STMicroelectronics Q4 2024 Earnings Report

STMicroelectronics EPS Results

• Actual EPS: $0.37
• Consensus EPS: $0.35
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

STMicroelectronics Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.31 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

STMicroelectronics Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 3:30AM ET

STMicroelectronics (NYSE:STM) N.V., together with its subsidiaries, designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through Automotive and Discrete Group; Analog, MEMS and Sensors Group; and Microcontrollers and Digital ICs Group segments. The Automotive and Discrete Group segment offers automotive integrated circuits (ICs), and discrete and power transistor products. The Analog, MEMS and Sensors Group segment provides industrial application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs); general purpose analog products; custom analog ICs; wireless charging solutions; galvanic isolated gate drivers; low and high voltage amplifiers, comparators, and current-sense amplifiers; MasterGaN, a solution that integrates a silicon driver and GaN power transistors in a single package; wireline and wireless connectivity ICs; touch screen controllers; micro-electro-mechanical systems (MEMS) products, including sensors or actuators; and optical sensing solutions. The Microcontrollers and Digital ICs Group segment offers general purpose and secure microcontrollers; and radio frequency (RF) products. It also offers application-specific standard products for analog, digital and mixed-signal applications. In addition, the company provides assembly and other services. It sells its products through distributors and retailers, as well as through sales representatives. The company serves automotive, industrial, personal electronics and communications equipment, and computers and peripherals markets. STMicroelectronics N.V. was incorporated in 1987 and is headquartered in Geneva, Switzerland.

STMicroelectronics Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, welcome to the STMicroelectronics Full Year 2024 Earnings Release Conference Call and Live Webcast. I'm Sandra, the Chorus Call operator. I would like to remind you that all participants are 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 Jerome Ramell, EVP, Corporate Development and Integrated External Communications. Please go ahead, sir.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you. Thank you, everyone, for joining our Q4 and full year 2024 financial results 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 Tensor Group and Head of STMicro Electronic Strategy System, Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

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 STMOS, we send regulatory filings for a full description of these risk factors. 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. Now I'd like to turn the call over to Jean Marcery, SD President and CEO.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q4 and the full year 2024 earnings conference call. So today, I will start with an overview of the Q4 and the full year 2024, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q4.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In a persisting challenging environment, we achieved Q4 2024 financial results pretty much in line with the midpoint of our guidance. Our Q4 net revenues decreased 22.4% year over year and increased 2.2% sequentially to $3,320,000 Our gross margin was 37.7 percent. Our operating margin was 11.1 percent and net income was $341,000,000 Our Q4 net revenues were in line with the midpoint of our business outlook range, driven by higher revenues in personnel electronics, offset by lower revenues in industrial, while automotive and communication equipment and computer peripherals performed as expected. Q4 gross margin was broadly in line with the midpoint of our business outlook range. Looking at the full year 2024.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Net revenues decreased 23.2 percent to $13,270,000 mainly driven by a strong decrease in industrial and to a lesser extent in automotive. Gross margin was 39.3%, down from 47.9% in full year 2023. Operating margin was 12.6% compared to 26.7% in full year 2023, and net income decreased 63 percent to $1,560,000,000 We invested $2,530,000,000 in net CapEx, while generating free cash flow of $288,000,000

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Let's now discuss our business dynamics during Q4 and a recap of our 2024 business highlights.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In Automotive, during the Q4, we continued to face a slowdown, particularly in Europe, and our book to bill ratio remained below 1. For 2024, we continued to execute our strategy, supporting the transition of the automotive industry to car electrification and digitalization. In electrification, we won business with our power discretes and modules, both silicon and silicon carbine, as well as smart power technologies and smart fuse solutions. With silicon carbide products, our revenue for the year was $1,100,000,000 During the year, we had multiple high value wins with both silicon carbide devices and modules for automotive customers, including a cooperation with Ampere, as well as broadly in industrial applications. In China, which is the fastest growing market for electrical vehicles, we have a very strong momentum in terms of design in activities.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

