ahead, sir.
Speaker #1: Please go ahead, sir.
Speaker #2: Thank
Speaker #2: Thank you, Maura, and thank you, everyone, for joining our first quarter and full year 2025 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and Chief Financial Officer, and Marco Cassis, President, Analog, Power Discrete, MEMS and Sensors Group, and Head of STMicroelectronics Strategy, System Office.
Jerome Ramel: Thank you, Maura, and thank you, everyone, for joining our Q4 and full year 2025 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO, and Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research and Applications, and Innovation Office. This live webcast and presentation material can be accessed on ST's 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 #2: This live webcast and presentation material can be accessed on the stinvestorrelations 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 #2: 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 STMicroelectronics' recent regulatory filings, for a full description of these risk factors.
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's most recent regulatory filing for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO.
Speaker #2: Also, to ensure all participants have an opportunity to ask questions during the Q&A, 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.
Speaker #2: CEO. Thank you,
Jean-Marc Chery: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q4 and full-year 2025 Earnings Conference Call. I will start with an overview of the fourth quarter and the full year 2025, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So, starting with Q4, we delivered revenues of $3.33 billion, above the midpoint of our business outlook range, driven by higher revenues in personal electronics and, to a lesser extent, in communication equipment, computer peripherals, and industrial. While automotive was below expectations. Gross margin of 35.2% was also above the midpoint of our business outlook range, mainly due to better product mix, excluding impairment, restructuring charges, and other related phase-out costs.
Speaker #3: Jerome. Good morning, everyone, and thank you for joining ST for our Q4 and full year 2025 earnings conference call. I will start with an overview of the fourth quarter.
Speaker #3: And the full year 2025, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions.
Speaker #3: So, starting with Q4, we delivered revenues at $3.33 billion, above the midpoint of our business outlook range. Driven by higher revenues in personal electronics, and to a lesser extent, in communication equipment and computer peripherals, and industrial.
Speaker #3: While automotive was below expectations, gross margin of 35.2% was also above the midpoint of our business outlook range, mainly due to better product mix.
Speaker #3: Excluding impairment, restructuring charges, and costs, other related phase-out diluted earnings per share was $0.11, including certain negative one-tax expenses impact of $0.18 per share.
Jean-Marc Chery: Diluted earnings per share was $0.11 including certain negative items, tax expense impact of $0.18 per share. Q4 revenues, market, sorry, Q4 revenue marked the return to year-over-year growth during the quarter. We further worked down inventories both in our balance sheet and in distribution, and we generated a positive $257 million free cash flow. Looking at the full year 2025, net revenues decreased 11.1% to $11.8 billion mainly driven by a strong decrease in automotive and, to a lesser extent, in industrial. While personal electronics, communication equipment, and computer peripherals both grew. Gross margin was 33.9%, down from 39.3% in full year 2024. Excluding impairment, restructuring charges, and other related phaseout costs, diluted earnings per share was $0.53. We invested $1.79 billion in net CapEx while generating free cash flow of $265 million.
Speaker #3: Q4 revenues market, sorry, Q4 revenue marked the return to year-over-year growth. During the quarter, we further worked down inventories both in our balance sheet and in distribution, and we generated a positive 257 million dollars free cash flow.
Speaker #3: Looking at the full year 2025, net revenues decreased 11.1% to $11.8 billion, mainly driven by a strong decrease in automotive and, to a lesser extent, in industrials, while personal electronics and communication equipment and computer peripherals both grew.
Speaker #3: Gross margin, well, 33.9%, down from 39.3% in full year 2024. Excluding impairment, restructuring charges, and other related phase-out costs, diluted earnings per share was $0.53.
Speaker #3: We invested $1.79 billion in net capex, while generating free cash flow of $265 million. Let's now discuss our business dynamics during Q4.
Jean-Marc Chery: Let's now discuss our business dynamics during Q4 in Automotive. During the quarter, we grew revenues 3% sequentially; year-over-year, revenues declined, but with continued improvement in the trend. Automotive design momentum progressed with design wins across both electric and traditional vehicle domains for applications such as on-board chargers, DC-DC converters, powertrain, and vehicle control electronics. These included design wins for power semiconductors, smart power devices, automotive microcontrollers, analog, and sensors. These awards, supported by engagements with various OEM and Tier 1 ecosystems, strengthen our position as a key supplier to the automotive industry. Regarding the acquisition of NXP's MEMS sensor business, the transaction we announced in July is still expected to close in H1 2026. Industrial revenues were better than expected, showing increases of 5% sequentially, and 5% year-over-year. Importantly, inventories in distribution further decrease and are now normalizing.
Speaker #3: In Automotive, during the quarter, we grew revenues 3% sequentially. Year-over-year revenues declined, but with continued improvement in the trend. Automotive design momentum progressed with design wins across both electric and traditional vehicle domains for applications such as onboard chargers, DC-DC converters, powertrains, and vehicle control electronics.
Speaker #3: These included design wins for power semiconductors, smart power devices, automotive microcontrollers, analog, and sensors. These hours, supported by engagements with various OEMs and tier-one ecosystems, strengthened our position as a key supplier to the automotive industry.
Speaker #3: Regarding the acquisition of NXP's MEMS sensor business, the transaction we announced in July is still expected to close in H1 2026. Industrial revenues were better than expected, showing increases of 5% sequentially and 5% year-over-year. Importantly, inventories in distribution further decreased and are now normalizing.
Jean-Marc Chery: In industrial, our portfolio of microcontrollers, sensing technologies and analog and power devices is strongly positioned to support industrial transformation trends and the need of physical AI. During the quarter we saw design wins across industrial automation and robotics, building automation, power systems, healthcare, and home appliances. In November, we held our STM32 summit where we announced several key innovations including the first microcontroller built on the 18 nanometer process, a next generation wireless microcontrollers, and an updated suite of Edge AI software tools for personal electronics. Fourth quarter revenues were above our expectations, down 2% sequentially, reflecting the seasonality of our engaged customer programs. During the quarter we strengthened our position in mobile platform and connected consumer devices both with our engaged customer programs as well as our open market offering for devices such as our sensors, secure solutions, and power management products.
Speaker #3: In Industrial, our portfolio of microcontrollers, sensing technologies, and analog and power devices is strongly positioned to support industrial transformation trends, and the need for physical layouts.
Speaker #3: During the quarter, we saw design wins across industrial automation and robotics, building automation, power systems, healthcare, and home appliances. In November, we held our STM32 Summit, where we announced several key innovations, including the first microcontroller built on an 18-nanometer process.
Speaker #3: A next-generation wireless microcontroller, and an updated suite of edge AI software tools. For personal electronics, fourth-quarter revenues were above our expectations, down 2% sequentially, reflecting the seasonality of our engaged customer program.
Speaker #3: During the quarter, we strengthened our position in mobile platform and connected consumer devices, both with our engaged customer programs as well as our open market offering, for devices such as our sensors, secure solutions, and power management products.
Jean-Marc Chery: Revenues for communication equipment and computer peripherals were up 23% sequentially, better than expected in AI and data center infrastructure. We continue to reinforce our position supporting the increasing demands for higher power density and energy efficiency. During the quarter, we secured multiple design wins for silicon and silicon carbide-based power solutions supporting next-generation AI computer architectures. We also continue to work with customers to bring our silicon photonics technology to the market. This strong momentum in optical connectivity technologies for data centers also contributed to a significant rise in demand for high-performance microcontrollers used in pluggable optics. The Low Earth Orbit satellite business based on our BiCMOS and panel-level packaging technologies continued to progress during the quarter with shipments ramping to our second largest customer.
Speaker #3: Revenues for communication equipment and computer peripherals were up 23% sequentially, better than expected. In AI and data center infrastructure, we continue to reinforce our position, supporting the increasing demands for higher power density and energy efficiency. During the quarter, we secured multiple design wins for silicon and silicon carbide-based power solutions, supporting next-generation AI compute architectures.
Speaker #3: We also continue to work with customers to bring our silicon photonics technology to the market. The strong momentum in optical connect technologies for data centers also contributed to a significant rise in demand for our high-performance microcontrollers, used in pluggable optics.
Speaker #3: The low health or bad satellite business, based on our CMOS and panel-level packaging technologies, continued to progress, with shipments ramping to our second largest during the quarter, with customer.
Speaker #3: Moving to sustainability, we remain on track for our key 2027 commitments: carbon neutrality in all direct and indirect emissions from scope one and two, and focusing on product transportation, business travel, and employee commuting emissions for scope three.
