STMicroelectronics - Q1 2025

Transcript

Operator (participant)

Ladies and gentlemen, welcome to the STMicroelectronics First Quarter 2025 Earnings Release Conference Call and Live Webcast. I am Moira, the call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jérôme Ramel, Executive VP, Corporate Development, Integrated Marketing and Communications. Please go ahead.

Jérôme Ramel (EVP of Corporate Development Integrated Marketing and Communications)

Thank you, everyone, for joining our First Quarter 2025 Financial Result Call. Hosting the call today is Jean-Marc Chéry, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO, and Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensors Group, and Head of STMicroelectronics’ Strategy, System Research and Applications, Innovation Office. This live webcast and presentation materials can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the Safe harbor statement contained in the press release that was issued with the result this morning and also in STMicroelectronics' recent regulatory filing for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now, I'd like to turn the call over to Jean-Marc Chéry, ST President and CEO.

Jean-Marc Chéry (President and CEO)

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q1 2025 Earnings Conference Call. I will start with an overview of the first quarter, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. starting with Q1. In a persistently uncertain environment, our first quarter net revenues were in line with the midpoint of our business outlook range, driven by higher revenues in Personal Electronics, offset by lower revenues in automotive and industrial compared to expectations. Q1 gross margin was slightly below the midpoint of our business outlook range, mainly due to product mix. On a year-over-year basis, Q1 net revenues decreased 27.3% to $2.52 billion. Gross margin decreased to 33.4% from 41.7%.

Operating margin decreased to 0.1% from 15.9%, and net income decreased 89.1% to $50 million. 56, sorry. Let's now discuss our business dynamics during Q1. In automotive, we expect Q1 to be the low point of our automotive revenues. During the quarter, we saw lower revenues across all geographies. The current situation on trade and tariffs is creating uncertainty in car production levels, leading to a slight downward revision of forecasts for the year, more pronounced for electric vehicle volumes. Despite this, our book-to-bill ratio was above one. In dollar terms, bookings were also up significantly quarter on quarter. During the quarter, we continued to execute our strategy in car electrification. We had wins with both silicon carbide and silicon devices and modules for new onboard charger and traction inverter designs, as well as with our smart power and smart fuse solutions for electric vehicle power systems.

We remain focused on solid execution in power and discrete for car electrification in a continuing challenging market environment. In car digitalization, we saw further traction with our portfolio of automotive microcontrollers. Automotive microcontrollers are one of our revenue growth drivers beyond the medium-term horizon. We are confirming strong progress in executing our roadmap with many new products set to launch in 2025 and in 2026 across our Stellar and STM32A product families. We are also continuing to see strong designing momentum in China, EMEA, and the Americas with both large-scale OEMs and Tier 1s. During Q1, our Stellar P microcontroller family was selected in a dual inverter powertrain application by a fast-growing OEM in China, and we continue to expand our business with our current high-volume automotive microcontrollers in applications like high-vacuum air compressed systems.

To support the challenges of developing software-defined vehicles, we recently announced our extensible memory offer for Stellar microcontrollers. ST's proprietary PCM technology enables the smallest memory cell size for the automotive market. Thanks to this, our customers can benefit from increased headroom to continuously innovate their products over time and in the field while also simplifying logistics. In ADAS, we saw our customer Mobileye's EyeQ6H being adopted to improve safety and driving comfort in high-volume vehicles. This enables hands-free driving, smart parking, and improved occupant and pedestrian detection with a single integrated system. We also introduced our newest family of global navigation satellite system receivers and an advanced driving system for ADAS and autonomous driving. They are the industry's first to integrate multi-constellation and a quad-band signal processing in a single die.

With our automotive-grade sensors, we have a number of wins for ADAS vehicle angle detection and occupancy monitoring applications. Also, this is a clear growth opportunity for us in the midterm. In industrial, we expect Q1 to be the low point in terms of revenues. In Q1, orders were also up versus Q4, and overall inventory decreased, particularly for Smart Industrial and, to a lesser extent, Power & Energy. By region, the improvement in inventory was driven by Asia, while we have not seen significant improvement in Europe and in Americas. Our book-to-bill ratio was above one. During the quarter, we had wins for our power and another portfolio across a range of applications. This included motor control, industrial drives, white goods, solar panels, air conditioning, and data switches. At the end of March, we signed a development and manufacturing agreement for gallium nitride technology with Innoscience.

