Stmicroelectronics targets $3.28B Q4 revenue with improved gross margin as market recovery continues

Earnings Call Insights: STMicroelectronics (STM) Q3 2025

MANAGEMENT VIEW

* Jean-Marc Chery, Chairman of the Managing Board, President & CEO, reported revenues of $3.19 billion, exceeding the midpoint of the outlook, with Personal Electronics outperforming expectations and Automotive and Industrial performing in line. Chery stated, "Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within Automotive and within Industrial. Excluding impairments, gross recurring charges and other related phase on costs, diluted earnings per share was $0.29." He highlighted positive free cash flow of $130 million and inventory reductions.
* Chery discussed Automotive growth of about 10% sequentially and noted, "Our book-to-bill came above parity. We expect to grow mid-single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of sequential growth." He emphasized ongoing execution in car electrification, including wins in silicon and silicon carbide devices, and a design win for full active suspension with a Chinese EV maker. The company also entered a definitive agreement to acquire NXP’s MEMS sensor business for up to $950 million, expected to close in H1 2026.
* In Industrial, Chery stated, "Revenues were in line with expectations, showing increase of 8% sequentially and 13% year-over-year, back to year-on-year growth for the first time since the third quarter of 2023." He highlighted design wins across factory automation and robotics, and the launch of shipments to a second global low-earth orbit satellite customer.
* For Personal Electronics, revenues were up 40% sequentially, supported by increased silicon content and a new license agreement with Metalenz for advanced metasurface optics production.
* Lorenzo Grandi, President & CFO, reported, "Analog products, MEMS and Sensors was up 7.0%, mainly due to Imaging. Power and Discrete products decreased 34.3%. Embedded Processing revenues grew 8.7%, mainly due to General Purpose MCU. RF & Optical Communications declined 3.4%." Grandi added, "Total net operating expenses, excluding restructuring, amounted to $842 million in the third quarter, broadly stable on a year-on-year. They were better than expected, reflecting notably our continued cost discipline."

OUTLOOK

* Chery outlined expectations for Q4 2025 revenues at $3.28 billion, an increase of 2.9% sequentially, plus or minus 350 basis points. He stated, "We expect our gross margin to be about 35.0%, plus or minus 200 basis points, including about 290 basis points of unused capacity charges."
* For full-year 2025, Chery projected revenues of about $11.75 billion and gross margin of about 33.8%. The company reduced its net CapEx plan to slightly below $2 billion for the year.
* Chery noted, "We are on the right path to improve our gross margin in the medium-term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint and definitively out product mix improvement."

FINANCIAL RESULTS

* Grandi reported gross profit of $1.06 billion for Q3, with a gross margin of 33.2%. Net income was $237 million, with diluted earnings per share at $0.26. Excluding non-recurring items, non-US GAAP net income and diluted EPS were $267 million and $0.29, respectively.
* Net cash from operating activity was $549 million, net CapEx at $401 million, and free cash flow positive at $130 million. Inventory at the end of Q3 was $3.17 billion, with days sales of inventory at 135 days, reduced from 166 days in the previous quarter.
* The company repaid $750 million for the first tranche of its 2020 convertible bond in cash.

Q&A

* Francois-Xavier Bouvignies, UBS, asked about Q4 seasonality and gross margin sustainability. Chery explained, "there is two effect...on automotive, even if we will grow on a quarter-over-quarter 6%, but year-on-year, it is still minus 12%." Grandi added, "the main positive driver...is clearly improved manufacturing efficiency."
* Joshua Buchalter, TD Cowen, questioned utilization rates and inventory. Grandi responded, "we try to keep control on the level of inventory in the current quarter, we think to stay substantially stable in number of days."
* Tristan Gerra, Baird, asked about the linearity of capacity reservation fee reduction. Grandi clarified, "the capacity reservation fees...are substantially quite flattish, I would say, quarter after quarter...when the contract expires...then, yes, you have the decline."
* Stephane Houri, ODDO BHF, inquired about CapEx adjustments. Chery stated, "we reduced the CapEx...the main impact of the capacity limitation is on, let's say, silicon carbide."
* Didier Scemama, BofA, asked about inventory and factory loadings. Grandi stated, "the dynamic of the inventory will...be, as usual, a little bit increasing during the first half of the year to go back and to decrease in the second part of the year."
* Sandeep Deshpande, JPMorgan, questioned gross margin trends into Q1. Grandi confirmed, "in term of gross margin, it's true that in the first half, the seasonality is not favorable."
* Janardan Menon, Jefferies, focused on Power & Discrete profitability. Grandi identified, "having a higher level of revenues clearly will help to better load our infrastructure...moving to the next generation of silicon carbide that give also some benefit in terms of performance."

SENTIMENT ANALYSIS

* Analysts’ tone was neutral to slightly cautious, with several inquiries about the sustainability of gross margin improvements, seasonality, and inventory management. Direct questions focused on the linearity of fee reductions, CapEx priorities, and profitability drivers, signaling a search for clarity on forward performance.
* Management maintained a confident tone during prepared remarks, emphasizing execution and cost control, but responses in the Q&A revealed some caution regarding the pace of recovery and visibility in certain segments. Phrases like "We believe..." and explanations of seasonality effects indicated some hesitation.
* Compared to the previous quarter, both analysts and management showed improved optimism regarding market recovery, but analysts continued to probe on risks, and management reiterated discipline and adaptability.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for Q4 2025 revenue was raised to $3.28 billion from Q3’s $3.19 billion, with gross margin targeted at 35%, up from 33.2%. The CapEx plan was reduced for the full year, signaling increased cost discipline.
* Automotive returned to sequential growth, but year-on-year declines persisted, though the rate of decline improved from the previous quarter. Industrial and Personal Electronics segments strengthened, with year-on-year growth returning.
* Management’s tone shifted from cautious in Q2 to more confident in Q3, particularly on market recovery and operational improvements, while analysts maintained a focus on forward risks and profitability sustainability.
* Strategic focus moved towards executing cost reductions, manufacturing footprint reshaping, and the integration of new MEMS sensor capabilities through the NXP acquisition.

RISKS AND CONCERNS

* Management cited ongoing risks from product mix impacts within Automotive and Industrial, seasonality, and pricing renegotiations. Grandi noted, "there will be some reduction entering 2026 of capacity reservation fees...there is also the renegotiation of the pricing that will impact."
* Analysts raised concerns about the sustainability of gross margin improvements, inventory normalization, and the pace of CapEx reductions.
* Management outlined mitigation through disciplined inventory management, ongoing cost control, and targeted CapEx reductions, with a focus on medium-term gross margin recovery.

FINAL TAKEAWAY

STMicroelectronics delivered sequential revenue growth in Q3 2025, driven by strength in Personal Electronics and Industrial segments, while Automotive showed improvement but remained below prior-year levels. Management projects further sequential revenue and margin gains in Q4, supported by manufacturing efficiencies, disciplined cost control, and reduced CapEx. The company’s strategic initiatives, including the NXP MEMS acquisition and ongoing manufacturing transformation, position it for continued market recovery, though visibility in some segments and pricing headwinds remain key factors for the coming quarters.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/stm/earnings/transcripts]

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