Q2 2026 STMicroelectronics NV Earnings Call

July 23, 2026

Speaker #1: You will hear.

Operator: Ladies and gentlemen, welcome to the STMicroelectronics Q2 2026 earnings release conference call and live webcast. I am Moira, the conference 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 and one on your telephone. 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 Jérôme Ramel, EVP Corporate Development and Integrated External Communications. Please go ahead.

Operator: Ladies and gentlemen, welcome to the STMicroelectronics Q2 2026 Earnings Release Conference Call and Live Webcast. I am Moira, the conference 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 and one on your telephone. 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 Communications. Please go ahead.

Speaker #2: Ladies and gentlemen, welcome to the STMicroelectronics Q2 2026 earnings release conference call and live webcast. I am Moira DiCarusco, the operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded.

Speaker #2: The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone.

Speaker #2: For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications.

Speaker #2: Please go ahead.

Speaker #3: Thank you, Moira, and thank you, everyone, for joining our Q2 2026 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer.

Jérôme Ramel: Thank you, Moira, and thank you everyone for joining our Q2 2026 financial result call. Hosting the call today is Jean-Marc Chéry, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO, Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensors Group, and Head of STMicroelectronics Strategy, System Research and Application and Innovation office, and Rémy El-Ouazzane, President, Microcontrollers, Digital ICs and RF products Group. 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.

Jerome Ramel: Thank you, Moira, and thank you everyone for joining our Q2 2026 Financial Result Call. Hosting the call today is Jean-Marc Chéry, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO, Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensors Group, and Head of STMicroelectronics Strategy, System Research and Application and Innovation office, and Remi El-Ouazzane, President, Microcontrollers, Digital ICs and RF products Group. 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: Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO; Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensor Group, and Head of STMicroelectronics Strategy, System Research, and Application and Innovation Office.

Speaker #3: And Rémi El-Ouazzane, President, Microcontrollers, Digital IT and RF Product Group. This live webcast and presentation materials can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call.

Speaker #3: This call will include forward-looking statements that involve risk factors that could cause ST's 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's most recent regulatory filing, for a full description of these risk factors.

Jérôme 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 filing for a full description of this risk factor. 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. I'd like to turn the call over to Jean-Marc Chéry, ST President and CEO.

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 filing for a full description of this risk factor. 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. I'd like to turn the call over to Jean-Marc Chéry, ST President and CEO.

Speaker #3: 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.

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

Speaker #4: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q2 2026 earnings conference call. I will start with an overview of Q2, including business dynamics.

Jean-Marc Chéry: Thank you, Jérôme. Good morning, everyone, and thank you for joining ST for our Q2 2026 earnings conference call. I will start with an overview of the Q2, 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. Starting with Q2. Our Q2 net revenues of $3.49 billion came in above the midpoint of our business outlook range, driven by higher revenues in communication equipment, computer and peripherals, and automotive. Gross margin was 34.8%, and non-U.S. GAAP gross margin was 35.2%. Both were in line with the midpoint of our business outlook range. Non-U.S. GAAP diluted earnings per share was $0.31. During the Q2, inventory in our balance sheet remained flattish. In distribution, inventory further decreased and is now below our standard target.

Jean-Marc Chéry: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q2 2026 earnings conference call. I will start with an overview of the Q2, 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. Starting with Q2. Our Q2 net revenues of $3.49 billion came in above the midpoint of our business outlook range, driven by higher revenues in communication equipment, computer and peripherals, and automotive. Gross margin was 34.8%, and non-U.S. GAAP gross margin was 35.2%. Both were in line with the midpoint of our business outlook range. Non-U.S. GAAP diluted earnings per share was $0.31. During the Q2, inventory in our balance sheet remained flattish. In distribution, inventory further decreased and is now below our standard target.

Speaker #4: 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 #4: So, starting with Q2. Our Q2 net revenues of $3.49 billion came in above the midpoint of our business outlook range, driven by higher revenues in communication equipment, computer and peripherals, and automotive.

Speaker #4: Gross margin was 34.8%, and non-US GAAP gross margin was 35.2%. Both were in line with the midpoint of our business outlook range. Non-US GAAP diluted earnings per share was $0.31.

Speaker #4: During Q2, inventory on our balance sheet remained flattish. In distribution, inventory further decreased and is now below our standard targets. We generated positive free cash flow of $75 million.

Jean-Marc Chéry: We generated EUR +75 million free cash flow. Let's now discuss our business dynamics during Q2. During the quarter, demand increased further with strong bookings and book-to-bill close to 2 overall. We were well above 1 in whole end markets and significantly above 2 in communication equipment, computer, and peripheral, mostly driven by optical connectivity, including silicon photonics. We saw improved visibility and signs of tight supply in several product categories. In automotive, our revenues came in better than expected, increasing 14% sequentially and 16% year-over-year. This growth was driven by our solid position on application-specific ICs and sensors for conventional applications, electrical powertrains, and ADAS. Automotive design momentum continued to build across multiple OEM and Tier 1 ecosystems. We secured design wins across hybrid, electric, and conventional vehicles, including applications in onboard chargers, powertrain, and active suspension. These wins were across our application-specific ICs and sensors.

Speaker #4: Let's now discuss our business dynamics during Q2. During Q2, demand increased further, with strong bookings and a book-to-bill close to 2 overall. We were well above 1 in all end markets and significantly above 2 in communication equipment, computer, and peripherals, mostly driven by optical connectivity, including silicon photonics.

Speaker #4: We saw improved visibility and signs of tight supply in several product categories. In automotive, revenues came in better than expected, increasing 14% sequentially and 16% year over year.

Speaker #4: This growth was driven by our solid position on application-specific ICs and sensors for conventional applications, electrical powertrains, and ADAS. Automotive design momentum continued to build across multiple OEM and tier-one ecosystems.

Speaker #4: We secured design wins across hybrid, electric, and conventional vehicles, including applications in onboard chargers, powertrains, and active suspensions. These wins were across our application-specific ICs and sensors. Specifically, our smart power IC wins include custom devices for airbags, electronic stability control, and suspension applications, based on our proprietary BCD technologies, manufactured in our Agrate 300 wafer fabs.

Jean-Marc Chéry: Specifically, our smart power ICs wins include custom devices for airbags, electronic stability control, and suspension applications based on our proprietary BCD technologies manufactured in our Agrate 300 millimeter wafer fab. We have progressed well with the integration of NXP MEMS Sensors business acquired in February. As we anticipated, the complementary technology and product portfolio is strengthening our automotive sensor business with awards at key players for active safety application and tire pressure monitoring. Industrial improved 20% sequentially and 34% year-over-year. Importantly, inventory and distribution further decreased and is now below our standard target. This solid growth was driven by our general-purpose microcontrollers and by analog with their wide ecosystems, and by our application-specific analog products complemented by power conversion products. We are strongly positioned to support the ongoing transformation of factory automation, robotics, and power and energy infrastructure.

Speaker #4: We have progressed well with the integration of NXP MEMS sensors business, acquired in February. As we anticipated, the complementary technology and product portfolio is strengthening our automotive sensor business, with awards at key players for active safety applications and tire pressure monitoring.

Speaker #4: Industrial improvements were up 20% sequentially and 34% year over year. Importantly, inventory in distribution further decreased and is now below our standard targets. This solid growth was driven by our general-purpose microcontrollers and by analog, with their wide ecosystems.

Speaker #4: And by our products, complemented by power conversion products, we are strongly positioned to support the ongoing transformation of factory automation, robotics, and power and energy infrastructure.

Speaker #4: Our portfolio is uniquely addressing the emerging needs of physical AI, where intelligent sensing, real-time control, and efficient power management are increasingly critical. During Q2, we saw design wins across industrial automation, power systems, building automation, and home appliances.

Jean-Marc Chéry: Our portfolio is uniquely addressing the emerging needs of physical AI, where intelligent sensing, real-time control, and efficient power management are increasingly critical. During the quarter, we saw design wins across industrial automation, power systems, building automation, and home appliances. We continued to introduce new advanced sensor for these applications. We launched a new series of industrial MEMS sensor with embedded AI, tailored for the fast-growing industrial condition monitoring market. We also announced a new compact 3D LiDAR module delivering AI-ready output data for low compute edge AI systems running on microcontrollers and high-performance sensing in applications such as robotics, industrial automation, smart buildings, AR/VR, and healthcare. This is in line with our strategy to move beyond standalone sensors and deliver integrated sensing systems that support real-world edge AI. Finally, we announced a further expansion of our collaboration with NVIDIA to accelerate physical AI.

Speaker #4: We continue to introduce new advanced sensors for these applications. We launched a new series of industrial MEMS sensors, with embedded AI, tailored for the fast-growing industrial condition monitoring market.

Speaker #4: We also announced a new compact 3D LiDAR module, delivering AI-ready output data for low-compute edge AI systems, running on microcontrollers and high-performance sensing, in applications such as robotics, industrial automation, smart buildings, AR/VR, and healthcare.

Speaker #4: This is in line with our strategy to move beyond standalone sensors and deliver integrated sensing systems that support real-world edge AI. Finally, we announced a further expansion of our collaboration with NVIDIA to accelerate physical AI.

Speaker #4: As a partner in NVIDIA Helios for robotics, and hand-to-hand functional safety systems for industrial and humanoid robots, ST is bringing its microcontrollers, sensors, motor control, and security solutions to support Helios readiness across chips.

