STMicroelectronics Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 12 speakers on the call.

Operator

Ladies and gentlemen, welcome to the STMicroelectronics Third Quarter 2024 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.

Operator

At this time, it's my pleasure to hand over to Jean Marc Thierry, President and CEO. Please go ahead.

Speaker 1

Thank you, Moira, and good morning, everyone. Before starting this call, I am very pleased to announce the appointment of Jerome Ramell as Executive Vice President, Corporate Development and Integrated External Communication. Jerome has been associated with our company for many years as a recognized European Semiconductor Analyst and has had 24 years of experience in several roles in various finance institutions. He brings in-depth knowledge of the semiconductor industry and capital markets, which will be extremely beneficial to support the company in the way we interface with investors, analysts and external stakeholders. I would now like to briefly turn the call over to Jerome.

Speaker 2

Thank you, Jean Marc, and good morning. I'm very pleased to join ST and excited by this new challenge. So thank you everyone for joining our Q3 2024 Financial Results Conference Call. Hosting the call today is Jean Marc Sherry, ST President and Chief Executive Officer. Joining Jean Marc on the call today are Lorenzo Grande, President and CFO and Marco Cassis, President Analog, Power and Discrete MEMS and Sensor Group and Head of STMicro Strategy, System Research and Application and Innovation Office.

Speaker 2

This live webcast and presentation material can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results this morning and also in the 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 and A session, please limit yourself to one question and a brief follow-up.

Speaker 2

Now, I'd like to turn the call over to Jean Marc Sherry, ST President and CEO.

Speaker 1

So thank you, Jerome. Let me begin with some opening comments. Starting with Q3. So Q3 net revenues of $3,250,000,000 were in line with the midpoint of our business outlook range. Compared to our expectations, revenues were higher in personal electronics, declined less in industrial and were lower in automotive.

Speaker 1

Q3 gross margin of 37.8% was broadly in line with guidance. Q3 net revenues decreased 26.6 percent year over year, mainly driven by a decline in industrial and to a lesser extent in automotive. Looking at our year over year performance, gross margin decreased to 37.8% from 47.6%. Operating margin decreased to 11.7% from 28% and net income came in at $351,000,000 On a sequential basis, net revenues increased 0.6%. For the 9 months period, net revenues were down 23.5 percent year over year to $9,950,000 decreasing across all reportable segments and particularly in microcontrollers, which is impacted by the continuing weakness in the industrial market.

Speaker 1

We reported gross margin of 39.9 percent, operating margin of 13.1 percent and net income of $1,220,000,000 During the quarter, customer order bookings were slightly up versus Q2, but were below our expectation. This reflected a continuing delayed recovery in industrial and a further deterioration in automotive. As a result, we now anticipate Q4 2024 revenues at the low end of the range previously indicated and well below normal seasonality in Q1 2025. For Q4 2024, our 4th quarter business outlook is for net revenues of about $3,320,000,000 at the midpoint, declining year over year by 22.4 percent and increasing sequentially by 2.2%. Gross margin is expected to be about 38%.

Speaker 1

For the full year 2024, the midpoint of our Q4 guidance translates into full year 2024 revenues of about $13,270,000,000 representing a 23.2% decrease year over year at the low end of the range indicated in the previous quarter with the gross margin slightly below that provided in that indication. For Q1 2025, based on our current customer order backlog and demand visibility, we anticipate a revenue decline between Q4 2024 and Q1 2025 well above normal seasonality. I would like to highlight that today we have also announced the launch of a new company wide program to reshape our manufacturing footprint, accelerating our wafer fab capacity transition to 300 millimeter silicon and 200 millimeter silicon combined and resizing our global cost base. Now, I will move to a detailed review of the Q3. By segment on a year over year basis, analog products, MEMS and sensors was down 13.3%, mainly due to the decrease in imaging and in analog.