It includes a joint development initiative on GaN technology, as well as a reciprocal agreement allowing each company to use the other front-end manufacturing capacity. This allows ST to accelerate our roadmap in GaN technology to complement our silicon and silicon carbide offering. For ST, this is a further step in the China for China operating model, coming on top of the joint venture with Sanan for front-end manufacturing of silicon carbide and the foundry agreement with HHGrace on multiple technologies, including 40 nm node. In embedded processing, our STM32 microcontrollers continued to gain traction with the broad developer community. Facing the current challenging market conditions, we were able to reconfirm our number one ranking of the general-purpose microcontroller market in 2024, with a market share that has consistently grown sequentially from Q2 2024 onward.

In 2024, our software ecosystem grew 30% to over 1.3 million unique users, and we continued to see a strong growth trend in the first quarter of 2025. One area of particularly strong growth is in edge AI projects developed on our tools. Over the past 12 months, we saw over 160,000 projects, more than twice the number in the previous 12 months. We continued to reinforce our portfolio and ecosystem with new innovative products, leveraging our proprietary 40-nanometer and 18-nanometer process node technologies. In 2025-2026, we plan to introduce 18 new lines leveraging embedded non-volatile memory technologies at and below 40 nanometer. Between 2025 and 2027, the percentage of our STM32 revenue coming from this advanced product at 40 nanometer and below will double, reinforcing our leadership in this market segment.

Based on our design in momentum, we are equipped to grow faster than the market, going back to well above 20% market share. In personal electronics, Q1 was slightly better than expected, while Communication Equipment and Computer Peripherals were in line with our expectations. Here, our engaged customer programs are progressing to the plan. Our high level of innovation and ability to execute with MEMS and optical sensing, as well as with our analog technology portfolio, are a key competitive advantage, enabling us to win and grow our business. Our specialized proprietary technologies also position us for growth in low Earth orbit satellites and data centers. For example, during the quarter, we introduced new technologies to enable higher performance optical interconnect in data centers and AI clusters.

Our silicon photonics and next-generation BiCMOS proprietary technologies bring better performance to address the ongoing evolution of optical interconnect for customers like Amazon Web Services. Finally, in terms of corporate development activities, during Q1, ST announced the detail of its three-year program to reshape the manufacturing footprint and resize the global cost base. We also confirmed the annual cost savings target in the high triple-digit million-dollar range exiting 2027. The reshaping and modernization of ST's manufacturing operations aim to achieve two main objectives: pre-utilizing planned investment towards future-ready infrastructure such as 300-millimeter silicon and 200-millimeter silicon carbide wafer fabs to enable them to reach a critical scale and maximizing the productivity and efficiency of legacy 150-millimeter capabilities and mature 200-millimeter capabilities. This program is expected to see up to 2,800 people leaving the company globally on a voluntary basis over three years, on top of normal attrition.

This is expected to occur mainly in 2026 and 2027. To conclude, for sustainability, we issued our first annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2024. We remain on track for our commitment to becoming carbon neutral by 2027 on scope one and two, and on product transportation, business travel, and employee commuting for scope three. Our carbon neutrality program includes a comprehensive strategy covering the reduction of direct and indirect greenhouse gas emissions and the sourcing of 100% renewable electricity by 2027. Now, over to Lorenzo, who will present our key financial figures.

Lorenzo Grandi (President and CFO)

Thank you, Jean-Marc, and good morning, everyone. Before commenting on Q1 results, let me remind you that following ST's reorganization into two product groups and four reportable segments announced in January 2024, we have made further progress in reorganizing our global product portfolio.