Jean-Marc Chery: Moving to sustainability, we remain on track for our key 2027 commitment: carbon neutrality in all direct and indirect emissions from Scope 1 and 2, and focusing on product transportation, business travel, and employee commuting emissions for Scope 3, and 100% renewable energy sourcing. A major milestone this year was the launch of Singapore's largest industrial district cooling system at our Ang Mo Kio facilities in Q4. We also continue to maintain our strong presence in the major sustainability indices, where we were honored to be recognized in the TIME World's Most Sustainable Companies list for the second consecutive year. Now over to Lorenzo, who will present our key financial figures.
Speaker #3: And while on-road percent renewable energy sourcing, a major milestone this year was the launch of Singapore's largest industrial district cooling system at our Hong Mokyo facilities in Q4.
Speaker #3: We also continue to maintain our strong presence in the major sustainability indices, where we were honored to be recognized in the TIME World's Most Sustainable Companies list for the second consecutive year.
Speaker #3: Now, over to Lorenzo, who will present our key financial figures.
Speaker #2: Thank you, Jean-Marc, and good morning, everyone. Let's have a detailed review of the fourth quarter, starting with revenues on a year-over-year basis, by reportable segment.
Lorenzo Grandi: Thank you, Jean-Marc, and good morning, everyone. Let's have a detailed review of the fourth quarter, starting with the revenues on a year-over-year basis by reportable segment. Analog, MEMS and Sensors grew 7.5%, mainly due to imaging. Power and Discrete products decreased by 31.6%. Embedded Processing revenues were up 1 to 2%, with higher revenues in general-purpose MCUs and automotive microcontrollers offsetting declines in connected security and custom processing products. Other, optical communications grew 22.9%. By end market, communication equipment and computers, peripherals, and personal electronics both grew by about 17%. Industrial grew by about 5%, while automotive decreased by about 15%. Year-over-year, sales increased 0.6% to OEM and decreased 0.7% to distribution. On a sequential basis, Power and Discrete was the only segment to decrease by 3.9%.
Speaker #2: Analog products, MEMS and Sensors Group, up 7.5%, mainly due to imaging. Power and Discrete Products decreased by 31.6%. Embedded Processing revenues were up 1.2%, with higher revenues in general purpose and automotive microcontrollers offsetting declines in connected security and custom processing products.
Speaker #2: A recent optical communication grew 22.9%. By end market, communication equipment and computer peripheral, and personal electronics both grew by about 17%. Industrial grew by about 5%, while automotive decreased by about 15%.
Speaker #2: Year-over-year, sales increased 0.6% to OEM and decreased 0.7% to distribution. On a sequential basis, Power and Discrete was the only segment to decrease, by 3.9%; all the other segments grew.
Lorenzo Grandi: All the other segments grew, led by RF and optical communication up 30.5%, 30.5%, while embedded processing and analog products, MEMS and sensors, were up respectively 3.9% and 1.1% by end market. Sequential growth was led by communication equipment and computer peripherals up 23%. Industrial was up 5%, and automotive was up 3%, while personal electronics declined 2%. Turning now to profitability, gross profit in the fourth quarter was $1.17 billion, decreasing 6.5% on a year-over-year basis. Gross margin was 35.2%, decreasing 200 and 50 basis points year-over-year, mainly due to lower manufacturing efficiencies and, to a lesser extent, negative currency effect and lower level of capacity reservation fees. On a sequential basis, gross margin improved by 200 basis points.
Speaker #2: Led by RF and optical communication, up 30.5%, while embedded processing and analog products, MEMS, and sensors were up 3.9% and 1.1%, respectively. By end market, sequential growth was led by communication equipment and computer peripherals, up 23%.
Speaker #2: Industrial was up 5%, and automotive was up 3%, while personal electronics declined 2%. Turning now to profitability. Gross profit in the fourth quarter was $1.17 billion, decreasing 6.5% on a year-over-year basis.
Speaker #2: Gross margin was 35.2%, decreasing 250 basis points year-over-year, mainly due to lower manufacturing efficiencies and, to a lesser extent, negative currency effect and a lower level of capacity reservation fees.
Speaker #2: On a sequential basis, gross margin improved by 200 basis points. Margin included about 50 basis points in Q4 gross points of negative impact resulting from a non-recurring cost related to our manufacturing reshaping program.
Lorenzo Grandi: Q4 gross margin included about 50 basis points of negative impact resulting from a non-recurring cost related to our manufacturing reshipping program. In the next few quarters, we expect a similar negative impact on gross margin from the just-mentioned non-recurring cost. Total net operating expenses excluding restructuring amounted to $906 million in the fourth quarter, slightly increasing year-over-year due to unfavorable currency effect. They were slightly better than expected, reflecting our continued cost discipline and initial benefit from our cost savings initiative. For the first quarter 2026, we expect net OPEX to stand at about $860 million, decreasing quarter-on-quarter. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the fourth quarter, we reported $125 million operating income, which included $141 million for impairment, restructuring charges, and other related phase-out costs.
Speaker #2: In the next few quarters, we expect a similar negative impact on gross margin from the just-mentioned non-recurring cost. Total net operating expenses, excluding restructuring, amounted to $906 million in the fourth quarter.
Speaker #2: Slightly increasing year-over-year, due to unfavorable currency effect. They were slightly better than expected, reflecting our continued cost discipline and initial benefit from our cost savings initiative.
Speaker #2: For the first quarter 2026, we expect net OPEX to stand at about $860 million, decreasing quarter on quarter. As a reminder, these amounts are net of other income and expenses, and exclude the restructuring.
Speaker #2: In the fourth quarter, we reported $125 million operating income, which included $141 million for impairment, restructuring charges, and other related phase-out costs.
Lorenzo Grandi: These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base, excluding these non-recurring items. Q4 non-US GAAP operating margin was 8% with Analog products, MEMS and Sensors at 16.2%, Power and Discrete negative at -30.2%, Embedded Processing at 19.2%, and RF and Optical Communications at 23.4%. Q4 2025 net loss was $30 million including certain one-time non-cash income tax expenses of $163 million compared to a net income of $341 million in the year-ago quarter. Diluted earnings per share was -$0.03 compared to $0.37 last year. Excluding the previously mentioned non-recurring item related to the impairment, restructuring charges, and other related phase-out cost.
Speaker #2: These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Excluding these non-recurring items, Q4 non-U.S. GAAP operating margin was 8%.
Speaker #2: With Analog, Product MEMS and Sensor at 16.2%, Power and Discrete negative 30.2%, Embedded Processing at 19.2%, and RF and Optical Communication at 23.4%. Fourth quarter 2025 net loss was $30 million, including certain one-time non-cash income tax expenses of $163 million.
Speaker #2: Compared to a net income of $341 million in the year-ago quarter. Diluted earnings per share was negative 3 cents, compared to 37 cents last year.
Speaker #2: Excluding the previously mentioned non-recurring item related to the impairment, restructuring charges, and other related phase-out costs, non-U.S. GAAP net income stood at $100 million, and non-U.S. GAAP diluted earnings per share stood at $0.11, including certain negative one-time tax expenses impacting $0.08 per share.
Lorenzo Grandi: Under US GAAP net income stood at $100 million, and non-US GAAP diluted earnings per share of $0.11, including certain negative one-time tax expenses with an impact of $0.08 per share. Looking now at our full-year 2025 financial performance, net revenue decreased 11.1% to $11.8 billion. In terms of the revenue by end market, Automotive represents about 39% of our total 2025 revenues, Personal Electronics about 25%, Industrial about 21%, and Communication Equipment, Computer, Peripheral about 15%. By customer channel, sales to OEMs and distribution represent 72% and 28%, respectively, of total revenue in 2025. By customer region, 43% of our 2025 revenues were from the Americas, 31% from Asia Pacific, and 26% from EMEA.
Speaker #2: Looking now at our full-year 2025 financial performance. Net revenue decreased 11.1% to $11.8 billion. In terms of the revenue by end market, automotive represents about 39% of our total 2025 revenues.
Speaker #2: Personal electronics, about 25%; industrial, about 21%; and communication equipment, computer peripheral, about 15%. By customer channel, sales to OEMs and distribution represent 72% and 28%, respectively, of total revenue in 2025.
Speaker #2: By region of customer origin, 43% of our 2025 revenues were from the Americas, 31% from Asia Pacific, and 26% from EMEA. Gross margin decreased to 33.9% for 2025, compared to 39.3% for 2024.
