STMicroelectronics NV Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Francois Bouvignies - UBS Investment Bank - Analyst : So the first question that is in everybody's mind, and you saw it with TI yesterday is how much your Q2 is driven by tariff pooling. So effectively, you are plus 7% quarter-on-quarter guiding on the revenue side. And I was wondering if you saw any strange behavior or unusual behavior as maybe the industry is trying to get some inventories ahead of a tariff. So I just wanted to have your view on that. If you could provide any data that you have seen during the quarter that would support any pooling or not would be helpful. That's my first question. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Sole Member of the Managing Board, Chairman of the Executive Committee No, we have not seen specific pooling tariff. The Q2 forecast and guidance has been built in Q1, with our backlog we had entering in the year, plus a booking plan that has been achieved on a very linear and smooth model. So no, no specific pooling, okay, due to tariff for Q2. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 7:30AM, STMPA.PA - Q1 2025 STMicroelectronics NV Earnings Call

Question: Francois Bouvignies - UBS Investment Bank - Analyst : And what does that mean for gross margin for H2? I mean inventory is coming down, does it mean that gross margin will -- can it go up as well? Lorenzo Grandi - STMicroelectronics NV - Chief Financial Officer, President - Finance, Purchasing, ERM and Resilienc, Member of the Executive Committee In Q2, our guidance for the gross margin as you have seen is substantially to stay flat in respect to the first quarter. There are a few components of this dynamic of the gross margin. On one side, is clearly, let's say, the gross margin is impacted negatively by the manufacturing efficiency that we had during Q1. Manufacturing efficiency during Q1 was impacted by the significant number of days of closure that we have done in our fabs and in our plant. You know that when you have this, let's say, actions to close the sites, not all the efficiency, let's say, not all the negative impact of disclosure is captured by the unloading charges. So there are some impact that is negatively impacting the efficiency, and this is reflected in the dynamic of the second quarter gross margin. On top of that, there is an unfavorable impact on the euro dollars moving from 1.06 to 1.08. This is offset on the other side by the improvement in the product mix. Product mix is improving as Personal Electronic is declining. Automotive is improving in the second quarter. It's improving also Industrial. This is offsetting, let's say, the negative impact that we have related to the manufacturing that rightly, you say is coming from -- substantially from our inventory. Why I would say that in terms of pricing, we don't see any significant high pressure in terms of pricing, it's the normal trend that usually we experienced quarter after quarter.

Question: Janardan Menon - Jefferies International Ltd. - Analyst : Yesterday, going back to Instruments, they were sounding quite bullish about the industrial business. They said that they're seeing a broad recovery across segments and geographies and all their customers are at low levels of inventory. Those comments seem a little bit more bullish than the comments you've just made today on industrial. I'm just wondering why there would be a difference between the two. Is it that they have a more direct sales model and we'll see the improvement in the -- earlier than through the distribution channel where you are selling some more. And when we talk about the second half, would the level of recovery of industrial microcontrollers be a key factor, the level of -- in terms of your gross margin outlook into the second half? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Sole Member of the Managing Board, Chairman of the Executive Committee So I take the question for the revenue. Well, it is clear that for industrial, we see some positive trend. I repeat that our Q1 book-to-bill was above 1. In terms of orders, dollar, okay, we were also up. But clearly, we have seen some inventory done in a smart industrial and to a lesser extent in power and energy. And also, we see some positive dynamic by region, so especially in Asia, but still no improvement in Europe, particularly -- and in America. So it's a point number one. Point number two, you know that our industrial market, let's say, go to market is mainly related to general purpose microcontroller. And there is still a situation of other inventory in general purpose going in the right direction but at a slower pace than what we expected, okay, a few months ago. Well, about H2. Well, as I have said, we will not provide any indication about H2. Why? Because of the uncertainty of the environment, the low visibility we have. However, we already communicated that we are pretty confident about our Engage customer program in Personal Electronics and in Communication Equipment and Computer Peripheral. Definitively, this increase in H2 versus H1 related to this on the Edge customer program will not represent the full H2 growth versus H1. Another part, okay, should be related to industrial market definitively, but it's too early to confirm this indication. But it is something that probably will happen.

