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DATE

Thursday, July 23, 2026 at 3:30 a.m. ET

CALL PARTICIPANTS

• EVP, Corporate Development and Integrated External Communications - Jerome Ramel
• ST President and Chief Executive Officer - Jean-Marc Chery
• President and CFO - Lorenzo Grandi
• President, Analog, Power and Discrete, MEMS and Sensors Group, and Head of STMicroelectronics Strategy, System Research and Applications and Innovation Office - Marco Cassis
• President of Microcontrollers, Digital ICs and RF Products Group - Remi El-Ouazzane

TAKEAWAYS

• Net Revenue -- $3.49 billion, increasing 23.3% year over year driven by expansion in Communication Equipment, Computer Peripherals, and Automotive markets.
• Gross Margin -- 34.8%, reflecting a 130 basis point year-over-year increase due to lower unused capacity charges and an improved product mix.
• Non-U.S. GAAP Gross Margin -- 35.2%, including a negative impact of 60 basis points from nonrecurring costs related to the company's manufacturing reshaping program.
• Non-U.S. GAAP EPS -- $0.31, compared to a loss in the prior year quarter.
• Inventory -- $3.19 billion, representing 126 days of sales and decreasing from 166 days in the previous year.
• Free Cash Flow -- $75 million, a positive swing from a negative $152 million in the prior year second quarter.
• Book-to-Bill Ratio -- Close to 2 overall, significantly exceeding 2 in the Communication Equipment and Computer Peripherals segment due to high demand for optical connectivity.
• Backlog Visibility -- 4.5 to 5 quarters, representing an improvement in customer commitment levels.
• Automotive Revenue -- Increased 16% year over year, supported by demand for application-specific ICs and sensors in electrical powertrains and ADAS.
• Industrial Revenue -- Increased 34% year over year, driven by general-purpose microcontrollers and analog product ecosystems.
• Communication and Computer Revenue -- Increased 50% year over year, reflecting strong demand for silicon photonics and microcontrollers in data center applications.
• Personal Electronics Revenue -- Increased 20% year over year, benefiting from higher content per device and better than normal seasonality in the second quarter.
• Data Center Revenue Guidance -- Above $1 billion for 2026 and projected to exceed $2 billion in 2027 based on engagement for AI optical connectivity.
• Space Revenue Ambition -- Well above $3 billion in cumulative revenue for the 2026 to 2028 period, focusing on BiCMOS and FD-SOI technologies.
• Non-U.S. GAAP Net Operating Expenses -- $960 million in the quarter, with full-year expectations slightly above $3.8 billion.
• Net Capital Expenditures -- $409 million in the quarter, with 2026 full-year guidance at the high end of a $2 billion to $2.2 billion range.
• Net Financial Position -- $2.01 billion, supported by total liquidity of $6.03 billion and total financial debt of $4.02 billion.
• Q3 Revenue Outlook -- $3.7 billion at the midpoint, representing a 6.2% sequential increase and 16.2% year-over-year growth.
• Q3 Gross Margin Outlook -- 37% at the midpoint, including 70 basis points of negative impact from unused capacity charges.
• Q4 Revenue Projection -- Above $4 billion, driven by customer programs in AI data centers and Low Earth Orbit satellite communications.
• Silicon Carbide (SiC) Revenue -- Expected to grow double digit in 2026 compared to 2025, supported by the transition from 6-inch to 8-inch wafer technology.
• 2028 Revenue Target -- $18 billion, contingent on the completion of manufacturing efficiency programs and market expansion in AI infrastructure.
• Digital Media ARR -- Not explicitly reported, but operating margin for the RF and Optical Communication segment was 21.2%.

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RISKS

• Grandi stated, "there are some headwinds, temporary headwinds, but there will be in Q4, let's say, that will be limiting somehow the improvement of our gross margin in Q4," noting the influence of unloading charges from starting new fabrication facilities in China.
• Chery noted potential "temporary tightness on the supply" during the transition between 6-inch and 8-inch silicon carbide technology and 8-inch to 12-inch analog technology.

SUMMARY

Management reported that performance at STMicroelectronics N.V. (STM -1.91%) was driven by recovery in the industrial sector and significant expansion in communication infrastructure supporting artificial intelligence. The company is executing a multiyear manufacturing footprint transformation to transition production from 200-millimeter to 300-millimeter wafers and modernize silicon carbide capabilities. Strategic initiatives outlined by the company include a focus on physical AI robotics through expanded partnerships and the acceleration of data center capabilities via silicon photonics. The company is also targeting a leadership position in the emerging Low Earth Orbit satellite communication market while managing temporary manufacturing headwinds related to facility qualifications.