And as of today, we have more silicon carbide engagements with top Chinese carmakers than any other suppliers. To this respect, in June, we announced we signed a long term silicon carbide supply agreement with GD Auto. We also introduced our 4th generation of silicon carbine MOSFET technology, bringing new benchmarks in power efficiency, power density and robustness. Our automotive microcontrollers portfolio supports both electrification and digitalization. And during the year, we saw continued design win momentum across applications such as software defined vehicle architectures and car electrification systems.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Important trends here are the integration of multiple ECUs into a single more powerful unit and the Zonal architecture approach. During Q4, we announced a statement offering for our advanced ARM based stellar microcontrollers as well as a brand new series in the STM32 family, designed for activation of carbon, convenience and onboard charging applications. In ADAS, we worked closely with our long time customer and partner Mobileye, with a focus on their latest market introduction, the IQ6 family. The family includes the IQ6L, designed for performance, power and cost efficiency for level 1 and 2 driver assistance, as well as the IQ6H, which delivers premium ADAS and full surround view functionality.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

industrial, during Q4, we continued to face a delayed recovery and inventory correction, particularly in Europe, and our book to bill ratio remained below 1. Looking at our 2024 highlights, in power and energy management applications, we had a broad range of design wins, including in data centers, EV charging stations, renewable energy systems, white goods and factory automation. We introduced a wide range of new products, solutions and reference designs, also including high performance telecom applications and AI server and power supply. Another important growth opportunity around AI for ST, on top of our focus on edge AI. In embedded processing solutions, we further strengthened STM32 microcontroller and microprocessor families and ecosystem introducing many new products and tools.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

A particular focus was on edge AI enablement for our customers. In June, the ST Edge AI suite came online, bringing together tools, software and knowledge to simplify and accelerate edge AI application development. In December, we made our most powerful MCU series, the STM32N6, available for broad market adoption. The series is the first to feature our proprietary neural, ART accelerator and PU, making it possible to run computer vision, audio processing, sound analysis and more consumer and industrial applications at the edge on a microcontroller. We also introduced an innovative smart sensor with edge AI processing for motion tracking in industrial and robotics applications.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

The combination of software and tools ecosystem continues to lower the barrier to entry for developers to take advantage of AI accelerated performance for real time operating system. In October, we announced a new strategic collaboration with Qualcomm Technologies for the new generation of industrial and consumer IoT solutions. Together, we are integrating Qualcomm's leading wireless connectivity technologies with our STM32 microcontroller ecosystem. We also introduced the industry's 1st emergency meeting, the GSMA standard for eSIM IoT deployment to support the proliferation of secure cloud connected autonomous things. In Personal Electronics, Q4 was slightly better than expected, while in communication equipment and computer peripheral was in line with our expectations.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In personnel electronics, during 2024, we continue to be successful with our focused approach through solid execution of engaged customer programs, securing sockets in flagship devices with differentiated products and leveraging our broad portfolio to address high volume applications. In Communications Equipment, our RF Communication business delivered solid results. We continue to progress well with engaged customer programs in satellite and cellular communication infrastructure and receive hours from a new player in the low earth or by satellite market. Let me now share a summary of our May 2024 manufacturing initiative. In May, we announced the construction of a new high volume 200 millimeter silicon carbide manufacturing facility in Catania, Italy, to manufacture power devices and modules, including testing and packaging.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Along with the silicon carbide substrate manufacturing facility on the same site, these facilities will form ST Silicon Carbide Compass, a fully vertically integrated manufacturing hub for silicon carbide devices. In sustainability, all our strategic manufacturing initiatives are aligned with our sustainability strategy and our commitment to sustainable manufacturing in term of energy consumption, greenhouse gas emissions, air and water quality. We are on track to be carbon neutral by 2027 in all direct and indirect emissions from scope 12 and focusing on product transportation, business travel and employee commuting emissions for Scope 3. And we are on track for our 100 percent renewable energy goal by 2027 as well as for other key sustainability commitments. Power purchase agreements will play a major role in our transition.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Following the first with ERG announcement in Q4 2023, we added 2 more in 2024, one in Italy with South Africa and one in Malaysia with ENGIE. You will also have noticed we just announced another one in France, with total for 15 years. We also continue to work closely with external bodies to maintain our strong presence in the major sustainability indices. Let me close this section with a recap of our 2024 corporate development activities. ST has made a number of significant changes in the way our company is structured and operates during 2024.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

