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STMicroelectronics (NYSE:STM)
Q4 2018 Earnings Conference Call
Jan. 24, 2019 3:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Celine Berthier -- Group Vice President, Investor Relations

Good morning, everyone. Thank you for joining our fourth-quarter 2018 financial results conference call. Hosting the call today is Jean-Marc Chery, ST's president and chief executive officer. Joining Jean-Marc on the call today are Lorenzo Grandi, president of finance, infrastructure and services and chief financial officer; Marco Cassis, president of sales, marketing, communications and strategy development.

This live webcast and presentation materials can be accessed on ST's 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's results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statements contained in the press release that was issued with the results this morning, and also in ST's most recent regulatory filing with the full description of these risk factors.

[Operator instructions] I'd now like to turn the call over to Jean-Marc, ST president and CEO.

Jean-Marc Chery -- President and Chief Executive Officer

Thank you, Celine. Good morning, everybody, and thank you for joining ST on our year-end earnings call today. Before going through a detailed review, let me start with some opening remarks. First, on 2018.

We had solid financial results in the fourth quarter for both revenues and profitability. For the full year, in line with our objective, we delivered significant revenue growth across our product groups, a strong expansion of our operating profitability, net income and free cash flow, while investing to drive growth opportunities and operating efficiency over the midterm. Second, on 2019. Our first-quarter outlook reflects the combined impact of increased unfavorable dynamics on top of first quarter seasonality in some of the end markets we serve: smartphone applications, computer hard disk drive, and distribution in China and also in Europe.

On the other hand, we see automotive and power discrete holding well, with significant growth year over year. After Q1, we plan to return to sequential growth in the second quarter, with an acceleration in the second half of the year. Our key objective for this year are to continue outperforming our served market and to balance our end market and application focus, delivering sustainable profitability and returning value to shareholders. To support all of that and to execute on our strategic technology, R&D and manufacturing programs, we expect to invest in CAPEX.

Part of this CAPEX is devoted to support three strategic initiatives that I will detail later. Let's now start with the detailed review. Our financial results in the fourth quarter for both revenues and profitability were solid. Net revenues increased 7.4% year over year, on double-digit growth across our automotive and discrete group, in Imaging and in Digital ICs.

On a sequential basis, our revenue increased 5%, very close to our midpoint target of 5.7%. Sequential growth was driven by Imaging, automotive and power discrete. Our gross profit totaled $1.06 billion, representing a year-over-year increase of 5.6%. Our gross margin was 40%, 20 basis points higher than the midpoint of our guidance.

In comparison to the fourth quarter of 2017, our gross margin was 70 basis points lower. Our net operating expenses were $614 million. Operating income increased 7.9% year over year to $443 million. Our operating margin was 16.8%, 10-basis-point higher than the year-ago quarter.

Fourth-quarter net income of $418 million and diluted earnings per share of $0.46 both increased about 35% year over year. Now let's look at our fourth-quarter results by product group on a year-over-year basis. ADG revenue increased 7.8% to $960 million, on double-digit revenue growth for both automotive and power discrete. ADG -- I have to correct here, sorry.

OK, it is 17.8%. OK, as you guessed, it is much better than 7.8%. Sorry for my mistake. Let's continue now.

ADG operating margin expanded 220 basis points to 14.6% from 12.4%. For both the third and fourth quarter, ADG's operating margin was steadily in line or ahead of our low teens second half 2018 target. Moving now to our analog, MEMS and sensors group, AMS. Revenues totaled $988 million, an increase of 9.5%, with double-digit growth in Imaging and single-digit growth in Analog and MEMS.

AMS operating margin was 20.5%, stable with the year-ago level of 20.8%. For AMS, we had initially anticipated second half 2018 operating margins to move into the mid-teens, and we exceeded that level in both the third and fourth quarter. Finishing our product discussion with the microcontroller and digital ICs group, called MDG. The inventory correction in microcontrollers continued as anticipated during the fourth quarter due to the mass-market softening in China.

In total, MDG revenues decreased 6.9% year over year to $689 million, with growth in Digital ICs, offset by microcontrollers and memories. MDG operating margin was 17.7%, below the 19.7% in the year-ago quarter. For MDG, we had initially anticipated second half 2018 operating margin to be about 20%, and we came in below that level in both the third and fourth quarter. This was mainly due to a lower level -- lower-than-expected level of revenues and less favorable mix between microcontrollers and other products.

Turning now to our full-year results. As I said earlier, 2018 was an important year of achievement. 2018 net revenues were up by 15.8% compared to 2017, reaching $9.66 billion. So in 2018, we achieved our objective to outpace the growth of our market we serve.

Gross margin was 40% compared to 39.2% in the previous year. Operating margin expanded 250 basis points to reach 14.5% in 2018 on sales growth and operating efficiency leverage. Net income and free cash flow were up 60% and 73%, respectively, compared to 2017, while CAPEX was slightly lower at $1.26 billion from $1.3 billion in 2017. Also in 2018, revenues were balanced across product groups, customer types and region of customer origin.

ST has over 100,000 customers. By region of origin, 35% of our 2018 revenues were from the America, 34% from Asia Pacific and 31% from EMEA. Sales to OEMs represents 65% of total revenues and increased 14% in 2018, while distribution representing 35% and growing 19% for the year. By product group.

