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STMicroelectronics NV Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company received awards from a new player in the low earth orbit satellite market.
- The company had multiple high-value wins with both silicon carbide devices and modules for automotive customers, including the cooperation with Obeya, as well as broadly in industrial applications.
- The company had a strong momentum in terms of design win activities in China, the fastest-growing market for electrical vehicles.
- The company further strengthened STM32 microcontroller and microprocessor families and ecosystem, introducing many new products and tools.
- The company believes that it has restarted to win market share in Q4.
- Net revenue decreased by 23.2% to $13.27 billion.
- Industrial revenues decreased by 49% YoY, Automotive was down 14%, Personal Electronics declined 11%, and Communication Equipment and Computer Peripheral were down 2%.
- Power and discrete products decreased by 22.1% with a decline in both power and discrete.
- Gross margin was 37.7%, decreasing 780 bps YoY, due to unfavorable product mix and to a lesser extent to sales price and higher unused capacity charges.
- The company is facing a delayed recovery and inventory correction, particularly in Europe.
- The company expects to have a $100 million to $120 million impact reduction on expenses in 2025 compared to the base cost in 2024.
- Price erosion is expected to be in the range of mid-single digits.
- The company expects Q1 to be the bottom for gross margin.
- The company expects price erosion.
Q&A Highlights from STMicroelectronics NV Earnings Call Q4 2024
- Analyst asked about the company's plans for the rest of 2025, considering the business dynamic of Q4, specifically in the Automotive sector, and the visibility they have in Industrial.
- The company believes it's too early to communicate their new plan for the full year 2025, considering the visibility they have in Industrial and Automotive. They do not see any specific reason why Q1 should be much different than the positive calendar effect, which means plus 3% Q2 versus Q1. However, they think it's fair to expect Q1 at the low point of 2025.
- The company believes it's too early to communicate their new plan for the full year 2025, considering the visibility they have in Industrial and Automotive. They do not see any specific reason why Q1 should be much different than the positive calendar effect, which means plus 3% Q2 versus Q1. However, they think it's fair to expect Q1 at the low point of 2025.
- Analyst asked about how the company is planning for fab loadings and underutilization charges, given their current expectations of a steady 2Q.
- The company has already taken significant closure of production in Q1, across the fabs and sundry and test plants. They expect to have a significant amount of unloading in Q2, impacting their gross margin. They have a plan for temporary closing of many of their fabs during this quarter. In terms of OpEx, they expect to have a net OpEx around $850 million in Q1, and have started a cost-saving program that should result in a reduction of expenses by $300-360 million over the next three years. They expect net OpEx to decrease low-single digit in 2025 compared to 2024, despite the fact that they have a lower R&D grants in 2025 compared to 2024.
- The company has already taken significant closure of production in Q1, across the fabs and sundry and test plants. They expect to have a significant amount of unloading in Q2, impacting their gross margin. They have a plan for temporary closing of many of their fabs during this quarter. In terms of OpEx, they expect to have a net OpEx around $850 million in Q1, and have started a cost-saving program that should result in a reduction of expenses by $300-360 million over the next three years. They expect net OpEx to decrease low-single digit in 2025 compared to 2024, despite the fact that they have a lower R&D grants in 2025 compared to 2024.
- Analyst asked about the company's visibility into the automotive market and what has changed that has made it particularly weak.
- The company's visibility into the automotive market has become weaker due to a change in the way carmakers and tier one suppliers work together. Instead of providing long-term forecasts, they are now only providing short-term visibility, which makes it difficult for the company to plan ahead. Additionally, the automotive industry is facing a lot of uncertainty due to changes in the double combustion engine, high-end, and middle-end markets, as well as the shift towards electrical vehicles and battery-based hybrid vehicles. This uncertainty has led to a decrease in visibility for the company.
- The company's visibility into the automotive market has become weaker due to a change in the way carmakers and tier one suppliers work together. Instead of providing long-term forecasts, they are now only providing short-term visibility, which makes it difficult for the company to plan ahead. Additionally, the automotive industry is facing a lot of uncertainty due to changes in the double combustion engine, high-end, and middle-end markets, as well as the shift towards electrical vehicles and battery-based hybrid vehicles. This uncertainty has led to a decrease in visibility for the company.
- Analyst asked about the impact of underutilization charges on STMicroelectronics' gross margins and whether there are any other factors that could improve margins in the second half of 2023.
- The company explained that they have a 500 basis point underutilization charge in Q1, which is expected to improve in H2, benefiting from additional content in Personal Electronics and fab loading on their 300 millimeter fabs. The level of unloading will also depend on the magnitude of the recovery in Industrial, and the company will have tailwinds from positive price dynamics in COGS, lower cost for foundry, and a stronger US dollar. However, the mix has been a main detractor in 2023, and the company expects price erosion in the range of mid-single digits.
- The company explained that they have a 500 basis point underutilization charge in Q1, which is expected to improve in H2, benefiting from additional content in Personal Electronics and fab loading on their 300 millimeter fabs. The level of unloading will also depend on the magnitude of the recovery in Industrial, and the company will have tailwinds from positive price dynamics in COGS, lower cost for foundry, and a stronger US dollar. However, the mix has been a main detractor in 2023, and the company expects price erosion in the range of mid-single digits.
- Analyst asked about the linearity of the capacity reservation fee and the price erosion, and whether there are any changes in these factors through the four quarters.
- The company explained that the capacity reservation fees are substantially linear over the various quarter, and there may be plus or minus changes but not significant. In terms of pricing, Q1 is impacted on a sequential basis due to renegotiation of the contract in Automotive, and it will be a step down that is not a repeatable over the other quarters. The company expects a mid-single-digit price down, and a significant portion has been already factored in Q1.
- The company explained that the capacity reservation fees are substantially linear over the various quarter, and there may be plus or minus changes but not significant. In terms of pricing, Q1 is impacted on a sequential basis due to renegotiation of the contract in Automotive, and it will be a step down that is not a repeatable over the other quarters. The company expects a mid-single-digit price down, and a significant portion has been already factored in Q1.
- Analyst asked about the company's sensitivity to currency fluctuations and if they have a formula to update investors on this.
- The company's sensitivity to currency fluctuations is approximately $10 million to $12 million per quarter for a 1% change in the Euro/USD exchange rate. However, this may change slightly due to the portion of revenues that are in euros.
- The company's sensitivity to currency fluctuations is approximately $10 million to $12 million per quarter for a 1% change in the Euro/USD exchange rate. However, this may change slightly due to the portion of revenues that are in euros.
- Analyst asked about the company's growth prospects in Silicon Carbide and the mix between new customers and the main customer.
- The company did not provide a specific answer to this question, but mentioned that they will not comment on their full-year 2025 outlook for Silicon Carbide. They also mentioned that they have a China-for-China strategy for manufacturing, product development, and support, and that they will start selling directly in 200 millimeters in H1 2026. They also mentioned that 2025 will be a transition year and that they expect to accelerate growth in 2026 and beyond.
- The company did not provide a specific answer to this question, but mentioned that they will not comment on their full-year 2025 outlook for Silicon Carbide. They also mentioned that they have a China-for-China strategy for manufacturing, product development, and support, and that they will start selling directly in 200 millimeters in H1 2026. They also mentioned that 2025 will be a transition year and that they expect to accelerate growth in 2026 and beyond.