In jewelry, we announced the reorganization of our product groups into 2 groups, split in 4 reportable segments, as well as the creation of a new application marketing organization, by end market, implemented across all regions with the existing end marketing organization. In May, I was pleased to be re appointed as member and Chairman of the Managing Board for a 3 year term to expire at the end of 2027 Annual General Meeting of Shareholders and Lorenzo was appointed as member of the Managing Board for the same 3 year term. In October, Lorenzo, President and CFO, added responsibilities to cover supply chain, corporate development and integrated external communication, in addition to finance, global procurement, digital transformation and information technology, enterprise risk management and resilience. In October, we also announced the launch of a new company wide program to reshape our manufacturing footprint, accelerating our wafer fab capacity to 300 millimeter silicon in agate and cold and 200 millimeter silicon carbide in Cataria and resizing our global cost base. This program should result in strengthening our capability to grow our revenues with an improved operating efficiency, resulting in annual cost savings in the high triple digit $1,000,000 range exiting 2027.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Specifically, in terms of operating expenses, SG and A and R and D, the program is now going to start and we expect annual cost savings totaling $300,000,000 to $360,000,000 exiting 2027 compared to the cost base of 2024. Now over to Lorenzo, who will present our key financial figures.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Thank you, Jean Marc. Good morning, everyone. Let's start with a detailed review of the Q4. Starting with revenues on a year over year basis. By reportable segment, Analog Products MEMS and Sensor was down 15.5% mainly due to decreases in Analog and Imaging.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Power and Discrete products decreased 22.1% with a decline in both Power and Discrete. Microcontrollers revenue declined 30.2%, mainly due to general purpose microcontroller. Digital ICs and RF products declined 22.8%, mainly due to ADAS and Infotainment. By end market, Industrial declined by about 41%, Automotive by about 20%, Personal Electronic by about 17% and Communication Equipment and Computer Periphera increased by about 2%. Year over year, sales decreased 19.8 percent to OEMs and 28.7 percent to distribution.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

On a sequential basis, revenue increased 1.1% in analog MEMS and sensor, 7.0% in microcontroller and 13% in digital ICs and RF, while decreased 6.8% in Power and Discrete. By end market, Industrial grew by about 12%, communication equipment, computer peripheral by about 13% and automotive by about 1%, while personnel electronics decreased by about 8%. Turning now to profitability. Gross profit in the 4th quarter was $1,250,000,000 decreasing 35.7% on a year over year basis. Gross margin was 37.7 percent, decreasing 780 basis points year over year, mainly due to unfavorable product mix and to a lesser extent to sales price and higher unused capacity charges.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Total net operating expenses amounted to $884,000,000 in the 4th quarter. This was better than anticipated, reflecting higher level of R and D grants, a stronger dollar as well as the continuous strict monitoring of our expenses in the current market environment. Looking about the net OpEx, let me give you an indication for the Q1 of 2025. In the Q1 of 2025, we expect them to stand at about $850,000,000 As a reminder, these amounts are net of the other income and expenses. Coming back to the 4th quarter.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

As a result, the 4th quarter operating income decreased 64% to $369,000,000 Q4 operating margin was 11.1%, down from the 23.9% in the year ago period, with Analog MEMS and Sensor at 14.7 percent Power and Discrete at 11.9%, Microcontroller at 14.3% and Digitalized Season RF at 31%. Q4 'twenty four net income was $341,000,000 compared to $1,080,000,000 in the year ago quarter. Earnings per diluted share were $0.37 compared to $1.14 1 year ago. As a reminder, the 4th quarter 2023 net income included a one time non cash income tax benefit of $191,000,000 Looking now at our full year 2024 financial performance. Net revenue decreased 23.2 percent to $13,270,000,000 by end market.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

On a year over year basis, industrial revenues decreased 49%. Automotive was down 14%, Personal Electronics declined 11% and Communication Equipment and Computer Peripheral were down 2%. Automotive represented about 46% of our total 24 revenues, personal electronic about 21%, industrial 20% and communication equipment computer peripheral about 13%. By customer channel, sales to OEMs and distribution represented 73% 27%, respectively, of the total revenues in 2024. A lower share of distribution compared to 2023 reflected the inventory correction in the industrial end market, which is mainly addressed through distributors.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