ST's total revenue growth of 15.8% was reported by all three product groups. ADG's revenue increased 16.2%, with double-digit growth for both automotive and power discrete. However, looking at our products across ST in total, addressing the automotive market, we finished the year with a growth of about 18%, above the 17% year-over-year growth expectation that we have shared with you previously. AMS revenues increased 19.9% on sharply higher Imaging sales and double-digit growth with -- in Analog.

MDG revenues increased 11.1% in 2018, with double-digit growth for both microcontrollers and memories and Digital ICs. In parallel, all three groups delivered operating income and operating margin growth. ADG operating income increased by 48% to $431 million and its operating margin increased to 12.1% from 9.5% in 2017. AMS operating income increased 34% to $480 million and its operating margin increased to 15.5% from 13.9% in 2017.

And MDG operating income increased by 35% to $547 million and its operating margin increased to 18.6% from 15.3% in 2017. In 2018, our financial performance drove a 10% increase in net cash from operation for the year, reaching $1.85 billion. Our free cash flow increased 73% to $533 million, well covering our cash dividends of $260 million, as well as $62.5 million share buyback under the program launched during the fourth quarter. Finally, as anticipated, we exited 2018 with a higher net cash position compared to 2017 at $686 million compared to $489 million at December 31, 2017.

Now let's move to our guidance. Our first quarter outlook is for net revenues of about $2.1 billion at the midpoint. This would represents a year-over-year decrease of about 5.7% and a sequential decrease of about 20.7%. We anticipate a gross margin of about 39% at the midpoint.

After Q1 2019, we plan to return to sequential revenue growth in the second quarter, with an acceleration in the second half of the year. This is in line with the objective I stated at the beginning of my speech: Continue outperforming our served market and balance our end market and application focus, delivering sustainable profitability and returning value to shareholders. In order to support all of that and to execute our strategic technology, R&D and manufacturing programs, we expect to invest between $1.2 billion to $1.3 billion CAPEX. Of course, these amounts includes the maintenance of our infrastructure fab and plant and R&D required by all our manufacturing operation and also capacity addition in some of our existing technologies.

However, part of this CAPEX is also devoted to support three strategic initiatives. First, a new 300-millimeter wafer fab in Agrate, our site near Milan. The construction work of the first stage to support R&D and first industrial deployment phase has already started, with the related building and facilities to be completed and ready to host some equipment for R&D in 2020. This new fab is designed to be expandable, of course, according to demand, to start volume production starting from 2021.

It will be focused on supporting our growth ambitions and leadership in BCD, IGBT and power technologies. Second, the expansion of our installed capacity for silicon carbide and the start of production ramp-up for gallium nitride for RF devices. Here, our early investments in wide bandgap compounds have already resulted in over $100 million of silicon carbide revenues in 2018. And we have over 30 active silicon carbide projects with many players around the globe, both in automotive and industrial application.

Also, earlier this month, we announced a multi-year supplier agreement with Cree, our partner. These investments support our goal to sustain an important share, about 30%, of the silicon carbide market, which is estimated to be over $3 billion in 2025. Third, our investments in the next generation of imaging sensor technologies. This will enable us to continue our leadership in our focused technologies for personal electronics and to address selected industrial and automotive application in the future.

These initiatives are part of our strategy to reinforce our leadership in our end markets, broad-based in industrial and automotive and with a selective approach in personal electronics and in communication infrastructure. We will discuss in detail our end market and product strategy at the Mobile World Congress in Barcelona on February 26. And we will provide a more in depth overview of our company when we will meet at our annual Capital Market Day in London on May 14. To conclude.

In 2018, we met our objectives, with 15.8% year-over-year revenue growth across our product groups, as well as a strong expansion of our profitability and cash flow from operations. In 2019, after Q1, we plan to return to sequential growth in the second quarter, with an acceleration in the second half of the year. Our objective for the year is to continue outperforming our served market, to balance our end market and application focus, delivering sustainable profitability and returning value to shareholders. We are now ready to answer your question. 

Questions and Answers:

Operator

[Operator instructions] The first question is from Janardan Menon from Liberum. Please go ahead.

Janardan Menon -- Liberum Capital Limited -- Analyst

Hi, good morning. Thanks for taking my question. I have one question and a short follow-up. The first question, Jean-Marc, is just to find out where you're getting your confidence on the sequential growth into Q2 and the acceleration into the second half.

My point is, you have had headwinds in the China distribution channel. There are signs of -- there's been a slowdown in the Chinese car market, etc. Do you expect some of those issues to recede into Q2, therefore, giving you the upside? Or is it coming from signs from your major smartphone customers? And into the second half, can you be a little bit more specific on what are the drivers of that acceleration? My second question is on your inventory days, which came down quite a bit in the fourth quarter to 88 days from 95 days. Given your sort of a guidance into Q1, where do you see those inventory days? Will they be going down further from this 85 in Q1 and whether that bottom out? And do you think your distribution channel is also having the sort of a profile of inventory days where it is coming down? And it came down in Q4 and will come down or will -- what will be the trend in Q1?

Jean-Marc Chery -- President and Chief Executive Officer

So thank you. I will answer the first -- your first question and Lorenzo will take the second one. Clearly, the sequence for the year 2019, overall, we do believe that we will see a similar pattern of what we've seen in 2018. I guess, OK, everybody remember, OK, the pattern of 2018 for ST, well, clearly, with an acceleration in the second part.