Lorenzo Grandi: Gross margin decreased to 33.9% for 2025 compared to 39.3% for 2024, mainly due to lower manufacturing efficiencies and, to a lesser extent, as price and mix, lower level of capacity reservation fees, negative currency effect, and higher unused capacity charges. Operating income stood at $175 million compared to $1.68 billion in 2024, excluding $376 million for impairment restructuring charges and other related phase-out costs. Non-US GAAP operating margin was 4.7% on a reported basis. Net income was $166 million and EPS was $0.18. On a Non-US GAAP basis they stood respectively at $486 million and $0.53. Net cash from operating activities totaled $2.15 billion compared to $2.97 billion in 2024. Net CapEx expenditure was $1.79 billion in 2025 in line with our revised expectations and lower than the $2.53 billion of 2024.
Speaker #2: Mainly due to lower manufacturing efficiencies and, to a lesser extent, the price mix, lower level of capacity reservation fees, negative currency effect, and higher unused capacity charges.
Speaker #2: Operating income stood at $175 million, compared to $1.68 billion in 2024. Excluding $376 million for impairment, restructuring charges, and other related phase-out costs, non-U.S. GAAP operating margin was 4.7%.
Speaker #2: On a reported basis, net income was $166 million and EPS was $0.18. On a non-U.S. GAAP basis, they stood respectively at $486 million and $0.53.
Speaker #2: Net cash from operating activities totaled $2.15 billion, compared to $2.97 billion in 2024. Net CAPEX expenditure was $1.79 billion in 2025, in line with our revised expectation.
Speaker #2: And lower than the $2.53 billion of 2024. Free cash flow was $265 million positive in 2025, compared to the $288 million positive of the previous year.
Lorenzo Grandi: Free cash flow was $265 million positive in 2025 compared to the $288 million positive over the previous year. Inventory at the end of the year was $3.14 billion compared to the $3.17 billion at the end of the third quarter, and the $2.79 billion one year ago. Days sales of inventory at quarter end were 130 days, slightly better than our expectation compared to the 135 days for the previous quarter, and 122 days in the year ago quarter. Cash dividends paid to stockholders in 2025 totaled $321 million. In addition, during 2025, ST executed share buybacks totaling $367 million. ST maintained its financial strength with a net financial position that remains solid at $2.79 billion as at end of December 2025, reflecting total liquidity of $4.92 billion and total financial debt of $2.13 billion. Now back to Jean-Marc who will comment on our outlook.
Speaker #2: Inventory at the end of the year was 3.14 billion dollars, compared to the 3.17 billion dollars at the end of the third quarter and the 2.79 billion dollars one year ago.
Speaker #2: Days sales of inventory at quarter end were 130 days, slightly better than our expectation, compared to 135 days for the previous quarter and 122 days in the year-ago quarter.
Speaker #2: Cash dividends paid to stockholders in 2025 totaled 321 million dollars. In addition, during 2025, ST executed share buybacks totaling 367 million dollars. ST maintained its financial strength with a net financial position that remained solid at 2.79 billion dollars as at the end of December 2025.
Speaker #2: Reflecting total liquidity of 4.92 billion dollars and total financial debt of 2.13 billion dollars. Now back to Jean-Marc, who will comment on our outlook.
Speaker #2: Thank you, Lorenzo. Now, let's move to our business outlook for Q1 2026. We are expecting Q1 2026 revenues at $3.04 billion, a decrease of 8.7% sequentially, plus or minus 350 basis points.
Jean-Marc Chery: Thank you, Lorenzo. Now let's move to our business outlook for Q1 2026. We are expecting Q1 2026 revenues at $3.04 billion, a decrease of 8.7% sequentially, ±350 basis points. We expect our gross margin to be about 33.7%, ±200 basis points, including about 220 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global tariffs compared to the current situation. In terms of net CapEx for 2026, we plan to invest about $2.2 billion to support capacity addition for selected growth drivers like those for Cloud Optical Interconnect and our manufacturing reshaping plan. To conclude, 2025 turned out to be a challenging year for the end market we serve, characterized by continued inventory correction in automotive and industrial, in particular, the first part of the year.
Speaker #2: We expect our gross margin to be about 33.7%, plus or minus 200 basis points, including about 220 basis points of unused capacity charges. This business outlook does not include any impact for potential further charges.
Speaker #2: To global tariffs, compared to the current situation. In terms of net CAPEX for 2026, we plan to invest about $2.2 billion to support capacity addition for selected growth drivers, like those for cloud optical interconnect.
Speaker #2: And our manufacturing reshipping plan to 2025 turned out to be a conclusion. It was a challenging year for the head market we serve, characterized by continued inventory correction in automotive and industrial, in particular in the first part of the year.
Speaker #2: The second half was better, with gradual improvement of the revenue trend and a return to year-on-year growth in the fourth quarter. We are entering '26 with better visibility than entering '25, with the inventory correction in distribution progressively improving.
Jean-Marc Chery: The second half was better with gradual improvement of the revenue trend and a return to year-on-year growth. In the fourth quarter, we are entering 2026 with better visibility than entering 2025, with the inventory correction in distribution progressively improving. Beyond the evidence of a cycle recovery, ST will benefit from the following company-specific growth in automotive; we see solid momentum in our engaged customer programs in ADAS, where we expect to grow this year and in the coming years, in silicon carbide power devices. Following a significant contraction in 2025, we anticipate a return to revenue growth in 2026, with revenues projected to recover to 2024 levels by 2027. In sensors, we see strong demand both in MEMS and imaging sensors, and our planned acquisition of NXP MEMS business will strengthen our leading position across the automotive and industrial segment.
Speaker #2: Beyond the evidence of a cycle recovery, ST will benefit from the following company-specific growth drivers. In automotive, we see solid momentum in our engaged customer programs in head-ass, where we expect to grow this year and in the coming years.
Speaker #2: In silicon carbide power devices, following a significant contraction in 2025, we anticipate a return to revenue growth in 2026, with revenues projected to recover to 2024 levels by 2027.
Speaker #2: In sensors, we see strong demand both in MEMS and imaging sensors, and our planned acquisition of NXP MEMS business will strengthen our leading position across the automotive and industrial segments.
Jean-Marc Chery: In industrial and general purpose MCUs, building on market share gains in 2025 and a roadmap of new product launches for 2026, we are on track to return to our historical market share of about 23% by 2027. In personal electronics, where we continue to see strong momentum in our ONGE customer programs in sensors and analog, we should keep on benefiting from increased silicon content in 2026 and beyond. In communication equipment, computer peripherals, in data centers including cloud optical interconnect, and power and analog for AI servers and data centers. With the current market dynamic, we believe we can deliver $1 billion revenue before 2030. With already $500 million in 2026 in low Earth Orbit satellite, we are expanding our customer base, and we anticipate continued revenue growth as Low Earth Orbit constellation projects expand globally and penetrate new applications such as direct-to-cell constellation.
Speaker #2: In industrial, in general-purpose MCUs, building on market share gains in 2025 and a roadmap of new product launches for 2026, we are on track to return to our historical market share of about 23% by 2027.
Speaker #2: In personal electronics, where we continue to see strong momentum in our engaged customer programs in sensors and analog, we should keep on benefiting from increased silicon content in 2026 and beyond.
Speaker #2: In communication equipment, computer peripherals, in data centers, including cloud optical interconnect, and power and analog for AI servers and data centers, with the current market dynamic, we believe we can deliver $1 billion revenue before 2030, with already $500 million in 2026.
Speaker #2: In low Earth orbit satellite, we are expanding our customer base, and we anticipate continued revenue growth as low Earth orbit constellation projects expand globally and penetrate new applications, such as direct-to-cell constellation.
Speaker #2: Lastly, ST is uniquely positioned to address humanoid robotics through our broad portfolio, spanning MCUs, MEMS, optical sensors, GNSS, and power management. We are already generating revenues through engagements with major OEMs and we estimate our current addressable bill of material at about 600 dollars per system.
Jean-Marc Chery: Lastly, ST is uniquely positioned to address humanoid robotics through our broad portfolio spanning MCUs, MEMS, optical sensors, GNSS, and power management. We are already generating revenues through engagements with major OEMs and we estimate our current addressable bill of material at about $600 per system. Thank you, and we are now ready to answer your question.
Speaker #2: Thank you, and we are now ready to answer your
Operator: We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star one. On the 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 disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question may press star one at this time. Our first question comes from Francois-Xavier Bouvignies from UBS. Please go ahead.
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Speaker #3: Participants are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question may press star and one at this time.
Speaker #3: Our first question comes from François Bouvigny from UBS. Please go ahead.
