ST(STM) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues of $2.77 billion, which was $56 million above the midpoint of the business outlook range, with a gross margin of 33.5% in line with expectations [5][18] - Year-over-year gross profit decreased by 28.5%, and net income was a negative $97 million compared to a positive $353 million in the previous year [20][21] - Days sales of inventory at quarter end was 166 days, slightly above expectations, compared to 130 days in the year-ago quarter [21] Business Line Data and Key Metrics Changes - Automotive revenues grew about 14% sequentially, driven by Asia Pacific and The Americas, but overall automotive revenues declined by about 24% year-over-year [6][15] - Industrial revenues were above expectations with strong sequential growth, confirming that Q1 was the bottom, and general-purpose microcontrollers returned to year-on-year growth [9][12] - Personal Electronics and Communication Equipment revenues were above expectations, driven by increased content and the expanding low earth orbiting satellite market [12][13] Market Data and Key Metrics Changes - The automotive market is experiencing uncertainty due to trade and tariff situations, but the company expects sequential growth in Q3 [6][23] - The industrial market showed strong demand, with point-of-sale (POS) growth indicating real demand rather than inventory replenishment [78] - Sales to OEMs decreased by 15.3% year-over-year, while distribution sales showed a positive trend [15][16] Company Strategy and Development Direction - The company is focused on car electrification and digitalization, with significant wins in automotive microcontrollers and electric vehicle power systems [6][7] - The strategy includes reshaping the manufacturing footprint and resizing the global cost base, with expected annual cost savings in the high triple million dollar range by 2027 [24][25] - The company aims to maintain a net CapEx plan between $2 billion and $2.3 billion for 2025 to support manufacturing reshaping [24] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging automotive market but expressed confidence in sequential growth in Q3 and Q4 [6][23] - The company expects Q3 revenues to be around $3.17 billion, reflecting a 14.6% sequential increase and a 2.5% year-over-year decrease [22][23] - Management noted that the automotive market is less stable than in previous years due to competition dynamics and customer-specific changes [42][54] Other Important Information - The company received recognition for sustainability, ranking 25th in the Time World's Most Sustainable Companies list and achieving an A-list rating for climate change [13][14] - The company is working closely with NVIDIA on a new high power density DC-DC architecture for AI data centers [11] Q&A Session Summary Question: Can you clarify the one-off effect from the manufacturing reshaping program in Q3 gross margin guidance? - Management indicated that about 20% of the 140 basis point negative impact on gross margin in Q3 is related to the reshaping program, with expectations for improvement in Q4 [30][31] Question: Have you seen any changes in customer order patterns due to geopolitical uncertainty? - Management noted that while there is a specific customer issue in automotive, overall demand is positive, and they expect sequential growth in Q3 [40][42] Question: What caused the year-over-year revenue decline? - Management explained that the decline was primarily due to customer-specific changes and intangible factors, with a strong expectation for sequential growth in Q3 and Q4 [52][54] Question: Will you be able to grow year-over-year in Q4? - Management expressed optimism about sequential growth in Q4 and the potential for year-over-year growth, depending on customer behavior [61] Question: What is the impact of new U.S. rules on EVs on your business? - Management stated that there is no significant impact from the new U.S. rules on EVs, and they are adapting their strategy accordingly [63] Question: Can you quantify the level of inventories in the distribution channel today? - Management reported that inventory in distribution has declined by about one month on average, moving in the right direction [115] Question: How do you see the pricing environment for silicon carbide in China? - Management acknowledged strong price pressure in China but is confident in their competitive position due to new product introductions and manufacturing capabilities [118][119]