But why we plan this pattern of sequential growth again in Q2 and acceleration in the second half? Well, there is some which are really specific to ST and some are, let's say, more related to the market, and of course, we will closely monitor on a permanent time what is happening on the market. Well, today, first, we have no visibility that our market would decline on the full year, and instead, the indication we have are from some growth overall. And certainly, the inventory correction we have seen started in Q3, continuing in Q4 and in Q1 will slightly continue in Q2, but should start to stop in Q2. On top, we have a growth driver allowing us to outperform.

On Automotive first, I recall to you that our silicon carbide is performing very well. We have new MCUs in production at the 40-nanometer, and we are performing very well on ADAS components. In smartphone and personal electronics, we will see start of new programs in the second half of the year. And in industrial end markets, we will introduce this year more than 10 new products to address this market with our general-purpose MCUs.

That's the reason why, linked to what is specific to our company, we have a good confidence level to have a strong acceleration in H2 this year versus H1, and as we guide, a low Q1 guidance. So this -- that's the reason why we are confident to see this pattern very similar of 2018, with an acceleration on the second half. So this is our plan. But definitively, it is our duty as management to closely monitor, on a permanent basis, all the business metrics related to the market, our customers and the end market we address.

Now, I let Lorenzo to elaborate about inventories, consistently with the plan I described.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

Good morning, everybody. About inventory, as you rightly said, in the Q4, the inventory went down significantly. Our revenue grew and the number of days of inventory went down. What did happen in Q1? In Q1, seasonally, we have a shorter quarter.

The production is -- today, we have our fab fully loaded. What we see is similarly to what did happen last year, to have a increase in term of inventory. Today, the inventory is below one quarter. In -- at the end of Q1, it will be higher of -- in term of days than one quarter.

This is quite seasonally. And this is also a plan in order to fulfill our growth ambition in the second quarter and for the second half of the year.

Janardan Menon -- Liberum Capital Limited -- Analyst

And any comment on the distribution channel inventory?

Marco Cassis -- President of Sales, Marketing, Communications and Strategy Development

As Jean-Marc already highlighted, the distribution channel, we're expecting the inventory correction to be faster than what has been happening, and this is why we have an impact in Q1. The meaning is we had the POS that we're expecting to be flattish in Q4. Reality, they declined. So the inventory correction will take a little bit longer than expected, but we do not see this has an impact on our growth in Q2 and on the rest of the year.

Janardan Menon -- Liberum Capital Limited -- Analyst

Got it. Thank you very much.

Operator

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

Sandeep Deshpande -- J.P. Morgan -- Analyst

Yes, hi. Thanks for letting me on. My first question is regarding your Imaging business and your CAPEX. I mean, are you adding CAPEX in this environment in the smartphones or in Imaging business? And are there wins that you have going forward which is why you are adding CAPEX there? And secondly, my question is on your gross margin.

I mean, despite your guidance of a 21% revenue decline in Q1, your gross margin has remained 39%. So I mean, clearly, I mean, some of these products are built in-house. How has your gross margin remained so at that level given the extent that the revenue is impacted in Q1?

Jean-Marc Chery -- President and Chief Executive Officer

So I will answer, Sandeep, to -- about CAPEX and Imaging, and I will let Lorenzo to answer about the gross margin part. As I said in my opening remark and speech, clearly, I confirm that the end market strategy and product portfolio is to be a broad range leader on automotive and industrial. And where we consider we have a portfolio, we can put us in a position to be a leader or very close to the leader. And we want to be very selective on personal electronics, in sensor, in FinFET solution, power management and RF and millimeter wave devices.

As you know, in Sensors, overall, to address the personal electronics and the smartphone business, and especially answering to your question on Imaging, we have a important R&D effort to continuously improve the performance of our device, especially addressing the time of flight application and the 3D sensing. And we intend and we will invest in CAPEX in order to support, first, our R&D effort to make our product more competitive, better for our customers with better differentiation. And of course, when you improve the efficiency of your device, time to time, you have to put additional, let's say, equipment in order to bring additional process step or to improve your process in order to maintain your capacity to address the need of your customer. So this is the reason why we are investing in Imaging to personal electronics, not to grow at infinite capacity, but more to adapt our process, enabling much better device, competitive device and better than the competition.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

About gross margin of Q1. About the gross margin of Q1, as you have seen, our guidance for Q1 is to have a gross margin in the range of 39%, 39% at midpoint. There are different dynamics on the gross margin. First of all, you have to remind that, in Q4, we worked really at full speed with our manufacturing with all the fab fully saturated.

This has brought a very good efficiency in term of manufacturing during Q4 that is reflecting in the gross margin of Q1. As you know, there is a delay due to the inventory of about almost one quarter between the performance of manufacturing and the impact of Q1. So we are enjoying positive's impact of manufacturing. There will be, on the other side, in Q1, the impact of the renegotiation of pricing with our customers, and this is embedded in our guidance.

And we do expect Q1 not to have any impact of unloading, thanks to the fact that, on some extent, we have leveraged on some flexibility in the respect of what we have -- we outsource outside. And also, on the fact that we will keep our fab loaded, with some increase in inventory to support the revenue growth that we expect in the second quarter and in the second part of the year.

Sandeep Deshpande -- J.P. Morgan -- Analyst

Thank you.

Operator

The next question is from Aleksander Peterc from Société Générale. Please go ahead.

