STMicroelectronics N.V. (STM) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed picture. While there are positive elements like growth in the Communication Equipment and AI Data Center segments, and a stable automotive market, there are also concerns. The significant drop in operating income and net cash from operating activities, along with management's reluctance to provide specific guidance, tempers optimism. The Q&A revealed a cautious tone regarding competition and inventory correction. Given these factors, the stock price is likely to remain neutral in the short term, with no significant catalysts for upward or downward movement.
Key Financial Performance
Q4 2025 Revenue $3.33 billion, above the midpoint of the business outlook range, driven by higher revenues in Personal Electronics and to a lesser extent in Communication Equipment and Computer Peripheral and Industrial, while Automotive was below expectations.
Q4 2025 Gross Margin 35.2%, above the midpoint of the business outlook range, mainly due to better product mix.
Q4 2025 Free Cash Flow $257 million, positive, achieved by working down inventories both in the balance sheet and in distribution.
Full Year 2025 Net Revenue $11.8 billion, decreased 11.1% year-over-year, mainly driven by a strong decrease in Automotive and to a lesser extent, in Industrial, while Personal Electronics and Communication Equipment and Computer Peripheral both grew.
Full Year 2025 Gross Margin 33.9%, down from 39.3% in 2024, mainly due to lower manufacturing efficiencies, price and mix, lower level of capacity reservation fees, negative currency effect, and higher unused capacity charges.
Full Year 2025 Free Cash Flow $265 million, positive, compared to $288 million in the previous year.
Q4 2025 Operating Income $125 million, including $141 million for impairment, restructuring charges, and other related phaseout costs.
Q4 2025 Net Loss $30 million, including certain one-time noncash income tax expenses of $163 million, compared to a net income of $341 million in the year-ago quarter.
Full Year 2025 Operating Income $175 million, compared to $1.68 billion in 2024, mainly impacted by impairment, restructuring charges, and other related phaseout costs.
Full Year 2025 Net Cash from Operating Activities $2.15 billion, compared to $2.97 billion in 2024.
Full Year 2025 Net CapEx Expenditure $1.79 billion, lower than the $2.5 billion of 2024.
Q4 2025 Revenue by Segment Analog products, MEMS and sensor grew 7.5%, Power and Discrete products decreased by 31.6%, Embedded Processing revenues were up 1% to 2%, and RF and optical communication grew 22.9%.
Q4 2025 Revenue by End Market Communication equipment and computer peripheral and personal electronics both grew by about 17%, Industrial grew by about 5%, while Automotive decreased by about 15%.
Full Year 2025 Revenue by End Market Automotive represents about 39% of total revenues, Personal Electronics about 25%, Industrial about 21%, and Communication and Computer Peripheral about 15%.
Full Year 2025 Inventory $3.14 billion at the end of the year, compared to $3.17 billion at the end of Q3 and $2.79 billion one year ago.
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Operating Highlights
STM32 Summit Innovations: Announced the first microcontroller built on the 18-nanometer process, next-generation wireless microcontrollers, and updated edge AI software tools.
Silicon Photonics Technology: Continued work with customers to bring silicon photonics technology to market, contributing to demand for high-performance microcontrollers in pluggable optics.
Automotive Design Wins: Secured design wins across electric and traditional vehicle domains, including onboard chargers, DC-DC converters, powertrain, and vehicle control electronics.
Low-Earth Orbit Satellites: Expanded customer base and ramped shipments to the second largest customer, with growth in low-earth orbit constellation projects.
Inventory Management: Reduced inventories in both balance sheet and distribution, normalizing levels in Industrial.
Sustainability Initiatives: Launched Singapore's largest industrial district cooling system and maintained presence in major sustainability indices.
NXP MEMS Sensor Business Acquisition: Transaction expected to close in H1 2026, strengthening position in automotive and industrial segments.
Manufacturing Reshaping Plan: Investing $2.2 billion in 2026 to support capacity addition for growth drivers like cloud optical interconnect.
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Risk or Challenges
Automotive Revenue Decline: Year-over-year revenues in the automotive sector declined significantly, with a 15% decrease. This was attributed to continued inventory corrections and challenges in the automotive market.
Gross Margin Decline: Gross margin for 2025 decreased to 33.9% from 39.3% in 2024, driven by lower manufacturing efficiencies, negative currency effects, and higher unused capacity charges.
Restructuring and Impairment Costs: The company incurred $376 million in impairment, restructuring charges, and other related phaseout costs, impacting profitability and operating income.
Inventory Challenges: Inventory levels remained high, with days sales of inventory at 130 days, reflecting ongoing challenges in managing inventory levels effectively.
Silicon Carbide Revenue Contraction: Revenues from silicon carbide power devices experienced a significant contraction in 2025, with recovery only expected by 2027.
Nonrecurring Manufacturing Costs: Nonrecurring costs related to manufacturing reshaping programs negatively impacted gross margins and are expected to continue affecting margins in the near term.
Economic and Market Uncertainty: The company faced a challenging year due to inventory corrections in key markets like automotive and industrial, coupled with broader economic uncertainties.
Tax Expenses Impact: The company incurred certain negative one-time tax expenses amounting to $163 million, which impacted net income and earnings per share.
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Guidance & Outlook
Q1 2026 Revenue Outlook: Expected revenues at $3.04 billion, a decrease of 8.7% sequentially, plus or minus 350 basis points.
Q1 2026 Gross Margin Outlook: Expected gross margin to be about 33.7%, plus or minus 200 basis points, including about 220 basis points of unused capacity charges.
2026 Capital Expenditures: Planned investment of about $2.2 billion to support capacity addition for selected growth drivers like cloud optical interconnect and manufacturing reshaping plan.