These result in some adjustment to our reportable segments effective starting January 1st, 2025, without modifying subtotals at product group level. Therefore, from Q1 2025, we report revenues and operating income according to those four adjusted reportable segments. For more details, please refer to the appendix of the earnings press release we published today. Now let's start with a detailed review of the first quarter, starting with the revenues on a year-over-year basis. By reportable segments, Analog Products, MEMS and Sensors was down 23.9%, mainly due to a decrease in analog. Power and discrete products decreased 37.1%. Embedded processing EMP revenues declined 29.1%, mainly due to general purpose and automotive MCU. RF and optical communication declined 19.2%. By end market, automotive declined by about 39%, industrial by about 32%, personal electronics by about 11%, and communication equipment and computer peripheral increased by about 1%.

On a year-over-year, sales to OEMs decreased 25.7% and 31.2% to distribution. On a sequential basis, revenue decreased 20.7% in AMS, 34.1% in power discrete, 26% in AMP, and 16.5% in RF and OC. By end market, automotive declined by about 34%, industrial by about 18%, personal electronics by about 17%, and communication equipment and computer peripheral by about 40%. Turning now to profitability, gross profit in the first quarter was $841 million, decreasing 41.7% on a year-over-year basis. Gross margin was 33.4%, decreasing 830 basis points year-over-year, mainly due to product mix and to a lesser extent to higher unused capacity charges and lower sales price. Total net operating expenses, excluding restructuring, amounted to $830 million in the first quarter. This was better than anticipated, reflecting the continued strict monitoring of our expenses in the current market environment.

In the second quarter of 2025, we expect net OPEX to stand between $860 million and $870 million, a 6% year-over-year decline. As a reminder, these amounts are net of other income and expenses and exclude restructuring. First quarter operating income was $3 million. Q1 operating margin was 0.1%, with AMS at 7.7%, P&D at -6.9%, EMP at 8.9%, and RF and OC at 13.9%. Q1 2025 net income was $56 million, compared to the $513 million in the year-ago quarter. Earnings per diluted share were $0.06, compared to the $0.54. Net cash from operating activity decreased 33.2% in Q1 to $574 million. First quarter net CapEx was $530 million, compared to the $967 million in Q1 2024. Free cash flow was positive $30 million in the first quarter, compared to a -$134 million in the year-ago quarter.

Inventory at the end of this quarter was $3.01 billion, compared to the $2.69 billion in Q1 2024. Days of sales of inventory at the quarter end was 167 days, in line with our expectation, compared to 122 days for both the previous quarter and the year-ago quarter. Cash dividend paid to stakeholders in Q1 2025 totaled $72 million. In addition, ST executed a share buyback of $92 million. ST maintained its financial strength with a net financial position that remained solid at $3.08 billion as of March 29, 2025, reflecting total liquidity of $5.96 billion and total financial debt of $2.88 billion. Now, back to Jean-Marc, who will comment on our outlook.

Jean-Marc Chéry (President and CEO)

Thank you, Lorenzo. Now, let's move to our business outlook for Q2 2025. In the first quarter, our book-to-bill ratio improved, with both automotive and industrial above parity. We are expecting Q2 2025 revenues at $2.71 billion, ±350 basis points.

At the midpoint, our Q2 2025 net revenues will decrease by 16.2% year-over-year and increase 7.7% sequentially. We expect our gross margin to be about 33.4%, ±200 basis points, impacted by about 420 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. For the full year 2025, considering the level of uncertainty for the economy globally and for ST and markets specifically, we are not providing an indication for the full year 2025 revenues. We plan to maintain our net CapEx plan for 2025 between $2 billion and $2.3 billion, mainly to execute the reshaping of our manufacturing footprint. To conclude, while we see Q1 2025 at the bottom, in the current uncertain environment, we are focusing on what we can control.

