STMICROELECTRONICS 3RD QUARTER 2026 EARNINGS RELEASE - STMICROELECTRONICS NV

Thank you everyone for joining our third quarter 2026 Financial Results Call. Hosting the call today is Jean-Marc Chéry, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO, and Rémi Elouazan, President, Microcontroller, G2 Lycées and RF Project Group. This live webcast and presentation materials can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This goal will include forward-looking statements that involve risk factors that could cause STM results to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning, and also in STMOS's recent regulatory filing for a full description of this risk factor. To ensure that all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean Marchery, ST President and CEO. Thank you, Jérôme. Good morning, everyone, and thank you for joining ST for our Q3 2026 earnings conference call. I will start with an overview of the third quarter, including business dynamics. and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the hot look and conclude before answering your question. So, starting with Q3. Our third quarter net revenues of $3.76 billion came in above the midpoint of our business outlook range. mainly due to higher revenue in communication equipment and computer peripherals driven by AI data center and low Earth orbit satellite revenues, communication, and personal electronics. Gross margin was 37.3% above the midpoint of our business outlook range. Non-US GAAP diluted earnings per share was $0.37. During the third quarter, inventory in our balance sheet increased, slightly to support the expected increase in Q4 revenues. In distribution, inventory decreased and continued to track below our standard target. We generated a positive free cash flow of $351 million. Let's now discuss our business dynamics during Q3. During the quarter, the ongoing recovery and secular growth across the hand markets we serve continued to gain momentum. Demand strengthened further in Q3, with bookings increasing sequentially and book-to-bill remaining well above 2 overall. Book-to bill was well above 1 in whole-hand markets and significantly above 2 in communication equipment and computer peripherals and industrials. Visibility improved, inventory distribution continued to track below our standard target, and demand continued to outpace supply across multiple product categories. Automotive revenues were stable sequentially and increased 5% year-over-year. Our solid position in automotive continues to be driven by application-specific ICs and sensors for core applications, electrical powertrain, and hair-dust. We maintain our automotive design wind momentum with OEMs and Tier 1 suppliers across the portfolio of ST product families, including microcontrollers and power and discrete. These wins covered hybrid, electric, and internal combustion engine vehicles in areas including onboard charging, powertrain, and active suspension, as well as a first award for 48V electromechanical braking. We made progress with our automotive MEMS business, supported by the successful integration of NXP's MEMS sensors, achieving several key customer awards in telematics, cockpit control, and tire pressure monitoring. We had another important design win with our in-cabin monitoring solutions, and we introduced a new automotive image sensor for infrared in-kabin sensing, designed to extend driver and occupant monitoring across more vehicles' models. Industrial revenues improved 12% sequentially and 40% year-over-year. This solid growth was mainly driven by our general-purpose microcontrollers, analog, and power conversion products. During Q3, the broad-based recovery in industrial continued, and inventory and distribution declined further, remaining below our standard target. We have design wins across industrial automation, robotics, power systems, building automation, power tools, and home appliances. Our portfolio combines intelligent sensing, real-time control, and efficient power management to support the transformation of factory automation, robotics, and power energy infrastructures, and the growing physical AI market. At the Embedded Worlds North America event, we had a demonstration together with NVIDIA illustrating our broad cooperation on robotics. We showed an integrated robotics development path from digital twin to diploid application based on our inertial sensors, microcontrollers, and imaging solutions. We are continuing to strengthen these capabilities with new products. Our latest launch is a miniature 6-axis motion sensor with a machine learning core designed to improve accident alerts, robot teaching, drone stabilization, and structural monitoring. By bringing AI processing into the sensor, systems can reduce energy use and save resources. In embedded processing, we continue to expand our STM32 offering with a strong pipeline of new products and software innovations. You will hear more about these at our STm32 Summit on November 3rd, followed by a dedicated STM 32 Analyst Call on November 18th. For personal electronics, third quarter revenues came in better than expected, up 12% sequentially and down 4% year-over-year. During the quarter, we had design wins with secure solutions, maps and imaging sensors and microcontrollers across a variety of devices, including smartphones, gaming headsets, earbuds and smartphones. For communication equipment and computer peripherals, third-quarter revenues were above expectation, increasing 14% sequentially and 64% year-over-year. This strong growth mainly reflected the contribution of our company-specific cost drivers in AI data center and low-Earth orbit satellite communications. For AI data centers, we continue to see strong demand driven mainly by our silicon photonic ICs, electronic ICs and microcontrollers, as well as power solutions. This supports our revenue expectation for 2026 of about $1.3 billion, and assuming the current dynamic continues and with the current engagements we have, our revenue ambition of well above $2 billion in 2027 and further growth beyond. now over to Lorenzo who will present our key financial figures thank you Jean-Marc good morning everyone let's start with a detailed review of the third quarter starting with revenues on a year-over-year basis by reportable segment analog product MEMS and sensor grew 8.8%, mainly due to MEMS and, to a lesser extent, analog and imaging. Powering discrete products increased 11.3%. Embedded processing revenues were up 24.1%, mainly due general-purpose microcontroller. And RF, optical communication, grew 46.2%. By end of the market, communication equipment and computer peripherals grew 64%. Industrial, 40%. And automotive, 5%. While personal electronics decreased 4%. Year-over-year sales to OEMs and distribution increased 10.2% and 38.8% respectively. On a sequential basis, by reportable segment, analog product MEMS and sensor increased by by 9.4%, power and discrete by 2.8%, embedded processing by 5.7%, and RF optical communication by 13.4%. By end market on a sequential basis, communication equipment and computer and peripheral grew 14%, industrial 12%, personal electronics 12%, while automotive was flat. Turning now to profitability, gross profit in the third quarter was $1.40 billion, increasing 32.2% on a year-over-year basis. Gross margin was 37.3%, increasing 410 basis points year- over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin increases by 250.