STMICROELECTRONICS 3RD QUARTER 2026 EARNINGS RELEASE - STMICROELECTRONICS NV

Financial Performance:

• Q3 2026 net revenues reached $3.76 billion, exceeding the midpoint of the guidance range.
• Gross margin was 37.3%, surpassing the guidance midpoint by 410 basis points year-over-year and 250 basis points sequentially, driven by lower unused capacity charges and improved product mix.
• Non-GAAP diluted earnings per share were $0.37.
• Free cash flow for the quarter was positive at $351 million.
• Inventory levels on the balance sheet increased slightly to support Q4 revenue expectations, while distributor inventory remained below target levels.

Guidance and Future Outlook:

• AI data center revenue for 2026 is projected at approximately $1.3 billion.
• Management targets AI data center revenue of over $2 billion in 2027, with growth anticipated to continue beyond that period.
• Book-to-bill ratios remained well above 1 across all end markets, exceeding 2 in communication equipment, computer peripherals, and industrials.
• Visibility on demand improved as inventory distribution continued to track below standard targets.

Business Segments and Product Lines:

• Communication Equipment & Computer Peripherals: Revenues surged 64% year-over-year and 14% sequentially, driven by AI data center and low-Earth orbit satellite communications; growth fueled by silicon photonic ICs, electronic ICs, and power solutions.
• Industrial: Revenues grew 40% year-over-year and 12% sequentially, led by general-purpose microcontrollers, analog, and power conversion products; new design wins secured in automation, robotics, and power energy infrastructures.
• Embedded Processing: Revenues increased 24.1% year-over-year and 5.7% sequentially, primarily due to general-purpose microcontrollers; expansion continues with the STM32 portfolio and new launches like a 6-axis motion sensor with an integrated ML core.
• Automotive: Revenues grew 5% year-over-year and were flat sequentially; momentum maintained in application-specific ICs, sensors, and power devices for hybrid, electric, and ICE vehicles; secured a first award for 48V electromechanical braking.
• Personal Electronics: Revenues decreased 4% year-over-year but rose 12% sequentially, supported by design wins in smartphones, gaming headsets, and audio devices for secure solutions and imaging sensors.

Market and Competitive Landscape:

• Secular growth and recovery across key markets gained momentum, with demand outpacing supply across multiple categories.
• ST is positioning itself as a key partner for the "physical AI" market, evidenced by robotics demonstrations with NVIDIA and integrated sensor solutions for digital twins.
• The company maintains a dominant position in automotive through deep OEM and Tier 1 integration across powertrain and safety systems.
• Market trends favor high-growth areas like AI data centers, satellite communications, and industrial robotics.

Risks and Challenges:

• Forward-looking statements involve risks that could cause results to differ materially from expectations, as detailed in recent regulatory filings and press releases.
• Potential challenges include supply chain constraints in high-demand categories and the need to manage inventory levels relative to fluctuating market dynamics.

Management Commentary and Tone:

• CEO Jean-Marc Chéry expressed strong confidence, describing the ongoing recovery as gaining momentum with demand exceeding supply.
• CFO Lorenzo Grandi provided a detailed financial breakdown, highlighting significant margin expansion and robust sequential growth in key segments.
• Management highlighted the successful integration of NXP's MEMS sensors and emphasized the strategic expansion of the STM32 ecosystem.

Analyst Questions and Answers:

• The transcript provided for this call does not contain a record of the Q&A session; the audio cut off shortly after the financial overview presentation.

Other Key Points:

• ST is integrating AI processing capabilities directly into sensors (e.g., the 6-axis motion sensor) to reduce energy consumption and resource usage.
• Upcoming events include the STM32 Summit on November 3rd and a dedicated Analyst Call on November 18th to detail embedded processing innovations.
• The company demonstrated a broad cooperation with NVIDIA on a robotics development path from digital twin to diploid application.