By region of customer obesity, 40% of our 2024 revenues were from the Americas, 30% from Asia Pacific and 30% from EMEA. Looking at the sales performance by reportable segment. Analog MEMS and Sensor was down 13% with all subgroups declining. Power and Discrete decreased 18.8 percent, with a decline in both Power and Discrete. Microcontroller revenues declined 38.8%, mainly due to general purpose Microcontroller.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Digital ICs and RF products declined 16.5%, mainly due to ADAS and infotainment. In 2024, gross margin decreased to 39.3 percent compared to 47.9% for 2023, mainly due to product mix and to lesser extent to sales price and higher unused capacity charges. In 2024, operating margin decreased to 12.6% compared to 26.7% in 2023. By reportable segment, Analog Products MEMS and Sensor operating margin decreased to 14.3% from 21.7%. Power and Discrete operating margin decreased to 14.7 percent from 26.1%.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Microcontroller operating margin decreased to 14.4% from 35.6 percent and Digital ICs and RF operating margin decreased to 29 0.7% from the 35.6 percent of the previous year. Net income was $1,560,000,000 and earnings per share was $1.66 Net cash from operating activities decreased 50.5 percent in 2024, totaling $2,970,000,000 Net CapEx stood at $2,530,000,000 in 2024, in line with our expectation, compared to $4,111,000,000 in 2023. Free cash flow was at 288 $1,000,000 in 2024 compared to $1,770,000,000 previous years. Inventory at the end of the year 2024 was $2,79,000,000 compared to $2,700,000,000 in 2023. Day sales of inventory at year end was 122 days, substantially in line with our expectation, compared to 130 days at the end of Q3 'twenty four and 104 days at the end of the previous year.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Cash dividend paid to stockholders in 2024 totaled $288,000,000 In addition, during 2024, ST executed share buyback totaling $359,000,000 ST net financial position of $3,230,000,000 at December 31, 2024, reflected total liquidity of $6,180,000,000 and total financial net debt of $2,950,000,000 Now back to Jean Marc, who will comment on our outlook.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thank you, Lorenzo. Now let's move to our business outlook for Q1 2025. Our business environment remains challenging as we continue to face a delayed recovery and inventory correction in industrial and a slowdown in automotive, both particularly in Europe. As a result, we headed up 2024 with a book to bill still below parity. As we indicated during our Q3 2024 results, we were expecting our Q1 2025 revenues quarterly decline compared to Q4 2024 to be well above our normal seasonality, partly due to a lower number of calendar days as Q1 2025 will have 6 less days than Q4 2024.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We are confirming this trend. We are expecting Q1 2025 revenues at $2,501,000,000 plusminus350 basis points at the midpoint. Our Q1 2025 net revenues will decrease by 27.6% year over year and 24.4% sequentially. We expect our gross margin to be about 33.8 percent, plusminus200 basis points. In terms of CapEx, in 2025, we plan to invest about $2,000,000,000 to $2,300,000,000 in net CapEx.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So to conclude, 2024 turned out to be one of the worst years in many decades for the industries we serve, particularly in industrial and in automotive. It was characterized by unexpectedly weaker head demand and higher level of inventories, which significantly impacted ST. Coping with this reality, we had to postpone our $20,000,000 plus revenue ambition plan to 2,030 during our Capital Market Day last November. And we set a new intermediate financial model for 20 seventwenty 28. We are already engaged and determined to execute our manufacturing reshaping and cost saving program to restore profitability compatible with our model and investing in innovation to capture the revenues growth from the secular trends we are addressing.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Thank you. And we are now ready to answer your questions.

[Operator]

We will now begin the question and answer session. You. First question comes from Francois Bouvignies from UBS. Please go ahead.

[Francois Xavier Bouvignies, Executive Director - Equity Research at UBS Investment Bank]

Thanks a lot. So my question would be, I mean, given the outlook that you see in Q1 and the book to bill, that doesn't bring a lot of confidence at this stage, especially in terms of visibility. What should we think about the rest of the year? I mean as Jean Marc, you said at the Capital Markets Day you were comfortable about the consensus numbers, which has been a 3% at the time. Following these results, how should we think about the rest of the year?

[Francois Xavier Bouvignies, Executive Director - Equity Research at UBS Investment Bank]

And given the book to bill, how should see the trend? Thank you very much.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Following the business dynamic of Q4 and specifically on automotive, we believe it's really too early to communicate our revenue plan for the full year 2025, considering again the visibility we have in industrial, but both in automotive. But beyond Q1, the visibility remains extremely low, except for the main engaged customer program in which we should grow beyond seasonality in H2 versus H1, but driven by content increase. Our normal seasonality between Q2 and Q1 is generally speaking flattish revenues. And at this stage, we do not see any specific reason why it should be much different than the positive calendar effect, means plus 3% Q2 versus Q1. However, we think it's fair to expect Q1 at the low point of 2025.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Francois.

[Francois Xavier Bouvignies, Executive Director - Equity Research at UBS Investment Bank]

Thank you very much.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Do you have any follow-up?