Speaker 1

Power and discrete products decreased 18.4% with a decline in both power and discrete products. Microcontrollers revenue declined 43.4%, mainly due to general purpose microcontrollers. Both power and discrete and general purpose microcontrollers revenue declines were largely driven by industrial. Digital ICs and radio frequency products declined 29.7%, mainly due to ADAS and infotainment. By end market, industrial declined by more than 50%, automotive by about 18%, personal electronic by about 9% and communication equipment and computer peripherals by about 5%.

Speaker 1

Year over year sales to OEM decreased 17.5% and by 45.4% to distribution. Overall, Q3 net revenues increased 0.6% sequentially with an increase of 1.7% in analog products, MEMS and sensors, 7.9% in power and discrete products and 3.6% in microcontrollers, while digital ICs and radio frequency products decreased 17.4%. By end market, industrial was down about 12% sequentially, automotive flat, personal electronics up about 20% and communication equipment and computer peripheral down about 8%. Gross profit was $1,230,000,000 decreasing 41.8% year over year. Gross margin decreased to 37.8% Gross margin decreased to 37.8% compared to 47.6% in the same quarter last year.

Speaker 1

The decrease was mainly due to product mix and to a lesser extent to sales price and higher unused capacity charges. Operating margin was 11.7% compared to 28% in the year ago period. On a year over year basis, Q3 net income decreased around 68 percent to $351,000,000 compared to $1,090,000,000 in the year ago quarter. Earnings per diluted share decreased to $0.37 compared to $1.16 Net cash from operating activities decreased to $723,000,000 in Q3 versus $1,880,000,000 in the year ago quarter. Net CapEx in the 3rd quarter was $565,000,000 compared to $1,150,000 in the year ago quarter.

Speaker 1

Free cash flow was $136,000,000 compared to $707,000,000 in the year ago quarter. Inventory at the end of the 3rd quarter was $2,880,000,000 compared to the $2,87,000,000 in the year ago quarter. Days sales of inventories at quarter end were 130 days, similar to the previous quarter and up compared to the 114 days in the year ago quarter. During the Q3, ST paid $80,000,000 of cash dividends to stockholders and we executed a $92,000,000 share buyback under our current share repurchase program. ST's net financial position of $3,180,000,000 as of September 28, 2024, reflected total liquidity of $6,300,000,000 and a total financial debt of $3,120,000,000 I will now go through a short update on some of our strategic focus areas.

Speaker 1

In Automotive, we saw some further deterioration in customer backlog and order entry during the Q3. In our view, this reflects a change in the plans of our customers. We saw shift from full battery electric to hybrid and from premium to economy vehicles, as well as not sized production at carmakers to control inventories. However, we do not anticipate significant change in the long term electrical vehicle adoption by consumers and we assume their concerns residual value, charging stations, price will gradually elevate. During the quarter, we continued to execute our strategy on car electrification.

Speaker 1

We introduced our 4th generation of silicon carbide MOSFET technology. This brings new benchmarks in power efficiency, power density and home business and is particularly optimized for traction inverters in electrical vehicles. We had multiple wins with both silicon carbide and silicon devices and modules for new traction inverter and onboard charger design. We also won additional business with our automotive smart power technologies for electrical vehicle battery and power management systems as well as our smart fuse solutions. In car digitalization, we gained further traction with our portfolio of automotive microcontrollers.

Speaker 1

Our stellar microcontroller was selected by a major European carmaker in the new platform for traction inverter and onboard charger management. Another significant stellar win was with the Japanese Tier 1 as part of an electrification platform design that integrates multiple function in a single MCU. This approach is generally called X in 1 and is an important trend for next generation of car architectures. A further win saw stellar chosen for an active safety application in a new electrical vehicle platform from an emerging player. We also continue to have important design wins in traditional applications like braking, where we are the leader in smart power.

Speaker 1

In sensors, we had a number of wins with our automotive grade motion bands for smart keys, telematics units and for our innovative rotating car display. Our design win activity here continues to position ST well to leverage the structural growth in this key market. In industrial, we are seeing continuing inventory correction at OEMs and along the value chain, preventing any significant recovery in semiconductor demand. In this context, we continue to work with customers to design in today's products, while investing in R and D to create the next generation of solutions. We had design wins across a broad range of applications for our power and analog portfolio.

