STMicroelectronics NV Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Q2 Overview: Revenues at $2.77 billion, $56 million above outlook midpoint. Gross margin 33.5% in line with outlook. Automotive had sequential growth but below expectations for one customer; Personal Electronics and Industrial above expectations.
• Business Dynamics: Automotive grew 14% sequentially, with Asia Pacific (excluding China) and Americas driving growth. Continued car electrification strategy with wins in SiC, silicon devices, etc. Car digitalization saw traction with automotive microcontrollers. Industrial had above-expectation revenues, general purpose microcontrollers back to growth. Personal Electronics benefited from engaged customer programs and satellite market.
• Sustainability: Recognized in Time World's Most Sustainable Companies List for second year, ranked 25th globally and first in electronics category. Recognized by CDP for climate and water security.
• Financials: Gross profit $926 million, down 28.5% YOY. Gross margin 33.5%, down 660 basis points YOY. Excluding nonrecurring items, Q2 non-U.S. GAAP operating margin 2.1% positive. Net income negative $97 million, diluted EPS negative $0.11. Net cash from operating activities $354 million, down 49.6% YOY.

Segment Performance

• Automotive: Q2 revenues grew ~14% sequentially. Book-to-bill came below parity due to specific customer dynamics. Had wins in car electrification (SiC, silicon devices/modules, smart power, smart fuse solutions) and car digitalization (automotive microcontrollers, e.g., win for a one-box braking system in China). Legacy applications had a high-volume airbag solution win, and automotive-grade sensors had design-in momentum. By reportable segment, Automotive declined ~24% YOY. By end market, Automotive declined ~24%.
• Industrial: Q2 revenues above expectations with strong sequential growth. General purpose microcontrollers back to year-over-year growth. Book-to-bill ratio above 1, bookings increasing. Progress in power and analog portfolio across applications (e.g., data servers with NVIDIA collaboration). Industrial sensors gained momentum in container tracking, white goods, etc. By reportable segment, Industrial declined ~8% YOY. By end market, Industrial declined ~8%.
• Personal Electronics: Q2 revenues above expectations, driven by increased content in Personal Electronics and expanding low earth orbit satellite market. By reportable segment, Personal Electronics and Communication Equipment/Computer Peripherals each declined ~5% YOY. By end market, Personal Electronics and Communication Equipment/Computer Peripherals each declined ~5%.
• Financial Details: By reportable segment: Analog products, MEMS and Sensors down 15.2%; Power and Discrete products down 22.2%; Embedded Processing down 6.5%; RF & Optical Communications down 17.9%.

Guidance

• Q3 2025: Expect revenues at $3.17 billion (+/- 350 basis points). Gross margin ~33.5% (+/- 200 basis points), including ~340 basis points unused capacity charges. Sequential growth expected, with all verticals growing except Automotive specific to one customer. Full-year 2025 net CapEx plan $2-2.3 billion for manufacturing reshaping. Expect Q3 revenues to show solid sequential growth driven by cyclical recovery and engaged customer programs.

Risks

• Automotive Market Uncertainty: Changing competition landscape and customer-specific dynamics in Automotive can impact revenues.
• Geopolitical and Tariff Uncertainty: Trade and tariff issues create uncertainty in car production levels, affecting Automotive revenues.
• Inventory and Manufacturing Challenges: Days sales of inventory slightly above expectation in Q2, with ongoing efforts to normalize inventory and manage manufacturing efficiency.

Question and Answer

• Q: About gross margin, pull out one-off effect from manufacturing reshaping in Q3 guidance and comment on future gross margin evolution A: Lorenzo Grandi explained Q3 gross margin is negatively impacted by ~140 basis points, with ~20% related to manufacturing reshaping. Future gross margin expected to improve with lower unused capacity charges, enhanced manufacturing efficiency, and currency effects, but dependent on revenue levels and exchange rates.
• Q: Geopolitical environment impact on customers' order patterns A: Jean-Marc Chery stated customer demand is at a turning point, but Automotive has a customer-specific change. Personal Electronics and Industrial have no significant changes, while Automotive faces competition landscape changes.
• Q: Gross margin improvement expectations for Q4 and drivers A: Lorenzo Grandi mentioned Q4 gross margin expected to improve due to lower unused capacity charges, improving manufacturing efficiency, and assuming exchange rates stay similar.
• Q: Industrial market recovery driver A: Jean-Marc Chery said Industrial growth is driven by real demand, with distributor POS growing sequentially and year-over-year, and general purpose microcontrollers showing strength.
• Q: China automotive chip strategy and exposure A: ST has a strategy China for China, with ~13% of total revenues from Chinese customers. The strategy includes localized manufacturing, design, and support to mitigate potential headwinds.
• Q: General purpose microcontroller pricing and 800-volt DC-DC supply readiness A: Lorenzo Grandi said general purpose microcontroller pricing is in low single digits with no strange behavior. Marco Cassis noted 800-volt DC-DC supply is a work in progress, confident but too early to determine sales impact timeline.
• Q: Channel inventories and silicon carbide pricing in China A: Lorenzo Grandi said channel inventories are moving in the right direction, reducing excess. Marco Cassis mentioned silicon carbide in China is facing price pressure but ST is accelerating new generations and expanding manufacturing, expecting growth in 2026.