[Francois Xavier Bouvignies, Executive Director - Equity Research at UBS Investment Bank]

Yes. It's been weakening and the channel has been fairly high. How do you see the level? I mean, do you see any evidence of strong destocking? If you can maybe disclose in the channel where you are versus a normal or if you see any light in the destocking part this quarter in Q1 and of course Q4 as well?

[Francois Xavier Bouvignies, Executive Director - Equity Research at UBS Investment Bank]

Thank you.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

I'll pass the question to Lorenzo.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

In terms of inventory in distribution in the quarter, we have not seen a significant destocking, let's say. Still a situation, I would say, there is some excess of inventory. This excess of inventory stays in the range of 1 or 2 months, let's say, depending on the product, higher in respect of what we consider a normal situation in distribution. So at the end, still we see inventory excess inventory in distribution.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Well, the only positive point is that our distributor POS, so their whole sales increased slightly versus Q3. By geography, it has been driven by improvement in Asia, while Europe and America did not improve. But however, according the input and the visibility we have, the POS will decrease in Q1 versus Q4. So that's the reason why inventory correction is still in front of us. Office.

[Operator]

The next question comes from Andrew Gardiner from Citi. Please go ahead.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Good morning, gentlemen. Thanks for taking the question. Jean Marc, given what you have just described in terms of, I suppose, both the lack of visibility, but also your current expectation about, let's say, steady 2Q, How are you planning for fab loadings, sort of the underutilization charges? And then also if you've got any steer on the net OpEx as we move beyond Q1, starting the year at 850, percent effectively implying 0 adjusted operating profit. It'd be helpful to understand what your plans are for the next couple of quarters in terms of the net OpEx as well.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Thank you.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Lorenzo will take the question. What I can, let's say, also share with you immediately is that in Q1, we have already taken significant closure of production day across our fabs and assembly and test plants. Then after the number related to unload charges and OpEx, Lorenzo will comment.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

The loading, let's say, this quarter, the impact of the unloading charges is above 500 basis points, so is quite heavy. We have a plan also for temporary closing of many of our fabs during this quarter. Our expectation is that in Q2, we will continue, let's say, to have a significant amount in term of unloading, maybe slightly improving in respect to the Q1, but still impacting significantly our gross margin. But in term of OpEx, in term of OpEx, as we said, in this quarter, we do expect to have a net OpEx around $850,000,000 Then you know that we have started now our program in term of resizing our OpEx. We think that in 2025, we will start to see some first benefit of our cost saving program on OpEx.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Overall, the saving program, we said this should be over the horizon of the 3 years at $300,000,000 $360,000,000 compared to the cost base of 2024. We think we estimated that for 2025, we will have compared to the basic cost of 2024 something in the range between $100,000,000 $120,000,000 impact reduction on our expenses. On the other hand, you have not to forget that there will be the impact of the inflation, I mean, salary increase, these kind of things. Overall, we expect that net OpEx should decrease low single digit in 2025 compared to 2024, despite the fact that we have lower R and D grants in the is expected lower R and D grants in 2025 compared to the 2024.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Do you

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

have any follow-up?

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Thank you very much. And it's just a separate one. I was just interested Jean Marc on the comment you made regarding the visibility. I mean on the industrial side, I think that's pretty clear given the weakness you saw in the Q4 and what you're seeing in terms of the channel. But in 4Q, automotive was, let's say, okay or in line with your expectations.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

But you're also pointing out that the visibility there looking into this year is particularly weak. What has perhaps changed for the worse? Or is it just the customers are so uncertain, they're not giving you visibility on a normal lead time? Just a bit of color around what's happening in automotive would be helpful.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Normally, we are coming to the old way of working between carmaker and Tier 1. So it means order pull in are coming within 2, 3 weeks visibility. So this is a point number 1. It is also clear that taking into account the current situation of the overall automotive industry between the mix change on the turbo combustion engine, high end, okay, middle end, mix change on electrical vehicles, battery based versus hybrid 1. In Q1, okay, we see a phenomena of inventory adjustment.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

That's the reason why we anticipated and we share, okay, with the market that Q1 will be significantly below the seasonality that generally speaking are only due to Personal Electronics and China and Asia, okay, because of Chinese New Year. But this year amplified by inventory correction at Automotive. After Q1, okay, we know that some Tier 1 has already adjusted their delivery forecast. But again, which is only a forecast, but the visibility of the pull in from the consignment inventory are very short term. So we are not protected against some fluctuation on this pull in.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

That's the reason why, okay, we come back on this situation.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Understood. Thanks, Jean Marc.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Andries. Sandra, next question please.