Speaker 1

This included a design win with silicon and silicon carbide products for a leading provider of power supply units for AI server infrastructure, a fast growing application requiring very high power efficiency. In our model processing, our STM32 microcontrollers continue to be the most familiar MCUs for developers. We have a recognized software ecosystem with over 1,200,000 unique users, growing more than 30% year over year. And one of the fastest growing and most active microcontroller technical communities with over 500,000 unique visitors each month and 40% year over year growth. This growth in STM32 adoption will position ST to capitalize effectively on the next industrial market upcycle.

Speaker 1

Additionally, we have over 50,000 active development projects on ST's artificial intelligence tools. This activity has been also boosted by our ST Edge AI suite that we were launched at the end of the last quarter. During Q3, we also announced a new strategic collaboration with Qualcomm Technologies for the next generation of industrial and consumer IoT solutions. Together, we will integrate Qualcomm's leading wireless connectivity technologies with our STF32 microcontroller ecosystem. We will start with the Wi Fi Bluetooth Thread Combo System on the chip.

Speaker 1

Thanks to this, developers will enjoy seamless connectivity software integration into STM32 microcontrollers. Moving now to the other 2 end markets. But personal electronics was slightly better than expected and communication equipment and computer peripherals was in line with expectations for all our engaged customer programs. To conclude on this Q3 update, I would like to mention a new step in our company organization. Since the beginning of 2024, ST has made a significant change in the way it is structured and operates, including the reorganization of its product group.

Speaker 1

Since October 1, 2024, Lorenzo Grande, President and CFO, has taken additional responsibilities with a perimeter now also covering supply chain, corporate development and integrate external communication. In addition to finance, global procurement, digital transformation and information technology, enterprise risk management and resilience. The company's executive committee remains unchanged and continues to report to me as President and CEO. Now, let's move to our Q4 2024 financial outlook and our plans for the full year 2024. For Q4, we expect net revenues of about $3,320,000,000 at the midpoint, representing a year over year decline of 22.4 percent and a sequential growth of 2.2%.

Speaker 1

Q4 gross margin is expected to be about 38% at the midpoint, impacted by about 400 basis points of unused capacity charges. For 2024, our Q4 guidance at the midpoint translates into 2024 net revenues of about $13,270,000,000 This represents a decrease of about 20 3.2% year over year in the low end of the range indicated in the previous quarter. Within this guidance, we expect a gross margin of about 39.4%, impacted about 2.90 basis points of unused capacity charges at the midpoint of our 2024 full year indications. This $13,270,000,000 is in the low end of the revenue range indicated in the previous quarter. The difference compared with the midpoint of the range relates mainly to lower revenues in Automotive and to a lesser extent lower revenues in Industrial, partially offset by the slightly better revenues in Personal Electronics.

Speaker 1

We confirmed our 2024 net CapEx plan of about $2,500,000 For Q1 2025, at this time of the year, we usually do not comment 2 quarters ahead. But based on our current customer backlog and order entry dynamics, we anticipate a revenue decline between Q4 2024 and Q1 2025 well above normal seasonality. Fair to say this also includes a significant lower number of calendar days in Q1 2025 versus Q4 2024, a 6% sequential decrease, which is the highest sequential decrease in the number of days in the last 3 years. Finally, today, we have announced the launch of a new company wide program to reshape our manufacturing footprint. We are accelerating our Wafer Fab 300 millimeter transition in transition in agrati and coal, in particular in agrati reaching a scale of about 4,000 wafer per week, exiting 2026.

Speaker 1

In Catania, in silicon carbide, we will accelerate our transition to 200 millimeters. Moreover, we will resize our global cost base. This program should result in strengthening our capability to grow our revenue, but with an improved operating efficiencies, resulting in annual cost saving in the high triple digit $1,000,000 range exiting 2027. To conclude, as I said last quarter, the current market cycle dynamics coupled with the ongoing transformation of the automotive and industrial end markets, are bringing both opportunities and challenges in the short, medium and long term. And this is true for ST and for our customers equally.