• The company raised its 2027 data center revenue target to well above $2 billion, with El-Ouazzane noting an "acceleration in the adoption of 800 gig and 1.6 terabit per second pluggable optics."
• Chery highlighted a collaboration with NVIDIA for physical AI, bringing microcontrollers and sensors to the NVIDIA Halos system for industrial and humanoid robotics.
• Management confirmed the $18 billion revenue model for 2028, with Chery stating that AI data center growth is "accretive to our gross margin."
• ST joined a 115 million Euro Series A financing for Quobly to accelerate the commercialization of silicon-based quantum computers by the end of 2026.
• Inventory in distribution is now below standard targets, which Chery identified as a signal of a solid recovery in the industrial end market.
• A new 3D LiDAR module with Edge AI capabilities was launched, targeting applications in robotics, industrial automation, and smart buildings.
• The company issued $1.5 billion in dual-tranche senior unsecured convertible bonds to manage its debt maturity profile.

INDUSTRY GLOSSARY

• BCD: Bipolar-CMOS-DMOS, a proprietary technology for power, analog, and digital integration.
• Book-to-bill: The ratio of orders received to units shipped and billed, used as a leading indicator of demand.
• Edge AI: Artificial intelligence processing performed locally on a device rather than in a remote cloud data center.
• FD-SOI: Fully Depleted Silicon-On-Insulator, a specialized semiconductor manufacturing process that reduces power consumption.
• LEO: Low Earth Orbit, referring to satellite constellations used for high-speed global communication.
• SiC: Silicon Carbide, a wide-bandgap semiconductor material used for high-efficiency power electronics.
• Silicon Photonics: A technology that uses silicon as an optical medium to transmit data using light instead of electricity.

Full Conference Call Transcript

Operator: Ladies and gentlemen, welcome to the STMicroelectronics Second Quarter 2026 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead.

Jerome Ramel: Thank you, Moira, and thank you, everyone, for joining our second quarter 2026 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO; Marco Cassis, President, Analog, Power and Discrete, MEMS and Sensors Group, and Head of STMicroelectronics Strategy, System Research and Applications and Innovation Office; and Remi El-Ouazzane, President of Microcontrollers, Digital ICs and RF Products Group. This live webcast and presentation materials can be accessed on 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 results this morning and also in ST's most recent regulatory filings 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 Chery, ST President and CEO.

Jean-Marc Chery: Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q2 2026 earnings conference call. I will start with an overview of the second 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 question. So starting with Q2. Our second quarter net revenues of $3.49 billion came in above the midpoint of our business outlook range, driven by higher revenues in Communication Equipment, Computer Peripherals and Automotive. Gross margin was 34.8% and non-U.S. GAAP gross margin was 35.2%. Both were in line with the midpoint of our business outlook range. Non-U.S.

GAAP diluted earnings per share was $0.31. During the second quarter, inventory in our balance sheet remained flattish. In distribution, inventory further decreased and is now below our standard target. We generated a positive $75 million free cash flow. Let's now discuss our business dynamics during Q2. During the quarter, demand increased further with strong bookings and book-to-bill close to 2 overall. We were well above 1 in all end markets and significantly above 2 in Communication Equipment & Computer Peripherals, mostly driven by optical connectivity, including silicon photonics. We saw improved visibility and signs of tight supply in several product categories. In Automotive, revenues came in better than expected, increasing 14% sequentially and 16% year-over-year.

This growth was driven by our solid position on application-specific ICs and sensors for conventional applications, electrical powertrain and ADAS. Automotive design momentum continued to build across multiple OEM and Tier 1 ecosystems. We secured design wins across hybrid, electric and conventional vehicles, including applications in onboard chargers, powertrain and active suspensions. These wins were across our application-specific ICs and sensors. Specifically, our smart power ICs wins include custom devices for airbags, electronic stability control and suspension applications based on our proprietary BCD technologies manufactured in our [indiscernible] 300-millimeter wafer fab. We have progressed well with the integration of NXP MEMS sensors business acquired in February.

As we anticipated, the complementary technology and product portfolio is strengthening our Automotive Sensors business with awards at key players for active safety application and tire pressure monitoring. Industrial improved 20% sequentially and 34% year-over-year. Importantly, inventory in distribution further decreased and is now below our standard target. This solid growth was driven by our general purpose microcontrollers and by analog with their wide ecosystems and by our application-specific analog products, complemented by power conversion products. We are strongly positioned to support the ongoing transformation of factory automation, robotics and power and energy infrastructure. Our portfolio is uniquely addressing the emerging needs of physical AI where intelligent sensing, real-time control and efficient power management are increasingly critical.

During the quarter, we saw design wins across industrial automation, power systems, building automation and home appliances. We continue to introduce new advanced sensor for this application. We launched a new series of industrial MEMS sensors with embedded AI tailored for the fast-growing industrial condition monitoring market. We also announced a new compact 3D LiDAR module, delivering AI-ready output data for low compute Edge AI systems running on microcontrollers and high-performance sensing in applications such as robotics, industrial automation, smart buildings, ER/VR and health care. This is in line with our strategy to move beyond stand-alone sensors and deliver integrated sensing systems that support real-world Edge AI.