Jean-Marc Chéry: As a partner in NVIDIA Halos for robotics and end-to-end functional safety system for industrial and humanoid robots, ST is bringing its microcontrollers, sensors, motor control, and security solutions to support Halos readiness across chips, evaluation kits, software, and reference designs. For personal electronics, Q2 revenues were up 3% sequentially and 20% year-over-year. This growth was driven by increased content by device in our engaged customer programs and better than normal seasonality. During the quarter, we introduced a secure chip that helps smartphone and personal electronics manufacturers prepare for quantum-ready security requirements. It combines post-quantum cryptography acceleration with NFC, secure elements, and eSIM functions on a single die for use cases such as digital identity, payments, and digital car keys. We also introduced a new generation of ultra-low power global shutter image sensors that deliver high-quality, always-on vision to compact devices operating on batteries or harvested energy.

Speaker #4: Evaluation kits, software, and reference designs. For personal electronics, Q2 revenues were up 3% sequentially and 20% year over year. This growth was driven by increased content per device in our engaged customer programs, and better-than-normal seasonality.

Speaker #4: During Q2, we introduced a secure chip that helps smartphone and personal electronics manufacturers prepare for quantum-ready security requirements. It combines post-quantum cryptography acceleration with NFC, secure elements, and eSIM functions on a single device.

Speaker #4: For use cases such as digital identity, payments, and digital card keys, we also introduced a new generation of ultra-low-power global shutter image sensors that deliver high-quality, always-on vision to compact devices operating on batteries or harvested energy.

Speaker #4: Such as wearables, AR/VR, and XR headsets, smartphone appliances, and medical devices. These are engineered to deliver rich visual context and AI-ready data under tight constraints on power, size, and cost.

Jean-Marc Chéry: Such as wearables, AR/VR, and XR headsets, smart home appliances, and medical devices. They are engineered to deliver rich visual context and AI-ready data under tight constraints on power, size, and cost. With the depth sensing technologies I mentioned earlier and this device for AI vision, ST delivers a complete perception stack for AGI to customer. For communication equipment, computer, and peripherals, second quarter's revenue were above expectations, showing increase of 13% sequentially and 50% year-over-year. This growth was driven by our engaged customer programs with our custom design products, boosted by our microcontrollers for optical connectivity. Indeed, ST is a core enabler for the cloud AI era. We see strong traction on optical connectivity driven by silicon photonics ICs, electronic ICs, microcontrollers.

Speaker #4: With the depth sensing technology I mentioned earlier, and these devices for AI vision, ST delivers a complete perception stack for edge AI to customers.

Speaker #4: For communication equipment, computers, and peripherals, Q2 revenues were above expectations, showing an increase of 13% sequentially and 50% year over year. This growth was driven by our engaged customer programs with our custom-designed products, boosted by our microcontrollers for optical connectivity.

Speaker #4: Indeed, ST is a core enabler for the cloud AI era. We see strong traction on optical connectivity, driven by silicon photonics ICs, electronic ICs, and microcontrollers.

Speaker #4: For the power stage, we are already successful with our microcontrollers and high-voltage power and analog products. And we are building a pipeline of design wins for low-voltage power and analog products.

Jean-Marc Chéry: For the power stage of cloud AI, we are already successful with our microcontrollers and high voltage power and analog products, and we are building a pipeline of design wins for low voltage power and analog products. Therefore, we are raising our revenue ambition for data centers. We now expect revenue above EUR 1 billion in 2026, and assuming the current dynamics continues, and with the current engagements we have, well above EUR 2 billion in 2027. During the quarter, we secured multiple design wins across a range of products, from optical connectivity driven by silicon photonics ICs, electronic ICs, and microcontrollers, to silicon and silicon carbide-based power solutions. In addition, we see a growing number of non-traditional AI server companies, including players coming from industries such as solar power and battery storage, where we are leveraging strong relationships to support their expansion into this field.

Speaker #4: Therefore, we are raising our revenue ambition for data centers. We now expect revenue above $1 billion in 2026, and, assuming the current dynamics continue, and with the current engagement we have, well above $2 billion in 2027.

Speaker #4: During Q2, we secured multiple design products, from optical connectivity driven by silicon photonics ICs, electronic ICs, and microcontrollers to silicon- and silicon carbide-based power solutions.

Speaker #4: In addition, we see a growing number of non-traditional AI server companies, including players coming from industries such as solar power and battery storage, where we are leveraging strong relationships to support their expansion into this field.

Speaker #4: In May, we held a webcast on Low Earth Orbit satellite communication and new space opportunities for ST, highlighting how ST is positioned as a core semiconductor enabler across this new industry.

Jean-Marc Chéry: In May, we held a webcast on the low Earth orbit satellite communication and new space opportunity for ST, highlighting how ST is positioned as a core semiconductor enabler across this new industry. We see a significant opportunity here, with our addressable market expected to reach around EUR 3 billion by 2030, or about four times the 2025 level. ST expects to generate well above EUR 3 billion in cumulative space revenue over the period 2026, 2028, mainly with our BiCMOS, FDSOI, and panel-level packaging technologies. Finally, in June, ST joined the EUR 115 million Series A financing of Quobly to accelerate the industrialization of its silicon-based quantum computers and bring its first commercial product to market by the end of 2026.

Speaker #4: We see a significant opportunity here, with our addressable market expected to reach around $3 billion by 2030, or about four times the 2025 level.

Speaker #4: ST expects to generate well above $3 billion in cumulative space revenue over the period 2026 to 2028, mainly with our BICEMOS FDSOI and panel-level packaging technology.

Speaker #4: Finally, in June, ST joined the €115 million Series A financing of COBLI, to accelerate the industrialization of its silicon-based quantum computers and bring its first commercial product to market by the end of 2026.

Speaker #4: For ST, the scale needed by a high-performance computing customer can only be achieved if breakthrough quantum systems can be industrialized and integrated with semiconductor-grade standards, and backed by a robust ecosystem.

Jean-Marc Chéry: For ST, the scale needed by high-performance computing customers can only be achieved if breakthrough quantum systems can be industrialized and integrated with semiconductor-grade standards and backed by a robust ecosystem. We are leveraging years of shared expertise in FDSOI and deep technological collaboration to accelerate the commercialization of Quobly's products through our 300 millimeter silicon fab environment. In May, we held our 2026 STMicroelectronics annual shareholder meeting, where all resolutions were approved. Following the AGM, ST Supervisory Board appointed Mr. Armando Varricchio as the Chairman and Mr. Nicolas Dufourcq as the Vice Chairman of the Supervisory Board. Now over to Lorenzo, who will present our key financial figures.

Speaker #4: We are leveraging years of shared expertise in FDSOI and deep technological collaboration to accelerate the commercialization of COBLI's products through our 300mm silicon fab environment.

Speaker #4: In May, we held our 2026 STMicroelectronics Annual Shareholder Meeting, where all resolutions were approved. Following the AGM, the Supervisory Board appointed Mr. Armando Varricchio as Chairman, and Mr. Nicola Dufourcq as Vice-Chairman of the Supervisory Board.

Speaker #4: Now, over to Lorenzo, who will present our key financial figures.

Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the second quarter, starting with the revenues on a year-over-year basis. By reportable segment, analog products, MEMS, and sensor grew 26%, mainly due to imaging and MEMS, and to a lesser extent, analog. Power and discrete products increased by 3.7%. Embedded processing revenues were up 35.5%, mainly due to general purpose microcontroller and, to a lesser extent, custom processing and connected securities. RF and optical communication grew 32%. By end market, communication equipment and computer peripherals grew 50%, industrial, 34%, personal electronic, 20%, and automotive, 16%. Year-over-year, sales to OEMs and distribution increased 23.3% and 33.1%, respectively. On a sequential basis, by reportable segment, analog, product, MEMS, and sensor increased by 8.2%. Power and discrete by 19.2%, embedded processing by 17.7%, and RF/optical communication by 8.6%.

Speaker #2: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the second quarter, starting with the revenues on a year-over-year basis. By reportable segment, Analog, Products, MEMS and Sensors grew 26%, mainly due to Imaging and MEMS.

Speaker #2: And to a lesser extent, analog. Power and discrete products increased by 3.7%. Embedded processing revenues were up 35.5%, mainly due to general-purpose microcontrollers and, to a lesser extent, custom processing and connected security.

Speaker #2: And the RF and optical communication grew 32%. By end market: communication equipment, up 50%; industrial, up 34%; personal electronics, up 20%; and automotive, up 16%. Year-over-year, sales to OEMs and distribution increased 23.3% and 33.1%, respectively.

Speaker #2: On a sequential basis, by reportable segment: Analog, MEMS, and Sensors increased by 8.2%; Power and Discrete by 19.2%; Embedded Processing by 17.7%; and RF & Optical Communication by 8.6%.

Lorenzo Grandi: By end market, on a sequential basis, industrial grew 20%, automotive at 14%, communication equipment, computer peripheral 13%, and personal electronics 3%. Turning now to profitability. Gross profit in the second quarter was $1.22 billion, increasing 31.1% on a year-over-year basis. Gross margin was at 34.8%, increasing 130 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin increased by 100 basis points. Non-US GAAP gross margin was 35.2%. Q2 gross margin included about 60 basis points of negative impact resulting from a non-recurring cost related to our manufacturing reshaping program. The negative impact on gross margin, just mentioned, non-recurring cost, is expected to remain at similar level over the rest of the year. Total net operating expenses, excluding restructuring, amounted to $970 million in the second quarter.

Speaker #2: By end market, on a sequential basis, Industrial grew 20%, Automotive 14%, Communication Equipment and Computer Peripherals 13%, and Personal Electronics 3%. Turning now to profitability.