Speaker 1

In the short to medium term, we are adapting our operating plans to this situation and we are launching our company wide reshaping and resizing program while continuing to invest in innovation and in our strategic manufacturing initiatives. Major to long term, we continue to be convinced that this will provide the basis for our sustainable growth ambitions and for delivering value to our stakeholders. We look forward to updating you on our strategy at our Capital Markets Day on November 20, either in person in Paris or via our live webcast. Thank you for your attention and we are now ready to answer your questions.

Operator

We will now begin the question and answer session. The first question is from Francois Bouvignies from UBS. Please go ahead.

Speaker 3

Thank you very much. Jean Marc, I wanted to come back to Q1 comments. Obviously, you mentioned less calendar days, but the sharp decline in Q1, could you highlight maybe some drivers? And importantly, it is the Q1 of the calendar year, which is the pricing reset. And you know that we have a lot of fear on the market right now, especially given the oversupply and the demand environment that pricing could fall significantly into next year.

Speaker 3

How should we think about that as an acquisition started? And you guided a weaker Q1. What is the pricing impact here? And how should we think about next year's pricing environment?

Speaker 1

Well, on the pricing, I'll let Lorenzo comment, but here it's not a warning about pricing, absolutely not. It's more a warning about the customer backlog and the order dynamic. And the fact that, okay, you know that in Q1, we have released a usual seasonality of Personal Electronics. And including on Personal Electronics, potentially this year could be worse. Well, unfortunately, it will be significantly this year amplified by the fact that the quarter will be short term, 88 days compared 94 days in Q4.

Speaker 1

So this impact also significantly the run rate of the revenue. Well, so usually, we have a, let's say, a low end double digit sequential growth. This year will be amplified by the 6%. It's more related to the customer order dynamics and backlog, maybe was specifically on Versa and Electronics rather than something trigger by

Speaker 4

price. So Lorenzo, you want to comment? Yes. Good morning, everybody. You know that when we look at the price dynamic today in this quarter, substantially the pricing is similar to what was expected, say, low single digit decline.

Speaker 4

But next year, as was Jean Marc remarking, we don't see a dramatic price environment. Yes, it's a little bit let's say, there is a little bit more pressure than this year. We still are talking about mid single digit decline overall. So we of course, we are in the negotiation phase now. But as I said, overall for the company in average, we see something that is more in the mid single digit That is a little bit higher than this year, but not dramatically changing.

Speaker 3

Thank you, Francois. Thank you very much.

Speaker 2

You have any follow-up?

Speaker 3

Follow-up or just one, yes?

Speaker 2

Follow-up,

Speaker 3

yes? The follow-up, yes. Yes. The follow-up would be on the microcontroller side. I mean, obviously, it has been a big decline through the year.

Speaker 3

I mean, Q4 might be also declining a lot. I was wondering where are you inventoried in the channel? I mean, where are you in this inventory correction versus your normal level where you think you should be? And do you see any light in the tunnel here with regard to macro controllers industrial particularly?

Speaker 1

For general purpose, okay, it is clear that it is a very significant decrease this year, above minus 50% and 24% versus 23%. We have to say that about more than half of this decrease for microcontroller is really connected to an inventory correction. But the point is that this inventory correction is lasting more than expected because the hand demand of our customer, okay, moving along the year was also decreasing. So we also I said that 30%, 35% of the decrease of microcontroller is ultimately linked to the end demand weakening of the customer of our customer. It is true that we have lost some market share in China, linked to the fact that during the shortage of semiconductor, okay, we squeezed some Chinese company, okay, to support, let's say, automotive and other big OEM and industrial.

Speaker 1

So we squeezed distribution in China in 2021 2022 and now we have lost this market share. About the inventory correction in the channel, it is not decreasing at the expected speed. And why? Because decreasing our POP, we didn't see unfortunately, globally I've spoken, there is a value dynamic by region. The POS is not, let's say, behaving sufficiently to decrease inventory faster.