Finally, we announced a further expansion of our collaboration with NVIDIA to accelerate physical AI. As a partner in NVIDIA Halos for robotics and end-to-end functional safety system for industrial and humanoid robots, ST is bringing its microcontrollers, sensors, motor control and security solutions to support Halos readiness across chips, evaluation kits, software and reference designs. For Personal Electronics, second quarter revenues were up 3% sequentially and 20% year-over-year. This growth was driven by increased content by device in our engaged customer programs and better than normal seasonality. During the quarter, we introduced secure chips that help smartphone and personal electronics manufacturers prepare for quantum-ready security requirements.

It combines post-quantum cryptography acceleration with NFC, secure element and eSIM functions on a single-die for use cases such as digital identity, payments and digital car keys. We also introduced a new generation of ultra-low power global shutter image sensors that deliver high-quality, always-on vision to compact devices operating on batteries or harvested energy such as wearables, AR/VR and IXA/IXS, smart home appliances and medical devices. They are engineered to deliver rich visual context and AI-ready data under tight constraints on power, size and cost. With the depth sensing technologies I mentioned earlier and this device for AI vision, ST delivers a complete perception stack for Edge AI to customers.

For Communication Equipment & Computer Peripherals, second quarter revenue were above expectations, showing increase of 13% sequentially and 50% year-over-year. This growth was driven by our engaged customer programs with our custom design products, boosted by our microcontrollers for optical connectivity. Indeed, ST is a core enabler for the Cloud AI era. We see strong traction on optical connectivity driven by silicon photonics ICs, electronic ICs, microcontrollers. For the power stage of Cloud AI, we are already successful with our microcontrollers and high-voltage power and analog products, and we are building a pipeline of design wins for low-voltage power and analog products. Therefore, we are raising our revenue ambition for data centers.

We now expect revenue above $1 billion in 2026 and assuming the current dynamics continues and with the current engagements we have well above $2 billion in 2027. During the quarter, we secured multiple design wins across a range of products from optical connectivity driven by silicon photonics ICs, electronic ICs and microcontrollers to silicon and silicon carbide-based power solutions. In addition, we see a growing number of nontraditional AI server companies, including players coming from industries such as solar power and battery storage, where we are leveraging strong relationships to support their expansion into this field.

In May, we held a webcast on the Low Earth Orbit satellite communication and new space opportunity for ST, highlighting how ST is positioned as a core semiconductor enabler across this new industry. We see a significant opportunity here with our addressable market expected to reach around $3 billion by 2030 or about 4x the 2025 level. ST expects to generate well above $3 billion in cumulative space revenue over the period 2026, 2028, mainly with our BiCMOS, FD-SOI and Panel Level Packaging technology. Finally, in June, ST joined the EUR 115 million Series A financing of Quobly to accelerate the industrialization of its silicon-based quantum computers and bring its first commercial product to market by the end of 2026.

For ST, the scale needed by high-performance computing customers can only be achieved if breakthrough quantum systems can be industrialized and integrated with semiconductor grade standards and backed by a robust ecosystem. We are leveraging years of shared expertise in FD-SOI and deep technological collaboration to accelerate the commercialization of Quobly's products through our 300-millimeter silicon fab environment. In May, we held our 2026 ST Microelectronics Annual Shareholder Meeting, where all resolutions were approved. Following the AGM, ST Supervisory Board appointed Mr. Armando Varricchio as the Chairman and Mr. Nicolas Dufourcq as the V Chairman of the Supervisory Board. Now over to Lorenzo, who will present our key financial figures.

Lorenzo Grandi: Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the second quarter, starting with revenues on a year-over-year basis. By reportable segment, Analog Products, MEMS and Sensors grew 26%, mainly due to Imaging and MEMS and to a lesser extent, Analog. Power and Discrete products increased by 3.7%. Embedded Processing revenues were up 35.5%, mainly due to general purpose microcontroller and to a lesser extent, custom processing and connected security. RF & Optical grew 32%. By end market, Communications Equipment & Computer Peripherals grew 50%, Industrial 34%, Personal Electronics 20%, and Automotive 16%. Year-over-year sales to OEMs and distribution increased 23.3% and 33.1%, respectively.

On a sequential basis, by reportable segment, Analog Products, MEMS and Sensors increased by 8.2%, Power & Discrete by 19.2%, Embedded Processing by 17.7% and RF & Optical Communications by 8.6%. By end market, on a sequential basis, Industrial grew 20%, Automotive 14%, Communication Equipment & Computer Peripherals 13% and Personal Electronics 3%. Turning now to profitability. Gross profit in the second quarter was $1.22 billion, increasing 31.1% on a year-over-year basis. Gross margin was 34.8%, increasing 130 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin increased by 100 basis points. Non-U.S. GAAP gross margin was 35.2%.