Speaker #2: Gross profit in the second quarter was $1.22 billion, increasing 31.1% on a year-over-year basis. Gross margin was 34.8%, increasing 130 basis points year-over-year, mainly due to lower unused capacity charges and a better product mix.

Speaker #2: On a sequential basis, gross margin increased by 100 basis points. Non-U.S. GAAP gross margin was 35.2%. Q2 gross margin included about 60 basis points of negative impact, resulting from non-recurring costs related to our manufacturing reshaping program.

Speaker #2: The negative impact on gross margin just mentioned—non-recurring costs—is expected to remain at a similar level over the rest of the year. Total net operating expenses, excluding restructuring, amounted to $970 million in the second quarter.

Lorenzo Grandi: Non-US GAAP OpEx stood at $960 million, in line with the expectation given in April. For the Q3 2026, we expect non-US GAAP net OpEx to stand at about $980 million. The sequential increase is mainly due to start-up costs and employee share award expenses, that are more than offsetting the positive vacation seasonality effect. Excluding these two headwinds, Q3 2026 non-US GAAP net OpEx would have been at about $920 million. For full year 2026, we now expect non-US GAAP net OpEx to be slightly above $3.8 billion, taking into account increased employee share award expenses and the temporary impact of the start-up costs, reducing our other income and expenses positive line. For full year 2026, non-US GAAP net OpEx are expected to increase low double-digit year-over-year. Excluding NXP MEMS business acquisition and the exchange rate impact, like-for-like net OpEx should be up high single digit year-over-year.

Speaker #2: Non-U.S. GAAP OPEX stood at $960 million, in line with the expectation given in April. For the third quarter of 2026, we expect non-U.S. GAAP net OPEX to stand at about $980 million.

Speaker #2: The sequential increase is mainly due to startup costs and employee share award expenses that are more than offsetting the positive vacation seasonality effects. Excluding these two add-ins, Q3 '26 non-US GAAP net OPEX would have been at about $920 million.

Speaker #2: For full year 2026, we now expect non-U.S. GAAP net OPEX to be slightly above $3.8 billion, taking into account increased employee share award expenses and the temporary impact of the startup costs, reducing our other income and expenses positive line.

Speaker #2: For full year 2026, non-U.S. GAAP net OPEX is expected to increase low double-digit year-over-year. Excluding the NXP MEMS business acquisition and the exchange rate impact, like-for-like net OPEX should be up high single-digit year-over-year.

Lorenzo Grandi: Our cost-saving plan is delivering its expected benefits. At the same time, we are accelerating our investment in new business opportunities. In the second quarter, we reported $187 million operating income, which included $58 million for impairment, restructuring charges, and other related phase-out costs. 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. Q2 operating income also included $24 million purchase price allocation effect from our acquisition of NXP's MEMS sensor business. Excluding these items, Q2 non-US GAAP operating income stood at $269 million, and non-US GAAP operating margin was 7.7%, with analog product, MEMS and sensor at 10.1%, power and discrete at -21.4%, embedded processing at 19.7%, and RF/optical communication at 21.2%. Second quarter 2026 net income was $222 million, compared to a net loss of $97 million in the year-ago quarter.

Speaker #2: Our cost-saving plan is delivering its expected benefits. At the same time, we are accelerating our investment in new business opportunities. In the second quarter, we reported $187 million operating income, which included $58 million for impairment, restructuring charges, and other related phase-out costs.

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. Q2 operating income also included a $24 million purchase price allocation effect from our acquisition of NXP's MEMS sensor business.

Speaker #2: Excluding these items, Q2 non-U.S. GAAP operating income stood at $269 million. Non-U.S. GAAP operating margin was 7.7%, with Analog, MEMS and Sensors at 10.1%, Power and Discrete at minus 21.4%, Embedded Processing at 19.7%, and the RF Optical Communication at 21.2%.

Speaker #2: Second quarter 2026 net income was $222 million, compared to a net loss of $97 million in the year-over-year quarter. Diluted earnings per share were a positive $0.24, compared to a negative $0.11 one year ago.

Lorenzo Grandi: Diluted earnings per share were $+0.24, compared to $-0.11 one year ago. non-U.S. GAAP net income stood at $291 million, and non-U.S. GAAP diluted earnings per share stood at $0.31. Net cash from operating activities totaled $502 million in the second quarter, including $44 million outflow related to restructuring. Compared to a net cash flow from operating activities of $354 million in the year-ago quarter. Net CapEx was $409 million in the second quarter compared to $465 million in the year-ago quarter. We now expect 2026 Net CapEx to be at the high end of our $2 to 2.2 billion range, reflecting accelerating investments in the selected growth drivers, including cloud optical interconnect. Free cash flow was $+75 million in the second quarter compared to $-152 million in Q2 2025.

Speaker #2: Non-US GAAP net income stood at $291 million, and non-US GAAP diluted earnings per share stood at $0.31. Net cash from operating activities totaled $502 million in the second quarter, including a $44 million outflow related to restructuring.

Speaker #2: Compared to a net cash flow from operating activities of $354 million in the year-over-year quarter. Net capex was $409 million in the second quarter, compared to $465 million in the year-over-year quarter.

Speaker #2: We now expect 2026 net capex to be at the high end of our $2.2 billion range, reflecting accelerating investments in the selected growth drivers, including cloud optical interconnect.

Speaker #2: Free cash flow was positive at $75 million in the second quarter, compared to negative $152 million in Q2 2025. Inventory at the end of the quarter was $3.19 billion, compared to $3.17 billion in Q1 2026 and $3.27 billion in Q2 2025.

Lorenzo Grandi: Inventory at the end of the quarter was $3.19 billion compared to $3.17 billion in Q1 2026 and $3.27 billion in Q2 2025. Day sales of inventory at the quarter end were 126 days, in line with our expectation, compared to 140 days for the previous quarter and 166 days in the year-ago quarter. Cash dividends paid to stakeholders in Q2 2026 totaled $75 million. ST maintained its financial strength with a net financial position that remains solid at $2.01 billion as of 27 June 2026, reflecting total liquidity of $6.03 billion and a total financial debt of $4.02 billion. During the quarter, ST issued a new $1.5 billion dual-tranche senior unsecured convertible bond, Tranche A and Tranche B of $750 million each, due in 2031 and 2033, and announced the early redemption of its $750 million convertible bond due in 2027.

Speaker #2: Day sales of inventory at the quarter end were 126 days, in line with our expectation, compared to 140 days for the previous quarter and 166 days year-over-year.

Speaker #2: Cash dividends paid to stakeholders in the second quarter of 2026 totaled $75 million. Our financial strength remains solid, with a net financial position of $2.01 billion.

Speaker #2: As of June 27, 2026, we reflected total liquidity of $6.03 billion and total financial debt of $4.02 billion. During the quarter, ST issued a new $1.5 billion dual-tranche senior and secured convertible bond, with Tranche A and Tranche B for $750 million each, due in 2031 and 2033, respectively.

Speaker #2: And announced the early redemption of its $750 million convertible bond due in 2027. Now back to Jean-Marc, who will comment on our outlook.

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

Jean-Marc Chéry: Thank you, Lorenzo. Let's move to our business outlook for Q3 2026. We are expecting Q3 revenues of $3.7 billion, ±350 basis points at the midpoint of our Q3 2026 net revenues, will increase 6.2% sequentially and by 16.2% year-over-year. We expect our gross margin to be about 37%, ±200 basis points, including about 70 basis points of unused capacity charges. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude, in Q2, we saw demand further accelerating, strong bookings in all end markets, and improved visibility. In Q3, revenues are expected to continue to grow sequentially and year-over-year, and gross margin to continue to improve. As previously anticipated, personal electronics seasonality this year is different compared to previous years.

Speaker #3: Thank you, Lorenzo. Now, let's move to our business outlook. For Q3 2026, we are expecting Q3 revenues of $3.7 billion, plus or minus 350 basis points at the midpoint. Our Q3 '26 net revenues will increase 6.2% sequentially, and by 16.2% year over year.

Speaker #3: We expect our gross margin to be about 37%, plus or minus 200 basis points, including about 70 basis points of unused capacity charges. This business outlook doesn't include any impact from potential further changes to global trade tariffs compared to the current situation.

Speaker #3: To conclude, in Q2, we saw demand further accelerating, strong bookings in all end markets, and improved visibility. In Q3, revenues are expected to continue to grow sequentially and year over year.

Speaker #3: And gross margin is expected to continue to improve. As previously anticipated, personal electronics seasonality this year is different compared to previous years. Revenue growth for personal electronics is expected to be below normal seasonality in Q3.

Jean-Marc Chéry: Revenue growth for personal electronics is expected to be below normal seasonality in Q3, moderating ST sequential growth in Q3. In Q4, we anticipate a revenue growth acceleration, mainly driven by our engaged customer programs in AI data centers and low Earth orbit satellite communication. We expect Q4 revenues to be above EUR 4 billion, representing a sequential improvement better than normal seasonality. This translates into H2 versus H1 growth above our normal 15% seasonality. ST growth driver remains solid. We continue to see strong demand in AI data centers, reflecting the success of our product and technology portfolio. We are raising our revenue ambition for data centers. We now expect revenues above EUR 1 billion in 2026, and assuming the current dynamic continues, and with the current engagements we have, well above EUR 2 billion in 2027. This confirms ST's strong position in the evolving AI data centers.

Speaker #3: Moderating ST sequential growth in the third quarter. In Q4, we anticipate a revenue growth acceleration mainly driven by our engaged customer programs in AI data centers and low-earth-orbit satellite communication.