Speaker #4: Thank you very much. My first question may be for Jean-Marc. I wanted to come back to what you said about the outlook. I mean, if we look at your revenue guidance, down 8.7% quarter on quarter, this is better than seasonal, sorry, which is minus 11%.
Francois-Xavier Bouvignies: Thank you very much. My first question maybe for Jean-Marc, I wanted to come back to what you said about the outlook. I mean if we look at your revenue guidance, down 8.7% quarter-over-quarter, this is below seasonal, better than seasonal, sorry of minus 11% and if we take into account, you know, less days, it's actually significantly above seasonal.
Speaker #4: And if we take into account less days, it's actually significantly above seasonal. So I was wondering, I mean, this is looking quite interesting, and if we compare to other peers like TI yesterday or ADI and Microchip, you see a number of your peers talking about above seasonal.
Jean-Marc Chery: I was wondering, I mean this.
Francois-Xavier Bouvignies: It's looking quite interesting, and if we compare to other peers like TI yesterday, or ADI and Microchip, you see a number of your peers talking about above seasonal. I mean, what's your view on the trajectory from here? Do you think this above seasonal trend can carry on a little bit, or we shouldn't get carried away like we did in the last two years where we had many false starts? Do you see like a very genuine evidence of a cycle recovery from here?
Speaker #4: I mean, what’s your view on the trajectory from here? Do you think this above-seasonal trend can carry on a little bit, or shouldn’t we get carried away like we did in the last two years, where we had many false starts?
Speaker #4: Do you see, like, very genuine evidence of a cycle recovery from here?
Speaker #5: Well, you know, we will not guide for 2026 today. Clearly, but we are confident in our ability to grow organically. For next year, well, it's clear that we enter in a better and healthier situation compared to '25.
Jean-Marc Chery: Well, you know we will not guide for 2026 today, clearly, but we are confident in our ability to grow organically for next year. It's clear that we enter in a better and healthier situation compared to 25. If you remember, last quarter I already shared with you that we were seeing a backlog that were leading during the quarter better than the usual seasonality. And today, with the visibility we have on Q2, that generally speaking, plus let's say low mid single digit. But we absolutely see no reason that we will not be at least capable to deliver it. More important, I think beyond the cycle is to share with you that we see for the company some specific growth drivers. First of all, in automotive, more clearly we will have the sensor.
Speaker #5: If you remember last quarter, okay, I already shared with you that we were seeing a backlog that were leading, okay, during the quarter, better than the usual seasonality.
Speaker #5: And today, with the visibility we have on Q2, that, generally speaking, okay, is plus, let's say, low to mid-single digit. Well, we absolutely see no reason that we will not be at least capable to deliver it.
Speaker #5: Well, more important, I think, beyond the cycle, is to share with you that we see for the company some specific growth drivers. Well, first of all, in automotive, well, clearly, we will have the sensor.
Jean-Marc Chery: At a certain moment when we will complete the acquisition of NXP, of course it will bring additional revenues. This is obvious, but we see also positive momentum on ADAS, ASICs, and the Silicon Carbide. After last year that was pretty challenging. More in industrial, clearly the dynamic is really strong thanks to the inventory correction gone. But more important is our portfolio. So we have done a tremendous effort in introduction of new products in 2025 and 2026. And this will contribute beyond the cycle for personal electronics, our engaged customer program, you know that we have the visibility. Okay, so I confirmed to you. So we confirmed that it will support us beyond the cycle more.
Speaker #5: And at a certain moment, when we will complete the acquisition of NXP, of course, it will bring additional revenues. This is obvious. But we see also positive momentum on ADAS ASICs.
Speaker #5: And the silicon carbide, after last year, that was the pretty challenging. Well, in industrial, clearly, the dynamic is really strong. Well, thanks to the inventory correction gone, but more important, is our portfolio.
Speaker #5: So we have done a tremendous effort in introduction of new products in '25 and '26. And this will contribute beyond the cycle. For personal electronics, our engaged customer program, you know that we have the visibility, okay?
Speaker #5: So I confirm to you. So we confirm that it will support us beyond the cycle. Well, and last but not the least, data center.
Jean-Marc Chery: And last but not the least, data center. More clearly in 2026, cloud optical interconnect, so means both photonics ICs and analog mixing BiCMOS ICs, plus our high performance general purpose microcontroller will contribute because you know that the connectivity engine of the server will move to optical one. So this will be certainly an acceleration. And as well we will start. Okay. To contribute to the power supply unit and to the server, from the grid to the processor. Last, but not the least beyond the cycle in 2026, we see also Low Earth Orbit satellite communication with our engaged customer program. So with our ASICs really positive, this will be a bit offset by the capacity fee reservation. But all in all, I confirm really our confidence level to grow organically in 2026. And because we have, let's say, significant growth driver beyond the cycle of the market.
Speaker #5: Well, clearly, in 2026, cloud optical interconnect—which means both photonics ICs and analog mixing by CMOS ICs, plus our high-performance general purpose microcontroller—will contribute, because you know that the connectivity engine of the server will move to an optical one.
Speaker #5: So this will be certainly an acceleration. And as well, we will start, okay, to contribute to the power supply unit and to the server from the grid to the processor.
Speaker #5: Well, last but not least, beyond the cycle, in '26, we also see low Earth orbit satellite communication. With our engaged customer program and with our ASICs, it's really positive.
Speaker #5: Well, this will be a bit offset by the capacity fee reservation. But all in all, I confirm really our confidence level to grow organically in 2026.
Speaker #5: And because we have let's say significant growth drivers beyond the cycle of the market.
Francois-Xavier Bouvignies: Very clear, thank you, Jean-Marc. Yes, maybe on the gross margin side, I mean with it, I mean obviously it's a concern for the market. The guidance is in line on the gross margin, but 33.7%. But when I look at the consensus, it has 35.6% of gross margin for the year. So it would assume a recovery from here. So with the top line that you described nicely, should we see as well an improvement of gross margin from the level in Q1?
Speaker #4: Very clear. Thank you, Jean-Marc. And yes, maybe on the gross margin side, I mean, with it, I mean, obviously, it's a concern for the market.
Speaker #4: You deliver the guidance in line on the gross margin, but 33.7. But when I look at the consensus, it has 35.6% gross margin for the year.
Speaker #4: So it would assume a recovery from here. So with the top line yet to describe nicely, should we see as well an improvement of gross margin from the level in
Speaker #4: Q1? Maybe I take
Lorenzo Grandi: Maybe I take this one, as a remark about the gross margin.
Speaker #3: this one, Jean-Marc. About the gross margin, today, of course, gross margin will depend on the evolution of the revenue in the course of the year, as explained by Jean-Marc.
Operator: Today.
Lorenzo Grandi: Of course, gross margin will depend on the evolution of the revenue in the course of the year. As explained by Jean-Marc. We expect, let's say, to increase. But the gross margin today that we see in Q1 we believe is clearly the lowest point in this expectation of 33.7%. So we will see some increase. This increase is also driven by the fact that we expect to have constant reduction in our unloaded charges during the year. So we expect some mild increase for the second quarter and then a more significant increase also driven by the seasonality of the revenues in the second half of the year. Yes, at this stage we can say that the expectation for us is to have increase in our gross margin all over the year.
Speaker #3: We expect that, let's say, to increase. But the gross margin today that we see in Q1, we believe is clearly the lowest point in the year.
Speaker #3: This expectation of 33.7. So we will see some increase. This increase is also driven by the fact that we expect to have a constantly reduction in our unloading charges during the year.
Speaker #3: So we expect some mild increase in for the second quarter. And then a more significant increase also driven by the seasonality of the revenues in the second half of the year.
Speaker #3: Yes, at this stage, we can say that the expectation for us is to have an increase in our gross margin all over the year.
Francois-Xavier Bouvignies: Okay, thank you.
Speaker #4: Very clear. Thank you. Thank
Jerome Ramel: Thank you.
Speaker #1: you. Thank you for talking, Xavier. Moira, next question, please.
Operator: Thank you.
Jean-Marc Chery: Francois Davier.
Jerome Ramel: Maura. Next question please.
Operator: The next question comes from Andrew Gardiner from Citi.
Speaker #6: The next question comes from André Gardiner from Citi. Please go
Sandeep Deshpande: Please go ahead.
Speaker #6: ahead. Thank you for the
Andrew Gardiner: Thank you for the question. Good morning.
Speaker #4: Good morning, all. I was interested, Jean-Marc, in digging a bit deeper into the automotive space. Clearly, your largest end market and the one where we're still seeing the most difficulty in terms of getting through the bottom of this cycle.
Francois-Xavier Bouvignies: All right.