Q2 gross margin included about 60 basis points of negative impact resulting from nonrecurring cost related to our manufacturing reshaping program. The negative impact on gross margin just mentioned, nonrecurring cost is expected to remain at a similar level over the rest of the year. Total net operating expenses, excluding restructuring amounted to $970 million in the second quarter. Non-U.S. GAAP OpEx stood at $960 million, in line with the expectation given in April. For the third quarter of 2026, we expect non-U.S. GAAP net OpEx to stand at about $980 million. The sequential increase is mainly due to start-up costs and employee share award expenses that are more than offsetting the positive vacation seasonality effect.

Excluding these 2 headwinds, Q3 '26 non-U.S. GAAP net OpEx would have been at about $920 million. For full year 2026, we now expect non-U.S. GAAP net OpEx to be slightly above $3.8 billion taking into account increased employee share award expenses and the temporary impact of the start-up cost, reducing our other income and expenses positive line. For full year 2026, non-U.S. GAAP net OpEx are expected to increase low double digit year-over-year. Excluding NXP MEMS business acquisition and the exchange rate impact, like-for-like net OpEx should be up high single digit year-over-year. Our cost saving plan is delivering its expected benefits. At the same time, we are accelerating our investment in new business opportunities.

In the second quarter, we reported $187 million operating income, which included $58 million for impairment, restructuring charges and other related phase-out costs. These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Q2 operating income also includes $24 million purchase price allocation effect from our acquisition of NXP MEMS sensor business. Excluding these items, Q2 non-U.S. GAAP operating income stood at $269 million and non-U.S. GAAP operating margin was 7.7% with Analog Products, MEMS sensor at 10.1% Power & Discrete at minus 21.4%, Embedded Processing at 19.7% and RF & Optical Communication at 21.2%.

Second quarter 2026 net income was $222 million compared to a net loss of $97 million in the year ago quarter. Diluted earnings per share were a positive $0.24 compared to a negative of $0.11 one year ago. Non-U.S. GAAP net income stood at $291 million and non-U.S. GAAP diluted earnings per share stood at $0.31. Net cash from operating activities totaled $502 million in the second quarter, including $44 million outflow related to restructuring compared to a net cash flow from operating activities of $354 million in the year ago quarter. Net CapEx was $409 million in the second quarter compared to $465 million in the year ago quarter.

We now expect 2026 net CapEx to be at the high end of our $2 billion to $2.2 billion range, reflecting accelerating investments in the selected growth drivers, including cloud optical interconnect. Free cash flow was positive at $75 million in the second quarter compared to a negative $152 million in Q2 2025. Inventory at the end of the quarter was $3.19 billion compared to $3.17 billion in Q1 '26 and $3.27 billion in Q2 2025. Days sales of inventory at the quarter end were 126 days, in line with our expectation compared to 140 days for the previous quarter and 166 days in the year ago quarter.

Cash dividends paid to stockholders in the second quarter of 2026 totaled $75 million. ST maintained its financial strength with a net financial position that remains solid at $2.01 billion as of June 27, 2026, reflecting total liquidity of $6.03 billion and total financial debt of $4.02 billion. During the quarter, ST issued a new $1.5 billion dual tranche senior unsecured convertible bond, Tranche A and Tranche B for $750 million each due to 2031 and 2033 and announced the early redemption of its $750 million convertible bond due in 2027. Now back to Jean-Marc, who will comment on our outlook.

Jean-Marc Chery: Thank you, Lorenzo. Now let's move to our business outlook for Q3 2026. So we are expecting Q3 revenues of $3.7 billion plus/minus 350 basis points at the midpoint of our Q3 '26 net revenues will increase 6.2% sequentially and by 16.2% year-over-year. We expect our gross margin to be about 37% plus/minus 200 basis points, including about 70 basis points of unused capacity charges. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude, in Q2, we saw demand further accelerating, strong bookings in all end markets and improved visibility.

In Q3, revenues are expected to continue to grow sequentially and year-over-year and gross margin to continue to improve. As previously anticipated, Personal Electronics seasonality this year is different compared to previous years. Revenue growth for Personal Electronics is expected to be below normal seasonality in Q3, moderating ST sequential growth in the third quarter. In Q4, we anticipate a revenue growth acceleration, mainly driven by our engaged customer programs in AI data centers and Low Earth Orbit satellite communication. We expect Q4 revenues to be above $4 billion, representing a sequential improvement better than normal seasonality. This translates into H2 versus H1 growth above our normal 15% seasonality. ST growth driver remains solid.

