STMicroelectronics NV Q2 2025 Earnings Call Transcript

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

Question: Janardan Menon - Jefferies LLC - Analyst : My question is mainly on gross margin. I was -- could you just pull out the one-off effect from your manufacturing reshaping program in your Q3 gross margin guidance and then I was wondering whether you could comment on how you expect gross margin to evolve into subsequent quarters. I mean sales are growing and our utilization levels are growing. So how would you expect -- what will be the various puts and takes that you would expect gross margin evolution beyond Q3?

Question: Janardan Menon - Jefferies LLC - Analyst : Understood. So do you have any visibility on Q4? Would you, at this stage, expect that your revenue further improved in Q4? Or is it too early to call that? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Well, we expect our revenue in Q4 to grow sequentially. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call

Question: Joshua Buchalter - TD Cowen - Analyst : There's obviously a lot of uncertainty out there given the geopolitical environment. I was wondering if you could maybe speak to any potential changes in your customers' order patterns or the prospect of any potential customers who are -- who could have been pulling in parts? Have you seen any changes downstream? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee When we see our name from the beginning of the year, basically, the good news in Q3, all our verticals will grow sequentially and year-end -- every year, except the automotive specific to one customer. And I would have been delighted that Q3 would have been the turning point, but we are

Question: Joshua Buchalter - TD Cowen - Analyst : Okay. But you did not observe any pull-ins in the June quarter? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee No. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call

Question: Joshua Buchalter - TD Cowen - Analyst : Got it. Thank you.

Question: Francois Bouvignies - UBS Investment Bank - Analyst : So my question would be Jean-Marc, early June. I believe you said that you would reach at least the midpoint of the guidance in Q2. And I guess when you said that you had in mind to do better than just roughly in line like you did today. And then you said you would maybe with our tariff grow year-over-year, and now you're guiding for minus 2.5% year-over-year. So what happened since early June? I mean it seems that things deteriorated. And if I understand correctly, is it only a customer program. Just trying to understand what happens in soon for, because it seems a bit short of what maybe you would have hoped. I just want to understand the moving parts. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Well, thank you for your question. I anticipated it a little bit in my former answer. We look at facts, what is the dynamic on your year-over-year growth for ST. So Q1 was minus 27%, Q2 minus 40%, and we then close to minus -- to 0, so minus 2% basically in Q3 at the midpoint of our guidance. So it's $80 million gap. Well, I repeat this $80 million for your consideration because what is important is customer demand, product, volumes or the flow of product. Now, 90% of this gap is related to intangibles. Well, yes, intangible is revenue, but it is not okay flow of product. It does not measuring the capability of to address its addressable market. So this is a positive point. But I would have expected to compensate this 90% of intangible by stronger dynamic, on automotive. But unfortunately we have one customer specific change in the forecast of Q3 that prevents us to move to this position. But on automotive, again, the sequential growth in Q3 will be pretty solid because we expect, okay high single digit growth in automotive in Q3 and we will grow again in Q4. So yes, there is one customer specific, but nothing related to the overall market dynamic. I repeat what I said a few minutes ago. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call Now we have to acknowledge that for a while, we will have in front of us an automotive market moving forward and growing, again, 90 million vehicle, at least one-third is related to a mix of battery-based electrical and hybrid electrical but with competition landscape changing in a very dynamic way, where we have to manage, and we are not protected time to time to have what customer specific. And yes not at the level of our expectation. Well, this we can manage, but this is a situation we have to face that is completely different than a few years ago. So, I, of course, regret okay, to not be on the turning point of Q3. But again, I repeat, 90% of the gap is intangible. The rest is really customer specific. The good news is industrial, Personal Electronics, computer peripheral and communication equipment grew significantly year-over-year. Automotive grow significantly on a sequential basis, and we grow again in Q4.