We are maintaining strict expense control while protecting R&D, continuously innovating to enhance and accelerate the competitiveness of our product and technology portfolio. We are on track with our company-wide program to reshape our manufacturing footprint, and we confirm that the cost savings target is in the high triple-digit million-dollar range exiting 2027. ST medium-term growth drivers remain solid. Specifically, they will come from MEMS and optical sensing solutions, general purpose microcontrollers, analog, and devices for low Earth orbit satellite communication. While we see a lower and delayed growth in power and discrete, due primarily to the well-known electrification market dynamics. We anticipate additional further growth beyond the medium-term horizon thanks to automotive microcontrollers and AI applications at the edge and for power management and cloud optical interconnect in data centers and AI clusters.

We will do so by leveraging our product and technology portfolio and roadmap and our competitive reshaped manufacturing footprint. Thank you, and we are now ready to answer your questions.

Operator (participant)

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touchscreen telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question or a comment may press star and one at this time. The first question comes from François-Xavier Bouvignies. Please go ahead. Thank you very much.

François-Xavier Bouvignies (Head of Europe Tech Hardware and Semiconductor)

The first question that is in everybody's mind, and you saw it with TI yesterday, is how much your Q2 is driven by tariff pulling. Effectively, you are +7% quarter on quarter guiding on the revenue side. I was wondering if you saw any strange behavior or unusual behavior as maybe the industry is trying to get some inventories ahead of a tariff. I just wanted to have your view on that. If you could provide any data that you have seen during the quarter that would support any pulling or not would be helpful. That's my first question.

Jean-Marc Chéry (President and CEO)

No, we have not seen a specific pulling related to tariff. The Q2 forecast and guidance has been built smoothly in Q1 with our backlog we had entering in the year, plus a booking plan that has been achieved on a very linear and smooth model.

No specific pulling, okay, due to tariff for Q2. Thank you, François Xavier.

François-Xavier Bouvignies (Head of Europe Tech Hardware and Semiconductor)

Thank you, Jean-Marc. Maybe, yeah, the second question is on your inventories. I mean, if I look at your inventory on the balance sheet, it is back to all-time high from when I look at my model, both on the absolute side on the days of inventories. I was wondering, what does it mean for the gross margin? Because it looks like it will take some time to clear these inventories and with the uncertain environment on the top line. I was just wondering, the consensus having gross margin increasing significantly in H2, is it really realistic, I mean, to have a significant improvement in gross margin given where the inventories are?

Lorenzo Grandi (President and CFO)

I take this question about the inventory.

Yes, it's true that our inventory in ending Q1 is, let's say, 167 days, is actually, let's say, on the high side. This was expected. As you know, let's say the revenue in Q1, also due to the particularly unfavorable calendar, the length of the quarter was a little bit, let's say, was lower than our normal trend. At the end, we do expect to start already in this quarter to reduce the level of our inventory. We expect to go slightly down in terms of days, more in the range of 160 days, considering that during this quarter, we are also preparing the ramp-up for the personal electronic for Q3. Yes, clearly, let's say we have a path for reduction of this inventory, let's say, over the year. I would say that, yes, clearly, this is something that we are monitoring strictly.

Indeed, also during this quarter, we will have in one of our sites still one week of closure in order to keep under control this level of inventory.

François-Xavier Bouvignies (Head of Europe Tech Hardware and Semiconductor)

What does it mean for gross margin for H2? I mean, if inventory is coming down, does it mean that gross margin will, can it go up as well?

Lorenzo Grandi (President and CFO)

In Q2, our guidance for the gross margin, as you have seen, is substantially to stay flat in respect to the first quarter. There are a few components of this dynamic of the gross margin. On one side, it is clearly, let's say, the gross margin is impacted negatively by the manufacturing efficiency that we had during Q1. Manufacturing efficiency during Q1 was impacted by the significant number of days of closure that we have done in our fabs and in our backend plant.

You know that when you have this kind of, let's say, actions to close the sites, not all the efficiency, let's say, not all the negative impact of disclosure is captured by the unloading charges. There are some impacts that are negatively impacting the efficiency, and this is reflected in the dynamic of the second quarter gross margin. On top of that, there is an unfavorable impact on the euro dollars moving from 1.06 to 1.08. This is offset on the other side by the improvement in the product mix. Product mix is improving as personal electronic is declining, automotive is improving in the second quarter, is improving also industrial. This is offsetting, let's say, the negative impact that we have related to the manufacturing that rightly you say is coming substantially from our inventory.

