STMicroelectronics NV Q3 2025 Earnings Call Transcript

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

Question: Francois Bouvignies - UBS - Analyst : Thank you very much. My first question is on the top line. I mean, you guided plus 3% quarter-on-quarter, 2.9% to be precise. It seems to be below your seasonal at plus 7% quarter-on-quarter, if I'm not wrong. I mean you can remind us maybe the seasonality. Can you explain us as to why you are a bit below seasonal in Q4 for the top line and the drivers? And then secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-on-quarter, how sustainable it is, this gross margin? I mean, if you have any seasonality, product mix, should we extrapolate this dynamic of 35% into the first half of '26? Just trying to understand the work you have done on gross margin, how sustainable it is at least in the first half of '26 would be great. Thank you. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee So we'll take the revenue seasonality and Lorenzo, the gross margin. No, on the revenue seasonality of Q4, basically, there is two effects. But the first effect is on Automotive. Because in Automotive, even if we will grow on a quarter-over-quarter 6%, but year-on-year, it is still minus 12%. And why? Because, okay, 80% of this performance gap is explained by two reasons. It is a decrease of our capacity reservation fees compared to last year. And you know it is overall volume of one important customer of ST in the field of electrical vehicle. So this is what is explaining why in Q4, we are below the seasonality. The second explanation to be below the seasonality in Q4 is because in Industrial, we continue to decrease inventory in distribution. So our POP revenue recognition is significantly below the POS. However, on the other, let's say, verticals like Personal Electronics, Communication Equipment, Computer Peripheral and other legacy on Automotive or Industrial in the field of power energy; basically, okay, we are at the seasonality we expect. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2025 / 7:30AM, STMPA.PA - Q3 2025 STMicroelectronics NV Earnings Call

Question: Francois Bouvignies - UBS - Analyst : Thank you very much. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Mira, next question, please.

Question: Joshua Buchalter - TD Cowen - Analyst : Hey guys, good morning, and thank you for taking my question. Maybe to follow up on that last one. Could you maybe spend a couple of minutes talking about how you're thinking about managing utilization rates right now? It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and/or on your balance sheet given the comments. You mentioned you're going into some negative seasonality into 1Q, but it sounds like utilization rates are going to be up in the fourth quarter and the first quarter. Could you maybe just spend a couple of minutes talking about what you're seeing there? 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. OCTOBER 23, 2025 / 7:30AM, STMPA.PA - Q3 2025 STMicroelectronics NV Earnings Call

Question: Joshua Buchalter - TD Cowen - Analyst : Okay got it. Thank you. Yeah, thank you. I was hoping to ask about the Industrial segment. So it looks like book-to-bill went back to parity. Anything major going on there? Any geographies that are better or worse? And maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume sort of shipping back to normal now? Thank you. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee No. In Industrial, we see a different dynamic when we grow on sub segments. We see a growth and dynamic more pronounced for power energy, basically all subsegments, okay, of this one are growing. And it is growing more definitively than the smart industrial, it means the factory automation. We can say that robotics is so far good, but overall, the factory automation is really, really soft. More than all the industrial, which are volume-driven, means consumer-driven, the hub cycle is pretty soft. So the takeaway we can have on the Industrial is what is related power energy infrastructure and robotics is now upcycle pretty solid. What is related volume and consumer is a very soft upcycle. It looks like inventory are digested, but the visibility is pretty short, it's pretty low. So that's the reason why the customers are still putting order on short term. But here, our decision is to continue to manage the distribution very closely and continue to adjust our POP below their POS forecast to continue to decrease inventory. Inventory and general purpose microcontroller came back what we classified normal, means a level of months of inventory that enable short-term business. Well, we have still some pockets of other inventory on some specific products like Power and Discrete or sometimes general purpose microcontroller, but we are going in the right direction. So this is a dynamic, okay, we are seeing on the Industrial market. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2025 / 7:30AM, STMPA.PA - Q3 2025 STMicroelectronics NV Earnings Call Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Thank you, Josh. Mira, next question, please.

Question: Tristan Gerra - Robert W. Baird & Co Inc - Analyst : Hi, good morning. Wanted to see how linear is the reduction in capacity reservation fees that you expect in '26 from the $150 million, $200 million reduction that you're looking at for this year. Is there a big drop in Q1? Or is it going to be pretty linear throughout all of next year?

Question: Tristan Gerra - Robert W. Baird & Co Inc - Analyst : Yeah, thanks. Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of -- or when you think POP can get back in line with point of sales in Industrial next year? Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Globally, POP will be aligned with the POS each time our product line reach the target of inventory, we didn't want to exceed. This is okay, a lesson we learned from the past. And now, we are really disciplined on this point. So you cannot see the POP overall. We have to look the POP in detail by product line. And I repeat our microcontroller is pretty well aligned. So our POP is really driven by the end demand POS and by region, I have to say. While China, APAC, America are pretty okay, but Europe is still soft. And for the other product line, okay, we are still in a mode where the POP is below the POS; however, we expect to go back normal in H1 2026, most likely 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. OCTOBER 23, 2025 / 7:30AM, STMPA.PA - Q3 2025 STMicroelectronics NV Earnings Call Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Thank you, Tristan.