[Operator]

The next question comes from Didier Scheimana from Bank of America. Please go ahead.

[Didier Scemama, Managing Director - Senior Analyst at Bank of America]

Yes, good morning.

[Didier Scemama, Managing Director - Senior Analyst at Bank of America]

Thank you for taking my question. Jean Marc, if you could give us an update also on the manufacturing footprint. Obviously, the company is structured for substantially higher level of revenue. Obviously, you communicated your OpEx cuts over the next 3 years. Can you help us understand a little bit the rest of the OpEx or COGS, I should say, a reduction and where the manufacturing footprint will be reduced?

[Didier Scemama, Managing Director - Senior Analyst at Bank of America]

And that would be helpful. Thank you.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

So, Laurent, you will comment on it. Yes. Maybe I take this question. As you remember, at our Capital Market Day, we were indicating that we wanted to accelerate our transformation of the manufacturing footprint, accelerating our 300 millimeter. So moving from 200 millimeter for silicon to 300 millimeter and for silicon carbide from the 150 millimeter to the 200 millimeter.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

So this plan, of course, cannot yield a significant benefit already this year because definitely we need move our production from existing 200 millimeter fab to the 300 millimeter fab. As we said, overall, the program is yielding, including expenses, high triple digit, let's say, savings. What we have given to you, let's say, the sizing over the next 3 years, let's say, in term of expenses. And as you have seen substantially, we think that this will come in, in our P and L quite evenly in the next 3 years. For what concern the COGS, it will be mainly we will start to impact the 2026, but the significant impact will be in 2027.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

So the program is a program that will yield some benefit in 2026, and this is what mainly, let's say, thanks to the accelerated move of the silicon carbide 1 for 150 millimeter to 200 millimeter and will yield the most of our saving in 2027.

[Didier Scemama, Managing Director - Senior Analyst at Bank of America]

Okay. Thank you. For my follow-up, I just wondered if you could give us an update on where you are in terms of general purpose microcontroller market share. I think, Jean Marc, you mentioned last quarter, if I remember correctly, that about a quarter of the revenue contraction came from market share loss in China, I think in consumer. Do you have any sort of fresh thoughts on this?

[Didier Scemama, Managing Director - Senior Analyst at Bank of America]

And I guess the question from here on is the magnitude of the decline is such that people are starting to wonder whether it's much more than a cyclical downturn and how much market share you've actually lost in China and elsewhere. So just give us a sense of your comfort level that this is cyclical and not structural?

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

No, we confirm basically the relative weight of the root cause of the revenue decline in 2024 versus 2023. So inventory correction, okay, 60%. Then, okay, lower market, okay, 30%. And market share loss clearly in mainly in mainstream microcontroller in Asia and China with the competition and mainly on 8 bit. There is no reason, okay, that this had changed.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

And by the way, we believe of how we wait, really we will wait the last picture. But we believe that in Q4, we have restarted to win market share. This is our view and what we are convinced about. Then I repeat, okay, in order to comfort ourselves about this statement, the recipe, okay, to control and to continue to grow on this market remains the same. So the most comprehensive, okay, hardware and software stack, ST as the most comprehensive, okay, hardware and software stack in the industry.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

We have the most advanced ecosystem. We have basically more than 1,200,000 developer around our ecosystem. Well, you know that our technology roadmap, we have 1 of the 14 nanometer, the enabling, okay, from higher performance to ultra low power microcontroller, we are introducing 8 nanometer of the SOI will be really competitive versus all the advance offer from a foundry or integrated people. Then we have the manufacturing capacity, 300 millimeter fab. And then, okay, we are completing our microcontroller with hardware accelerator.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

So the offer on AI, the offer on connectivity. So and we saw, okay, on our ecosystem, okay, that continuously the developer are scrutinizing, okay, our portfolio. So now, I confirm, yes, the competition is tough and challenging in China, in Asia with, let's say, a new player. I would like to repeat that here in China to compete, we are developing a China for China strategy. It is an exhaustive strategy.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

It is not only about manufacturing. There is a there is a lag of manufacturing, but there is a lag of product development and product support, and there is a lag of business development and business support. So we are adapting ourselves completely to the ecosystem of microcontroller in China in order to keep growing our market share. But yes, I confirm we lost 10% because, okay, during the shortage period, we have sacrificed, okay, the 8 bit microcontroller and the low end 32 bit of the mainstream. We do believe that partially we will recover moving forward, offering, okay, microcontroller, which are super competitive and with the embedded features.