Question: Sandeep Deshpande - JPMorgan Chase & Co - Analyst : My question is regarding Q4. You mentioned, Jean-Marc, that you will grow sequentially in Q4. But will you -- based on what you see today, will you be able to grow year-on-year in Q4 across the board at the company. Excluding some of these issues you've had in Q3? Based on what you see to the revenue, I mean following up on your earlier response, do you see an impact in this guidance from the new US rules on EVs, et cetera, which could have an impact on silicon carbide or any of your other businesses? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Thank you, Sandeep, for the question. What I can -- the fact we have in our hand is that the backlog that is positioned on Q4 today. If we compare exactly at the same date. The quarter of Q3, it is showing significant sequential growth. So if the booking of Q3, because I repeat we are also facing market situation that are turning up from a cyclical point of view, but also the visibility is pretty short. But it is clear that if we have a booking dynamic in Q3 on the similar path of what we have seen in Q2 and in Q1, but we should expect in Q4 to grow sequentially and then to be at the turning point or very close to the turning point. But again, this is the mechanics we are following. So yes, we expect to grow sequentially in Q4 taking into account the portfolio. And under the assumption, we will see a booking dynamic similar of what we have seen in Q1 and 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. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call Finally we should be in position to grow year-over-year in Q4. But again, we will not be protected against something specific customers that decide okay, to decrease inventory because we want to prefer to protect 2026. So we are not protected this circularity with some customers. Overall, it means what? It means the trend is positive. The dynamic is positive. ST come back on a growth trajectory. But the overall environment and specifically the market of automotive is not strong enough to generate a buffer of backlog in order to absorb all the variation. So altogether, of course, we have to communicate very carefully and accurately to monitor this dynamic. So this is the point -- the other point of the question was?

Question: Sandeep Deshpande - JPMorgan Chase & Co - Analyst : Thank you.

Question: Stephane Houri - Oddo BHF SCA - Analyst : Yes. I have two questions. First one is about the comments you made earlier about the gross margin. I think nice gross margin improvement to be expected in Q4. And I just wanted maybe to come back on the results for that and also the impact of the ForEx, if the dollar stays at this level? And I have a follow-up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call

Question: Stephane Houri - Oddo BHF SCA - Analyst : Okay. Thank you very much. And the follow-up is about the industrial market because we talked a lot this morning about the weakness of automotive revenues compared to the expectations. But I just wanted to understand what is the driver for the recovery in Industrials. Is it inventory replenishment, pull in or real demand behind that? And if you can give some color, that would be helpful. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Well, first of all, you know that a significant part of the year market for us is done through the distribution. So what is positive is POS. So the sales of our distributor increased in Q2, both sequentially and year-on-year. And our POP were below the POS. So we are seeing a dynamic where the revenue recognition we have, the POP is below the POS. The POS is growing both sequentially and year-over-year. So inventory and distribution are going to normalization, I have to say, in Asia Pacific, excluding China, back totally to normal in China and still a bit higher than normal, okay in EMEA and America. But the dynamic is, again, industrial distribution, POS growing both sequential year, POP, as I described below the POS. So it is not inventory replenishment. It is real demand. Then after from other OEM preemptive fragmented. Clearly, the growth is driven by a more smart industry for us and in a lesser extent, for Power Energy. Now, we don't see, I repeat also this is an opportunity. I said that any effect of pulling on industrial, especially from China for ST. So there is zero pulling in China from Chinese customer or distributor for ST. So we are immune against that. And as far as products are related, one of the main drivers, which is very encouraging user is a General purpose. The General Purpose Microcontroller, again, went back to both sequential growth and year-over-year IT, so showing the strength of our portfolio and ecosystem today, it is not the same case on General purpose and Analog, because on General Purpose Analog, we have still some other inventory that we are controlling our POP and Power & Discrete a little bit similar. So this is basically the key driver of the industrial market, distribution because of POS and demand then the Smart Industrial lesser extent, power energy from product, it is a General purpose microcontroller and in a less extent, for sure, General purpose Analog and Power & Discrete because still some other inventory that we are controlling. So we control our POP. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call

Question: Gianmarco Bonacina - Banca Akros - Analyst : A couple of questions. The first one is on gross margin again. I think early June, March, you said that when the company will reach again $3.6 billion to $3.8 billion. that could be about 600 basis point improvement, I guess, over the level of Q2 or Q1, I'm not sure. So given the euro dollar now is approaching $1.20, can we expect this level of improvement maybe going into next year or the year after could be a little bit lower, so maybe 400 to 500 basis points? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Thank you for your questions. So I will pass to Lorenzo to answer.