Question: Janardan Menon - Jefferies International Ltd. - Analyst : So if the second half is on the Personal Electronics where you have an engaged customer ramp into the second half. And just going back to the gross margin issue, where your Personal Electronics has lower gross margins than Industrial Automotive. So just from that perspective, would the level of improvement, all things being equal, just assuming that there is no big tariff impact in the second half, would your gross margin improvement be somewhat more muted? Lorenzo Grandi - STMicroelectronics NV - Chief Financial Officer, President - Finance, Purchasing, ERM and Resilienc, Member of the Executive Committee In the second part of the year, clearly, at this stage, it's a little bit difficult to give any precise indication in terms of gross margin where we will land. But clearly, we have some elements that we can share with you. Clearly, the impact of the growing in terms of Personal Electronic and with significant content in terms of silicon will definitely help significantly our, let's say, reduction in terms of unloading charges and also improving in our manufacturing efficiency. And this is clearly a positive benefit that we will have in the second part of the year. Clearly, in the second part of the year, as we were mentioning before, there will be improvement, is expected improvement in the industrial that is very accretive for us in terms of gross margin. So I would say that these elements are elements that are supporting for us some, let's say, expected improvement moving from the first half to the second half. Clearly, let's say, there are also some headwinds that we have to take into consideration, one maybe is the dynamic of FX. But clearly, let's say, in this environment is not, let's say, helping us. And the other element that we have to take into consideration is the fact that as we have said many times, the capacity reservation fees will progressively go down also moving from the first half to the second half. Anyway, I have to say that -- it's fair to say that, let's say, the level of gross margin that we have seen in Q1 and in Q2 will be the bottom for our gross margin. Gross margin will improve moving to Q3 and Q4. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Sole Member of the Managing Board, Chairman of the Executive Committee So finishing on industrial revenue, what I can confirm to you is that company will grow revenue at the midpoint of our guidance, 7.7% Industrial will do as well. Very similar than the average of the company in terms of growth. The main detractor of the lows of Q2 versus Q1 is the usual seasonality for ST on Personal Electronics. But it's a good sign that for the first time since many quarters now, that sequentially the industrial market we address will grow about 80% sequentially.

Question: Joshua Buchalter - Cowen Inc. - Analyst : I appreciate all the color on the inventory on the balance sheet. I was wondering if you can maybe provide additional details on how you're viewing downstream inventory in the channel. I think you had been -- you mentioned entering the year, you were at two months more than you were hoping. Was there any progress on that front in aggregate, getting channel inventory lower during the quarter and sort of where you see things now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 7:30AM, STMPA.PA - Q1 2025 STMicroelectronics NV Earnings Call Lorenzo Grandi - STMicroelectronics NV - Chief Financial Officer, President - Finance, Purchasing, ERM and Resilienc, Member of the Executive Committee Yeah, I take this question about the inventory. This time inventory that you are mentioning is inventory in the chunk. But during the last quarter, in Q1, we have seen substantially one dynamic, very clear reduction of inventory in the channel mainly in Asia. This was, let's say, evident. While for what concern EMEA and America, we have not yet seen any significant reduction of our inventory in the channel. Let's say that today, even if we have seen, let's say, some improvement in the course of last quarter, still we have some excess of inventory in the channel. This is clear. we do expect, let's say, that in Q2, with this dynamic in terms of Industrial and expectation of our, let's say, POS. So the sales of our distributor toward the final market to have a significant step down in terms of inventory. So for the time being, what I can say is that, yes, there is still some excess of inventory. This inventory should progressively go down, let's say, the success of inventory should progressively go down toward a normal, let's say, situation already starting in the current quarter.