Automotive Segment Growth: Solid momentum in engaged customer programs in ADAS, with expected growth in 2026 and beyond. Silicon carbide power devices projected to return to revenue growth in 2026, recovering to 2024 levels by 2027. Strong demand anticipated in MEMS and imaging sensors, supported by the planned acquisition of NXP MEMS business.
Industrial Segment Growth: General purpose MCUs expected to return to historical market share of about 23% by 2027, supported by market share gains in 2025 and new product launches in 2026.
Personal Electronics Segment Growth: Continued strong momentum in engaged customer programs in sensors and analog, with benefits from increased silicon content in 2026 and beyond.
Communication Equipment and Computer Peripherals: Revenue from data centers, including cloud optical interconnect and power and analog for AI servers, expected to reach $500 million in 2026, with a long-term target of $1 billion before 2030.
Low-Earth Orbit Satellites: Anticipated continued revenue growth as low-earth orbit constellation projects expand globally and penetrate new applications such as direct-to-cell constellation.
Human Wind Robotics: Revenue generation through engagements with major OEMs, with an estimated current addressable bill of material at about $600 per system.
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Shareholder Return Plan
Cash dividends paid to stockholders in 2025: $321 million
Share buybacks in 2025: $367 million
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Key Q&A
Q:What is the company's outlook on revenue guidance and growth trajectory?
A:The company is confident in its ability to grow organically for next year and sees specific growth drivers in automotive, industrial, personal electronics, and data center sectors. They anticipate a better and healthier situation compared to 2025, with positive momentum in areas like ADAS ASICs, silicon carbide, and low earth orbit satellite communication.
Q:What is the expectation for gross margin improvement in 2026?
A:The gross margin in Q1 is expected to be the lowest point of the year at 33.7%. The company anticipates a mild increase in Q2 and a more significant increase in the second half of the year, driven by reduced unloading charges and seasonality of revenues. They expect Q4 2026 gross margin to be better than Q4 2025.
Q:How is the automotive market performing, and what are the growth drivers?
A:The automotive market is stabilizing with inventory correction mostly done. Growth drivers include new software-defined electronic architectures, electrical powertrains, and increased demand for powertrain electronics. However, competition in China and market mix changes require cautious adaptation.
Q:What is the status of the partnership with Sanan in China?
A:The partnership with Sanan is progressing as anticipated, with facilities being ramped up and modernized. This is expected to enhance competitiveness in the Chinese market.
Q:What are the drivers and outlook for the Personal Electronics segment?
A:The Personal Electronics segment is driven by the company's largest customer and high-end products, which are less sensitive to memory price fluctuations. Growth is expected in 2026 due to increased silicon content in devices.
Q:What is the book-to-bill ratio for the Industrial and Automotive segments?
A:The Industrial segment has a book-to-bill ratio well above parity, with POS growing in the low to mid-teens. The Automotive segment's book-to-bill ratio is at parity when adjusted for large one-shot orders from key customers.
Q:What is the company's view on inventory correction and seasonality for 2026?
A:The company expects inventory correction to be completed by the end of Q2 2026. They anticipate normal seasonality in the second half of the year, with growth driven by customer engagement programs and increased silicon content in personal electronics.
Q:What are the growth drivers for the Communication Equipment and AI Data Center segments?
A:Growth in Communication Equipment is driven by low earth orbit satellite communication and success with the largest and second-largest customers. AI Data Center growth is expected from photonics ICs, high-performance microcontrollers, and cloud optical interconnect solutions.
Q:What is the status of the transformation program and its impact on manufacturing efficiency?
A:The transformation program is progressing as planned, with capacity reductions in specific fabs and a shift to 8-inch silicon carbide and 300-millimeter silicon. Efficiency benefits are expected to materialize in 2027 and 2028.
Q:What is the outlook for OpEx in 2026?
A:OpEx is expected to increase in the low single digits, driven by reduced other income and expenses due to phaseout costs from manufacturing capacity reductions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance for 2026 revenue and gross margin, instead offering general confidence in organic growth and improvement. They also used vague language when discussing the impact of the transformation program on manufacturing efficiency and the timeline for benefits.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Chery ST
Computer Peripheral
Corporate Development
DC
Development Integrated
Instructions conference
Integrated External
Jean Marc
Lorenzo
Marc Chery
President CEO
ST President
automation
cash flow
center
charge share
customer program
design win
emission Scope
energy
expectation
extent
generation
impairment charge
microcontrollers
midpoint outlook
momentum
overview
power device
result
risk factor
statement
sustainability
STM Transcript
STMicroelectronics N.V. (STM) Q4 2025 Earnings Call Transcript
Unknown1-29
The earnings call summary presents a mixed picture. While there are positive elements like growth in the Communication Equipment and AI Data Center segments, and a stable automotive market, there are also concerns. The significant drop in operating income and net cash from operating activities, along with management's reluctance to provide specific guidance, tempers optimism. The Q&A revealed a cautious tone regarding competition and inventory correction. Given these factors, the stock price is likely to remain neutral in the short term, with no significant catalysts for upward or downward movement.
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The earnings call presents mixed signals. While there is sequential growth in automotive and industrial revenues, the Q4 guidance is below seasonal averages due to key customer volume decreases and inventory reductions. Margins are improving but face sustainability challenges. The market strategy involves significant CapEx adjustments. The Q&A reveals concerns about capacity reservation fees and inventory management. Despite some positive developments, such as new product launches and cost savings plans, the overall sentiment remains neutral due to uncertainties in guidance and mixed segment performance.
STM Report
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