Aleksander Peterc -- Societe Generale Corporate and Investment Banking -- Analyst

Yes, good morning and thank you for taking my question. The first one will be on automotive. Can you confirm that the growth patterns there are broadly unchanged? And could you share what kind of growth automotive was at for ST as a whole in the fourth quarter and whether we will stay in double-digit territory going into the beginning of 2019? And then, secondly, could you give us any targets for silicon carbide for 2019 now that you have reached the $100 million milestone in 2018? Thanks.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

You want -- I take the first part of your question about the growth in automotive. As Jean-Marc has said in his remark, initial remark, for the full year, we grew in automotive slightly above 18%. This is the full automotive of the company, it means that it's encompassing products in the different groups, not only in ADG. When I look at the growth in automotive in Q4, it's closer to 20%.

We grow around 20% sequentially in automotive -- sorry, we grow, let's say -- sorry, not 20% sequentially, year over year, let's say, in Q4 in Automotive in respect to Q4 of the previous year. And just to give you an idea how much it was, the sequential growth in respect to Q3, this was more in the range of 8%.

Jean-Marc Chery -- President and Chief Executive Officer

So about silicon carbide, what I can say that we prepare ourself and we plan to support and fulfill widely our customers demand, whatever, in term of mass production for the car assembly and production, but also delivering all the engineering sample we need to deliver to all the projects we won in 2018. What I would like to simply confirm you that our expected growth in 2019 is completely consistent with the expected market growth of the silicon carbide application, which I repeat that, for the time being, people, they plan to have a 3 billion US dollar in 2025, and if my memory is still very up, 600 million US dollar in 2020. So our revenue growth will follow totally this pattern.

Aleksander Peterc -- Societe Generale Corporate and Investment Banking -- Analyst

OK, thanks.

Operator

The next question is from Stephane Houri from ODDO. Please go ahead.

Stephane Houri -- ODDO BHF -- Analyst

Yes, hello. You recently talked about the ability of the group to protect the margins above the 10% line, talking about the operating margin. But you also said that you needed to check some of the parameters that should lead to that. So if I understand well, you're saying that you will be growing at the end of the year year on year.

You have shown that you are able to protect your gross margin at the level of, let's say, 39%, and if we have growth maybe, it will get higher. So what does it mean in term of OPEX? Are you just cutting the OPEX to make sure that the margins will hold? Or are you doing nothing at the moment and you keep on moving that base?

Jean-Marc Chery -- President and Chief Executive Officer

So Lorenzo will comment on the OPEX model.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

Yes, for sure. In term of OPEX, we discussed about in term of OPEX in our model. We said that the company substantially is equipped to sustain the growth. And we do not expect to have a significant growth moving from 2018 to 2019, apart, of course, the normal increase due to the salary, to the inflation rate.

Actually, we do expect, in Q1, to have expenses in the range of between $600 million and $610 million. This does not come from, let's say, any cut or any action, it is -- you have to consider that, Q1, there is some seasonality. That is a shorter quarter, so it's also in term of expenses. And also, you have to consider that this -- in this number, we embed also some catch-up in term of plants.

When I look, overall, the expenses, the average expenses by quarter, during 2019, we do expect to have a net expenses, including other income and expenses, in the range of $620 million to $630 million per quarter. This comes with, of course, some attention to our expenses, but without any plan to cut activity or to cut workforce.

Stephane Houri -- ODDO BHF -- Analyst

OK. And did I understand correctly that you said that you were expecting some growth for the year, that for the moment you were not seeing any decline? It means that in term of acceleration in maybe -- probably in Q3, it means a double-digit acceleration sequentially. Where do you see -- in which division do you see much of this acceleration, sorry?

Jean-Marc Chery -- President and Chief Executive Officer

This is Jean-Marc speaking. Exactly I repeat what I say after the first question. There is an element intrinsic to our company and an element, OK, related to the market. Related to our company, clearly, again, automotive will accelerate in the second half, thanks to the acceleration of our growth on silicon carbide, so this is what I just said two minutes ago, automotive and discrete.

Then acceleration related to introduction of MCUs on the 40-nanometer and acceleration on ADAS components. So this is the first dimension. Now then, definitively, we have also programs starting in the second half of the year related to smartphone and personal electronic, and this will support mainly AMS product group. Now clearly, again, I come back to Marco Cassis' comments about distribution channel.

As I've told you and anticipated during, let's say, various communication, our initial plan was to see inventory correction on the microcontroller mainly to China and a bit in Europe to end in Q1. Certainly, we will continue a bit in Q2, because the point of sales, which was flattening in Q3 and supposed to be still flat in Q4, showed some sign of a slightly decrease in Q4. So in this condition, we do believe that the inventory correction will be prolonged one quarter more. That's the reason why in the second part of the year and, let's say, starting in Q2, we will see an acceleration overall of microcontroller here more related to the overall market.

However, on microcontroller, I would like to insist with, that we will introduce 10 new products this year in order to embed in our portfolio more security, more connectivity, and to embrace mainly the industrial market with a high-performance hardware anchor, and this, of course, will contribute to the acceleration of our growth across the year. And as usual, when we face such situation of market turning down, the growth is coming from new product.

Stephane Houri -- ODDO BHF -- Analyst

OK, thank you very much, Jean-Marc.

Operator

The next question is from David Mulholland from UBS. Please go ahead.

David Mulholland -- UBS -- Analyst

Hi and thanks. Just to follow-up on a couple of comments you made on the gross margin for Q1 and kind of, hopefully, you can help us think about through the rest of the year. Can you maybe comment on what you're planning to do utilization rates through Q1, and obviously, with -- to that end, of having more of an impact on the gross margins as we head into Q2? Obviously, it depends on what snapback you see. But are utilization rates starting to go down a bit through Q1? It would be helpful if you can comment on that.