Speaker 1

So we expect that in Q1, the inventory correction will continue, and especially in Asia, amplified by the Chinese New Year vacation impact, should continue to decrease a bit in Q2. And discussing with our distributor, we should expect a normalization in H2 2025. So this is where we are today.

Speaker 3

Thanks, Kurt.

Speaker 2

Thank you. Next question please, Myra.

Operator

The next question is from Sandeep Deshpande from JPMorgan. Please go ahead.

Speaker 5

Yes, hi. Thanks for letting me on. I have a question on the automotive market. In the first half of the year, you saw a slowdown from your big EV customer as well as you saw a slowdown in Digital Mobileye. And now you're saying in the 4th quarter, you're seeing further slowdown.

Speaker 5

Can you quantify where this slowdown is occurring? Is it in legacy parts? Is it in silicon carbide? So where is this slowdown occurring in the automotive market? And associated with this slowdown, are you seeing the Tier 1 suppliers reducing their inventories now given that they have been holding such high levels of inventory in the automotive supply chain?

Speaker 5

Are we now seeing that correction in the automotive supply chain in terms of inventory? And is that what are the reasons why, of course, there's the consumer angle as well, but or the personal electronics angle, but is that continuing into the Q1 of the year? And I have one quick follow-up. [SPEAKER

Speaker 6

JEAN FRANCOIS XAVIER BOUVIGNIES:]

Speaker 1

Well, thank you. If you don't mind, I will share the answer with Marco Casis.

Speaker 7

Yes, Sandeep. Good morning. So yes, what you say is correct. Let me give me some color. So first of all, the reduction in automotive is related with an overall reduction in terms of light vehicles, 24,000,000 will be lower than 23,000,000.

Speaker 7

And going specifically on battery operated cars, we see a reduction in the battery operated cars giving space, let's say, to an increase in the hybrids and the plug in hybrids. We are able to quantify this decrease in terms of battery operated car in the range of 15%, not equally distributed much less in China and more in Europe and in U. S. So clearly, this has an impact considering that battery operated cars has a higher content in terms of silicon and has, of course, an impact also on the silicon carbide. We believe, and this is what analysts are saying, is that 25 will be still not growing the overall number of light vehicles.

Speaker 7

So it's a situation that will proceed during 25 at least for the first half. And clearly, this has created, of course, probably some excess of inventory at carmakers and along the supply chain, which is which has an impact, as we have seen in our overall numbers. Now, say that, if you extend a little bit the time horizon, we do believe that electrification is going to come because it's linked to factors that will be in place. And it's going to come at a lower pace than what we were expecting. 25% for start would be not easy.

Speaker 7

But as you said, yes, it's a combination of the factor that we're highlighting. I hope that this answered your question.

Speaker 5

Thank you. And then, I mean, you mentioned earlier on the pricing environment at the moment. Can you just comment on what you're seeing in terms of in the automotive space in particular? What you're hearing in the current negotiations that are happening for pricing into next year, given how difficult the environment is for your customers and given also that they are holding quite high levels of inventory?

Speaker 4

Johan Zhu, you take the point. The negotiations are ongoing. For sure, let's say, this year, the price pressure in automotive was there, but quite mild. I would say that at the end, let's say, it was in the low single digit. It's true that starting negotiations, we see some more price pressure in automotive than in the one that we see in 2024.

Speaker 4

Of course, as you can imagine, it's different in respect to the various customers. But I would say that assuming that at the end, the negotiations that are ongoing will end like the one that we have closed already. We may say that in automotive now, the price pressure will be mid single digit, let's say, something in that range. Then we may have some more and less, but at the end, this is what we see today.

Speaker 1

Maybe if I can complement. It is clear that also it has been assessed in the perspective of the regional view. It is clear that today is that what happening in China, especially of the fact that Chinese carmaker are really excess of capacity. The price pressure in China specifically around the ecosystem of passenger vehicle or live vehicle is definitively high. So this is a different behavior compared the Western world or the region.