[Didier Scemama, Managing Director - Senior Analyst at Bank of America]

Thank you. Very helpful.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, D. J. Sandrine, next question?

[Operator]

The next question comes from Menon Jeanardan from Jefferies. Please go ahead.

[Janardan Menon, Managing Director at Jefferies India]

Hi, good morning. Thanks for taking the question. I was just trying to get a feel for the gross margin possible progression through this year. Lorenzo, you were saying that you won't get much of the effect on the COGS reduction in 2025. And you have the you have a 500 basis point underutilization charge, which is hitting you right now in Q1.

[Janardan Menon, Managing Director at Jefferies India]

So assuming that the underutilization gradually improves through the course of the year, are we in a situation where even by Q4, you may be 100, 200 basis points below the 40% level because there's no other factor there? Or is there any other factor which could come into play in the second half of the year in terms of product mix or cost reduction or anything like that, which could improve your gross margin as you get to the end of the year?

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Thank you for your question. Clearly, let's say, at this stage, it's a little bit difficult, let's say, to give an indication for the gross margin. And this is also related to the fact that at this stage, our visibility on the evolution of the revenues is not yet there. But regarding the unused capacity charge, for sure, we will have a significant level of unloading in H1. But we think it should improve in H2, benefiting from the additional content in personnel and electronic that this is supporting fabs loading, especially, let's say, fabs loading on our 300 millimeter that are the one that are impacting both unloading charges as you can imagine.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

Clearly, the level of unloading, it will also depend on the magnitude of the recovery in industrial. This is another important factor. Then you have to consider that when we look, let's say, the year, now we will have some tailwinds helping. Definitely, one is the price dynamic in COGS. We have a positive impact due to the cost of energy, lower cost for our foundry.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

There is stronger U. S. Dollar that will gradually materialize during, let's say, the year. You know that we have not the full benefit due to our hedging policy, but assuming that the dollar will stay at this level, we will see positive impact materializing during the year. But then it will be also the mix.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

The mix has been one of the main detractor in 2024. Clearly, depending on the recovery in the industrial, the mix will play a positive impact over the gross margin moving forward. But then we have some headwinds. One of these is the capacity reservation fees. If you remember, the capacity for reservation fees will decline this year.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

This year will be declining by more than $200,000,000 compared to 2024. And then we will expect the price erosion. Price erosion is expected in the range of mid single digit. I would say these are the dynamics. To quantify at this stage is a little bit complex to say.

[Janardan Menon, Managing Director at Jefferies India]

And just on the sorry, continue.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

If you want, I can add that we think anyway that Q1 for gross margin will be the bottom. It's fair to say that we expect that Q1 will be the bottom. So we will see progressively recovery in terms of gross margin.

[Janardan Menon, Managing Director at Jefferies India]

And just on the last two points, the capacity reservation fee and the price erosion. The capacity reservation fee, is that a linear steady effect through the 4 quarters? Or is there some kind of a linearity where it improves or reduces into the second half of the year? And can you give us the same issue on price pressure? Is price pressure higher now?

[Janardan Menon, Managing Director at Jefferies India]

Is there any expectation that it could reduce in the second half if demand recovers or something like that?

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

In terms of capacity reservation fees are substantially linear over the various quarters. You may have a plus or minus, but not significant changes in the quarter. In terms of pricing, yes, Q1 is impacted on a sequential basis, mainly for the renegotiation of the contract in Automotive. So it will be a step down that is not repeatable over the other quarters. So at the end, let's say, in the year, we will see a price down.

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

We expect in the mid single digit, which a significant portion has been already, let's say, factoring already in Q1.

[Janardan Menon, Managing Director at Jefferies India]

Can you just remind last one, can you just remind us on your sensitivity on currency? What is your current do you have a formula to update us on?

[Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO at STMicroelectronics]

In terms of effects, roughly we can say that is impacting in the range of $10,000,000 $12,000,000 operating income per quarter for any 1% change in the euro dollars impact. This is more or less the impact. Then you know may change a little bit because there is a portion of the revenues that are in Europe. There is no hedging. But if you want roughly, this is the rule that you may consider.

