STMicroelectronics NV Earnings - Q2 2026 Analysis & Highlights
STMicroelectronics reported strong Q2 2026 results driven by robust demand across AI data centers, industrial automation, and automotive applications, with significant revenue growth guidance increases for data center and satellite communication opportunities, while managing manufacturing transition costs that are temporarily pressuring gross margins.
Key Financial Results
Q2 2026 net revenues reached $3.49 billion, exceeding the midpoint of business outlook, driven by higher revenues in Communication Equipment & Computer Peripherals and Automotive.
Gross margin was 34.8% with non-US GAAP gross margin at 35.2%, both in line with the midpoint of business outlook range.
Non-US GAAP diluted earnings per share was $0.31.
Q2 gross margin included approximately 60 basis points of negative impact from non-recurring costs related to the manufacturing reshaping program.
Net income was $222 million compared to a net loss of $97 million in the year-ago quarter.
Diluted earnings per share were positive $0.24, compared to negative $0.11 one year ago.
Free cash flow was positive at $75 million in Q2, compared to negative $152 million in Q2 2025.
Inventory remained flattish at $3.19 billion, with distribution inventory further decreasing and now below standard target.
Days sales of inventory were 126 days, compared to 140 days in the previous quarter and 166 days in the year-ago quarter.
Business Segment Results
Analog products, MEMS and Sensor grew 26% year-over-year, mainly due to imaging and MEMS.
Power and Discrete Products increased by 3.7% year-over-year.
Embedded Processing revenues were up 35.5% year-over-year, mainly due to General Purpose Microcontroller.
RF Optical Communication grew 32% year-over-year.
Analog product, MEMS and Sensor increased by 8.2% sequentially; Power and Discrete by 19.2%; Embedded Processing by 17.7%; and RF Optical Communication by 8.6%.
Non-US GAAP operating margin was 7.7%, with Analog product, MEMS and Sensor at 10.1%, Power and Discrete at minus 21.4%, Embedded Processing at 19.7%, and RF Optical Communication at 21.2%.
End Market Performance
Communication Equipment & Computer Peripherals grew 50% year-over-year and 13% sequentially, driven by engaged customer programs with custom-designed products and microcontrollers for optical connectivity.
Industrial improved 20% sequentially and 34% year-over-year, driven by General Purpose Microcontrollers, Analog, and application-specific Analog products.
Automotive revenues increased 14% sequentially and 16% year-over-year, driven by solid position on application-specific ICs and sensors for conventional applications, electrical powertrain, and ADAS.
Personal Electronics revenues were up 3% sequentially and 20% year-over-year, driven by increased content per device in engaged customer programs and better-than-normal seasonality.
Year-over-year sales to OEMs and Distribution increased 23.3% and 33.1% respectively.
Capital Allocation
Net CapEx was $409 million in Q2 2026, compared to $465 million in the year-ago quarter.
2026 net CapEx is expected to be at the high end of the $2 billion to $2.2 billion range, reflecting accelerated investments in selected growth drivers, including cloud optical interconnect.
Cash dividends paid to stockholders in Q2 2026 totaled $75 million.
ST issued a new $1.5 billion dual-tranche senior unsecured convertible bond, with Tranche A and Tranche B for $750 million each, due 2031 and 2033.
ST announced the early redemption of its $750 million convertible bond due in 2027.
Industry Trends and Dynamics
Strong bookings and book-to-bill close to 2 overall, well above 1 in all end markets and significantly above 2 in Communication Equipment & Computer Peripheral.
Improved visibility and signs of tight supply in several product categories were observed during the quarter.
Demand increased further during Q2, with strong bookings across all end markets.
Out of 100% of bookings received in Q2, well above 50% were for next year, indicating improved customer visibility.
Total backlog represents about an average of 4.5 to 5 quarters of Q2 average revenue, an improvement in visibility.
Distribution inventory is now below standard target, indicating healthy market conditions.
Competitive Landscape
ST is a core enabler for the cloud AI era with strong traction on optical connectivity driven by silicon photonics ICs, electronic ICs, and microcontrollers.
ST secured multiple design wins across optical connectivity, silicon and silicon carbide-based power solutions, and other product categories.
ST is positioned as a core semiconductor enabler across Low Earth Orbit satellite communication, a new space opportunity.
ST is a partner in NVIDIA Halos for Robotics, bringing microcontrollers, sensors, motor control and security solutions to support Halos readiness.
ST has progressed well with the integration of NXP MEMS sensors business acquired in February, strengthening automotive sensor business with awards at key players.
ST's portfolio is uniquely addressing emerging needs of physical AI, where intelligent sensing, real-time control, and efficient power management are increasingly critical.
Macroeconomic Environment
Q3 2026 business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation.
Input cost price increases are being observed in materials and contractor activity.