Speaker 4

Maybe if I can add just the last comment here, Sandeep. What we see, let's say, yes, this pricing environment and then you have also to consider in term of capacity reservation fees, let's say, in 2025, there will be a further reduction because clearly, let's say, it's acknowledged by the market that now capacity is available. This will be an element that will be there definitely in 2025.

Speaker 5

Thank you so much.

Speaker 2

Thank you, Sandeep. Moira, next question please.

Operator

The next question is from Lee Sinon from MS. Please go ahead.

Speaker 6

Great. Good morning, everyone. Thanks for squeezing me in. I'm just wanting to ask around the R and D number, I think €492,000,000 look to store that gap down maybe about 10% relative to some of the expectations out there. So just trying to get a sense for, is this a sustainable level?

Speaker 6

Do we think this is the right level going into next year? And whether or not related to this, there was any change perhaps in the spend structure around silicon carbide as a strategy? Thanks.

Speaker 4

No, I would say that when we look at the expenses in the quarter in Q3, you have to keep in mind that there are a few elements. First of all, the expenses came lower than expected for few reasons. One reason is we know, let's say, is impact of the vacation in Europe. This was expected. We're a little bit higher than what we were modeling entering the quarter, but this is not the main reason.

Speaker 4

There are one, let's say, one item, one time item in the cost of labor that was decreasing our expenses and this was not expected in respect to entering the quarter. But then there is also, let's say, some more control during the quarter on our discretionary expenses. So that's the combination of these elements combined together, we're running our expenses lower. It's not something structural. We have not, let's say, especially when we look our R and D, changed our effort in terms of R and D.

Speaker 4

So we continue to invest. We continue to invest in the silicon carbide and we continue to invest, let's say, in the development of our products. It's true that, let's say, the new organization is bringing us some efficiency in our, let's say, ability to follow our programs and somehow be more efficient in the way that we drive our expenses. This is also driven by the fact that we have reorganized our groups in a way that, let's say, today we are avoiding overlaps between the activity in the groups. And this is a portion also that is impacting our ability to have a better control of our expenses.

Speaker 6

Great. Thanks, Lorenzo. Very clear. Really, if I could just turn to, I think somewhere in the commentary you mentioned wins in AI servers. And so I was just trying to understand which part of the server power semis architecture are you addressing?

Speaker 6

There's 3 major parts with power supply units, voltage handling across the rack and of course the delivery to accelerators or GPUs themselves. Is there a specific area where you're winning? And could you tell us anything about the architecture of the power semis that you're using? Thanks.

Speaker 1

Thank you. Obviously, I will pass the question to Marco Cassis. He's now in charge of this fantastic product line.

Speaker 7

Yes. So good morning. Now we are going to address all the 3 main blocks. So I'm speaking about the power supply units. I'm speaking about down to the 48 volt or whatever and down to drive the GPUs, which means we will address through silicon carbide, high voltage MOSFET, again to come and phase change voltage regulators and SPS.

Speaker 7

So the SPS is the low voltage MOS, which is the path in which we are now really focusing. It will take a little bit of time clearly to come with a strong offer. But our offer is going to go through all the chain because we do believe we will have the portfolio. And we have the portfolio and we have the capabilities to serve all the content inside the AI servers. Surely, considering the maturity of the products, the first big target is going to be in the power supply units and down the voltage and the scale through the AI service architecture.

Speaker 2

The

Operator

The next question is from Didier Shevama from Bank of America. Please go ahead.

Speaker 3

Good

Speaker 8

morning and congrats, Jerome, for your appointment. Just a couple of questions. First on the Q1 commentary, should we assume that your gross margins are going to take another leg down, A, because obviously your volumes are going to be lower and you're going to lower your factor utilization to lower your inventories on the balance sheet are lingering at a high level? That's my first question and I've got a follow-up. Thank you.