Speaker #3: We expect Q4 revenues to be above $4 billion, representing a sequential improvement better than normal seasonality. This translates into H2 versus H1 growth above our normal 15% seasonality.

Speaker #3: ST growth driver remains solid. We continue to see strong demand in AI data centers, reflecting the success of our products and technology portfolio. We are raising our revenue ambition for data centers. We now expect revenues above $1 billion in 2026, and assuming the current dynamic continues, and with the current engagement we have, well above $2 billion in 2027.

Speaker #3: This confirms ST's strong position in the evolving AI data centers. Thank you, and we are now ready to answer your questions.

Jean-Marc Chéry: Thank you. We are now ready to answer your questions.

Operator 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. 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-free 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 Janak Menon from Jefferies. 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-free 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 Janak Menon from Jefferies. Please go ahead.

Speaker #1: 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.

Speaker #1: 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 two. Participants are requested to use only handsets while asking a question.

Speaker #1: 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.

Speaker #1: The first question comes from the line of Jean-Marc Damenon from Jefferies. Please go ahead.

Janardan Menon: Hi. Good morning. Thanks for taking the question. I was just looking into your H2 guidance and trying to get a feel for your gross margin trend into Q4. I know you don't want to guide on Q4, you are talking about a bigger increase in revenue quarter-on-quarter. We don't know how much it is, I agree, because you just said more than EUR 4 billion. I was wondering directionally whether you can give us any qualitative comments on how your Q4 gross margin could proceed and how you see that evolving into 2027 as well. Thanks.

Speaker #4: Hi, good morning. Thanks for taking the question. I was just looking into your second half guidance and trying to get a feel for your gross margin trend into Q4.

Speaker #4: So, I know you don't want to guide on Q4, but you are talking about a bigger increase in revenue quarter on quarter. And we don't know how much it is—I agree—because you've just said more than $4 billion.

Speaker #4: But I was wondering, directionally, whether you can give us any qualitative comments on how your Q4 gross margin could proceed, and how you see that evolving into 2027 as well.

Speaker #4: Thanks.

Lorenzo Grandi: Okay, thank you for the question. I take the question, Janak, about the gross margin, the evolution. Clearly, the midpoint of Q3 non-GAAP gross margin or gross margin for us in Q3 will be 37%. We have it guided at this level of gross margin that is increasing about 180 basis points compared to the one of Q2. Clearly, starting from this Q3 gross margin at 37%, we do expect for Q4 a sequential improvement in our gross margin, considering that our revenue will increase significantly. You have to keep in mind that there is some headwinds as well.

Speaker #3: Okay, thank you for the question. I take the question. Jean-Marc, about the gross margin, the evolution—clearly, let's say, the midpoint of Q3 non-GAAP gross margin, or gross margin for us in Q3, will be 37%.

Speaker #3: We have a guide that this level of gross margin, which is increasing by about 180 basis points compared to Q2.

Speaker #3: Clearly, starting from this Q3 gross margin at 37%, we do expect, let's say, for Q4 a sequential improvement in our gross margin, considering that our revenue will increase significantly.

Speaker #3: But you have to keep in mind that there is some advance as well. One is that, let's say, our level of unloading charges will not change significantly in Q4 due to the fact that we are starting some fabs, particularly in China, let's say, in which we will still have some negative impact on our, let's say, level of unloading.

Lorenzo Grandi: One is that our level of unloading charges will not change significantly in Q4 due to the fact that we are starting some fab, particularly in China, which we will still have some negative impact on our level of unloading. Clearly, there is also still these costs related to the transfer of technology, related to our shaping program in our manufacturing infrastructure that will be still there, similar to the one that we have in the current quarter in Q3. Yes, I confirm there will be improvement, there will be also some headwinds that are impacting our gross margin. Overall, anyway, I confirm that in Q4 there will be an improvement in our gross margin, sequential improvement compared to the 37% of the Q3.

Speaker #3: And clearly, there are also still, let's say, these costs related to the transfer of technology for our shipping program and our manufacturing infrastructure that will still be there, similar to what we have in the current quarter, in Q3.

Speaker #3: So yes, I confirm there will be improvement, but there will also be some, let's say, advances that are, let's say, impacting our gross margin.

Speaker #3: Overall, anyway, I confirm that in Q4 there will be a sequential improvement in our gross margin compared to the 37% of Q3.

Janardan Menon: Given that your revenue jump is going to be bigger, can we assume that your gross margin jump will also be bigger or is that speculation?

Speaker #4: Given that your revenue jump is going to be bigger, can we assume that your gross margin jump will also be bigger, or is that speculation?

Lorenzo Grandi: As I said, it will improve compared to the 37%, but still it will be impacted by some ingredients that is related to this level of unloading that will not decrease. While when you look at the dynamic between Q2 and Q3, unloading was decreasing. This will not be similar what will happen between Q3 and Q4. As well as, don't forget that when we look at the dynamic of our gross margin moving from Q2 to Q3, we had also benefits from the FX that was improving in respect, while in Q4 this effect will not be there, it will be neutral. Yes, I repeat that there will be an increase in our gross margin.

Speaker #3: As I said, as I said, we'll improve, let's say, compared to the $37, but still, let's say, it will be impacted by some ingredients that are related to this level of unloading that will not decrease. Let's say, while when you look, let's say, at the dynamic between Q2 and Q3, unloading was, let's say, decreasing. This will not be similar to what will happen between Q3 and Q4.

Speaker #3: Let's say, and as well as, don't forget that when we look at the dynamic of our gross margin moving from Q2 to Q3, we also had benefits from the effects, let's say, that were improving in respect. While, let's say, in Q4, this effect will not be there.

Speaker #3: It will be neutral. So yes, I repeat, there will be an increase in our gross margin, but you have to also consider in your modeling that there are some temporary advances that will be in Q4, let's say, that will be limiting somehow the improvement of our gross margin in Q4.

Lorenzo Grandi: You have to also considering in your modeling that there are some headwinds, temporary headwinds, but there will be in Q4 that will be limiting somehow the improvement of our gross margin in Q4.

Janardan Menon: Understood. Thank you.

Speaker #4: Understood. Thank you.

Operator 2: Thank you, Janak. Next question, please. The next question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead.

Jerome Ramel: Thank you, Janak. Next question, please.

Speaker #2: Thank you. Thank you, Jean-Marc Dan. Next question, please.

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

Speaker #1: The next question comes from the line of Joshua Buchalter from TD Cowen. Please go ahead.

Joshua Buchalter: Hey, guys. Thank you for taking my questions. I guess I wanted to start with the data center number. Can you provide some more granularity on what's driving the big increase in 2027 versus the prior expectations? How much of this is optics versus power? It did sound like there was some positivity on the power side. I guess also you mentioned you were capacity constrained before. Is that number greater than EUR 2 billion, assuming you're still constrained as well? Thank you.

Speaker #5: Hey guys, thank you for taking my questions. I wanted to start with the data center number. Can you provide some more granularity on what's driving the big increase in 2027 versus prior expectations?

Speaker #5: How much of this is optics versus power? It did sound like there was some positivity on the power side. And I guess also, you mentioned you were capacity constrained before.

Speaker #5: Is that number greater than $2 billion, assuming you're still constrained as well? Thank you.

Jean-Marc Chéry: Before I pass the question to Remi to go in further detail. Well, it is clear that our growth in 2027 will be driven both by our specific engaged customer program on this field of activity. Clearly, the overall success on optical connectivity will be the main driver of the significant growth we will do next year. Now I let Remi comment more in detail.

Speaker #3: So, before I pass the question to Rémi to go into further detail, it is clear that our growth in 2027 will be driven both by our specific engaged customer program and this field of activity.

Speaker #3: But clearly, the overall success on optical cable connectivity—clearly, it will be the main, main driver of the significant growth we will do next year.

Speaker #3: Now, I let Rémi comment on more in detail.

Rémi El-Ouazzane: To complement what Jean-Marc said, we see clearly an acceleration in the adoption of 800G and 1.6 terabits per second pluggable optics. Those are actually generation and categories of transceivers where now we are seeing a triple effect. This triple effect is a fairly large market share when it comes to the microcontrollers

Remi El-Ouazzane: To complement what Jean-Marc said, we see clearly an acceleration in the adoption of 800G and 1.6 terabits per second pluggable optics. Those are actually generation and categories of transceivers where now we are seeing a triple effect. This triple effect is a fairly large market share when it comes to the microcontrollers

Speaker #2: To complement what Jean-Marc said, we see clearly an acceleration in the adoption of 800 gig and 1.6 terabit per second pluggable optics. And those are of transceivers where now we are seeing a triple effect and this triple effect is a fairly large market share when it comes to the microcontroller.

Rémi El-Ouazzane: Taking care of the control plane, a growing share when it comes to the electronic IC, driven by our BiCMOS technology. Starting from this year, but really accelerating next year, is actually a growing revenue in silicon photonics, supporting photonics IC that is being part of those pluggable transceiver. Like we explained, we have a lot of scalability in terms of capacity on that technology because of the structure we have in our whole factory. We are not right now gated by capacity expansion to go and capture revenue at this stage.

Remi El-Ouazzane: Taking care of the control plane, a growing share when it comes to the electronic IC, driven by our BiCMOS technology. Starting from this year, but really accelerating next year, is actually a growing revenue in silicon photonics, supporting photonics IC that is being part of those pluggable transceiver. Like we explained, we have a lot of scalability in terms of capacity on that technology because of the structure we have in our whole factory. We are not right now gated by capacity expansion to go and capture revenue at this stage.