Andrew Gardiner: I was interested, Mark, in digging a bit deeper into the automotive space. Clearly your largest end market and the one where we're still seeing the most difficulty in terms of getting through the bottom of this cycle. There's a number of sort of end market data points out there that are still causing investors questions in terms of the health of the market, tariff threats back and forth, admittedly, but also not helping. I'm just wondering how can you give us a bit more detail in terms of how you're seeing your customers behave? Do you think inventory is absolutely at a bottom in terms of the automotive channel and at the OEMs and the Tier 1s? What kind of confidence do you have as we look into the future quarters that we can return to stronger demand trends?
Speaker #4: There’s a number of sort of end-market data points out there that are, I suppose, still causing investors questions in terms of the health of the market.
Speaker #4: threats back and forth, admittedly, Tariff but also not helping. I'm just wondering how can you give us a bit more detail in terms of how you're seeing your customers behave?
Speaker #4: Do you think inventory is absolutely at a bottom in terms of the automotive channel and at the OEMs and the tier ones? What kind of confidence do you have as we look into the future quarters that we can return to stronger demand trends?
Speaker #3: Well, first of all, okay, clearly, when we see working for revenue in automotive, it was slightly below our expectation, and mainly, in fact, driven by the pull-in from inventory, a little bit lower than expected.
Jean-Marc Chery: Well, first of all, okay, clearly when we see our Q4 revenue in automotive, it was slightly below our expectation and mainly in fact driven by the pulling from inventory a little bit lower than expected from some Tier 1. Well, it means that the automotive market for, let's say, legacy application clearly is pretty soft. Inventory correction is certainly gone, but there is a kind of softness of this kind of application. But what will be positive on automotive is clearly what is around electronic architecture. The new software-defined electronic architecture calling for more complex MPU MCUs. Definitely, so this will be important growth driver. But we know that the electrical power trend will be still an important driver.
Speaker #3: From some tier one. Well, this means that the automotive market for, let's say, legacy application, clearly, is pretty soft. Inventory correction is certainly gone.
Speaker #3: But there is a kind of softness in this kind of application. Well, what will be positive on automotive is clearly what is around, let's say, electronic architecture—the new software-defined electronic architecture—calling for more complex MPUs, MCUs, definitively.
Speaker #3: So this will be an important growth driver. Well, we know that the electrical power trend will still be an important driver, but here it is more the competitive landscape that has changed completely compared to a few years ago, because you see that out of, let's say, more than 30 million vehicles produced in China, more than half are battery-based.
Jean-Marc Chery: But here it is more the competition landscape that changed completely compared to a few years ago because you see that out of, let's say, more than 30 million vehicles produced in China, more than half are battery-based compared to America where it is more marginal in terms of production, and in Europe it is below 1/3. So here is more a question of the competition is in China. So you know that in China it is more complex, okay, to compete. But the powertrain electronics, the demand is there. So all in all, I think the automotive market based on 92-93 million vehicles out of which 17 to 18 million vehicles battery-based and similar number in hybrid is still changing in terms of mix as well. From the car classification is more middle-end or premium car. Even this car now embed some electronics.
Speaker #3: Compare, okay, to America where it is more marginal in terms of production and in Europe it is below one third. So here is more a question of the competition is in China, so you know that in China is more complex, okay, to compete.
Speaker #3: But the power trend in electronics, the demand is there. So all in all, I think the automotive market, based on 90, 92, 93 million vehicles, out of which 17 to 18 million vehicles are battery-based and a similar number in hybrid, is still changing in terms of mix. Also, from the car classification, it is more middle-end or premium cars—even these cars now, on both, have some electronics. So the market is not yet stable.
Jean-Marc Chery: So the market is not yet stable. So that the reason why we have to be, let's say, cautious to adapt ourselves. But we, we see a different situation compared entering in 2025 where we face very strong inventory correction in Q1 last year. If you remember from our main customer, this will not be repeated. It is more, let's say, a progressive stabilization of the market in terms of mix of car, electrical, hybrid, thermal combustion engine, and mix of car between high premium, premium, and middle class, and mix between China, Asia Pacific, Europe, and Asia. So this is something we have to of course closely monitor and adapt ourselves with our supply chain. So this is how we see the automotive market.
Speaker #3: So that's the reason why we have to be let's say cautious to adapt ourselves. But we see a difference situation compare entering in '25 where we face very strong inventory correction in Q1 last year.
Speaker #3: If you remember, from our main customer, well, this will not be repeated. It is more, let's say, a progressive stabilization of the market in terms of mix of car, electrical, hybrid, thermal combustion engine, and mix of car between high premium, premium, and middle class.
Speaker #3: And mix between China APEC, Europe, and Asia. So this is something we have to, of course, closely monitor and adapt ourselves with our supply chain.
Speaker #3: So this is how we see the automotive
Speaker #3: market. Thank you, Jean-Marc.
Andrew Gardiner: Thank you so much. Just a quick follow-up given you mentioned China at length there. How is the partnership with Sanan progressing? Is that going as you anticipated? Is it helping your competitiveness in that market or is it still too early?
Speaker #4: Just a quick follow-up, given you mentioned China at length there. How is the partnership with SANAN progressing? Is anticipated? that going as you market, or is it still too
Speaker #4: Just a quick follow-up, given you mentioned China at length there. How is the partnership with SANAN progressing? Is anticipated? that going as you market, or is it still too early?
Jean-Marc Chery: No, clearly. So we will start to ramp up the facilities now. Okay. We have modeled, we know exactly the efficiency of this fab, and clearly it will be a key success factor in our capability to compete on the Chinese market. Thank you.
Speaker #3: No, clearly. So, we will start to ramp up, okay, the facilities now. Okay, we have modalized, we know exactly the efficiency of this swap.
Speaker #3: And clearly, it will be a key success factor in our capability to compete on the Chinese market.
Speaker #4: Thank
Speaker #4: ank you. Thank you,
Lorenzo Grandi: Thank you.
Speaker #1: Andrew: Moira, can we move to the next?
Jean-Marc Chery: Andrew Mora.
Jerome Ramel: Can we move to the next question please?
Speaker #1: Question, please? The next question comes from...
Operator: The next question comes from Joshua Buchalter from TD Cowen. Please, go ahead.
Speaker #6: Joshua Buchhardt there from TD Cowan. Please go ahead.
Joshua Buchalter: Hey guys, thank you for taking my questions. I actually wanted to drill into the personal electronics segment a little bit more. You know, I think there's some concerns of disruption or even pull ins in the short term due to higher memory costs. You know, it came in better in the quarter. Maybe you could walk through what the drivers you're seeing are there and if you're seeing any changes in order pattern, and I believe it called out, you know, higher silicon content in 2026. Was that referring to expectations for your largest customer this year?
Speaker #7: Hey, guys. Thank you for taking my questions. I actually wanted to drill into the personal electronics segment a little bit more. I think there are some concerns about disruption or even pull-ins in the short term due to higher memory costs.
Speaker #7: It came in better in the quarter. Maybe you could walk through what the drivers you're seeing are there, and if you're seeing any changes in order pattern.
Speaker #7: And I believe you'd called out higher silicon content in 2026. Was that referring to expectations for your largest customer this year? Thank
Speaker #7: And I believe you'd called out higher silicon content in 2026. Was that referring to expectations for your largest customer this year? Thank you. Well,
Jean-Marc Chery: Thank you. Yes. You know that our revenues are mainly driven by our biggest customer and more on the high end kind of product which are to some extent less sensitive to the memory price. So at this stage with the visibility we have, first of all, we don't see significant impact detected by us. And I confirm that we expect to keep growing in personal electronics driven by our main customer in 2026. Thanks to our increased device based on silicon and not module content increase in 2025. So far PE will be a growth driver for us in 2025.
Speaker #3: Yes, you know that our revenues are mainly driven by our biggest customer, and more on the high-end kind of product, which are, to some extent, less sensitive to the memory price.
Speaker #3: So, at this stage, with the visibility we have, first of all, we don’t see significant impact detected by us. And I confirm that we expect to keep growing in personal electronics.
Speaker #3: Driven by our main customer in 2026, thanks to our increased devices based on silicon and not modules, content increases in '26. So far, PE will be a growth driver for us in—
Speaker #3: '26. Thank you
Joshua Buchalter: Thank you for the color there.
Speaker #7: for the caller there. And then I think the last couple of quarters you've been kind enough to give us your book-to-bill ratios in auto and industrial.
Sandeep Deshpande: And then, you know, I think the.