ST is increasing prices on selected products in response to higher input costs, with the two impacts more or less offsetting each other at this stage.
FX effects are expected to be neutral in Q4, unlike the positive impact in Q2 to Q3.
Growth Opportunities and Strategies
ST is raising revenue ambition for data centers, now expecting revenues above $1 billion in 2026 and well above $2 billion in 2027.
Strong traction on optical connectivity is driven by silicon photonics ICs, electronic ICs, and microcontrollers for the power stage of cloud AI.
ST expects to generate well above $3 billion in cumulative space revenue over 2026-2028, mainly with BiCMOS, FD-SOI, and panel-level packaging technologies.
ST joined €115 million Series A financing of Quobly to accelerate industrialization of silicon-based quantum computers.
ST is leveraging shared expertise in FD-SOI and deep technological collaboration to accelerate commercialization of Quobly's products through 300-millimeter silicon fab environment.
ST launched a new series of industrial MEMS sensors with embedded AI tailored for the fast-growing industrial condition monitoring market.
ST announced a new compact 3D LiDAR module delivering AI-ready output data for low compute edge AI systems.
ST introduced a secure chip combining post-quantum cryptography acceleration with NFC, secure element and eSIM functions for quantum-ready security requirements.
ST introduced a new generation of ultra-low power global shutter image sensors delivering high-quality, always-on vision to compact devices.
ST secured design wins across hybrid, electric and conventional vehicles, including applications in onboard chargers, powertrain and active suspensions.
ST's smart power ICs wins include custom devices for airbags, electronic stability control, and suspension applications based on proprietary BCD technologies.
ST is strongly positioned to support ongoing transformation of factory automation, robotics, and power and energy infrastructure.
ST announced further expansion of collaboration with NVIDIA to accelerate physical AI.
Manufacturing and Capacity
Crolles will reach 15,000 wafer per week and will go above to support the dynamics of the data center business.
Agrate 300 millimeter fab will reach full buildout pretty soon before 2028 and will be capable to support the growth of microcontroller.
ST has qualified 40-nanometer technology in China with main partner to enable support for growth in China.
ST is facing some tightness on General Purpose Microcontroller supply due to cumulative effect of success in optical cable and solid recovery of industrial market.
ST is accelerating transition between 6-inch to 8-inch silicon carbide technology and 8-inch to 12-inch analog technology.
Silicon carbide revenues should grow double digit in 2026 versus 2025, based on already designed won and backlog.
Silicon carbide revenue growth in Q2 was in the low-teens year-over-year and mid-30s in terms of quarter-over-quarter.
Silicon carbide book-to-bill is well above 1, resulting in a growing backlog.
Financial Guidance and Outlook
Q3 2026 revenues expected at $3.7 billion, plus/minus 350 basis points, representing 6.2% sequential growth and 16.2% year-over-year growth at midpoint.
Q3 gross margin expected at about 37% plus/minus 200 basis points, including about 70 basis points of unused capacity charges.
Q4 revenues expected to be above $4 billion, representing sequential improvement better than normal seasonality.
H2 versus H1 growth expected to be above normal 15% seasonality.
Q4 gross margin expected to improve sequentially from Q3's 37%, but with some headwinds from unloading charges and manufacturing reshaping costs.
Non-US GAAP net OpEx expected at about $980 million for Q3 2026, with sequential increase mainly due to startup cost and employee share award expenses.
Full year 2026 non-US GAAP net OpEx expected to be slightly above $3.8 billion.
Full year 2026 non-US GAAP net OpEx expected to increase low double-digit year-over-year.
Excluding NXP's MEMS business acquisition and exchange rate impact, like-for-like net OpEx should be up high single-digit year-over-year.
Personal Electronics seasonality is different this year, with revenue growth expected to be below normal seasonality in Q3.
Personal Electronics expected to be slightly negative year-over-year in Q3 and Q4, but low to mid-single digit for full year.
Communication Equipment & Computer Peripherals expected to grow close to 60% year-over-year in Q3 and about 90% growth in Q4.
Industrial expected to grow close to 40% year-over-year in Q4, up from 32% in Q2.
Automotive expected to grow low-double digit year-over-year, consistent with market expectations of 13-14% growth.
ST confirms confidence to reach $18 billion in 2028, with data center as a key growth driver.
ST expects to reach gross margin targets consistent with $18 billion model assuming completion of reshaping program on manufacturing and FX remaining stable.
Negative impact on gross margin from manufacturing reshaping program expected to remain at similar level over the rest of the year.
Net cash from operating activities totaled $502 million in Q2 2026, including approximately $44 million outflow related to restructuring.
ST maintains solid net financial position at $2.01 billion as of June 27, 2026, with total liquidity of $6.03 billion and total financial debt of $4.02 billion.
