STMicroelectronics NV Earnings - Q3 2026 Analysis & Highlights
STMicroelectronics reported accelerating demand and a strong order backdrop, with growth led by industrial and digital infrastructure; management emphasized AI-related opportunities, capacity constraints, manufacturing-footprint changes, and a path to improved margins.
Key financial results
Q3 2026 revenue was $3.76 billion, above the midpoint of guidance; revenue strength came mainly from communication equipment and computer peripherals, including AI data center and LEO satellite demand.
Gross profit was $1.4 billion, up 32.2% year over year; gross margin was 37.3%, up 410 basis points year over year and 250 basis points sequentially.
Q3 gross margin included about 60 basis points of unused-capacity charges and 40 basis points of non-recurring manufacturing-reshaping costs.
Non-GAAP operating income was $429 million and non-GAAP operating margin was 11.4%; reported operating income was $367 million, including $55 million of impairment, restructuring, and related charges.
Net income was $291 million, compared with $237 million a year earlier; diluted EPS was $0.31, versus $0.26, while non-GAAP net income was $344 million and non-GAAP diluted EPS was $0.37.
Net cash from operating activities was $1.02 billion; net capital expenditures were $643 million, and free cash flow was $351 million, compared with $130 million in Q3 2025.
Quarter-end inventory was $3.25 billion, and days sales of inventory were 126 days, unchanged sequentially and down from 135 days a year earlier.
Book-to-bill was well above 2, and backlog exceeded $20 billion, equivalent to about five quarters of revenue at the Q4 guidance midpoint.
Business segment results
Analog Products, MEMS and Sensors revenue increased 8.8% year over year and 9.4% sequentially, mainly on MEMS, with smaller contributions from analog and imaging; its non-GAAP operating margin was 14.1%.
Power and Discrete Products revenue increased 11.3% year over year and 2.8% sequentially; its non-GAAP operating margin was negative 17.1%.
Embedded Processing revenue increased 24.1% year over year, mainly due to general-purpose microcontrollers, and 5.7% sequentially; its non-GAAP operating margin was 23.1%.
RF Optical Communications revenue increased 46.2% year over year and 13.4% sequentially; its non-GAAP operating margin was 26.2%.
By end market, Q3 revenue increased year over year 64% in communication equipment and computer peripherals, 40% in industrial, and 5% in automotive, while personal electronics declined 4%; sequentially, communication equipment and computer peripherals rose 14%, industrial 12%, personal electronics 12%, and automotive was flat.
Automotive revenue was stable sequentially; growth and design wins were supported by application-specific ICs, sensors, powertrain, ADAS, and customer awards in areas including 48-volt braking, telematics, cockpit control, and tire-pressure monitoring.
Industrial revenue rose 12% sequentially and 40% year over year, driven primarily by general-purpose microcontrollers, analog, and power conversion products; management cited broad-based recovery and design wins across automation, robotics, power systems, buildings, tools, and appliances.
Personal electronics revenue rose 12% sequentially but fell 4% year over year; management said Q3 strength reflected customer demand rather than a specific pull-in.
Communication equipment and computer peripherals revenue increased 14% sequentially and 64% year over year, reflecting AI data center and LEO satellite growth.
Capital allocation
ST paid $83 million in cash dividends and executed $91 million of share buybacks during Q3 2026.
Net capital expenditures were $643 million in Q3, compared with $401 million in Q3 2025.
ST’s net financial position was $2.11 billion at September 26, 2026, with $5.31 billion of total liquidity and $3.21 billion of total financial debt.
Following the call for early redemption of its 2027 convertible debt, holders converted all $750 million of bonds; ST settled on a net-share basis, paying $750 million in cash and delivering about 4.2 million treasury shares.
Industry trends and dynamics
Management described an ongoing recovery and secular growth across end markets, with Q3 demand strengthening, bookings rising sequentially, and demand outpacing supply across multiple product categories.
Book-to-bill was above 1 in every end market and above 3 in communication equipment and computer peripherals and industrial.
Distribution inventory continued to decline and remained below ST’s standard target.
Management said demand across many served markets exceeded available supply and that the company was expanding capacity in line with its strategic roadmap and growth opportunities.
Management expected the mix of end markets to change: at the Q4 outlook midpoint, automotive was expected to represent about 35% of revenue, industrial 22%–24%, digital infrastructure and legacy business slightly above 20%, and personal electronics 22%.