Question: Stephane Houri - ODDO BHF - Analyst : I have a question about your comments on the automotive market. Could you maybe clarify what's your vision about your own revenues on the automotive side this year versus the market? And also, you made a difference between electrification and let's say, the bulk of the market. Could you clarify this for us? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Sole Member of the Managing Board, Chairman of the Executive Committee Well, indeed, in Q1, so we have seen lower revenues in all geographies for Automotive, and -- including a mild non-war revision for the forecast of the year because you know that automotive industry drivers with a firm order backlog. And clearly, this behavior is more pronounced on electrical vehicles. Well, the positive point is that -- at the same moment in Q1, our book-to-bill ratio was above 1 for specifically Automotive. And in terms of dollar terms, the bookings were also up quarter-on-quarter. The other positive point for 2025 is we believe that one risk factor has been elevated. So the one in Europe because now European Union is proposing some smooth approach on a three year flexibility for the carmaker to comply with CO2 standard. Of course, we will wait for the vote, but this is a good news. However, we believe that the current situation on trade and tariff is creating uncertainty on the level of car production, clearly. And there is still some other risk factor. So taking into account all this situation, we believe that Q1 is a low point for automotive. Excluding the capacity reservation fees, we expect our auto revenue will decline, unfortunately, in '25 versus '24, and that the capacity reservation fee will decline substantially in '25 versus '24 by almost USD300 million. So takeaway is Q1 is the bottom. Full year revenue should decline versus '24. We have the indication for that. Well, there is still some risk around the production of cars. We know that some analysts provide a forecast at 92.4 million of car produced in '25. So a slight increase. But here, we prefer to remain cautious and wait what will happen in the next few weeks, especially related to the tariffs.

Question: Sandeep Deshpande - JPMorgan Chase & Co. - Analyst : My first question is about tariffs. There have been some retaliatory tariffs from China on US product as such. Does this -- has ST seen any impact because of these retaliatory tariffs on their -- for demand for your product from China at all. And whether there have been any changes in the environment because of this? And I have a quick follow-up. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Sandeep, can you repeat the question, please?

Question: Sandeep Deshpande - JPMorgan Chase & Co. - Analyst : And my quick follow-up is on, again, on your auto business. Can you talk about how your share has evolved at your major silicon carbide customer in the first quarter? And if we can assume that any share loss that has occurred has already been factored into the numbers or whether we will see further share loss at that customer through the rest of this year? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Sole Member of the Managing Board, Chairman of the Executive Committee I will comment and, Marco Cassis will complement. So what we say we have repeated since a few quarters, the way we have established the business relation with our main customer for silicon carbide was a warranty about some share, okay? And it is automotive industry and for automotive industry is a normal let's say, process to have built so to have at least two source. So for us, it was super well known that at a certain moment, okay, when the second source will be qualified and efficient, okay, our main customer will manage manufacturing and supply chain with two sources. We are in this situation. So we have absolutely not lost market share because any reason. We are simply coming back on a normal share consistently with what we contractually signed with our customer. Well, then after where we pay attention is more about volume of cars sold by our main customer, inventory and so on and so forth. But here we cannot comment. So Marco, you want to add something? Marco Luciano Cassis - STMicroelectronics NV - President of Analog, MEMS and Sensors Group, Member of the Executive Committee No, I just confirm what you just said that we moved towards the contract or our market share that we have with our major customers, and there will be no erosion of market share going forward. And on the longer trend, we confirm that we will be present in the silicon carbide market, at least with a 30% or above market share overall. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Thank you, Sandeep. Unfortunately, we don't have any time for more questions. So thanks for attending our call for this quarter. Thank you very much, all of you for being there, and we remain here at your disposal should need any follow-up questions. Sorry for the ones that you don't have time to ask the question there. Thank you very much. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Sole Member of the Managing Board, Chairman of the Executive Committee Bye-bye. Lorenzo Grandi - STMicroelectronics NV - Chief Financial Officer, President - Finance, Purchasing, ERM and Resilienc, Member of the Executive Committee Thank you. Bye. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 7:30AM, STMPA.PA - Q1 2025 STMicroelectronics NV Earnings Call