Speaker #2: Taking care of the control plane, a growing share when it comes to the electronic IC driven by a BiCMOS technology. And starting from next year, but really accelerating next year, is actually our growing revenue in silicon photonics supporting photonics IC that is being part of those pluggable transceivers.

Speaker #2: Lacroix explained, "You know, we have a lot of scalability in terms of capacity on that technology because of the structure we have in our core factory."

Speaker #2: So, we are not, right now, gated by capacity expansion to go and capture revenue at this stage.

Joshua Buchalter: Thank you both for all the color there. Maybe to follow up on that also. I totally appreciate what, Lorenzo, you were highlighting from the manufacturing transitions and unused capacity charges. On a like-for-like basis, should data center, as it grows, be accretive to gross margins? Thank you.

Speaker #5: Thank you both for all the color there. Maybe to follow up on that also, you know, I totally appreciate what Lorenzo, you were highlighting from the manufacturing transitions and underloading charges.

Speaker #5: But on a like-for-like basis, should data center as it grows be accretive to gross margins? Thank you.

Lorenzo Grandi: Yes. At the end, yes. Let's say, clearly, this has been already, let's say, moving from Q2 to Q3, and there will be also contribution from Q3 to Q4. Product mix is contributing in a positive way to our gross margin. Yes, I confirm.

Speaker #3: Yes. At the end, yes, this kind of let's say clearly this has been already let's say moving from Q2 to Q3 and there will be also contributing from Q3 to Q4 product mix is contributing in a positive way to our gross margin.

Speaker #3: Yes, I confirm.

Joshua Buchalter: Thank you, Lorenzo.

Speaker #5: Thank you, Lorenzo.

Jean-Marc Chéry: Thank you, Josh. Next question, please.

Jerome Ramel: Thank you, Josh. Next question, please.

Speaker #2: Thank you, Josh. Next question, please.

Operator 2: The next question comes from the line of Jakob Bluestone from BNP Paribas. Please go ahead.

Operator: The next question comes from the line of Jakob Bluestone from BNP Paribas. Please go ahead.

Speaker #1: The next question comes from the line of Jacob Bluestone from BNP Paribas. Please go ahead.

Jakob Bluestone: Thanks, and for taking the question. I had a question and a follow-up. On the pricing, could you maybe just give us a bit of an update? What are you seeing in terms of pricing tailwinds? When do you think that might impact revenues this year?

Speaker #4: Thanks. And for taking the question. So I had a question and a follow-up. On the pricing, could you maybe just give us a bit of an update?

Speaker #4: What are you seeing in terms of pricing tailwinds and when do you think that might impact revenues this year?

Lorenzo Grandi: Yes. In terms of pricing, I would say that, of course, it's twofold. On one side, it's true that we see, in our input cost, price increase. Clearly, there are different materials or maybe, contract profitability that are increasing prices. On the other side, I would say that there is the other side that we confirm that in this context of higher input cost, yes, we increasing the prices on a selected products. Clearly, this is an ongoing process that is expanding in terms of price increase. I would say that at the end, what we see in our input cost is more than offset of what we do, on our top line.

Speaker #3: Yes. In terms of pricing, I would say that of course it's twofold. On one side, it's true that we see let's say in our input cost price increase.

Speaker #3: Clearly, let's say there are different materials or maybe let's say contractor activity that are increasing prices. On the other side, I would say that there is the other side that is that we confirm that in this context let's say of higher input cost yes, we increase the prices on a selected products.

Speaker #3: Clearly, let's say this is an ongoing process that is, let's say, expanding in terms of, let's say, price increases. And I would say that, at the end, what we see in our input costs is more than offset by what we do, let's say, on our top line.

Lorenzo Grandi: I would say that at the end, at this stage, the two impacts are more or less offsetting each other.

Speaker #3: So I would say that, at the end, at this stage, let's say the two impacts more or less offset each other.

Jakob Bluestone: If I can just ask a quick clarification. On your data center revenue guidance hike, was that increase driven by increased demand outlook or by a faster expansion of your capacity and supply?

Speaker #4: Just to ask a quick clarification—on your data center revenue guidance hike, was that increase driven by increased demand outlook, or by a faster expansion of your capacity and supply?

Jean-Marc Chéry: It's both.

Jakob Bluestone: Sorry.

Speaker #2: It's both.

Jean-Marc Chéry: It's both. Clearly, the above EUR 1 million 2026 revenue, the demand is well available. Strength of our capability to grow in whole and with the values, okay, assembly and test manufacturing. That the reason why we have increased our indication for this data center business. Next year is the same. Next year, okay, clearly, we will closing the gap between the demand and our capability to supply. It is really driven first by demand, then it is covered by engagement. Backlog for this year, 100% coverage. Next year, okay, engagement are covering our expectation. Definitively, our capability to grow on this advanced 300 millimeter technology is a very important competitive factor for us.

Speaker #3: It's both. Because clearly, above $1 billion 2026 revenue, the demand is well, well above. But thanks to our capability to grow in full, and with the various assembly and test manufacturing.

Speaker #3: So that's the reason why we have increased our indication for this data center business. And next year is the same. Next year, okay, clearly we will be closing the gap between the demand and our capability to supply.

Speaker #3: But it is really driven first by demand, then it is covered by engagement. Backlog for this year: 100% coverage. And next year, okay, engagements are covering our expectation.

Speaker #3: And definitely, our capability to grow on this advanced 300-millimeter technology is a very important competitive factor for us.

Jakob Bluestone: Thank you.

Jean-Marc Chéry: Thank you, Jacob. Next question, please.

Jerome Ramel: Thank you, Jacob. Next question, please.

Speaker #4: Thank you.

Speaker #2: Thank you, Jacob. Next question, please.

Operator 2: The next question comes from the line of Sandeep Deshpande from J.P. Morgan. Please go ahead.

Operator: The next question comes from the line of Sandeep Deshpande from J.P. Morgan. Please go ahead.

Speaker #1: The next question comes from the line of Sandeep Deshpande from JP Morgan. Please go ahead.

Sandeep Deshpande: Yeah. Hi. Thanks for letting me on. Could you talk about the revenue growth guidance into Q3 and then potentially into Q4 by your segments? You said earlier in the call that personal electronics was weaker in Q3. Can we look at how the growth was in the other segments? Based on what you are indicating for Q4 at the moment of greater than EUR 4 billion, at least directionally, how to see the different segments in terms of your end markets into Q4 based on your order book today?

Speaker #5: Yeah, hi. Thanks for letting me on. Could you talk about the revenue growth guidance into Q3, and then potentially into Q4, by your segments?

Speaker #5: Because you said earlier in the call that personal electronics was weaker in the third quarter. But can we look at how the growth was in the other segments?

Speaker #5: And based on what you're indicating for the fourth quarter at the moment of greater than $4 billion, at least directionally, how do you see the different segments in terms of your end markets into the fourth quarter, based on your order book today?

Jean-Marc Chéry: I will take the question. Well, clearly, I am starting by the key growth driver. It is clearly our verticals, communication equipment, computer, and peripheral. I can say that in Q3 on a year-over-year growth, this segment will grow very similarly what we have achieved in Q2. Means close to 60% growth, and definitively where we will have in Q4 a very strong acceleration. We will be about 90% growth. The second really positive growth vertical is industrial. Industrial, in Q2, we grew 32%. Step after step, Q3 and Q4, we will grow close to 40% year-over-year growth in Q4. Well, clearly, automotive is performing above what we expect and what the market is expecting. You know that for the semiconductor industry, automotive is expecting to grow about 13% to 14% year-over-year. This is what we will achieve on this segment.

Speaker #2: I will take the question. Clearly, if we—I am starting with the key growth driver, it's clearly our verticals: communication equipment, computer, and peripheral.

Speaker #2: I can say that in Q3, on a year-over-year growth basis, this segment will grow very similarly to what we achieved in Q2. So it means close to 60% growth.

Speaker #2: And definitely, in Q4 we will have a very strong acceleration, which means we will be at about 90% growth. The second really positive growth vertical is industrial.

Speaker #2: In Industrial, in Q2, we grew 32%. Step by step, in Q3 and Q4, we will go close to 40% growth year-over-year in Q4. But then, clearly, Automotive is performing above what we expect and what the market is expecting.

Speaker #2: You know that for semiconductor industries, the automotive is expected to grow about 13% to 14% year-over-year. This is what we will achieve in this segment.

Jean-Marc Chéry: Well, PE is definitively a different profile, let's say, in the year-over-year growth. It will be slightly negative, a mid-single digit, during Q3 and Q4, as we anticipated in our previous call. This will put this segment at the end of the year, for the full year, growing from low to mid-single digit that we already anticipated in the previous call. My takeaway is really very strong growth on computer and communication, moving from 60% growth in Q2 to close to 90% in Q4. On industrial, after Q2 of 30% year-over-year growth, we will grow close to 40% in Q4. Automotive, low double digits, as expected, consistently with the market. This year, a different profile for PE. We will be year-over-year negative in H2 after having been positive in H1.

Speaker #2: PE is definitely a different profile let's say in the year-over-year growth. Because it will be slightly negative let's say mid-single digit during Q3 and Q4.

Speaker #2: As we anticipated in our previous call, that will put this segment at the end of the year, with full-year growth, let's say, from low to mid-single digits.

Speaker #2: That, we already anticipated in the previous call. So, my takeaway is really very strong growth in computer and communication, moving from 60% growth in Q2 to close to 90% in Q4.