Joshua Buchalter: Last couple quarters you've been kind enough to give us your book-to-bill ratios in auto and industrial. You know, it seems like things are getting better on the industrial side in particular.
Speaker #7: It seems like things are getting better on the industrial side in particular. Can you update us, I guess, on those metrics and whether you're mostly done with the channel inventory clearing on the industrial side?
Lorenzo Grandi: Can you update us, I guess, on?
Joshua Buchalter: Those metrics and whether you're mostly done with the channel inventory clearing on the industrial side.
Speaker #7: Thank you, and congrats on the solid results.
Lorenzo Grandi: Thank you.
Joshua Buchalter: And congrats on the solid results.
Jean-Marc Chery: No, in Industrial the book-to-bill was well above parity. Clearly. Also, beyond your question, I can tell you that the POS were growing, let's.
Speaker #3: No, in industrial, the book-to-bill was well above parity. Clearly, also beyond your question, I can tell you that the POS were growing between notice meetings, which is a good news.
Francois-Xavier Bouvignies: Say.
Jean-Marc Chery: Between low teams meetings, which is good news. So we continue to decrease our inventory. But on automotive, the book-to-bill is a little bit more complex because we have some few key customers that are putting orders in one shot for six months. So the book-to-bill must be, say, assessed on the one-year moving average or six-month moving average. So, corrected from this, let's say abnormal, let's say process. The book-to-bill was parity on automotive. Got it.
Speaker #3: So we continue to decrease our inventory. But on automotive, the book-to-bill is a little bit more complex because we have some few key customers that are putting orders in one shot for six months.
Speaker #3: So, the book-to-bill must be assessed on a one-year moving average or six-month moving average. So, corrected from this abnormal process, the book-to-bill was parity on automotive.
Speaker #7: Got it. Thank you.
Operator: Thank you.
Jean-Marc Chery: Thanks Josh.
Speaker #1: Thanks, Josh. Moira, next question,
Jerome Ramel: Maura, next question please.
Speaker #6: The next question comes from Stefan Uri from Odo BHF. Please go ahead.
Operator: The next question comes from Stephane Houri from Oddo BHF. Please go ahead.
Speaker #6: ahead. Yes, hello.
Stephane Houri: Yes, hello. Good morning. Thank you for taking the question. I just wanted to come back a bit on the scenario for the year, and I know you're not guiding, but historically you've been saying that the second half is like 15% above the first half. That's the normal seasonality. And then on the top of that you may have some specific programs with the starting point you guide on Q1. And when we look at, when I look at the consensus for the full year, it seems to be banking on something lower than that because of the starting point in Q1. So can you just confirm that you see now that the inventory correction is done, normal seasonality throughout the year, and maybe give some comments about the additions of some customer engaged program.
Speaker #8: Good morning. Thank you for taking the question. I just wanted to come back a bit on the scenario for the year. And I know you're not guiding.
Speaker #8: But historically, you've been saying that the second half is like 15% above the first half. That's the normal seasonality. And then on the top of that, you may have some specific programs.
Speaker #8: With the starting point you guide on Q1 and when we look at when I look at the consensus for the full year, it seems to be banking on something lower than that because of the starting point in Q1.
Speaker #8: So can you just confirm that you see now that the inventory correction is done, normal seasonality throughout the year, and maybe give some comments about the additions of some customer-engaged program?
Speaker #8: Thank you.
Jean-Marc Chery: Thank you. On inventory correction, what we communicated. Okay, I know. Lorenzo myself is to say by end of Q2 we do believe will be halt the excess of inventory and this today. Okay, I can confirm this would be the case. It's already the case for many product family. We are still here and there some pocket of excess inventory versus what we consider a standard. But looking the current dynamic POS pop by end of Q2 this will be gone. So now it's sure that in H2 will be exposed directly to the end market about again what we consider engaged customer program beyond the cycle. Let's say we can split into two major ones. Three, I have to say. One is the usual personal electronics. And why we say it's beyond the cycle is because silicon content increase.
Speaker #3: No, on inventory correction, what we communicated—either Lorenzo or myself—is to say, by end of Q2, we do believe we'll have halved the excess of inventory.
Speaker #3: And this, today, I can confirm this would be the case. It's already the case for many product families. We still have, here and there, some pockets of excess inventory versus what we consider a standard.
Speaker #3: But looking at the current dynamic—POS, POP—by the end of Q2, this will be gone. So now it's sure that in H2, we'll be exposed directly to the end demand.
Speaker #3: Well, about again, what we consider engaged customer program beyond the cycle, let's say we can split in two major ones. Three, I have to say.
Speaker #3: Well, one is the usual personal electronics. And why we say it's beyond the cycle is because silicon content increased. So we have the visibility.
Jean-Marc Chery: Okay, so we have the visibility with the current visibility we have. Okay, so this will help us to go beyond the cycle of personal electronics. And assuming our main customer will perform in market share as he really well performed in 2025, okay, so this will drive our growth, then moving to clearly communication equipment and computer peripheral communication equipment. Communication equipment. It is clear that for ST, the Low Earth Orbit satellite communication is important driver because thanks to our capability to supply and compete, our growth is driven by our largest customer in this field of activity. And as far as we see is pretty successful. And certainly this year will be another demonstration of the success. Now since two quarters we are supporting our second largest customer that is growing as well. So it is clearly beyond the cycle.
Speaker #3: With the current visibility we have, this will help us to grow beyond the cycle of personal electronics. And assuming our main customer will perform in market share as he really well performed in 2025, this will drive our growth.
Speaker #3: Well, then moving to communication equipment and computer peripherals. Communication equipment: it is clear that for ST, low Earth orbit satellite communication is an important driver.
Speaker #3: Because thanks to our capability to supply and compete our growth is driven by our largest customer in this field of activity. And as far as we see is pretty successful.
Speaker #3: And certainly this year, we'll be another demonstration of the success. Now, since two quarters we are supporting our second largest customer, that is growing as well.
Speaker #3: So, it is clearly beyond the cycle. So this will be a significant growth driver beyond the cycle for ST. Well, last but not least is AI data center.
Jean-Marc Chery: So this will be a significant growth driver beyond the cycle for ST. Last but not the least is AI data center. You know that on AI data center, okay, we were, let's say, a bit in delay for what we call the device addressing the power stage. But here we are in, let's say, a process to previously close the gap and offer solution to our customer. But clearly where we will be at.
Speaker #3: Well, you know that on AI data center, we were a bit in delay for what we call the device addressing the power stage. But here we are in process to progressively to our customer.
Speaker #3: close the gap and offer solution But clearly, where we will be at read of the business dynamic is in the optical engine of the cloud optical interconnect.
Francois-Xavier Bouvignies: Red.
Jean-Marc Chery: Of the business dynamic. It is in the optical engine of the cloud. Optical interconnect so means photonics, ICs, BiCMOS ICs and high performance general microcontroller. And this will contribute to the growth of ST significantly in 2026 beyond the cycle, then moving to the more, let's say, traditional market focus we have. So automotive and industrial, more ADAS ASIC, last year was a challenging one because we saw some inventory correction on, let's say, some legacy ASIC. But this year, okay, clearly with the visibility we have, this will be a booster of growth. Finally, our SiC MOS for the difficult year of 2025 will grow again. And I can confirm to you that up to now in Q1 we have a good book-to-bill on the Silicon Carbide that is very encouraging and definitely our sensor contribution.
Speaker #3: So, means photonics ICs, by CMOS ICs, and high-performance general microcontroller. And this will contribute to the growth of ST significantly in 2026, beyond the cycle.
Speaker #3: Well, then moving to the more traditional market focus we have—so automotive and industrial. Well, ADAS, ASIC, last year was a challenging one because we saw some inventory correction on, let's say, some legacy ASIC.
Speaker #3: But this year, clearly, with the visibility we have, this will be a booster of growth. Finally, our SiC MOSFET—about the difficult year of '25—will grow again.
Speaker #3: And I can confirm to you that, up to now in Q1, we have a good book-to-bill on the silicon carbide that is very encouraging.
Speaker #3: And definitely our sensor contribution with the acquisition of NXP MEMS plus the existing imaging sensor and existing MEMS we have. Well, and I am very pleased that beyond the inventory correction done on general purpose microcontroller, the proliferation of our new products are really paying back very well.
Jean-Marc Chery: With the acquisition of NXP MEMS, plus the existing imaging sensor and existing MEMS we have. I am very pleased that beyond the inventory correction done on general purpose microcontroller, the proliferation of our new products are really paying back very well. I am really confident that in 2027 we come back to our historical market share and 2026 will be an important step to demonstrate it. This is basically in a few words how we can describe 2026.