Speaker 4

But you see that in this quarter, our let's say, the impact of the unloading charges is very material because it's impacting our gross margin by 400 basis points. We start already, let's say, to take some measure in front of a weaker Q1. As we said before, let's say, this will be well below our normal seasonality. There is the impact of the calendar, but there is also the impact of the visibility of the backlog. But for sure, Q1, yes, we do expect it's early at this stage to give a precise guidance, but definitely will be a difficult quarter in term of gross margin also because we will continue to have a significant impact for the Allotica.

Speaker 4

We wanted to keep under control our inventory and this is something that for sure, let's say, will have an impact in Q1.

Speaker 1

It is clear that our manufacturing activity in Q1 will not follow the usual activity profile. But in Q4, okay, we have to follow strict process of discussion with representatives of personnel and people, okay, to plan this on Q1. But again, we will come back later on.

Speaker 8

And on the restructuring program, thank you for highlighting the fab sort of resizing and perhaps OpEx cutting. I think one of the questions we got this morning was, is the high triple digit 1,000,000 of dollars a net number or is it a gross number?

Speaker 4

This is the expected savings that we will have, let's say, as a combination of costs and expenses. Of course, this is not including the possible, let's say, cost related to severance or let's say something cost like that.

Speaker 8

Yes. It's a gross number. I mean, okay. And maybe just a quick one. Last time, Jean Marc asked you if you were still looking at M and A.

Speaker 8

You said that you were actively looking. So can you just give us an update on that? Thank you.

Speaker 1

No, we continue to operate within our organic growth strategy with bolt on acquisition, okay. We have activity in our radar screen, which are pretty active today. So we'll come back to you as soon as conclude on that.

Speaker 2

Thank you. Thank you, DJ. Mora, next question please.

Operator

The next question is from Gianmarco Bonacina from Banca across. Please go ahead.

Speaker 9

Yes, good morning. A couple of questions for me. The first one is, if you can specify what is the one time charge related to your cost saving plan? Second one is more strategic mid term. What given that we are seeing especially in Europe some change in the platform and factory closures.

Speaker 9

So what makes you confident that in the mid to long term we will see still a significant ramp up in the penetration of EVs? Thank you.

Speaker 4

Good morning. You refer the one time that I was referring for Q3 or something different? Sorry, I'm not sure.

Speaker 9

No. Assuming you will have, let's say, dollars 800,000,000 of cost saving in 20.27, dollars Assuming that this will be partially related to, let's say, lower headcount, how much will be the one time cost associated with the cost saving plan?

Speaker 4

I would say that at this stage it's a little bit early to enter in those kind of details. Let's say, of course, these kind of things, I think, will be better clarified moving ahead on our Capital Market Day and entering, let's say, more detail on this plan. If you don't mind at this stage, I would prefer the same. Okay?

Speaker 1

Well, for the second question, if I want to simplify, well, it is clear that for any semiconductor company to continuously improve its competitiveness, especially facing ultra competitive marketplace that we are facing now due among many reasons, some capacity that has been triggered by government incentive here and there everywhere. And unfortunately, as well with some, let's say, trade constraints, the only way is to increase the wafer size and to shrink the product. But then okay you know that when the industry is facing and our customer are facing this kind of down cycle, each time okay the exit period is asking for new product and new technology. So that's the reason why for ST there is no other option to accelerate our 300 millimeter. And the reason why I have mentioned, okay, agrati specifically, and we have to accelerate to reach as fast as we can the right scale in order to have benefits of the cost of goods sold about this 300 millimeter.

Speaker 1

Well, I would like to recall that basically the benefits we can expect are moving to 300 millimeter it at least 20% productivity increase. But directionally this is ST what ST has engaged, of course, we will update you thoroughly with this program, okay, because we have defined the critical milestone. And of course, we will give more color at our end Market Day next November 20. Thank

Speaker 9

you.

Speaker 2

Thank you, Gianmarco. Mora, next question please.

Operator

The next question is from Stephane Houri from ODDO BHF. Please go ahead.

Speaker 10

Yes. Hello. Good morning, everyone. You have described the change in dynamic of the EV market. Can you please update us on your vision on your targets for silicon carbide for this year and the following years?