Speaker #2: On Industrial, after Q2 of 30% growth year-over-year, we will go close to 40% in Q4. Automotive, let's say low double-digit as expected, consistently with the market.

Speaker #2: And this year, okay, different profile for PE. We will be year-over-year negative in H2 after having been positive in H1. But for the full year, it is a low- to mid-single digit.

Jean-Marc Chéry: On the full year, it is a low to mid-single digit, which is consistent with the market of a smartphone that is decreasing because on the low end, let's say, device, there is an impact because of the memory parts. This is a profile of the revenue Q3, Q4.

Speaker #2: Which is consistent with the market for smartphones that is decreasing. Because, on the low end—let's say device—there is an impact because of the memory price.

Speaker #2: So, this is the profile of the revenue for Q3 and Q4.

Sandeep Deshpande: Thank you.

Speaker #5: Thank you.

Jean-Marc Chéry: Any follow-ups, Sandeep?

Speaker #2: Any follow-up, Sandeep?

Sandeep Deshpande: Would be that you've seen this significant strength in computer and peripherals associated with the AI market. Is there not any flexibility in filling your capacity in Q3 itself? Why does this have to wait till Q4, given that you still remain underutilized in Q3?

Speaker #5: The question would be that you've seen this significant strength in computers and peripherals associated with the AI market. Is there not any flexibility in filling your capacity in the third quarter itself?

Speaker #5: Why does this have to wait until the fourth quarter, given that you still remain underutilized in the third quarter?

Jean-Marc Chéry: On, let's say, all the advanced technology that are enabling our, let's say, growing industrial market and communication and computer. We are in a permanent growth and exactly at what we'd expect. Here, the only flexibility we could have is to continue to accelerate permanently, which is already on a really competitive path. Well, clearly where we have still some, let's say, underloading and even some time, in Q2, we face a slight delay in our capability to ramp up. It is on pure legacy analog technologies. If you remember Q1, we were totally underloaded. The Q2 ramp up was challenging. We delay a little bit this ramp up. That, in a certain extent, has impacted also our capability on Q3 to fully fulfill the demand on legacy technology.

Speaker #2: On, let's say, all the advanced technology that is enabling our growing industrial market, communication, and computer sectors, we are in permanent growth and exactly at what we expect.

Speaker #2: And here, the only flexibility we could have is to continue to accelerate permanently, which is already on a really competitive path. Then, clearly, where we have still some, let's say, underloading, and even sometimes—okay, in Q2, we faced a slight delay in our capability to ramp up.

Speaker #2: It is on legacy, pure legacy analog technologies. Because if you remember, Q1, we were totally underloaded. So the Q2 ramp-up was a challenge.

Speaker #2: So we delayed a little bit this ramp-up. That, to a certain extent, has also impacted our capability in Q3 to fully fulfill the demand on legacy technology.

Jean-Marc Chéry: This is this, let's say, pure temporary capability to ramp and some unloading charges specific to really legacy technology on analog that is, let's say, showing this figure.

Speaker #2: So, this is, let's say, a purely temporary capability to ramp, and some unloading charges specific to really legacy technology on analog that is, let's say, showing this figure.

Sandeep Deshpande: Understood. Thank you so much.

Speaker #5: Understood. Thank you so much.

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

Jerome Ramel: Thank you, Sandeep. Next question, please.

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

Operator 2: The next question comes from the line of Domenico Ghilotti from Equita. Please go ahead.

Operator: The next question comes from the line of Domenico Ghilotti from Equita. Please go ahead.

Speaker #1: The next question comes from the line of Domenico Ghilotti from Equita. Please go ahead.

Domenico Ghilotti: Good morning. I have a follow-up on the gross margin. In the past, you were guiding, you were suggesting that at EUR 4 billion sales per quarter, the profitability gross margin would have been at least in the 40% range. Now you are suggesting that you will probably not be at that point in Q4. I'm trying to understand. First of all, if you are still confident to get to the level of profitability you were suggesting, and there are some specifics, a temporary effect on Q4 that we should take into account. A follow-up on the AI data center demand and your customer engage program. Can you give a sense of how concentrated is today the demand there and the engage program supporting your EUR 2 billion revenues for 2027?

Speaker #4: Good morning. I have a follow-up on the gross margin. In the past, you were guiding—or you were suggesting—that at $4 billion sales per quarter, the profitability, gross margin, would have been at least in the 40% range.

Speaker #4: Now, you are suggesting that you will probably not be at that point in Q4. So I'm trying to understand, first of all, if you are still confident you will get to the level of profitability you were suggesting.

Speaker #4: And there are some specifics, the temporary effects on Q4, that we should take into account. And a follow-up on the AI data center demand—on your customer Engage program—can you give a sense of how concentrated the demand is there today, and how the Engage program is supporting your $2 billion revenue target for 2027?

Jean-Marc Chéry: Maybe I take the first question about the gross margin at EUR 4 billion in respect to our model to be, let's say above, let's say the 40% gross margin. Here, I have to remind all of you that, yes, this is our model, but, let's say we always said that there are the two conditions that we need to achieve in order, let's say, to be above 40% when the company will be at EUR 4 billion. One is-

Lorenzo Grandi: Maybe I take the first question about the gross margin at EUR 4 billion in respect to our model to be, let's say above, let's say the 40% gross margin. Here, I have to remind all of you that, yes, this is our model, but, let's say we always said that there are the two conditions that we need to achieve in order, let's say, to be above 40% when the company will be at EUR 4 billion. One is-

Speaker #3: Maybe I take the first question about the gross margin as 4 billion dollars. In respect to our model to be let's say above let's say the 40% gross margin.

Speaker #3: Yeah, I have to remind all of you that yes, this is our model. But let's say we always said that there are the two conditions that we need to achieve in order, let's say, to be above 40% when the company will be at $4 billion.

Speaker #3: One is the revenue, of course. Let's say that this is what is happening. But the other point is that we have completed our reshaping manufacturing program.

Lorenzo Grandi: Of course, let's say that this is what is happening. The other point is that we complete our reshaping manufacturing program. Means that actually we have, let's say, done this transfer from the 200 millimeter to the 300 millimeter for the silicon, those in the two packs. Let's say from the 150 millimeter to the 200 millimeter for the silicon carbide. We are not yet there. We are, let's say, in the middle of this transformation. Clearly here, we are not in the condition to have our manufacturing infrastructure at the right level of efficiency.

Speaker #3: This means that, actually, we have, let's say, completed this transfer from the 200-millimeter to the 300-millimeter for the silicon in those two fabs.

Speaker #3: And let's say, from the 150-millimeter to the 200-millimeter for the silicon carbide, we are not yet there. We are, let's say, in the middle of this transformation.

Speaker #3: So, clearly here, we are not in the condition to have our manufacturing infrastructure at the right level of efficiency. On the other hand, I would say that at this moment, in this quarter—Q3 and Q4—we have some extra costs that are related to this transfer: the qualification of the products, the redo of the mask of the products, all these kinds of things that are impacting our gross margin.

Lorenzo Grandi: The other way around, I would say that in this moment, in this quarter, Q3 and Q4, we have some kinds of extra costs that are related to this transfer, the qualification of the products, the redo of the masks of the products, all these kinds of things that are impacting our gross margin. That clearly for sub-optimal efficiency due to this, let's say, transition. At the end, we confirm our model to be, let's say, above 40% when the company is there. Once we have done the, let's say, transformation, when we have completed our programs that, as you know, it will be at the end of 2027, let's say, not before. This is the reason why, let's say, it's not enough to be at EUR 40 billion to have a gross margin, let's say, at the right level of the model.

Speaker #3: And clearly, there was super optimal efficiency due to this, let's say, transition. So at the end, we confirm our model to be, let's say, above 40% when the company is there.

Speaker #3: But once we have done the let's say transformation, when we have completed our programs that as you know, it will be at the end of 2027, let's say not before.

Speaker #3: So this is the reason why, let's say, it is not enough to be at $4 billion to have the gross margin, let's say, at the right level of the model.

Jean-Marc Chéry: The second question, maybe Rémy you can comment. Again, you see a growth driver that will put us on a trajectory well above EUR 2 billion next year.

Jean-Marc Chéry: The second question, maybe Remi you can comment. Again, you see a growth driver that will put us on a trajectory well above EUR 2 billion next year.

Speaker #2: The second question—maybe, Remi, you can comment. Again, the key gross driver that will put us on a trajectory well above $2 billion next year.

Rémi El-Ouazzane: Yeah, we have discussed earlier about what we're doing on the optical front. I insist on the fact that we are now at the intersection of three main vectors of growth, which is the oversized market share we have on 800G and 1.6 terabits per second in MCU. The growing adoption of our B55X BiCMOS process for electronic ICs, and the steep ramp up we have on our photonics IC platform, our silicon photonics platform in 300 millimeters, which is proven to be really well adopted across the board by all the major actors. I think there was also a question related to the concentration of that revenue. We see an evolution of our revenue that is pretty consistent with market share distribution between hyperscalers, which makes us actually quite confident about the composition of our revenue.

Remi El-Ouazzane: Yeah, we have discussed earlier about what we're doing on the optical front. I insist on the fact that we are now at the intersection of three main vectors of growth, which is the oversized market share we have on 800G and 1.6 terabits per second in MCU. The growing adoption of our B55X BiCMOS process for electronic ICs, and the steep ramp up we have on our photonics IC platform, our silicon photonics platform in 300 millimeters, which is proven to be really well adopted across the board by all the major actors. I think there was also a question related to the concentration of that revenue. We see an evolution of our revenue that is pretty consistent with market share distribution between hyperscalers, which makes us actually quite confident about the composition of our revenue.