And then just secondly, as a follow-up, could you comment a little bit on what you're seeing in terms of the book-to-bill in the quarter, particularly hard bookings trended through the period? And if you can comment at all on how that has started the year so far in January as well that would be really helpful.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

OK. Lorenzo speaking. About -- coming back to your point about the gross margin, about the utilization rate. As I said, in the Q4, the utilization rate, that was substantially with the full -- the fab -- all the fab pool.

This is translating in a utilization rate that is 90%. You know that for the fab, it cannot be higher than this level. This level is already stretched. When we move to Q1, the utilization rate will be slightly lower, but I would say that is in the range of 89% -- 88%, 89%.

So it means that there is still a very high level of utilization rate of our fab. And this, of course, is one of the reason why we don't see any significant loading during the quarter. What is the expectation for the gross margin moving ahead? As you know, usually, we do not guide on the next quarters. What we said the last year is that, at this stage, considering that, in our COGS, we have some headwinds that is in particularly the cost of silicon, that is still quite high.

We have headwinds in the cost of material and in the power. That has increased significantly. On the other side, we do expect to have some positive from still some improvement in our manufacturing. We do expect to have, in the second quarter, based on the plan that we have today in term of revenues, a gross margin similar to the one of Q1.

And then move, thanks to increased revenue, back in ranging around the 40%, that it is, let's say, what we were saying a few quarters ago. This is about the dynamic of the gross margin in our plan. What was the other question, sorry?

David Mulholland -- UBS -- Analyst

Just wondered if you could comment on what happened to bookings in Q4 and the book-to-bill level. I don't know if you can help at all, how that's been progressing so far this year.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

OK. Booking in Q4. Booking in Q4, as you can figure out from our guidance of revenue, was not particularly strong. The booking in Q4 declined in respect to the one of Q3.

Our book-to-bill was below parity, was below parity even if in some areas, if you take, for instance, automotive and power and discrete, the book-to-bill was close to parity. So we see here still in the market, the demand is still distorted. But overall, for the company, the book-to-bill was below parity during the quarter. And our expectation is that, in the course of Q1, we will seek to revert with some booking to support our plan -- growth plan for the next quarter.

David Mulholland -- UBS -- Analyst

That's great. Thank you.

Operator

The next question is from Achal Sultania from Crédit Suisse. Please go ahead.

Achal Sultania -- Credit Suisse -- Analyst

Hi, good morning. Just one clarification, Jean-Marc. I think you mentioned that when we think about second half of 2019, we should see a similar trend to what happened last year in the second half. Obviously, last year, you had a benefit with one of your large customers where you had a key design win ramping up materially.

So I'm just trying to understand, like this year, when you talk about similar trend, are we talking about -- like, what gives you the confidence of a similar ramp? Is it content gain or is it new customer wins? Or is it new design wins with the existing customers? Just trying to understand what exactly is underpinning that confidence in the second half.

Jean-Marc Chery -- President and Chief Executive Officer

Thank you for your question. But the answer are inside your question. It is everything. It is, of course, some content increase, thanks to new program starts.

It is other customer growth. Thanks to our, let's say, focus again on the personal electronics addressing the full market with sensor, secure solution, power management, charger -- car charger, wireless charger, and RF and millimeter wave. So all in all, OK, so it is due to the three reason you mentioned in your question.

Achal Sultania -- Credit Suisse -- Analyst

OK. Thank you. Thank you.

Operator

The next question is from Johannes Schaller from Deutsche Bank. Please go ahead.

Johannes Schaller -- Deutsche Bank -- Analyst

Yes, good morning. Thanks for taking my question. I was wondering if we could talk a little bit about your 300-millimeter plans in Agrate. That now seems to go a bit beyond, obviously, the initial plans for just the pilot line here.

Can you give us any kind of idea on how big you think that capacity will be here? And also, have you started qualifying any products yet for the 300-millimeter process? I mean, this has been quite time-consuming for some of your competitors. Just wondering how you think about qualification and how big the production ramp will be in 2021. And then just as a quick follow-up, you mentioned also the pricing negotiations in Q1 and they are already in your guidance. How do you think about those? Were they in line with your expectations? Maybe a bit better? Maybe a bit worse? If you can comment on pricing that will be helpful.

Thank you.

Jean-Marc Chery -- President and Chief Executive Officer

So about the planning and the timing of this 300-millimeter wafer fab. Again, the plan of semicon is the following. We will start to receive R&D equipment in 2020 according to the, let's say, stronger lead time to make the groundbreaking, which -- it started already, the first facility setup and wafer fab, so, let's say, standard planning to set up such infrastructure. We will receive equipment in 2020.

So to support R&D activities and first industrial deployment, I think it will be in the course of 2020 to, let's say, 2021. And then according the demand, we will anticipate that in 2021, if demand is there, OK, we will start to grow mass production in 2021. I confirm that we do not need this, let's say, additional capacity absolutely in 2021 to support our revenue linked to our three years plan. This is what I said, and I confirm that we don't need additional capacity related to this 300-millimeter fab before 2021.

However, we prepare ourself to grow beyond 2021 and to grow massively on BCD, advanced BCD technology, IGBT, because we are, let's say, winning, let's say, momentum in IGBT, thanks to our silicon carbide penetration, silicon carbide power MOSFET and high-voltage MOSFET. So this will be the mission of this fab for the next 10 year to support our mission to be a leader in power device. In order to anticipate the R&D activity of this, let's say, Agrate close to Milano wafer fab, our company has decided to prepare itself on some technology modules we are already running in our fab of Crolles. So this is the main advantage of our company, which is perfectly controlling the 300-millimeter process for technology at 1,900-meter and beyond.