Why I would say that in terms of pricing, we do not see any significant high pressure in terms of pricing. It is the normal trend that usually we experience quarter after quarter.

François-Xavier Bouvignies (Head of Europe Tech Hardware and Semiconductor)

Thank you very much.

Jean-Marc Chéry (President and CEO)

Thank you, François Xavier. Moira, can we move to the next question, please?

Operator (participant)

Yes, sir. The next question is from Janardan Menon from Jefferies. Please go ahead.

Janardan Menon (Managing Director)

Yeah, hi. Good morning. Thanks for taking the question. Yesterday, going back to Texas Instruments, they were sounding quite bullish about their industrial business. They said that they are seeing a broad recovery across segments and geographies, and all their customers are at low levels of inventory. Those comments seem a little bit more bullish than the comments you have just made today on industrial. I am just wondering why there would be a difference between the two.

Is it that they have a more direct sales model and will see the improvement earlier than through the distribution channel where you are selling some more? When we talk about second half, would the level of recovery of industrial microcontrollers be a key factor, the level in terms of your gross margin outlook into the second half?

Jean-Marc Chéry (President and CEO)

I'll take the question for the revenue. It is clear that for industrial, we see some positive trend. I repeat that our Q1 book-to-bill was above one. In terms of orders, dollar, we were also up. Clearly, we have seen some inventory down in smart industrial and to a lesser extent in Power & Energy. Also, we see some positive dynamic by region, especially in Asia, but still no improvement in Europe, particularly, and in America.

It is a point number one. Point number two, you know that our industrial market, let's say, go-to market is mainly related to general purpose microcontrollers. And there is still a situation of over-inventory on general purpose, going in the right direction, but at a slower pace than what we expected, okay, a few months ago. About H2, as I have said, we will not provide any indication about H2. Why? Because of the uncertainty of the environment, the low visibility we have. However, okay, we already communicated that we are pretty confident about our engaged customer program in personal electronics and in communication equipment and computer peripheral. Definitely, this increase in H2 versus H1 related to this engaged customer program will not represent the full H2 growth versus H1.

On the other part, okay, it should be related to industrial market definitely, but it's too early to confirm this indication. It is something that probably will happen.

Janardan Menon (Managing Director)

You are confirming that Q1 is the bottom in industrial, so it should be higher than Q1 at least.

Jean-Marc Chéry (President and CEO)

We confirm Q1 is the bottom in industrial here. Thank you. Any follow-up, Janardan?

Janardan Menon (Managing Director)

If the second half is on the personal electronics where you have an engaged customer ramp into the second half, I'm just going back to the gross margin issue where your personal electronics has lower gross margins than industrial automotive. Just from that perspective, would the level of improvement, all things being equal, just assuming that there is no big tariff impact in the second half, would your gross margin improvement be somewhat more muted?

Lorenzo Grandi (President and CFO)

The second part of the year, clearly, at this stage, it's a little bit difficult to give any precise indication in terms of gross margin where we will land. Clearly, we have some elements that we can share with you. Clearly, the impact of the growing in terms of personal electronic and with the significant content in terms of silicon will definitely help significantly our, let's say, reduction in terms of unloading charges and also improving in our manufacturing efficiency. This is clearly a positive benefit that we will have in the second part of the year. Clearly, in the second part of the year, as we were mentioning before, there will be improvement, expected improvement in the industrial that is very creative for us in terms of gross margin.

I would say that these elements that are supporting for us some, let's say, expected improvement moving from the first half to the second half. Clearly, let's say there are also some headwinds that we have to take into consideration. One may be the dynamic of FX that clearly, let's say, in this environment is not, let's say, helping us. The other element that we have to take into consideration is the fact that, as we have said many times, the capacity reservation fees will progressively go down, also moving from the first half to the second half. Anyway, I have to say that it's fair to say that, let's say, the level of gross margin that we have seen in Q1 and in Q2 will be the bottom for our gross margin. Gross margin will improve moving Q3 and Q4.