Speaker 10

Thank you.

Speaker 7

Okay. Thank you for the question. Clearly, considering, let's say, the change that we have seen in terms of dynamics, going specifically the fact that fully battery operated electric vehicles has decreased compared to what was the expectation in 2023. And this reduction is going through linearly in the next years. This has an impact for us in 2024 that as you remember, we're expecting to be in the range of $1,300,000,000 Now we expect it to land the year at $1,150,000,000 $1,200,000,000 So reflecting this change in terms of mix, in terms of electrification.

Speaker 7

Now we do believe that the trends going forward, so if we expand the horizon up to 230, we believe that the trend for electrification of mobility remains. And as I was saying before, if we go outside, we see also opportunity in AI servers or industrial for what is related to silicon carbide. So we still believe that our ambition to reach to go over the $5,000,000,000 by 2,030 is there because and this is linked to market share that we do expect to be in the range between 30% to 33%. So yes, there is a slowdown, but the long term ambition towards 2,030 is remaining at the level that you were expecting. I hope that this answers your question.

Speaker 10

Yes. Well, in fact, you also talked about 2025, I think you were targeting €2,000,000,000 but I think you decreased this target to 1.8 percent. So that was also the question, what do you see for next year?

Speaker 7

We no longer expect to grow the $500,000,000 but due to the short term uncertainty, we will provide better visibility at a later stage. Now it's too early to come to further comment.

Speaker 10

Okay. Thank you very much. And if I may, I have a follow-up. It's a specific question on the evolution of the tax environment notably in France, where you've got significant operations. Have you thought already about a potential impact on your on the evolution of your tax rate of the new tax, let's say, increase in France coming?

Speaker 4

Well, as you know, in these kind of things, it's always a little bit difficult because there are many ingredients, let's say, that are combining together. Of course, depends also how the distribution of the profit of the companies is among the various, let's say, countries' jurisdiction. Definitely, yes, you see that today, our tax rate will be in the range of 17%. We think that more or less the impact that we may have if the law is enacted as has been announced, we need also to look in detail how this will happen. But we may have an impact that will be below 1 percentage point on our tax rate.

Speaker 10

Okay. That's very clear. Thank you very much.

Speaker 2

Thank you, Stefan. We have time for a very quick one.

Operator

The next question is from Joshua Buchalter from TD Cowen. Please go ahead.

Speaker 11

Hey, guys. Thank you for squeezing me in. I wanted to ask about the accelerated move to 300 millimeter and the cost cutting. Could we how should we think about the implications to CapEx from this change? Are you guys shutting down more quickly 200 millimeter facilities?

Speaker 11

And in the short to medium term, does this bring your CapEx up? Or should it lower it? Thank you.

Speaker 1

We will reduce our CapEx, let's say, next year and on the next 3 year planning horizon. But it is, of course, something that we will disclose during our Capital Market Day based on the market evolution and our capability, let's say, to grow over the market perspective. But yes, of course, we will decrease our CapEx.

Speaker 4

If I may add to Marc, let's say, you have to think to consider that big infrastructure to go to 300 millimeter are already there. The effort has been done. Let's say, we have already, let's say, put in place the infrastructure. So means that, yes, of course, we will have some CapEx, but we'll be lower in respect what has been in the past.

Speaker 1

And the second, as we are accurate on this story, I would like to highlight that the concept of our wafer fab of silicon carbide 200 millimeter in Catania is copy passed of the concept of coal. It means, okay, we can increase by gateway. So we don't need to build a big infrastructure to grow. We are building by module. So this is really a smart way to adapt the work set to the market condition and investing in due time at the right time, but never in excess.

Speaker 2

Thank you, Josh. I think this is ending our call for this quarter. So thank you very much all of you for being there and we remain here at your disposal should you need any follow-up questions. Sorry for the ones that didn't have time to ask question here. Thank you very much.

Operator

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

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Earnings Conference Call
STMicroelectronics Q3 2024
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