And in order to win time-to-market, to accelerate our capability, to make a very efficient learning curve in Agrate, we are preparing the job in fab of Crolles.

Johannes Schaller -- Deutsche Bank -- Analyst

So basically, you have already qualified products for 300-millimeter power in Crolles already? No?

Jean-Marc Chery -- President and Chief Executive Officer

No, no. I repeat what I exactly said. We are preparing some technology module. And once this technology module will be qualified, OK, not to deliver production to customer when we will start the R&D activities in Agrate, we will have all this technology module ready.

Then we assemble this technology module to qualify a full technology, but it will be shorter than usual, because all the technology modules enabling the technology will be already done. So this is, in a certain extent, our capability to work in component engineering, thanks to the fact that we have already a very efficient 300-millimeter wafer fab.

Johannes Schaller -- Deutsche Bank -- Analyst

That's very clear. Thanks so much.

Jean-Marc Chery -- President and Chief Executive Officer

Thank you.

Marco Cassis -- President of Sales, Marketing, Communications and Strategy Development

There was also the question about the pricing for Q1.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

Yes, the pricing of Q1.

Marco Cassis -- President of Sales, Marketing, Communications and Strategy Development

So I can comment on that. In this moment, we are not seeing any price abnormality situation for Q1. So Q1 price negotiation are according to a standard pattern.

Johannes Schaller -- Deutsche Bank -- Analyst

Great. Thank you Lorenzo.

Celine Berthier -- Group Vice President, Investor Relations

It was Marco really.

Johannes Schaller -- Deutsche Bank -- Analyst

Sorry, Marco.

Marco Cassis -- President of Sales, Marketing, Communications and Strategy Development

Same voice.

Celine Berthier -- Group Vice President, Investor Relations

Next question please.

Operator

The next question is from Andrew Gardiner from Barclays. Please go ahead.

Andrew Gardiner -- Barclays Capital -- Analyst

Good morning, gentleman. Thanks for taking the question. Another one on the capital spending plan, in particular, the Imaging part of the budget you've outlined for 2019. When we last sort of spoke about a big increase in the budget for such a project back about two years ago, there was specific customer commitments for the product being designed and manufactured in that Imaging as part of that Imaging program.

Can you confirm that for the current expansion and investment that, again, you have clear and firm customer commitment? Or is this more sort of ST developing technology and then looking to sell it into the customers beyond there?

Jean-Marc Chery -- President and Chief Executive Officer

No, I will not comment on customer commitment. And as, OK, we are used to, because, OK, you understand we have to protect our customer secret. But however, I just want to simply confirm the strategy of ST. The strategy of ST is to be a leader on, let's say, global shutter technology.

And I repeat it many time, OK, we have a technology road map. We have, let's say, improved efficiency master plan in this technology to offer the best global shutter technology to our customer. And we do believe that this technology will enable ST to continue to sustain, OK, this market, but in personal electronics, but as well in other application, like industrial and automotive in the future. Then we have, let's say, complementary to, let's say, Imaging global shutter technologies and product, we want also to have a strong leadership on the time-of-flight based devices, ambient licensing, time-of-flight sensor, time-of-flight sensors for proximity sensing ranging, but also enabling virtual reality or augmented reality application.

These require technology improvement. All in all, in order to support this format of ST and this, let's say, end market and product strategy, we need to put some add-on in term of process step or modify some process step in order to enabling our product road map and technology road map. So again, in term of overall capacity volume, I think we have the right size. And we will have to, let's say, improve or increase this capacity timely and in a limited, let's say, increased number.

But we have some effort in order to improve the content of our technology and our processes in order to enable better product, most competitive product and the best product to address all this applications.

Andrew Gardiner -- Barclays Capital -- Analyst

Thanks Jean-Marc. That's helpful. Just a quick follow-up on silicon carbide, if I could. The growth -- the revenue growth you're calling for in 2019, is that still primarily driven by the sort of the initial ramp with your lead partner there? Or are you starting to see the potential for other OEMs to come on -- start to come onstream later in 2019?

Jean-Marc Chery -- President and Chief Executive Officer

I mean, certainly, in 2019, we will have a better capability to support both. It means, OK, to support, of course, our initial partner and to continue to make him successful, which is, of course, our first priority. And second, certainly, we will better support the other market on power MOSFET, but also on diode. Because, OK, I would also like to recall that we have a device not only in MOSFET, but also diode.

And again, we will start to deliver engineering sample, prototyping and a first phase production to address for the customer.

Andrew Gardiner -- Barclays Capital -- Analyst

Thanks very much.

Celine Berthier -- Group Vice President, Investor Relations

Next question please.

Operator

The next question is from Anthony Stoss from Craig-Hallum. Please go ahead.

Anthony Stoss -- Craig-Hallum Capital Group -- Analyst

Good morning, gentleman. I was hoping that maybe on the down sequential from March, if you can give us a breakout of ADG, AMS, MDG, what you think each will be down sequentially. Or more so, it is predominately just your Imaging customer and the rest are near seasonal? And then second, as a follow-up, also on silicon carbide. I'm curious if you think you're winning the bulk of the industry wins for 2019 on the inverter side, and maybe any color you can give on competition.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

May I take maybe the revenue dynamic on a sequential basis. For sure, one of the detractor in respect to this drop in revenues is imaging. There is reduction in term of revenues, a material reduction, and this is linked definitely to seasonality for sure, but also weak demand from our customers. On the other side, we see in the ADG group, substantially, the revenue holding.