We continue to see strong demand in AI data centers, reflecting the success of our product and technology portfolio. We are raising our revenue ambition for data centers. We now expect revenues above $1 billion in 2026 and assuming the current dynamic continues and with the current engagement we have well above $2 billion in 2027. This confirms ST's strong position in the evolving AI data center. Thank you, and we are now ready to answer your questions.

Janardan Menon: I was just looking into your second half guidance and trying to get a feel for your gross margin trend into Q4. So I know you don't want to guide on Q4, but you are talking about a bigger increase in revenue quarter-on-quarter. And we don't know how much it is, I agree, because you just said more than $4 billion. But I was wondering directionally, whether you can give us any qualitative comments on how your Q4 gross margin could proceed and how you see that evolving into 2027 as well?

Lorenzo Grandi: Okay. Thank you for the question. I take the question, and Jean-Marc, about the gross margin, the evolution. Clearly, let's say, the midpoint of Q3 non-GAAP gross margin or gross margin for us in Q3 will be 37%. We have guided at this level of gross margin that is increasing, let's say, about 180 basis points compared to the one of Q2. Clearly, starting from this Q3 gross margin at 37%, we do expect, let's say, for Q4, a sequential improvement in our gross margin, considering that our revenue will increase significantly. But you have to keep in mind that there is some headwinds as well.

One is that, let's say, our level of unloading charges will not change significantly in Q4 due to the fact that we are starting some fab, particularly in China, let's say, which we will still have some negative impact on our, let's say, level of unloading. And clearly, there is also still, let's say, this cost related to the transfer of technology related to our reshaping program in our manufacturing infrastructure that will be still there, similar to the one that we have in the current quarter in Q3. So yes, I confirm there will be improvement, but there will be also some, let's say, headwinds that are, let's say, impacting our gross margin.

Overall, anyway, I confirm that in Q4, there will be an improvement in our gross margin, sequential improvement compared to the 37% of the Q3.

Janardan Menon: But given that your revenue jump is going to be bigger, can we assume that your gross margin jump will also be bigger? Or is that a speculation?

Lorenzo Grandi: As I said, they will improve, let's say, compared to the 37%, but still, let's say, it will be impacted by some ingredients that is related to this level of unloading that will not decrease, let's say, while when you look, let's say, the dynamic between Q2 and Q3, unloading was, let's say, decreasing. This will not be similar what will happen in -- between Q3 and Q4, let's say. And as well as, don't forget that when we look at the dynamic of our gross margin moving from Q3, we had also benefit from the FX, let's say, that was improving in respect while, let's say, in Q4, this effect will not be there. It will be neutral.

So yes, I repeat that there will be an increase in our gross margin, but you have to also consider in your modeling that there are some headwinds, temporary headwinds, but there will be in Q4, let's say, that will be limiting somehow the improvement of our gross margin in Q4.

Joshua Buchalter: I guess I want to start with the data center number. Can you provide some more granularity on what's driving the big increase in 2027 versus the prior expectations? Like how much of this is optics versus power? It did sound like there was some positivity on the power side. And then I guess also is you mentioned you were capacity constrained before. Is that number greater than $2 billion, assuming you're still constrained as well?

Jean-Marc Chery: So before I pass the question to Remi to go in further detail, it is clear that our growth in 2027 will be driven both by our specific engaged customer program on this field of activity. But clearly, the overall success on optical cable connectivity. Clearly, it will be the main driver of the significant growth we will do next year. Now I'll let Remi comment more in detail.

Remi El-Ouazzane: To complement what Jean-Marc said, we see clearly an acceleration in the adoption of 800 gig and 1.6 terabit per second pluggable optics. And those are actually generation and categories of transceivers where now we are seeing a triple effect and this triple effect is a fairly large market share when it comes to the microcontroller, taking care of the control plane, a growing share when it comes to the electronic IC driven by our BiCMOS technology. And starting from next year, but really accelerating next year is actually our growing revenue in silicon photonics supporting photonics IC that is being part of those pluggable transceiver.

Like we will explain, we have a lot of scalability in terms of capacity on that technology because of the structure we have in our Crolles factory. So we are not right now gated by capacity expansion to go and capture revenue at this stage.

Joshua Buchalter: Maybe a follow-up on that also. I totally appreciate what Lorenzo, you were highlighting from the manufacturing transitions and underloading charges. But on a like-for-like basis, should data center as it grows, be accretive to gross margins?

Lorenzo Grandi: Yes. At the end, yes, this kind of, let's say, clearly, this has been already, let's say, moving from Q2 to Q3 and will be also contributing from Q3 to Q4, product mix is contributing in a positive way to our gross margin. Yes, I confirm.

Jakob Bluestone: So I had a question and a follow-up. On the pricing, could you maybe just give us a bit of an update what are you seeing in terms of pricing tailwinds? And when do you think that might impact revenues this year?