Jean-Marc Chéry (President and CEO)

Finishing on industrial revenue, what I can confirm to you is that company will grow revenue at the midpoint of our guidance, 7.7%. Industrial will do as well. Very similar to the average of the company in terms of growth. The main detractor of the growth of Q2 versus Q1 is the usual seasonality for ST on personal electronics. It is a good sign that for the first time since many quarters now, that sequentially the industrial market we address will grow about 8% sequentially.

Janardan Menon (Managing Director)

That is very clear. Thank you so much.

Lorenzo Grandi (President and CFO)

Thank you, Jonathan. Moira, we can move to the next question, please.

Operator (participant)

The next question is from Joshua Buchalter from TD Cowen. Please go ahead.

Joshua Buchalter (Director of Semiconductors Equity Research)

Hey, guys. Thank you for taking my question. I appreciate all the color on the inventory on the balance sheet.

I was wondering if you could maybe provide additional details on how you're viewing downstream inventory in the channel. I think you had mentioned entering the year, you were sort of at two months more than you were hoping. Was there any progress on that front in aggregate, getting channel inventory lower during the quarter and sort of where you see things now? Thank you.

Lorenzo Grandi (President and CFO)

Yeah. Yes, I take this question about the inventory. This time inventory that you are mentioning is the inventory in the channel. During the last quarter in Q1, we have seen substantially one dynamic, very clear reduction of inventory in the channel, mainly in Asia. This was, let's say, evident while for what concerns EMEA and America, we have not yet seen any significant reduction of our inventory in the channel.

Let's say that today, even if we have seen, let's say, some improvement in the course of last quarter, still we have some excessive inventory in the channel. This is clear. We do expect, let's say, that in Q2, with this dynamic in terms of industrial and expectation of our, let's say, POS, so the sales of our distributor to our final market to have a significant step down in terms of inventory. For the time being, what I can say is that yes, there is still some excess of inventory. This inventory should progressively go down. Let's say this excess of inventory should progressively go down to a normal, let's say, situation already starting in the current quarter.

Joshua Buchalter (Director of Semiconductors Equity Research)

Okay. Thank you for the color there.

Maybe, Jean-Marc, I was hoping you could comment bigger picture on how you feel ST's position to sort of handle the backdrop where the global trade environment is different than it has been in the past, in particular from a manufacturing standpoint. Have your conversations with your customers changed much over the last few weeks? I know you're not guiding any changes, but I'd be curious to hear how your customers are viewing you guys, given your significant manufacturing footprint internally, but also it being in Europe. Are you viewed as sort of a neutral third party in this? Any details you can give us on the flexibility of your manufacturing footprint across your locations would be helpful as well. Thank you.

Jean-Marc Chéry (President and CEO)

We have engaged since many quarters now adjustment of our manufacturing footprint. Basically, there are two legs.

One is the most visible one, clearly, is our China for China strategy, where now we have with our joint venture with Sanan, a wafer fab that will be ready by end of the year for mass production for silicon carbide. We have this strategic agreement with Innoscience for GaN. Okay, we have a long-term agreement with HHGrace, both for microcontroller, analog technology, and other power. Clearly, first, we have worked since many quarters to have a China for China manufacturing infrastructure and ecosystem. With our customer, we've already anticipated the reverse dynamic, which means we move already in our wafer fab, either in Europe or in Singapore, and respectively from our assembly plant and test out of China or out of Taiwan, thanks to our infrastructure in the Philippines, in Malaysia, in Malta, and in Morocco.

Honestly and transparently, what happened early April did not change drastically anything. We have not seen any panic about customer or immediate reaction. I think, okay, it is urgent to wait and see because, okay, adaptation of the supply chain or decision to modify or structuralize the supply chain is very heavy, sorry, in terms of qualification, in terms of transfer of product, and so on and so forth. We have not seen immediate reaction or very, let's say, classified emotional reaction about that. I repeat, we have engaged a modification of our footprint structurally since many, many quarters. That is the reason why, okay, of course, we are waiting what will happen moving forward, but we do believe that the company is well equipped to face, okay, this situation.