Competitive landscape
Management said ST was likely the only at-scale 12-inch silicon-photonics supplier shipping at the time, and cited customer electro-optical yields as setting a new industry benchmark.
In LEO satellite-related front-end module and BiCMOS technologies, management said it saw no comparable technology and highlighted the importance of low noise figures for spectrum and deployment efficiency.
Management reported continuing automotive design-win momentum with OEMs and Tier 1 suppliers across microcontrollers, power, discrete, and other product families.
Macroeconomic environment
Management identified rising input costs and wage and salary inflation as cost pressures; it said selected-product price increases were ongoing and that pricing for the following year could be stable or increase slightly, although customer discussions were not complete.
The Q4 business outlook excluded any impact from potential further changes to global trade tariffs relative to the then-current situation.
Management characterized automotive and industrial as recovering, while consumer demand overall was expected to remain soft or weak.
Growth opportunities and strategies
ST expected AI data center revenue of about $1.3 billion in 2026, with an ambition to more than double that amount in 2027 and continue growing in 2028; management said it would provide more detail in January.
Data center growth drivers included silicon photonics, ICs, electronic ICs, microcontrollers, and power solutions; management expected microcontroller data center revenue to double year over year, while silicon photonics was expected to become a significant contributor.
Silicon-photonics capacity was expected to increase by more than 4x year over year, with management describing the business as a long-term growth opportunity supported by customer demand and visibility.
LEO satellite revenue was expected to be the same or higher in 2027 than in 2026, with additional customers contributing; management said growth could be constrained by capacity and that it was working to release more capacity.
Industrial opportunities included factory automation, robotics, power infrastructure, and physical AI; ST highlighted cooperation with NVIDIA on robotics and new sensor products with on-device machine-learning capabilities.
Automotive opportunities included electromobility, hybrid and combustion-engine vehicle applications, ADAS, and software- and electronics-related design wins; management expected automotive to contribute to company growth in 2027.
ST expected silicon carbide revenue to grow about 20% in 2026 and to achieve significant growth in 2027, supported by European electric vehicles, data center power supplies, industrial power conversion, and the move to 8-inch wafers at Catania and Chongqing.
ST’s manufacturing reshaping program is intended to close four legacy fabs and move production to newer facilities; management expected more than 400 basis points of structural gross-margin improvement, with the benefit emerging toward late 2027 or early 2028, subject to customer qualification timing.
Management said the reshaping plan also accompanies efforts to resize the global cost base; the announced organizational changes were intended to align strategy, technology, and product roadmaps more closely and accelerate innovation and time to market.
The organization and related reporting-segment adjustments were scheduled to take effect January 1, 2027, with implementation to be completed by the end of March 2027.
Financial Guidance and Outlook
Q4 2026 revenue guidance was $4.15 billion, with a ±3.5% range; at the midpoint, revenue was expected to rise 10.5% sequentially and 24.7% year over year.
Q4 gross margin was expected to be about 39% ±200 basis points, including about 40 basis points of unused-capacity charges and approximately 30 basis points of non-recurring reshaping costs.
The midpoint of Q4 guidance implied full-year 2026 revenue of about $14.5 billion, up 22.8% year over year; full-year gross margin was expected to be about 36.4%, or 36.6% on a non-GAAP basis, up 270 basis points from fiscal 2025.
Q4 non-GAAP net operating expenses were expected to be about $1.035 billion, with full-year 2026 non-GAAP net operating expenses slightly above $3.8 billion.
Management did not provide formal Q1 guidance, but said it was comfortable with Q1 revenue at least in line with consensus despite 86 calendar days; the CFO said Q1 gross margin would be at least at the then-current consensus level.
Management did not provide a quarterly indication for 2027; it said 2027 operating expenses would likely increase, but by less than sales growth, with cost-saving programs expected to provide $100 million–$120 million of benefit and startup costs expected to decline in the second half.
ST reiterated its intermediate gross-margin target of 44%–46% after completion of the manufacturing reshaping plan; management also cited improving mix, manufacturing efficiency, and pricing as potential supports, while input-cost inflation remained a headwind.
Management said it was targeting its intermediate financial model and would provide further updates on the margin path in January and during 2027.