Speaker #3: And I am really confident that in 2027, we come back to our historical market share. And '26 will be an important step to demonstrate it.
Speaker #3: So this is basically in a few words how we can describe
Speaker #3: '26. Okay.
Stephane Houri: Okay, thank you very much. Jean-Marc. Maybe I have a small follow-up on the gross margin comments. I think last quarter you said that you think you would end up Q4 2026 above the level of Q4 2025 in gross margin. Do you still feel confident with the... with what you see developing, the mix, the underloading charges, etc., etc.
Speaker #4: Thank you very much, Jean-Marc. Maybe I have a small follow-up on the growth margin comments. I think last quarter you said that you think you would end up Q4 2026 above the level of Q4 2025 in growth margin.
Speaker #4: Do you still feel confident with what you see developing—the mix, the underloading charges, etc., etc.?
Speaker #5: Yeah. Yes. I confirm that at this stage, the expectation is that Q4 this year, '26, '26 should be better than Q4 '25.
Speaker #5: Yeah. Yes. I confirm that at this stage, the expectation is that Q4 this year, '26—'26 should be better than Q4 '25. Thank you.
Lorenzo Grandi: Yeah. Yes, I confirm that at this stage the expectation is that Q4 this year 2026 should be better than Q4 2025.
Jean-Marc Chery: Okay, very clear.
Speaker #4: Very clear. Thank you very much.
Stephane Houri: Thank you very much.
Jerome Ramel: Thank you. Stephane Houri, next question please.
Speaker #5: you, Stefan. Moira, next question, please.
Speaker #6: The next question comes from Domenico Angilotti from Equita. Please go ahead.
Operator: The next question comes from Domenico Ghilotti from Equita. Please go ahead.
Speaker #7: Good morning. A couple of questions. The first is on the unloaded charges. You are guiding for a significant drop in Q1. Trying to understand, so despite the lower sales, I'm trying to understand if you see these numbers at the bottom, and if you are already benefiting from, let's say, the efficiency plan that you carried out.
Lorenzo Grandi: Good morning. A couple of questions. The first is on the unused charges. You are guiding for a significant drop in Q1, and I'm trying to understand. So despite the lower sales, I'm trying to understand if you see this number at the bottom and if you are already benefiting from the efficiency plan that you carried out. And second is some color on, if you can, on the second client in low Earth orbit. So should we assume that is a significant number or just that they're starting entrance of any new clients or add on, but not particularly relevant. Maybe I take one of the unused charges. Yes, unused charges are declining in the first quarter. There are. The main ingredient of the declining in this quarter is the fact that, as you know, we are progressing with our programs to reshaping our manufacturing infrastructure.
Speaker #7: And second is some color on if you can on the second client in low Earth orbit. So should we assume that it is a significant number or just that it's starting entrance of a new client or an add-on but not particularly
Speaker #7: relevant? Maybe I take the
Speaker #5: one of the unused charges. Yes, unused charges are declining. In the first quarter, there are there is the main ingredient of the declining in this quarter is the fact that, as you know, we are progressing with our programs to reshaping our manufacturing infrastructure.
Lorenzo Grandi: This program is progressively reducing our capacity in 6-inch for silicon carbide, 150-millimeter for silicon carbide, and 200-millimeter for silicon. We started, let's say, too to move ahead on this plant. This is, if you want, something that is mechanical. At the end, the capacity is reduced. We are now moving our product on the existing capacity on one side, 8-inch for the silicon carbide and 300-millimeter for the silicon. That's why we see the level of unused capacity notwithstanding that the revenue are lower in respect to the previous quarter. To reduce this trend will continue. Unused capacity will not disappear in the year, but will significantly reduce in the year, and will be one driver for our improvement in the gross margin in the course of 2026.
Speaker #5: This program is progressively reducing our capacity in 6-inch for silicon carbide, 150-millimeter for silicon carbide, and 200-millimeter for silicon. And we started, let's say, to move ahead on this plan.
Speaker #5: So this is, if you want, something that is mechanical. At the end, the capacity is reduced. We are now moving our product on the existing capacity: on one side, 8-inch for the silicon carbide, and 300 millimeter for the silicon. So that’s why we see the level of unused capacity, notwithstanding that the revenues are lower in respect to the previous quarter, to reduce.
Speaker #5: This trend will continue. Unused capacity will not disappear in the year, but will significantly reduce in the year and will be one driver for our improvement in the gross margin in the course of 2026.
Speaker #3: Well, about the second question—yes, it's significant. If not, we would not mention it. But I can just confirm two numbers for you. In Q4, our CCP segment grew sequentially by 23%.
Jean-Marc Chery: About the second question. Yes, it's significant. If not, we will not mention, but I can just confirm you two numbers. In Q4, our CCP segment grew sequentially 23% and year over year, 22% definitively. It is linked to the low earth orbit satellite business we have and it is driven both by our first customer and then by the second one. So at 22, 23% growth sequential and year over year, so you can conclude it is significant.
Speaker #3: And year over year, 22%. Definitely it is linked to the low Earth orbit satellite business we have. And it is driven both by our first customer and then by the second one.
Speaker #3: So, at 22, 23% growth sequential and year over year, so you can conclude it is—
Speaker #3: significant. Thank
Speaker #4: Thank you.
Stephane Houri: Thank you.
Operator: Thank you.
Speaker #4: Moira, next question, you.
Jerome Ramel: Next question please.
Speaker #4: please. The next question
Operator: The next question comes from Sandeep Deshpande from J.P. Morgan. Please go ahead.
Speaker #6: comes from Sandeep Deshpande from JPMorgan. Please go
Speaker #6: ahead. Hi.
Sandeep Deshpande: Hi, thanks for letting me on. My question is about your fab loading into the current quarter. Given what is happening with the gross margin in the current quarter, how is the fab loading going through in the quarter, and how is the mix shifting overall in terms of the gross margin? Because you have a revenue decline, but the gross margin is declining. So are you reducing your fab loading this quarter? Are you increasing your fab loading? And my follow up question associated with that is how the mix particularly associated with your better margin, microcontroller products is.
Speaker #8: Thanks for letting me on. My question is about your fab loading into the current quarter. Given what is happening with the gross margin in the current quarter, how is the fab loading going through in the quarter?
Speaker #8: And how is the mix shifting overall in terms of the growth margin? Because you have a revenue decline, but the growth margin is declining.
Speaker #8: So, are you reducing your fab loading this quarter? Are you increasing your fab loading? And my follow-up question associated with that is, how is the mix, particularly associated with your better-margin microcontroller products, shifting?
Operator: Shifting.
Sandeep Deshpande: In the quarter.
Speaker #5: In the quarter, as I was saying before, the unloading charges is mainly related to the fact that we are moving out capacity, reducing capacity in certain specific fabs.
Lorenzo Grandi: As I was saying before, the unloading charges is mainly related to the fact that we are moving out capacity, reducing capacity in certain specific fabs, where of course we are now moving production in different fabs and 300 millimeters, so reducing our capacity. So at the end, when you look at the level of loading, we are not overloading our production, let's say, in the quarter. Clearly, if you look at the inventory and you look at where it will be, the dynamic of the inventory in the quarter, as usual, you know that there is this seasonality in our inventory in which in the first half our inventory is somehow increasing and then decreasing in the second part of the year.
Speaker #5: Where, of course, we are now moving production in different fabs, 300 millimeters. So reducing our capacity. So at the end, when you look at the level of loading, we are not overloading our production in the quarter.
Speaker #5: Clearly, if you look at the inventory and you look at where it will be, the dynamic of the inventory in the quarter, as usual, you know that there is this seasonality in our inventory, in which in the first half, our inventory is somehow increasing and then decreasing in the second part of the year.
Speaker #5: So at the end, what it will be, the impact is that now the expectation is to end the quarter Q1 in the range of 140 days of inventory compared to the 130 days where we stand today.
Lorenzo Grandi: So at the end, what it will be the impact is that now the expectation is to end the quarter Q1 in the range of 140 days of inventory compared to the 130 days where we stand today. But I repeat that this is more related, let's say, to the normal dynamic of our inventory over the year than, let's say, loading. Our manufacturing infrastructure in a way that is the impact on unloaded charges is mainly related to the fact that we started with our programs to reduce capacity in some specific area. Clearly the impact, the positive impact, let's say, of this in terms of gaining efficiency and so on will come probably later.
Speaker #5: But I repeat, this is more related, let's say, to the normal dynamic of our inventory over the year. Then, let's say, loading our manufacturing infrastructure in a way that is the impact on unloading charges is mainly related to the fact that we started with our programs to reduce capacity in some specific area.