Joshua Buchalter (Director of Semiconductors Equity Research)

Thank you. Thank you. Appreciate all the color.

Lorenzo Grandi (President and CFO)

Thank you, Josh.

Moira, we can move to the next question, please.

Operator (participant)

The next question comes from Stéphane Houri from ODDO BHF. Please go ahead.

Stéphane Houri (Head of Equity Research)

Yes. Good morning. I have a question about your comments on the automotive market. Could you maybe clarify what's your vision about your own revenues on the automotive side this year versus the market? And also, you made a difference between electrification and, let's say, the bulk of the market. Could you clarify this for us? Thank you very much.

Jean-Marc Chéry (President and CEO)

Indeed, in Q1, we have seen lower revenues in all geographies for automotive, including a mild downward revision for the forecast of the year because you know that automotive industry drivers with a frame order backlog. Clearly, this behavior is more pronounced on electrical vehicles.

The positive point is that at the same moment in Q1, our book-to-bill ratio was above one for specifically automotive. In terms of dollar terms, the booking were also up quarter on quarter. The other positive point for 2025 is we believe that one risk factor has been alleviated, so the one in Europe, because now the European Union is proposing some smooth approach, okay, on a three-year flexibility for the car maker to comply with the CO2 standard. Of course, we will wait for the vote, but this is good news. However, we believe that the current situation on trade and tariff is creating uncertainty on the level of car production, clearly, and there is still some other risk factor. Taking into account, okay, all this situation, we believe that Q1 is a low point for automotive.

Excluding the capacity reservation fees, we expect our auto revenue will decline, unfortunately, in 2025 versus 2024. You know that the capacity reservation fee will decline substantially in 2025 versus 2024 by almost $300 million. Yeah. Takeaway is Q1 is the bottom. Full-year revenue should decline versus 2024. We have the indication for that. There is still some risk around the production of car. We know that some analysts provide a forecast at 92.4 million of car produced in 2025, so a slight increase. Here, we prefer to remain cautious and wait what will happen in the next few weeks, especially related to the tariffs.

Stéphane Houri (Head of Equity Research)

Okay. Just a quick follow-up. I know you're not guiding for 2025, obviously, but you haven't changed your CapEx budget, which in general means that basically the outlook, according to you, hasn't really changed.

When you look at the consensus, you see a very strong increase in H2 versus H1, 20%-25%. Does it mean that this kind of evolution in the second half is still possible?

Jean-Marc Chéry (President and CEO)

There are two points in your question. First of all, I would like to clearly repeat that the main purpose of the CapEx this year is to enable our reshaping plan. We will disengage from 150-millimeter fab, and we will disengage from 200-millimeter fabs. That's the reason why, okay, we need to increase our capacity on 300-millimeter fab silicon, respectively 200-millimeter fab silicon carbide. It's point number one. To have them at the right scale because it will be a booster for our gross margin. Respectively, a 300-millimeter fab silicon is much more efficient than a 200-millimeter one, and the same for a 200-millimeter silicon carbide.

The first objective of our capital expenditures this year is to enable our reshaping plan. Definitely, some part of the CapEx has been dedicated to, as an example, NIC change. The device, okay, that will be introduced as one of the main engaged customer programs for H2 in personal electronics, which is an increasing dollar and silicon content in the application, has requested some CapEx to be spent in Q1. One part of the CapEx, of course, is mix adaptation. It is also valid in test and finishing as well. I repeat, for 2025, the CapEx is mainly sub-mix adaptation, which are, let's say, awarded to us and ensured. The main part of the CapEx is to prepare our plan to grow in 2026-2027 in a different reshaped manufacturing footprint. This is the release objective of the CapEx.