[Janardan Menon, Managing Director at Jefferies India]

Thank you very much.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Janardan. Sandra, we have time for the last question. Thank you.

[Operator]

The last question comes from Stephane Urry from ODDO BHF. Please go ahead.

[Stephane Houri, Head of Equity Research at ODDO BHF]

Thank you very much. Actually, I have a question on automotive and on the silicon carbide scenario. You made a few comments about the fact that you had some wins notably in China. So I'd like to understand if you think you can grow this year in silicon carbide. And what would be the mix between new customers and the main customer that has been using your product?

[Stephane Houri, Head of Equity Research at ODDO BHF]

Thank you.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Overall, I will not comment full year 2025 on silicon carbide. Similarly, okay, we don't want to comment the full year with the visibility we have. More than specifically on Silicon Carbide, I will let Marco to comment few points. Really on Silicon Carbide, what is important crucial for ST is the following. First of all, okay, we want to convert as fast as possible our manufacturing in 8 inches This is what we have engaged in Catania.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

And I repeat, okay, by H2 2025, we will start the production in 8 inches in Catania and partially integrated with the raw material and this to address mainly the Western market. In China, I would like to insist that we will start in H1 2026 Sanad directly in 200 millimeter and we will be fully integrated in China, okay, with our Chenzen fab. And similarly to the microcontroller, we will be, let's say, a China for China strategy for manufacturing, for product development and support and for business development and support. 2025 will be a transition year, but again, it's too early to speak. And we expect, okay, then to accelerate the growth 'twenty six, 'twenty seven and moving forward.

[Jean-Marc Chery, President, CEO & Member of Managing Board at STMicroelectronics]

Barnet, on more detail, okay, Marco can make some complement information.

[Marco Cassis, President of Analog, Power & Discrete, MEMS & Sensors and Head of Strgy, Syst Res & Apps, Innovation at STMicroelectronics]

Yes. Thank you, Jean Marc. As we presented during the Capital Market Day, the positioning that we have in this moment in terms of sockets where we are in with the Chinese makers is surely strong. I think we are relative to peers, we are in the strong positions in terms of sockets. How these will develop during 2025 in terms of top line considering an overall, as you know, slowdown in terms of battery electric vehicles is too early to say.

[Marco Cassis, President of Analog, Power & Discrete, MEMS & Sensors and Head of Strgy, Syst Res & Apps, Innovation at STMicroelectronics]

What I can say is that our growth and our ambitions in the long term to retain a 30% market share is there. And this will be driven by 4 elements that are innovation because our technology roadmap is extremely strong. We just introduced our Generation 4, and we are continuing to work to implement further generations. Our manufacturing footprint, Sanan, China and Catania, is helping us to position ourselves strongly to serve both, let's say, the Asian, the Chinese market and the Western world. And we expect that beyond this transition period during 2025 to see a recovery and acceleration of the EV.

[Marco Cassis, President of Analog, Power & Discrete, MEMS & Sensors and Head of Strgy, Syst Res & Apps, Innovation at STMicroelectronics]

And we will, of course, push not only for the automotive market, but in terms of silicon carbide, we want to enlarge also our positioning in terms of industrial and AI data centers. I repeat again, the position in terms of sockets where we are present in the Chinese market, which is at this stage, let's call it the healthiest, is relatively to our piece extremely strong.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Thank you, Stefan. Unfortunately, we don't have time for follow-up questions. So thank you, everyone. I think this is ending our call for this quarter. Thank you for attending and we are to your disposal should you need any follow-up question.

[Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication at STMicroelectronics]

Sorry for the one that didn't have time to ask a question. 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.

Participants

Executives

• Jerome Ramel., Executive VP , Corporate Development and Integrated External Communication
• Jean-Marc Chery, President, CEO & Member of Managing Board
• Lorenzo Grandi, President of Finance, Purchasing, ERM & Resilience and CFO
• Marco Cassis, President of Analog, Power & Discrete, MEMS & Sensors and Head of Strgy, Syst Res & Apps, Innovation

Analysts

• Francois Xavier Bouvignies, Executive Director - Equity Research at UBS Investment Bank
• Andrew Gardiner, Head of European Technology, Equity Research at Citigroup
• Didier Scemama, Managing Director - Senior Analyst at Bank of America
• Janardan Menon, Managing Director at Jefferies India
• Stephane Houri, Head of Equity Research at ODDO BHF