Question: Gianmarco Bonacina - Banca Akros - Analyst : Just a quick follow-up more strategically on China because we're at the end of June, an article in digitize saying that Chinese automakers are moving to align with government directives by planning to use domestically develop and manufacture automotive chips. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call And the article mentioned that in case there was a choice between a fully China chip and one designed by format publicated in China. Many automakers will opt for the former. So can you remind us roughly how much is your exposure in terms of sales to Chinese OEM in Tier 1? And we know that you have a strategy in China for China. So do you see this as enough to offset this potential headwind that this article was mentioning. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee So we're waiting to deliver the exact numbers. Yes, I confirm that we built our strategy in China for China that I repeat it's encompassing not only manufacturing localized, but also design application labs customer support, competence center in order to be seen as a Chinese player, I have to say. This strategy is very active on power, so silicon carbide and microcontroller. And we do believe that will be a strategy enabling ST to compete against local player and to be perceived by future authorities as a local player. Well, we are not proven that some specific company owned by the state, in fact will apply strictly this kind of foods. But overall our Chinese customer as a whole are pragmatic. If we offer them a supply chain, local application support design, quality labs, reliability labs they will manage us as a local player. So we do believe our strategy will mitigate a lot, okay? This effect, yes, again, if there is some specific company honored by the state it will be difficult to prevent this kind of dynamic. And then about the exposure?

Question: Gianmarco Bonacina - Banca Akros - Analyst : Okay. Just for automotive, right?

Question: Gianmarco Bonacina - Banca Akros - Analyst : [13% or 14%]?

Question: Lee Simpson - Morgan Stanley - Analyst : So I just wanted to ask about General purpose microcontrollers and the pricing there. I did look from our channel checks. So things were very strong in April, stable in May but somewhat erratic going through June. So I just wanted to get a sense for how you thought the pattern was for pricing on General purpose microcontrollers into the second half? And if indeed, this might vary by region? And then the second question I had was really on the timing of readiness for the 800-volt DCDC supply for the PSU, we are hearing that it's quite difficult to meet that spec as delivered by NVIDIA and whether or not you had confidence that you could hit the full 800-volt supply. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Thank you for your questions. So Lorenzo will come on the price and I will let Marco to comment on the NVIDIA opportunity.

Question: Lee Simpson - Morgan Stanley - Analyst : Just on that point, as a work in progress, it does seem to suggest this is maybe second half '26, early '27 as a sales impact rather than anything sooner?

Question: Lee Simpson - Morgan Stanley - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 7:30AM, STMPA.PA - Q2 2025 STMicroelectronics NV Earnings Call

Question: STbastien Sztabowicz - Kepler Cheuvreux SA - Analyst : Going back to the inventories in the distribution channel. Could you please quantify the level of inventories in the channel today, you were mentioning last quarter [week 11, 2 months] of excess of inventory. I would be -- I would -- say curious to know where we are today. The second one is linked to a pricing environment in China and specifically on silicon carbide, we are seeing some price war ranging between the EVM there. Who do you see prices for silicon carbide building there? And do you have any kind of visibility on your design that are expected to ramp in China and silicon carbide from 2026 or it's too early to know what will be the pace of ramp of those designs? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Thank you, Lorenzo will take the question on the channel inventory, and Marco will comment on the silicon carbide in China.

Question: STbastien Sztabowicz - Kepler Cheuvreux SA - Analyst : Thank you. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Thank you, STbastien. Thanks, everyone. This concludes our conf call for today. If you have any further questions, please reach out the Investor Relations team. Thank you very much. Thank you. Bye-bye.