That is the reason why, okay, we still give this $2 billion to 2.3 billion range. You see that in Q1, we are basically slightly above a $2 billion run rate. About H2, again, we do not give any indication. We have some visibility. We have a backlog. But you know now our backlog, except the normal terms and conditions of our sales contract, the backlog is not particularly protected, so it could be canceled in case, okay, something happens at the economy, okay, for end of the year or 2026. That is the reason why, okay, we have been cautious. However, what we can say, we can say that taking into account our engaged customer program, taking into account what I say on automotive, that Q1 is the bottom.

Even if the full year will not show a growth, taking into account the trend of the inventory on industrial, we should expect to have H2 better than H1.

Stéphane Houri (Head of Equity Research)

Thank you. Thank you. Thank you very much.

Lorenzo Grandi (President and CFO)

Moira, can we move to the next question, please?

Operator (participant)

The next question comes from Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande (Stock Analyst)

Yeah. Hi. Thanks for letting me on. My first question is about tariffs. There have been some retaliatory tariffs from China on US products as such. Has ST had any impact because of these retaliatory tariffs on their demand for your product from China at all, and whether there have been any changes in the environment because of this? I have a quick follow-up.

Jean-Marc Chéry (President and CEO)

This is a question.

Lorenzo Grandi (President and CFO)

Sandeep, can you repeat the question, please? Yeah.

Sandeep Deshpande (Stock Analyst)

My question is about the Chinese retaliatory tariffs on products from the U.S. as such, really. Given that the retaliatory tariffs, there could be potential for tariffs on U.S. semiconductor companies shipping into China. Does this have any potential impacts on STMicroelectronics?

Jean-Marc Chéry (President and CEO)

As I told you, it is clear that with the current situation on tariffs, our peers that have fabs in the U.S., for sure, will be or could be penalized with some customers. Again, our American peers, generally speaking, are supplying to Chinese customers products with value and with some stickiness. I repeat what I have said a few minutes ago. We do not see an immediate panic reaction or emotional reaction versus the situation. Why? Because indeed, the situation is frozen for some days now. I do believe that customers and partners are waiting on the situation; we will move forward.

Definitely, let's remain pragmatic. If some customers came to us and have taken decisions in the past to allocate socket to our competitor for various reasons, and if today our product complies with the specification and complies in terms of performance and price and so on, yes, certainly, we will acknowledge some trend that ST could be a new vendor solution taking into account this tariff increase for American peers in China.

Sandeep Deshpande (Stock Analyst)

Thank you. My quick follow-up is on, again, on your auto business. Can you talk about how your share has evolved at your major silicon carbide customer in the first quarter? And if we can assume that any share loss that has occurred has already been factored into numbers, or whether we will see further share loss at that customer through the rest of this year?

Lorenzo Grandi (President and CFO)

I will comment, and Marco Cassis will complement.

What we say, we have repeated since a few quarters. The way we have established, okay, the business relation with our main customer for silicon carbide was a warranty about some share. Okay? It is automotive industry. For automotive industry, it is a normal, let's say, process to have multi-source, to have at least two sources. For us, it was super well-known that at a certain moment, okay, when the second source will be qualified and efficient, okay, our main customer will manage his manufacturing and supply chain with two sources. We are in this situation. We have absolutely not lost market share because of any reason. Okay? We are simply coming back on a normal share consistently with what we contractually signed, okay, with our customer.

After, okay, where we pay attention is more about the volume of cars sold by our main customer, production, inventory, and so on and so forth. Here, okay, you know we cannot comment. Marco, you want to add something?

Marco Cassis (President of Analog, Power and Discrete, Mems and Sensors Group)

No, I just confirm what you just said. We moved towards the contractual market share that we have with our major customers, and there will be no erosion of market share going forward. On the longer trend, we confirm that we will be present in the silicon carbide market at least with a 30% or above market share overall.

Sandeep Deshpande (Stock Analyst)

Thank you.

Lorenzo Grandi (President and CFO)

Thank you, Sandeep. Unfortunately, we do not have any time for more questions, so this is ending our call for this quarter. Thank you very much, all of you, for being there, and we remain here at your disposal should you need any follow-up questions.

Sorry for the ones that didn't have time to ask the questions there. Thank you very much.

[crosstalk]