Of course, you have to remember that this quarter is shorter in term of calendar days. So -- but this, let's say, the revenue will decline less than the number of days of the quarter. So we see substantially flat to slightly increasing on the same number of day the automotive and discrete group, while we still see some weaker demand and so declining revenues on the microcontroller entering in Q1.

Jean-Marc Chery -- President and Chief Executive Officer

So about silicon carbide. On top of I have already answered, let's add some additional color. Again, I repeat that when we met at our Capital Market Day in 2018 May, we mentioned 20 major programs won. But now we have 30 -- more than 30.

And I have to say that in the course of Q4, we won four major awards, OK, with the really rather important carmaker or Tier 1 associated to carmaker, which should make us, OK, really, really pleased about our success in power MOSFET. Now about competition, clearly, we acknowledge that the competition is working hard. We have a lot of respect for our competitor. They prepare themselves to address this huge market.

We -- I am and we are totally convinced that silicon carbide, power MOSFET and diode will grab important market share to traditional high-voltage power MOSFET or IGBT. And you know that the Q1 consensus from the industry and analysts are seeing a market, OK, close to or above 3 billion US dollar in 2025. And then beyond 2025, OK, it can go well above 10 billion US dollar. So clearly, the industry will need a multi source.

So the competition is preparing itself to address this market. But again, I confirm that our mission, our plan, our determination is to keep minimum 30% market share addressing this market. Today, we have the unique, let's say, semiconductor number in mass production addressing automotive. So we are accumulating mass production huge volume with technologies addressing automotive emission profile, which is, let's say, no TZ.

And of course, it is providing to ST a unique competitive advantage in front of the other carmaker of Tier 1, which want to adopt this technology as early as possible because, OK, we will be able to warrant the same automotive profile quality. So again, what is important, ST's ambition to sustain minimum 30% market share addressing this market. We are preparing ourselves. Competition is preparing itself.

We respect that a lot because we know they are good. But today, we are the leader.

Anthony Stoss -- Craig-Hallum Capital Group -- Analyst

Thank you for the color. I appreciate it.

Celine Berthier -- Group Vice President, Investor Relations

Thank you. Next question please.

Operator

The next question is from Amit Harchandani from Citigroup. Please go ahead.

Amit Harchandani -- Citi -- Analyst

Good morning all. Amit Harchandani from Citi and thanks for taking my question. Maybe a clarification and a question from my side. Firstly, in terms of clarification.

Did I understand correctly that, at present, you see your serviceable addressable market still up year on year in 2019 and you outperforming it? Or did you simply imply that your own revenues would be up year on year in 2019? So that would be my clarification. And secondly, as a question, you've talked about some near-term demand softness, part of it, of course, being also impacted today by the ongoing trade wars between U.S. and China. I was just wondering, as you think about the trade wars dynamic, do you see any impact for yourself beyond the near-term demand, for example, in terms of your own supply chain or in terms of your own operations in China? Any color on how you think about just playing out medium-term as best as you can today would be helpful.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

OK, thank you. I take your question about the market. About the market, our plan is to grow and to grow outperforming the market. That means that our view today is that the market will be not negative during 2019.

For sure, last year, the market grew very strongly. Now we wait for the final number, but our market will be -- the market that we sell between 10%, 11%, probably more 10% than 11%, but fine, what it will be will be. Next year, we'll be definitely be lower. But we see still, let's say, a market that is growing.

In respect to China. In respect to China, we comment many times, for sure, when we look at the problem of the tariffs, of this kind of event, directly impacting in the accounts of the company is not huge. There are some impact there. I already disclosed that in term of gross margin, the impact of the tariffs is in the range of 20 basis point, so -- on our gross margin.

So it's something that is not huge, but it's there. And definitely, what is worse for us in this situation is that it's creating, in term of macroeconomic, some uncertainty, some uncertainty that were reflecting in a difficult situation that we have seen in the market, especially in China, for our industrial product microcontroller in the mass market. These are the main consequences that we -- that impact ST.

Amit Harchandani -- Citi -- Analyst

OK. Thank you.

Celine Berthier -- Group Vice President, Investor Relations

Next please.

Operator

The next question is from Adithya Metuku from Bank of America. Please go ahead.

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Good morning, guys. Most of my questions have been answered, but just a quick question. Looking at the cost for silicon, you mentioned that it's a factor in your gross margin as you go through the year. I just wanted to understand, there's been some talk recently around TSMC renegotiating contracts with the silicon wafer guys.

Do you see any scope here that could potentially help your gross margins versus what you already planned? Any color here would be helpful.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

About, let's say, the pricing in foundry, I would say that when I was discussing about the -- the silicon was mainly for our internal fab, which means that the cost of silicon, the raw wafer, are increasing.

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

And then, of course. What I meant is the raw wafer prices. I think TSMC was talking about renegotiating raw wafer prices from their suppliers, but can you do the same?

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

I see. Yes, now I -- for sure. For sure, yes. I got your point now.

Now, for sure, yes. Today -- our supply in wafer is based on a portion on long-term agreement. And on this long-term agreement, we have a price negotiated and a portion that is based on negotiation. On the one that is based on negotiation, for sure, our effort is to try to get the best price for our company.