Speaker #3: Yeah, we have discussed earlier about what we're doing on the optical front. And I insist on the fact that we are now at the intersection of three main vectors of growth, which are the oversized market share we have on 800 and 1.6 terabit per second in MCU.

Speaker #3: The growing adoption of our B55X by CMOS process for electronic IC, and the steep ramp-up we have on our photonics IC platform, or silicon photonics platform, in 300 millimeters.

Speaker #3: We have just proven to be really, really well adopted across the board by all the major actors. And I think there was also a question related to the concentration of that revenue.

Speaker #3: And we see an evolution of our revenue that is pretty consistent with market share distribution between hyperscalers, which makes us actually quite confident about the composition of our revenue.

Lorenzo Grandi: Thank you.

Domenico Ghilotti: Thank you.

Speaker #4: Thank you.

Jean-Marc Chéry: Thank you, Domenico. Next question, please.

Jerome Ramel: Thank you, Domenico. Next question, please.

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

Operator 2: The next question comes from the line of Didier Scemama from Bank of America. Please go ahead.

Operator: The next question comes from the line of Didier Scemama from Bank of America. Please go ahead.

Speaker #1: The next question comes from the line of Didier Jemmali from Bank of America. Please go ahead.

Didier Scemama: Good morning. Thanks for taking my questions. My first question is on the outlook. I think, Jean-Marc, in your prepared comments, you mentioned that your book-to-bill was close to two, I think, overall, and above two in certain segments like optical interconnect in particular. I'm just wondering, does that imply that your Q1 seasonality might be a bit better than normal? I've got a follow-up. Thank you.

Speaker #4: Yes, good morning. Thanks for taking my questions. My first question is on the outlook. I think, Jean-Marc, in the all prepared comments, you mentioned that your book to bill was close to two, I think overall and above two in certain segments like optical interconnect in particular.

Speaker #4: I'm just wondering, does that imply that your first quarter seasonality might be a bit better than normal? And I've got a follow-up. Thank you.

Jean-Marc Chéry: Thank you. No. Yes. With this book-to-bill, what also is interesting is that out of the 100% of the booking we receive in Q2, well above 50% were for next year.

Speaker #2: Thank you. No, yes. With this book-to-bill, what is also interesting is that out of 100% of the bookings we received in Q2, well above 50% were for next year.

Didier Scemama: Yeah.

Jean-Marc Chéry: Means, the customer now they have understood that they have to provide us visibility. Well, the good news is that now our total backlog is representing about an average of 4.5 to five quarters of Q2 average revenue, which is clearly an improvement step coming back to standard of visibility. Clearly, yes, Q1 is today on the dynamic to be well loaded and clearly continuously boosted by our revenue related to AI data center.

Speaker #2: So, it means the customer knows—they have understood that they have to provide us visibility. And the good news is that now our total backlog is representing about an average of 4.5 to 5 quarters of Q2 average revenue, which is clearly an improvement step.

Speaker #2: Coming back to the standard of visibility. So, clearly, yes, Q1 is today on a dynamic to be well loaded, and clearly, continuously boosted by our revenue related to AI data center.

Didier Scemama: Okay. Great. Thank you. As a follow-up, I just wanted to make sure I got the right end of the stick on the financial models. I think in the past you were talking about 45% gross margin on EUR 18 billion and maybe 60% gross margin on EUR 20 billion. Obviously, that's contingent on execution of the restructuring plan of on manufacturing. Just wanted to make sure that this is still the case and whether you've got increased confidence that you can deliver these sort of numbers around 2028.

Speaker #4: Okay, great. Thank you. And as a follow-up, I just wanted to make sure I got the right end of the stick on the financial model.

Speaker #4: So, I think in the past you were talking about 45% gross margin on $18 billion, and then maybe 50% gross margin on $20 billion.

Speaker #4: Obviously, that's contingent on execution of the restructuring plan on manufacturing. I just wanted to make sure that this is still the case, and whether you've got increased confidence that you can believe these sorts of numbers around 2028.

Jean-Marc Chéry: No, we confirm our confidence level to reach EUR 18 billion in 2028. Well, clearly, okay, announcing the dynamic and increasing our indication on data center, it is clearly one of key growth driver that will position our company on EUR 18 billion by 2028. Second, Lorenzo already commented that this business related to AI data center is accretive, our gross margin. We will have this mixed effect. Okay, I confirm that assuming we complete on time our reshaping program on manufacturing and that the FX will remain, okay, our model, we should be in position, okay, to reach the gross margin target consistently with our EUR 18 billion model. About EUR 20 billion, okay, for the time being, let's reach together the EUR 18 billion target, we speak about the EUR 20.

Speaker #2: No, I mean, we confirm our confidence level to reach $18 billion in 2028. And, clearly, announcing the dynamic and increasing our indication on data center—it is clearly one of the key growth drivers that will position our company at $18 billion by 2028.

Speaker #2: Then second, Lorenzo already commented that this business related to AI data centers is accretive to our gross margin. So we will have this mix effect.

Speaker #2: Then, okay, I confirm that—assuming we complete on time our reshaping program on manufacturing and that the FX will remain as in our model—we should be in a position to reach the gross margin target, consistently with our $18 billion model.

Speaker #2: About $20 billion. Okay, for the time being, let's reach together the $18 billion target, then we'll speak about the $20 billion.

Didier Scemama: All right. Thanks very much.

Speaker #4: All right. Thanks very much.

Jérôme Ramel: Thank you, DJ. Next question, please.

Jerome Ramel: Thank you, DJ. Next question, please.

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

Operator 2: The next question comes from the line of Stéphane Houri from Oddo BHF. Please go ahead.

Operator: The next question comes from the line of Stéphane Houri from Oddo BHF. Please go ahead.

Speaker #1: The next question comes from the line of Stefano Uri from Adobe HF. Please go ahead.

Stéphane Houri: Yes. Good morning. I would love to come back on maybe the satellite low Earth orbit opportunity and if you can tell us what is the dynamic currently, notably with your main customer and the ramp of your second customer, and if you confirm the target of EUR 1 billion for this year, and if you have a view for next year already. Thank you.

Speaker #3: Yes, good morning. I would love to come back to the satellite low Earth orbit opportunity, and if you can tell us what the dynamic is currently, notably with your main customer and the ramp of your second customer.

Speaker #3: And if you confirm the target of $1 billion for this year, and if you have a view for next year already. Thank you.

Jean-Marc Chéry: Thank you. I will pass the question directly to Remi.

Speaker #2: Thank you. I'll pass the question directly to Remi.

Rémi El-Ouazzane: Hello, Stéphane. The dynamic is quite healthy. Overall, like Jean-Marc explained at the beginning of the discussion, we stick to well above EUR 3 billion over 2026, 2027, 2028. You have noticed that, and we spoke about that in the past, that it's a very much a launcher-dependent business, in the context of deploying satellites go and then deliver the services in itself is a fuel behind user terminal consumption. Clearly, things are progressing in the right direction for SpaceX. Other considerations have faced a bit of a snag lately, and we expect 2026 in the coming quarters. Directionally, nothing has changed. We see actually a strong 2026 and an even stronger 2027.

Remi El-Ouazzane: Hello, Stéphane. The dynamic is quite healthy. Overall, like Jean-Marc explained at the beginning of the discussion, we stick to well above EUR 3 billion over 2026, 2027, 2028. You have noticed that, and we spoke about that in the past, that it's a very much a launcher-dependent business, in the context of deploying satellites go and then deliver the services in itself is a fuel behind user terminal consumption. Clearly, things are progressing in the right direction for SpaceX. Other considerations have faced a bit of a snag lately, and we expect 2026 in the coming quarters. Directionally, nothing has changed. We see actually a strong 2026 and an even stronger 2027.

Speaker #3: Hello, Stefan. The dynamic is quite healthy. Overall, like Jean-Marc explained at the beginning of the discussion, we stick to our well above $3 billion over '26, '27, '28.

Speaker #3: You have noticed that, and we spoke about that in the past, that it is very much a launcher-dependent business in the context of deploying satellites, and then delivering the services in itself is a fuel behind user terminal consumption.

Speaker #3: Clearly, things are progressing in the right direction for SpaceX. Other constellations have faced a bit of a snag lately. In the coming quarters, but directionally for us, nothing has changed.

Speaker #3: We see actually a strong '26 and an even stronger '27.

Stéphane Houri: Okay. Can you comment on the level of profitability on the gross margin on this business like you did for data center? Is it accretive?

Speaker #2: Okay. And can you comment on the level of profitability or the gross margin on this business, like you did for Data Center? Is it accretive?

Lorenzo Grandi: Yeah. Clearly, let's say, it's a business, a combination of different gross margins because clearly there are different products there. The ones that are going in the satellite, the ones that are going in the gateway, the ones that are going, let's say, in the user terminal. Anyway, when we look, let's say, at the average of the gross margin of this business, yes, I confirm that those low Earth orbit satellites are contributing, let's say, to the improvement of our gross margin.

Speaker #3: Yeah, clearly, let's say it is a combination of different gross margins, because clearly there are different products: the ones that are going in the satellite, the ones that are going in the gateway, the ones that are going, let's say, in the user terminal.

Speaker #3: Anyway, when we look, let's say, at the average of the gross margin of this business—yes, I confirm that also low Earth orbit satellite is contributing, let's say, to the improvement of our gross margin.

Stéphane Houri: Okay. Thank you very much.

Speaker #4: Okay. Thank you very much.