Question: Stephane Houri - Oddo BHF SCA - Analyst : Yes, good morning, everyone. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and so an expectation of 2026. But what are you reducing at the moment? And how do you look at 2026 in terms of CapEx at the moment where you're transforming your tool from 200 millimeter to 300 millimeter? Thank you. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee Probably, we reduced the CapEx. In fact, there is two dynamics. There is a dynamic driven by our share where we want to close the 200 millimeter, so Agrate and Crolles. And of course, okay, we need to put the CapEx to increase the capacity at the right level in Agrate 300 and in Crolles 200. But here, we have not especially limited the dynamic because the demand is pretty solid. But then the other main important action is the CapEx for 200 millimeter conversion on silicon carbide because we will close the 150 millimeter. But here, we have limited the CapEx delivered by the demand, which is below what was -- we expected one year ago. So the main impact of the capacity limitation is on, let's say, silicon carbide. But then after it's more spread across test assembly, where we clearly adjust the capacity of what we need and no more. And generally speaking, is more adaptation to mix rather than volume increase. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Do you have a follow-up, Stephane? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2025 / 7:30AM, STMPA.PA - Q3 2025 STMicroelectronics NV Earnings Call

Question: Stephane Houri - Oddo BHF SCA - Analyst : Okay, thank you. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Thank you, Stephane. Mira, next question, please.

Question: Didier Scemama - Bank of America - Analyst : Yes, good morning. Thanks for taking my question. I have first question maybe on your inventory and related to that, on what you're thinking about in terms of factory loadings for the first half, I think, one of your US peer already announced last week or earlier this week that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery? So I think it looks like your inventory are tracking about 30, 40, 50 days above where they used to be. So are you thinking about taking down further factory utilization in the first half, I guess.

Question: Didier Scemama - Bank of America - Analyst : Got it. And then I think last quarter, you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140, at 70 basis points of FX headwinds on and 70 basis points of related basically the manufacturing transition from [6% to 8%] and [8% to 12%]. Is there any of that in Q4?

Question: Didier Scemama - Bank of America - Analyst : Understood. And just a clarification, because it wasn't clear, your OpEx guide for Q4 is $915 million, right? It's not $950 million?

Question: Didier Scemama - Bank of America - Analyst : Thank you so much. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Thank you, Didier. Mira, next question, please.

Question: Sandeep Deshpande - JPMorgan Chase & Co - Analyst : Yeah, hi, good morning. Thanks for letting me on. My question is regarding the trends into the first quarter. I mean, you normally have a weaker first quarter. And thus would you expect the utilization rate to go down? And given all the other factors you've talked about in the earlier factors, which are there, there is a downtick associated with the capacity reservation fees. Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment? And I have a quick follow-up after that.

Question: Sandeep Deshpande - JPMorgan Chase & Co - Analyst : Thanks. I mean, a follow-up to that essentially -- quickly on that would be, is the number of days in Q1 lower than in Q4, or is it anything different? And my main question is about 2026 overall, I mean on the revenue, do you have any new engaged programs with your customers, which will improve revenue significantly either in first half or into the second half, particularly?

Question: Sandeep Deshpande - JPMorgan Chase & Co - Analyst : Thank you. Thank you so much. Jerome Ramel - STMicroelectronics NV - Executive Vice President - Corporate Development, Integrated Marketing and Communications and Investor Relations Mira, next question, please.

Question: Janardan Menon - Jefferies LLC - Analyst : Hi, good morning. Thanks for taking the question. I just wanted to go back -- go to the Power and Discrete business where your margins are still very weak at minus 15% in the third quarter. So what can be the drivers to improve that? You talked about silicon carbide improving in Q3 -- I'm sorry, in 2026. But would that revenue come mainly from your Sanan JV to Chinese customers? And will that help your overall profitability given low utilizations in Europe? And do you need to take any further action to try and improve the profitability there Power and Discrete, given the kind of competitive environment in that industry? And then my follow-up is just a small clarification on a previous answer. Your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down, et cetera, does that continue until you reach the end of that journey, which is when you fully close down your 200 millimeter transition to 300 millimeter? Or does that drop off before that? Thanks. Jean-Marc Chery - STMicroelectronics NV - President, Chief Executive Officer, Chairman of the Managing Board, Chairman of the Executive Committee So Lorenzo will comment about the improvement driver on Power and Discrete profitability. While Marco will comment on the dynamic of Power and Discrete revenue because as I have already anticipated, in my last answer, clearly, silicon carbide for us in '25 is a transition period. And Lorenzo, on --