Lorenzo Grandi: Yes. In terms of pricing, I would say that, of course, it's twofold. On one side, it's true that we see, let's say, in our input cost price increase. Clearly, there are different materials or maybe, contractor activity that are increasing prices. On the other side, I would say that there is the other side that is -- that we confirm that in this context, let's say, of higher input cost, yes, we're increasing the prices on selected products. Clearly, this is an ongoing process that is, expanding in terms of, let's say, price increase.

And I would say that at the end, what we see in our input cost is more than offset what we do on our top line. So I would say that at the end, at this stage, the 2 impacts are more or less offsetting each other.

Jakob Bluestone: And if I just ask a quick clarification. On your data center revenue guidance hike, was that increase driven by increased demand outlook or by a faster expansion of your capacity and supply?

Jean-Marc Chery: It's both. Because clearly, above $1 billion 2026 revenue, the demand is well, well above, but thanks to our capability to grow in the various assembly and test manufacturing. So that's the reason why we have increased our indication for this data center business. And next year is the same. Next year, clearly, we will closing the gap between the demand and our capability to supply but it is really driven first by demand, then it is covered by engagement. Backlog for this year, 100% coverage. And next year, okay, engagement are covering our expectation. And definitively, our capability to grow on this advanced 300-millimeter technology is a very important competitive factor for us.

Sandeep Deshpande: Could you talk about the revenue growth guidance into Q3 and then potentially into Q4 by your segments? Because you said on the -- earlier in the call that Personal Electronics was weaker in the third quarter. But can we look at how the growth was in the other segments? And based on what you are indicating for the fourth quarter at the moment of greater than $4 billion, at least directionally, how to see the different segments in terms of your end markets into the fourth quarter based on your order book today?

Jean-Marc Chery: I will take the question. Well, clearly if I am starting by the key growth driver, it's clearly our verticals, Communication Equipment & Computer Peripheral. I can say that in Q3 on a year-over-year growth, this segment will grow very similarly what we have achieved in Q2. So means close to 60% growth. And definitively, where will have in Q4 a very strong acceleration, means, okay, we will be about 90% growth. The second really positive growth vertical is Industrial. Industrial in Q2, we grew 32%. And step after step, Q3 and Q4, we will go close to 40% growth year-over-year in Q4. Well then, clearly, Automotive is performing above what we expect and what the market is expecting.

You know that for semiconductor industry, the Automotive is expecting to grow about 13%, 14% year-over-year. This is what we will achieve on this segment. Well, PE is definitively a different profile, let's say, in the year-over-year growth because it will be slightly negative, let's say, mid-single digit during Q3 and Q4 as we anticipated in our previous call, that will put this segment at the end of the year for the full year growing, let's say, from low to mid-single digit that we already anticipated in the previous call. So my takeaway is really very strong growth on Computer and Communication moving from 60% growth in Q2 to close 90% in Q4.

On Industrial after Q2 of 30% growth year-over-year, we will grow close to 40% in Q4. Automotive, let's say, low double digit as expected consistently with the market. And this year, okay, different profile for PE will be year-over-year negative on H2 after having been positive in H1. But on the full year, it is low to mid-single digit, which is consistent with the market of a smartphone that is decreasing because on the low end, let's say, device, there is an impact because of the memory price. So this is the profile of the revenue, Q3, Q4.

Sandeep Deshpande: Question would be that you've seen this significant strength in Computer and Peripherals associated with the AI market. Is there not any flexibility in filling your capacity in the third quarter itself? Why does this have to wait until the fourth quarter given that you still remain underutilized in the third quarter?

Jean-Marc Chery: Let's say, all the advanced technology that are enabling our growing Industrial market and Communication and Computer, we are in a permanent growth and exactly at what we expect. And here, the only flexibility we could have is to continue to accelerate permanently, which is already on really a competitive path. Then clearly, where we have still some, let's say, underloading and even sometimes, okay, in Q2, we face a slight delay in our capability to ramp up, it is on legacy -- pure legacy analog technologies because if you remember, Q1, we were totally underloaded. So the Q2 ramp-up was challenging.

So we delay a little bit this ramp-up that in a certain extent, has impacted also our capability on Q3 to fully fulfill the demand on legacy technology. So this is, let's say, pure temporary capability to ramp and some unloading charges specific to really legacy technology on analog that is, let's say, showing this figure.

Domenico Ghilotti: I have a follow-up on the gross margin. So in the past, you were guiding -- you were suggesting that at $4 billion sales per quarter, so the profitability gross margin would have been at least in the 40% range. Now you are suggesting that you will probably not be at that point in Q4. So I'm trying to understand how this -- so first of all, if you are still confident to get to the level of profitability you were suggesting and there are some specifics -- temporary effect on Q4 that we should take into account? And a follow-up on the AI data center demand and your customer engage program.