Speaker #5: Clearly, the impact—the positive impact, let's say—of this in terms of gaining efficiency and so on will come probably later, as you know, in our, let's say, manufacturing infrastructure.
Lorenzo Grandi: As you know, in our, let's say, manufacturing infrastructure we do expect our program to be to start to yield a positive impact in our manufacturing, in our manufacturing efficiency more in 2027 than this year. But one of the impact that visible is the reduced level of unloading together also with the expectation of growth in terms of revenues. These we will see during the year, let's say, depending on the level of growth.
Speaker #5: We do expect our program to be to start to yield positive impact in our manufacturing in our manufacturing efficiency more in 2027 than this year.
Speaker #5: But one of the impacts starts visible is the reduced level of unloading. Together also with the expectation of a growth in terms of revenues.
Speaker #5: This we will see during the year, let's say, depending on the level of growth.
Speaker #8: And my follow-up question is regarding your microcontroller business, which is: if you look at your Embedded Processing segment, it grew 1.2% year-on-year.
Sandeep Deshpande: My follow-up question is regarding Zanmark about your microcontroller business, which is, if you look at the embedded processing segment, it grew 1.2% year-on-year. I mean, many of your peers in this market are seeing better growth at this point. So why is ST's growth in a key segment for ST lagging at this point, or something else happening in that division?
Speaker #8: I mean, many of your peers in this market are seeing better growth at this point. So, why is ST growth in a key segment for ST lagging at this point? Or is something else happening in that?
Speaker #8: division? Those
Jean-Marc Chery: The embedded processing segment. Clearly the growth dynamic we have on the general purpose microcontroller is, let's say, at least consistent with our peers. Why it is a little bit offset. It is offset by our automotive microcontroller because, okay, up to now, our automotive microcontroller are more the microcontroller that will be, let's say, for some model of.
Speaker #3: are embedded processing segment. Clearly, the growth dynamic we have on the general purpose microcontroller is, let's say, at least consistent with our peers. Why it is a little bit offsetted?
Speaker #3: It is offsetted by our automotive microcontroller because, okay, up to now, our automotive microcontrollers are more the microcontrollers that will be, let's say, for some model of car moving to the software-defined vehicle architecture removed.
Joshua Buchalter: Car.
Jean-Marc Chery: Moving to the software-defined vehicle architecture removed. Clearly, I already explained that we have done a strong effort in 2025 to rework the roadmap of our micro, but this will be payback. Okay, more, let's say end of 2027 and 2028 for the time being. Yes, we suffer on the automotive microcontroller that is, let's say, actually offsetting the real good health of the general purpose. But the general purpose microcontroller, let's say maybe I can share with you one number. Okay. For Q1, the embedded processing solution segment will grow up low 30s, so above 30% year-over-year. So you can imagine that the growth of general purpose will be really, really strong, more than, let's say, the secure microcontroller are growing a little bit less because driven by the market, and okay, of course we have some offset linked to the automotive micro.
Speaker #3: Clearly, and I already explained that we have done a strong effort in 2025 to rework the roadmap of our micro, but this will be payback, okay, more, let's say, end of '27 and '28 for the time being.
Speaker #3: Yes, we suffer on the automotive microcontroller. That is, let's say, optically offsetting the real good health of the general purpose. But the general purpose microcontroller let's say maybe I can share with you one number, okay, for Q1.
Speaker #3: The embedded processing solution segment will grow up low 30s, so above 30% year over year. So you can imagine that the growth of general purpose will be really, really strong—more than, let's say, the secure microcontroller, which are growing a little bit less because driven by the market.
Speaker #3: And okay, of course, we have some offset linked to the automotive micro. But I can confirm to you that our general purpose microcontrollers are performing—overperforming—the
Jean-Marc Chery: But I can confirm to you that our general-purpose microcontroller outperforming or overperforming the market.
Speaker #3: market. Thank
Sandeep Deshpande: Thank you.
Speaker #8: you. Thank you, Sandeep.
Jean-Marc Chery: Thank you.
Jerome Ramel: Sandeep Deshpande. I think we have time for one more question.
Speaker #4: Moira, I think we have time for one more question.
Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Please go ahead.
Speaker #9: Chevreux. Please go The next question comes from Sebastian Startovic from Kepler ahead.
Speaker #10: Yeah, hi everyone. Thanks for taking my question. Coming back to the transformation program, have you made any specific progress so far? And notably on the manufacturing front, and are you still on track to reach your savings ambition for the end of '27?
Jean-Marc Chery: Yeah. Hi everyone, and thanks for taking my question. Coming back to the transformation program, have you made any specific progress so far, and notably on the manufacturing front, and are you on track to reach your savings ambition for the end of 2027? And the second one is more on the OPEX trend. So Q1 we know where it will stand, but for the full year where do you see OPEX trending, and how do you see the startup cost impacting the OPEX or other things? Do you plan to accelerate a little bit further the cost cutting actions for OPEX? Thank you.
Speaker #10: And the second one is more on the OPEX trend. So Q1, we know where it will stand. But for the full year, where do you see OPEX trending?
Speaker #10: And how do you see the startup cost impacting the OPEX 2026? Do you plan to accelerate a little bit further the cost-cutting actions for OPEX?
Speaker #10: Thank
Speaker #10: you. In terms
Lorenzo Grandi: In terms of our reshaping programs, I would say that is progressing in line with the expectation in the course of 2025. The main, let's say, impact was related to the savings in our OpEx, that indeed, when you look at the overall declining, notwithstanding, let's say, the negative impact of the euro-dollar. So at this stage, in the course of 2026, as I said, we will start, let's say, progressively to transfer some activity from silicon carbide to 8-inch silicon to the 300-millimeter, as I was saying before. This is now expected to yield the benefit in our manufacturing infrastructure efficiency of this program toward the second part of 2027 and 2028. So my short answer here: Yes, we are on track in respect of what we have communicated previously.
Speaker #3: Of our reshaping programs, I would say that this is progressing in line with expectations. In the course of 2025, the main, let's say, impact was related to our savings in OPEX.
Speaker #3: That indeed, when you look at the overall declining, notwithstanding, let's say, the negative impact of the euro dollars. So at this stage, in the course of 2026, as I said, we will start, let's say, progressively to transfer some activity from silicon carbide to a tinge in silicon to the 300 millimeter.
Speaker #3: As I was saying before, it is now expected to yield the benefit in our manufacturing infrastructure efficiency of this program toward the second part of 2027 and 2028.
Speaker #3: So my short answer here is yes, we are on track in respect to what we have communicated previously. So this is the situation. In respect to the expenses of 2026, for now they are substantially the same, meaning our expectation remains that at the end, at this level of exchange rate, including the impact of the hedging, we should be able to stay with a net OPEX—meaning including other income and expenses—on a low single-digit increase, something in that range.
Lorenzo Grandi: So this is the situation irrespective of the expenses of 2026, but now the expectation remains substantially the same, meaning that at the end this level of exchange rate, including the impact of the hedging, we should be able to stay with a net OPEX, meaning including other income and expenses, on a low single-digit increase. Something in that range, mainly driven by the fact that we will have a reduction in other income and expenses in respect to the one of 2025 due to the phase-out cost. Because of course, let's say from the one side we reduce the capacity in our manufacturing 6-inch, 8-inch. But on the other side we have a progressive phase-out from these steps that will be reported in this line. It's a temporary effect, but it will be there during 2026. Okay, thank you, thank you.
Speaker #3: Mainly driven by the fact that we will have a reduction in other income and expenses in respect to the one of 2025 due to the phase-out cost because, of course, let's say from one side we reduce the capacity in our manufacturing—6-inch, 8-inch.
Speaker #3: But on the other side, we have a progressive phase-out from this step that will be reported in this line. It's a temporary effect, but it will be there during the
Speaker #3: 2026.
Speaker #10: Okay, thank you. Thank
Speaker #4: Thank you, Sebastian. And thank you, everyone. I think this is ending our call for this quarter, so thanks very much to all of you for being there.
Jerome Ramel: Thank you, Sebastien, and thank you, everyone. I think this is ending our call for this quarter.
Jean-Marc Chery: So, thanks very much, all of you.
Jerome Ramel: For being there, and we remain here at your disposal should you need any follow-up questions.
Speaker #4: And we remain here at your disposal should you need any follow-up questions. Thank
Jean-Marc Chery: Thank you.
Speaker #4: you. Ladies
Operator: Ladies and gentlemen.
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