Jérôme Ramel: Thank you, Stéphane. Next question, please.

Jerome Ramel: Thank you, Stéphane. Next question, please.

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

Operator 2: The next question comes from the line of François-Xavier Bouvignies from UBS. Please go ahead.

Operator: The next question comes from the line of François-Xavier Bouvignies from UBS. Please go ahead.

Speaker #1: The next question comes from the line of François Bouvigny from UBS. Please go ahead.

François-Xavier Bouvignies: Thank you very much. My first question was on the capacity front. We see an acceleration of growth from a cycle perspective, but also from AI data centers. You are seeing some tightness as you say in the release. Texas Instruments also suggested as well some tightness. I was wondering, how do you feel about your capacity in the next, let's say, two to three years? Do you have, you think, enough capacity to deliver the different growth scenarios, or are you evaluating maybe some brownfield or greenfield expansion down the line? The capacity of STMicroelectronics in the next two, three years would be helpful.

François Bouvignies: Thank you very much. My first question was on the capacity front. We see an acceleration of growth from a cycle perspective, but also from AI data centers. You are seeing some tightness as you say in the release. Texas Instruments also suggested as well some tightness. I was wondering, how do you feel about your capacity in the next, let's say, two to three years? Do you have, you think, enough capacity to deliver the different growth scenarios, or are you evaluating maybe some brownfield or greenfield expansion down the line? The capacity of STMicroelectronics in the next two, three years would be helpful.

Speaker #4: Thank you very much. My first question was on the capacity front. I mean, we see an acceleration of growth from a cycle perspective, but also from AI data centers.

Speaker #4: And you are seeing some tightness, as you say in the release—also, TI suggested as well some tightness. So I was wondering, how do you feel about your capacity in the next, let's say, two to three years?

Speaker #4: I mean, do you think you have enough capacity to deliver under the different growth scenarios, or are you evaluating maybe some brownfield or greenfield expansion down the line?

Speaker #4: So, the capacity of ST in the next two to three years would be helpful.

Jean-Marc Chéry: We have to see it under two angle. One angle is what is related now our capability to support AI data center. At this stage, okay, we believe that we can sustain it and support it. Of course, okay, under the assumption we are well assessed. The success factor is Crolles. Crolles will reach 15,000 wafer per week, and will go above to support the dynamic of this business. Where clearly we see some tightness is clearly what is related general purpose microcontroller. Why? Because first of all, we have two cumulative effect. There is first the enormous success of the microcontroller developed by Remi team for optical connectivity. There is the solid recovery of the overall industrial market. Where, okay, I mentioned during my address that in distribution, the inventory are now well below our standard, and the POS dynamic is very strong.

Speaker #2: No, we have to see it under two angles. One angle is what is related now to our capability to support AI data centers. And at this stage, we believe that we can sustain it and support it.

Speaker #2: Of course, okay. Under the assumption that we are well assessed, the success factor is growth. And growth will reach 15,000 wafers per week and will go above to support the dynamics of this business.

Speaker #2: Where we clearly see some tightness is in what is related to general-purpose microcontrollers. Why? Because, first of all, we have two cumulative effects. There is first the enormous success of the microcontroller developed by Remy’s team for optical cable.

Speaker #2: And there is the solid recovery of the overall industrial market. And where, okay, I mentioned during my address that in distribution, the inventories are now well below our standard.

Speaker #2: The POS dynamic is very strong. It's clear that we are facing at this moment some tension on the supply side and increasing lead times.

Jean-Marc Chéry: It is here that we are facing at this moment some tension on the supply and increasing lead time. Here, basically, we have some key competitive advantage. First of all, we have our 2 300-millimeter fab, where clearly our microcontroller will be processed. The good news now is Agrate 300 certainly will reach the full build-out pretty soon, before 2023. The second important level is our China for China strategy. That will start to pay back because if you remember, we have qualified 40 nanometer technology in China with our main partner. That will enable us, okay, to support the growth in China. That is very demanding, both for industrial in distribution, industrial OEM and also optical connectivity.

Speaker #2: But here, basically, we have some key competitive advantages. First of all, we have our two 300-millimeter fabs. Clearly, our microcontroller will be processed.

Speaker #2: The good news now is Agra 300 certainly will reach the full build-out pretty soon, before '20. More than that, the second important lever is our China for China strategy.

Speaker #2: That will start to pay back because, if you remember, we have qualified 14-nanometer technology in China with our main partner. That will enable us to support the growth in China.

Speaker #2: That is very demanding, both for industrial in distribution, but also for industrial OEM and optical cable. On the other, let's say, technologies and products, clearly the challenge for us is our transition phase between, respectively, 6-inch to 8-inch silicon carbide technology and 8-inch to 12-inch analog microcontroller.

Jean-Marc Chéry: On the other, let's say, technologies and product, clearly the challenge for us is our transition phase between respectively 6-inch to 8-inch silicon carbide technology and 8-inch to 12-inch analog tech Controller. We have exactly in our hand our capability to grow. All the new technology driven by AI data center, we have the path to grow. Some other tightness related to our reshaping, only temporary. After, we have some pocket of capacity limitation time to time with OSAT, okay, we manage it.

Speaker #2: But we have exactly in our hand our capability to grow. All the new technology driven by AI, data center – we have the path to grow.

Speaker #2: Some other tightness related to our reshaping, but only temporary. Then, after, we have some pockets of capacity limitation from time to time with OSAT. But okay, we manage it.

François-Xavier Bouvignies: Great. Thank you, Jean-Marc, and maybe my follow-up would be on silicon carbide, actually. We see a lot of change in terms of silicon carbide demand. One driven by the Chinese EV car makers adopting 800 volts, supporting the silicon carbide growth, also we see one of your main customers delivering strong deliveries. On top of that, we have this 800 volts opportunity for silicon carbide. I was wondering if you saw an improvement on the silicon carbide front, and if you could provide any maybe guidance on what to expect for that business, that would be great.

François Bouvignies: Great. Thank you, Jean-Marc, and maybe my follow-up would be on silicon carbide, actually. We see a lot of change in terms of silicon carbide demand. One driven by the Chinese EV car makers adopting 800 volts, supporting the silicon carbide growth, also we see one of your main customers delivering strong deliveries. On top of that, we have this 800 volts opportunity for silicon carbide. I was wondering if you saw an improvement on the silicon carbide front, and if you could provide any maybe guidance on what to expect for that business, that would be great.

Speaker #4: Great, thank you, Jean-Marc. And maybe my follow-up would be on silicon carbide, actually. I mean, we see a lot of change in terms of silicon carbide demand, one driven by the Chinese EV car makers adopting 800 volts, supporting the silicon carbide growth.

Speaker #4: But also, we see one of your main customers delivering strong deliveries, and on top of that, we have these 800-volt opportunities for silicon carbide.

Speaker #4: So, I was wondering if you saw an improvement on the silicon carbide front, and if you could provide any, maybe, guidance on what to expect for that business, that would be great.

Jean-Marc Chéry: Well, thank you. I will pass the question to Marco, who's managing the product line. Well, yes, okay, all the positive dynamics you described, we see it, Marco will comment.

Speaker #2: Well, thank you. So, I will pass the question to Marco, who is managing the product line. Yes, okay. All the positive dynamics you described, we see it—but Marco will comment.

Marco Cassis: I confirm that we see the positive dynamics that you just highlighted. Actually, in Q2, we saw the revenue growth in the low teens year over year. We are back to growth year over year, and mid-30s in terms of quarter over quarter. This is also supported by strong bookings with book-to-bill that is well above one, which is resulting in a growing backlog. The dynamics are confirmed and are factual, is what we see. In this context, I can confirm that this year we should grow the silicon carbide revenues double digits in 2026 versus 2025, based on already design won and backlog, which is already visible. The dynamics are positive.

Speaker #3: Yes, I confirm that we see the positive dynamic that we just highlighted. Actually, in Q2, we saw revenue growth in the low teens year over year.

Speaker #3: So we are back to growth year over year. And mid-30s in terms of quarter over quarter. This is also supported by a strong bookings with book to build that is well above one.

Speaker #3: Which is resulting in a growing backlog. So, the dynamics are confirmed and are factual, as we see. So, in this context, I can confirm that this revenue is double-digit in '26 versus '25, based on already designed wins and a backlog which is already massive.

Speaker #3: So the dynamics are positive. Of course, we are facing the transition between the 6-inch and 8-inch, which sometimes creates some tightness in terms of supply.

Marco Cassis: Of course, we are facing the transition between the 6 inches and the 8 inches, which are sometimes creating some tightness in terms of supply because the products need to be qualified by end customers. I confirm that the dynamics are positive and are growing positive day by day.

Speaker #3: Because the products need to be qualified by end customers. But I confirm that the dynamics are positive and are growing positive day by day.

François-Xavier Bouvignies: Thank you.

François Bouvignies: Thank you.

Jean-Marc Chéry: Thank you, François. This is ending our call for this quarter. Thank you very much, everyone, for joining us. We remain at your disposal should you need any follow-up questions. Thank you.

Jerome Ramel: Thank you, François. This is ending our call for this quarter. Thank you very much, everyone, for joining us. We remain at your disposal should you need any follow-up questions. Thank you.

Speaker #4: Thank you.

Speaker #2: Thank you, François. This concludes our call for this quarter. So, thank you very much, everyone, for joining us. We remain at your disposal should you have any follow-up questions.

Marco Cassis: Thank you.

Speaker #2: Thank you.

Jean-Marc Chéry: Thank you.

Q2 2026 STMicroelectronics NV Earnings Call

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