Can you give a sense of how concentrated is today the demand there and the engage program supporting your $2 billion revenues for 2027?

Lorenzo Grandi: Maybe I take the first question about the gross margin at $4 billion in respect to our model to be above, let's say, the 40% gross margin. Here, I have to remind all of you that, yes, this is our model, but let's say, we always said that there are 2 conditions that we need to achieve in order, let's say, to be above 40% when the company will be at $4 billion. One is the revenue, of course, let's say, that this is what is happening. But the other point is that we complete our reshaping manufacturing program.

Means that actually we have, let's say, done this transfer from the 200-millimeter to the 300-millimeter for the silicon closing 2 fabs and let's say, from the 150-millimeter to the 200-millimeter for the silicon carbide. We are not yet there. We are, let's say, in the middle of this transformation. So clearly, here, we are not in the condition to have our manufacturing infrastructure at the right level of efficiency.

The other way around, I would say that in this moment, in the quarters, Q3 and Q4, we have some kind of extra cost that are related to this transfer, the qualification of the products, the redo of the mask of the products, all these kind of things that are impacting our gross margin and that clearly for optimal efficiency due to this transition. So at the end, we confirm our model to be, let's say, above 40% when the company is there. But once we have done the transformation when we have completed our programs that, as you know, it will be at the end of 2027, not before.

So this is the reason why it is not enough to be at $4 billion to have gross margin at the right level of the model.

Jean-Marc Chery: On the second question, maybe, Remi, you can comment, again, the key growth driver that will put us on a trajectory well above $2 billion next year.

Remi El-Ouazzane: Yes. We have discussed earlier about what we're doing on the optical front. And I insist on the fact that we are now at the intersection of 3 main vectors of growth, which is the oversized market share we have, 800 gig and 1.6 terabit per second in MCU, the growing adoption of our [indiscernible] BiCMOS process for electronic IC and the steep ramp-up we have on our photonics IC platform, our silicon photonics platform in 300 millimeters, which has proven to be really, really well adopted across the board by all the major actors. And I think there was also a question related to the concentration of that revenue.

And we see an evolution of our revenue that is pretty consistent with market share distribution between hyperscalers, which makes us actually quite confident about the composition of our revenue.

Didier Scemama: My first question is on the outlook. I think, Jean-Marc, in your prepared comments, you mentioned that your book-to-bill was close to 2, I think, overall and above 2 in certain segments like Optical Interconnect in particular. So I'm just wondering, does that imply that your first quarter seasonality might be a bit better than normal? And I've got a follow-up.

Jean-Marc Chery: Thank you. Yes, with this book-to-bill, what also is interesting is that out of the 100% of the booking we received in Q2, well above 50% were for next year. So it means the customer now they have understood that they have to provide us visibility more. And the good news is that now our total backlog is representing about an average of 4.5 to 5 quarters of Q2 average revenue, which is clearly an improvement step. Coming back to standard of visibility. So clearly, yes, Q1 is today on the dynamic to be well loaded and clearly continuously boosted by our revenue related to AI data center.

Didier Scemama: Okay. Great. And as a follow-up, I just wanted to make sure I got the right end of the stick on the financial model. So I think in the past, you were talking about 45% gross margin on $18 billion and then maybe 50% gross margin on $20 billion. Obviously, that's contingent on execution of the restructuring plan on manufacturing. So just wanted to make sure that this is still the case and whether you've got increased confidence that you can deliver these sort of numbers around 2028?

Jean-Marc Chery: We confirm our confidence level to reach $18 billion in 2028. And clearly, announcing the dynamic and increasing our indication on data center, it is clearly one of key growth driver that will position our company on $18 billion by 2028. Then second, Lorenzo already commented that this business related to AI data center is accretive to our gross margin. So we will have this mixed effect model. Okay, I confirm that assuming we complete on time our reshaping program on manufacturing and that the FX will remain our model, we should be in position to reach the gross margin target consistently with our $18 billion model.

More about $20 billion, okay, for the time being, let's reach together the $18 billion target, then we speak about the $20 billion.

Stephane Houri: So I would love to come back on maybe the satellite Low Earth Orbit opportunity. And if you can tell us what is the dynamic currently, notably with your main customer and the ramp of your second customer? And if you confirm the target of $1 billion for this year and if you have a view for next year already?

Jean-Marc Chery: Thank you. I'll pass the question directly to Remi.

Remi El-Ouazzane: Stephane, the dynamic is quite healthy. Overall, like Jean-Marc explained at the beginning of the discussion, we stick to well above $3 billion over '26, '27, '28. You have noticed that and we spoke about that in the past that it's very much a launcher dependent business in the context of deploying satellite and then deliver the services which in itself is a fuel behind user terminal consumption. Clearly, things are progressing in the right direction [indiscernible]. Other constellation have faced a bit of a snag lately, and to be fixed in the coming quarters. But directionally, nothing has changed. We see actually a strong '26 and an even stronger '27.

