ST(STM) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 net revenues were $3.25 billion, in line with the midpoint of the business outlook range [10] - Q3 gross margin was 37.8%, broadly in line with guidance [11] - Q3 net revenues decreased 26.6% year-over-year, driven by declines in Industrial and Automotive segments [11] - Operating margin decreased to 11.7% from 28% year-over-year, and net income was $351 million [11] - For the 9-month period, net revenues were down 23.5% year-over-year to $9.95 billion [12] - Q4 2024 revenue guidance is $3.32 billion at the midpoint, representing a 22.4% year-over-year decline [13] - Full-year 2024 revenue is expected to be $13.27 billion, a 23.2% decrease year-over-year [14] Business Line Performance - Analog products, MEMS, and Sensors revenue decreased 13.3% year-over-year, driven by declines in imaging and analog products [16] - Power and Discrete products revenue decreased 18.4%, with declines in both Power and Discrete segments [16] - Microcontrollers revenue declined 43.4%, mainly due to General Purpose microcontrollers [16] - Digital ICs and RF products declined 29.7%, primarily due to ADAS and Infotainment [17] Market Performance - Industrial market declined by more than 50% year-over-year, Automotive by about 18%, Personal Electronics by about 9%, and Communication Equipment and Computer Peripherals by about 5% [17] - Sequentially, Industrial was down 12%, Automotive was flat, Personal Electronics increased 20%, and Communication Equipment and Computer Peripherals decreased 8% [18] Strategic Direction and Industry Competition - The company is launching a new program to reshape its manufacturing footprint, accelerating the transition to 300mm silicon and 200mm silicon carbide [15] - The company expects annual cost savings in the high triple-digit million-dollar range by 2027 [36] - The company is focusing on innovation and strategic manufacturing initiatives to adapt to market dynamics [37] Management Commentary on Operating Environment and Future Outlook - The company anticipates a revenue decline between Q4 2024 and Q1 2025, well above normal seasonality [14] - Management highlighted challenges in the Automotive and Industrial markets but remains optimistic about long-term growth opportunities [36] - The company is adapting its operating plans to the current market cycle and investing in innovation [37] Other Important Information - Inventory at the end of Q3 was $2.88 billion, with days sales of inventory at 130 days [20] - The company paid $80 million in cash dividends and executed a $92 million share buyback in Q3 [21] - The company's net financial position was $3.18 billion as of September 28, 2024 [21] Q&A Session Summary Question: Drivers of Q1 revenue decline and pricing environment [39] - The decline is driven by customer backlog and order dynamics, not pricing [40] - Pricing pressure is expected to be mid-single digit decline in 2025, slightly higher than 2024 [42] Question: Microcontroller inventory correction [43] - Inventory correction is lasting longer than expected, with normalization expected in H2 2025 [47] Question: Automotive market slowdown [48] - The slowdown is due to a shift from full battery electric to hybrid vehicles and downsized production by carmakers [49] - Inventory correction is ongoing in the automotive supply chain [51] Question: R&D spending and silicon carbide strategy [59] - R&D spending was lower due to one-time items and better expense control, but the company continues to invest in silicon carbide [61][62] Question: AI server wins [64] - The company is addressing all three main blocks of AI server power semis architecture, with a focus on power supply units and voltage handling [66][67] Question: Q1 gross margin outlook [69] - Q1 gross margin is expected to be impacted by unused capacity charges and inventory control measures [71] Question: Restructuring program and M&A [74][75] - The restructuring program is expected to result in high triple-digit million-dollar savings by 2027 [74] - The company is actively looking at bolt-on acquisitions as part of its organic growth strategy [76] Question: Silicon carbide targets [84] - The company expects silicon carbide revenue to be $1.15-$1.2 billion in 2024, with a long-term target of over $5 billion by 2030 [85][86] Question: CapEx implications of 300mm transition [92] - The company plans to reduce CapEx in the coming years as it transitions to 300mm wafer production [93][94]