On the long-term agreement, for sure, we need to respect some agreement that we have done with our supplier. And then we will see, entering in the year, let's say, if there are maybe conditions to have some renegotiations. But for sure, these are agreement, and we needed to also have some kind of respect of our partner.

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Understood. Thank you.

Celine Berthier -- Group Vice President, Investor Relations

Next question please.

Operator

The next question is from Gianmarco Bonacina from Equita. Please go ahead.

Gianmarco Bonacina -- EQUITA -- Analyst

Good morning. I have a series of question on the grants. Because we saw in December a new program in the European Union about 2 billion euro mainly for France, Italy or so Germany, but I guess mainly was for France and Italy. And I guess if you can tell us, I mean, what kind of impact that this new program could have for you in terms of grants for '19, '20? Or just if you can comment a little bit.

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

Yes, you're right. We are quite happy about these new initiatives that has been taken on which, definitely, they -- administration of France, Italy, where we are more exposed on our activity, really work hard in order to pass in getting in this support to our R&D activity, not only R&D activity but also first in this industrialization. There will be some positive impact. I was mentioning -- talking about the expenses for Q1, some benefit, let's say, that is partially related to that.

And going forward, we do expect to have benefit in the grants coming from these initiatives that are supporting our R&D programs.

Gianmarco Bonacina -- EQUITA -- Analyst

OK. But is this also, for example, related to the new Agrate investment you are making? Or it is more broad?

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

No, it's not so specific, it's more broader. There are more different activity inside.

Gianmarco Bonacina -- EQUITA -- Analyst

OK. Thank you.

Celine Berthier -- Group Vice President, Investor Relations

Thank you. We will take the last question now.

Operator

Today's last question is from Jerome Ramel from Exane BNP Paribas. Please go ahead.

Jerome Ramel -- Exane BNP Paribas -- Analyst

Yes, good morning. A question for Jean-Marc. Two question. When do you expect, on the Imaging, to start filling your Time-of-Flight array, not the proximity sensor? And second question, if I look at all the investments you are making in silicon carbide, gallium nitride and this 300-millimeter fab for IGBTs, what are you ambition in Power? And should I read that, is it a kind of strategic shift from STMicro to become a power silicon company? Because if I look at the Power division from STMicro, you have always been very striking, but you haven't participate in the M&A in that field and your market share are also a bit lower than your biggest competitors.

So do you have any target in term of market share? What are the ambition of STMicro on their own in power?

Jean-Marc Chery -- President and Chief Executive Officer

Well, thank you, Jerome, for your question. So about Imaging, as I already said, as the contribution of our modification strategy in Imaging in, let's say, device like ambient licensing and so on, will start more in the second half 2019 and more massively in 2020. And this year, OK, Imaging revenue will be more specific, OK, to an important customer. About Power, no, I think, OK, what is more important is, again, I repeat that our strategy, end market and product, is to be broad-range leader both in automotive and industrial.

And in automotive, thanks to the electrification of the vehicle; and industrial, thanks to the ambition of Industrial to reduce their, let's say, energy footprint to optimize -- reduce their costs in term of energy consumption. Power conversion, power MOSFET, IGBT are really key enabler in order to address this market, and it is part of our product portfolio. Of course, in the past, mainly ST was positioned as on the power MOSFET high-voltage, power rectifier and shutter. And now thanks, OK, to the important effort and the anticipation with a vision, OK, of our business and technology on silicon carbide, we are winning momentum and ST is positioning itself as a leader on power.

We do not need, clearly, any M&A in this field. We have all the capability, both in the wafer fab, but also in assembly and in test. And here, I have spoken about modules, clearly. And we will follow our product road map, our technology road map.

We will invest consistently with our strategy based on the fact that we want to be a broad-range supplier and leader addressing automotive and industrial.

Celine Berthier --Group Vice President, Investor Relations

I believe this will be the end of our call now. We want to thank all of you for your interest. And now do you have any?

Jean-Marc Chery -- President and Chief Executive Officer

Thank you. Thank you. Thank you very much, and looking forward to see you in Barcelona soon. And of course, OK, we are preparing activity also our Capital Market Day in May.

So thank you for your question. Thank you for your attention, and see you soon in Barcelona.

Operator

[Operator signoff]

Duration: 66 minutes

Call Participants:

Celine Berthier -- Group Vice President, Investor Relations

Jean-Marc Chery -- President and Chief Executive Officer

Janardan Menon -- Liberum Capital Limited -- Analyst

Lorenzo Grandi -- President of Finance, Infrastructure and Services, and Chief Financial Officer

Marco Cassis -- President of Sales, Marketing, Communications and Strategy Development

Sandeep Deshpande -- J.P. Morgan -- Analyst

Aleksander Peterc -- Societe Generale Corporate and Investment Banking -- Analyst

Stephane Houri -- ODDO BHF -- Analyst

David Mulholland -- UBS -- Analyst

Achal Sultania -- Credit Suisse -- Analyst

Johannes Schaller -- Deutsche Bank -- Analyst

Andrew Gardiner -- Barclays Capital -- Analyst

Anthony Stoss -- Craig-Hallum Capital Group -- Analyst

Amit Harchandani -- Citi -- Analyst

Adithya Metuku -- Bank of America Merrill Lynch -- Analyst

Gianmarco Bonacina -- EQUITA -- Analyst

Jerome Ramel -- Exane BNP Paribas -- Analyst

More STM analysis

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