Stephane Houri: Okay. And can you comment on the level of profitability on the gross margin on this business like you did for data center? Is it accretive?

Lorenzo Grandi: Yes, clearly, let's say, is a business with a combination of different gross margin because clearly, there are different products, the one that are going in the satellite, the one that are going in the gateway, the one that are going, let's say, in the user terminal. Anyway, when we look, let's say, at the average of the gross margin of this business, yes, I confirm that also Low Earth Orbit satellite is contributing, let's say, to the improvement of our gross margin.

Francois-Xavier Bouvignies: My first question was on the capacity front. I mean we see an acceleration of growth from a cycle perspective, but also from AI data centers. And you are seeing some tightness, as you say in the release, also TI suggested as well some tightness. So I was wondering, how do you feel about your capacity in the next, let's say, 2 to 3 years? I mean, do you have, you think enough capacity to deliver the different growth scenarios? Or are you evaluating maybe some brownfield or greenfield expansion down the line so the capacity of ST in the next 2, 3 years would be helpful?

Jean-Marc Chery: We have to see it under 2 angles. One angle is what is related now our capability to support AI data center and at this stage, we believe that we can sustain it and support it. Of course, under the assumption, we are well assessed the dynamic we have today, on optical cable and microcontroller. And clearly, the key success factor is Crolles. And Crolles will reach 15,000 wafer per week and will go above to support the dynamic of this business. Clearly, we see some tightness is clearly what is related general purpose microcontroller. Why? Because first of all, we have 2 cumulated effect.

There is first the enormous success of the microcontroller developed by Remi team for optical cable. And there is the solid recovery of the overall industrial market. And where, okay, I mentioned during my address that in distribution inventory now well below our standard and the POS dynamic is very strong. It is here that we are facing at this moment some tension on the supply and increasing lead time. But here, basically, we have some key competitive advantage. First of all, we have our 300-millimeter fab, where clearly our microcontroller will be processed.

The good news now is I got 300-millimeter, certainly will reach the full build-out pretty soon before 2028, and will be capable to support the growth of microcontroller as soon as we will have qualified as the 19-nanometer and 14-nanometer technology. Then the second important lever is our China for China strategy that will start to pay back because if you remember, we have qualified 14-nanometer technology in China with our main partner that will enable us to support the growth in China. That is very demanding, both for Industrial in distribution, but industrial OEM and also optical cable.

On the other, let's say, technologies and product, clearly, the challenge for us is our transition phase between respectively, 6-inch to 8-inch silicon carbide technology and 8-inch to 12-inch analog technology. And we are accelerating as fast as we can in synchronization with our customer that could create time to time, okay, some temporary tightness on the supply. So this is ok, the overall picture. So 3 elements, more short term on microcontroller, but we have exactly in our hand, our capability to grow. All the new technology driven by AI data center, we have the path to grow. Some other tightness related to our reshaping but only temporary.

Then after, we have some pocket of capacity limitation time to time with OSAT, but okay, we manage it.

Francois-Xavier Bouvignies: And maybe my follow-up would be on silicon carbide actually. I mean, we see a lot of change in terms of silicon carbide demand, one driven by the Chinese EV carmakers adopting 800 volts supporting the silicon carbide growth, but also we see one of your main customers delivering strong deliveries. And on top of that, you have the 800 volts opportunities for silicon carbide. So I was wondering if you saw an improvement on the silicon carbide front? And if you could provide any maybe guidance on what to expect for that business, that would be great?

Jean-Marc Chery: Thank you. So I will pass the question to Marco, who is managing the product line. Yes, okay, all the positive dynamic you described, we see it, but Marco will connect.

Marco Cassis: Yes. I confirm that we see the positive dynamics that you just highlighted. Actually, in Q2, we saw the revenue growth in the low teens year-over-year. So we are back to growth year-over-year and mid-30s in terms of quarter-over-quarter. This is also supported by strong bookings, a book-to-bill that is well above 1, which is resulting in a growing backlog. So the dynamics are confirmed and are factual is what we see. So in this context, I can confirm that this year, we should grow the silicon carbide revenues double digit in '26 versus '25 based on already design wins and backlog, which is already visible. So the dynamics are positive.

Of course, we are facing the transition between the 6 inches and 8 inches, which have sometimes created some tightness in terms of supply because the products need to be qualified by end customers. But I confirm that the dynamics are positive and are growing positive day by day.

Jerome Ramel: Thank you, Francois. This is ending our call for this quarter. So thank you very much, everyone, for joining us. And we remain at your disposal should you need any follow-up questions. Thank you.

Lorenzo Grandi: Thank you.

Jean-Marc Chery: Thank you.

Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.