STMicroelectronics N.V.

Good morning, thank you everyone for joining our fourth quarter and full year 2020 financial results conference call. Assisting the call today is Jean-Marc Chery, SE'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 ESTI'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 ESTI's 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 findings 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 your face to one question and a brief follow-up. I'd now like to turn the call over to Jean-Marc, ST President and CEO.

So, thank you, Celine. Good morning. and thank you for joining ST for our Q4 and full year 2020 earnings conference call. Let me begin with some opening comments. Starting with Q4. As announced on January 8th, net revenues at $3.24 billion were up 21.3% sequentially. Significantly above The high-end of our guidance. Our engaged customer programs in personal electronics, as well as continuous acceleration in demand, especially of automotive products and microcontrollers, were the main factors that contributed to this result. Q420 gross margin was 38.8%, 30 basis points above the midpoint of our guidance. Our operating margin was 20.3% and our net income was $582 million. Moving to the full year 2020. Net revenues increased 6.9% to $10.2 billion for 2020. Progressively strengthening versus the expectations we provided during the year. This was due to the stronger and faster than expected restart of demand during the second half. Full year 20 growth margin was 37.1%, operating margin was 12.9%, and net income 1.1 billion dollars. Free cash flow for the year was $627 billion and CAPEX was $1.28 billion. Our net financial position increased to $1.1 billion at December 31, 2020, from $672 billion one year earlier. On Q1 2021, at the midpoint, Our first quarter business outlook is for net revenues of $2.93 billion, representing a year-over-year increase of about 31.2%. The gross margin is expected to be about 38.5%. For the full year 2021, we plan for solid revenue growth, outperforming the markets we serve. Smart Mobility, Power Energy Management, the IoT and 5G are driving demand for semiconductor content and these trends have accelerated during 2020. ST Strategy stems from these long-term enablers and we are very well positioned to support our customers across them. We plan to invest about In order to support the strong market demand as well as our strategic initiatives. Now, let's move to a detailed review of the fourth quarter. During Q4, market demand accelerated sharply versus expectations. As we pre-announced on January 8th, Net revenue came in 580 basis points above the high end of our outlook range. On a sequential basis, net revenues increased 21.3%, with all three product groups performing above expectations. PMS was up 42.4%, ADG up 12.1%, and MDG up 5.3%. On a year-over-year basis, Q4 net revenues increased 17.5%, driven by whole-product subgroups, with only far-left communications decreasing, as expected, affected by the U.S.-China trade war. IMF grew 30.8%, MDG grew 15.7%, and ADG So, return to a year-over-year growth, increasing 3.2%. Our growth profit was $1.25 billion, an increase of 16% year-over-year. Growth margin was 38.8%, 30 basis points above the midpoint of our guidance. In comparison to the year-over-year growth quarter, The gross margin decrease of 50 basis points was mainly due to the usual price pressure and negative currency effects partially offset by improved mix and lower on-loading charges. Net operating expenses were $598 million. Included in this amount, other income and expenses improved and more. Q4 operating margin was 20.3%, up 80 basis points sequentially. On a year-over-year basis, Q4 operating margin was up 360 basis points, with an improvement in AMS and MDG partially offset by a decline in ADG. Net income was $582 million and diluted earnings per share were $0.63. Let's look now in more detail at our full year results, starting with the recap of the market and business trends we saw during 2020. which was clearly an unprecedented year with the material sweep. During the first half of the year, our business continuity plans enabled us to support our customers and to continue to execute our R&D programs while maintaining the most stringent health and safety measures. Then from Q3, we saw a much faster and stronger than expected restart of demand for work products, which further accelerated in Q4. In automotive, the negative impact on demand was particularly strong in Q2, especially for legacy automotive in Europe and in the US, with many car makers and tier ones shutting down for a period. Importantly, even at that time, we didn't see any substantial slowdown of customer activity on long-term strategic smart mobility projects. After the summer, global demands start to pick up sequentially, much faster and stronger than the industry has anticipated. We then saw a further acceleration during Q4, driven by car production volumes, replenishment of inventories across the automotive supply chain, and more broadly, semiconductor content increase and many more. Then in industrial, during the first half we saw a demon slowdown in some applications, so appliance, lighting, while others, such as healthcare, remained positive. From the end of Q2 we started to see improved dynamics in key application areas for ST, such as power-related applications, renewable energy, Motion Control and Factory Automation. This continued in Q3 and during Q4, the situation improved strongly across all geographies. Distribution is a key element of our go-to-market strategy in Industrio. Here we saw different regional dynamics. China was hit first by the pandemic effect in Q1, but started to recover as soon as Q2. While the slowdown in Europe and in the US came a bit later in Q1 but continued during Q2. From Q3, we saw improvements in Asia overall with healthy levels of inventory in our distribution channel across all product families and recovery in the Americas and Europe. In Q4, With this positive trend accelerated, inventories of our products at distributors are currently very lean across all product families and geographies, with very high inventory terms. Now, in personal electronics. During the first half, consumer demand for devices like smartphones was clearly impacted by retail lockdowns. The demand for our key products remained strong, thanks to our engaged customer profiles. From Q3, there was a strong restart of consumer demand from smartphones, driven by the introduction of 5G devices. This trend accelerated in Q4. Demand related to accessories was strong throughout the year, with NFC dynamics related to wearables, tablets, and through wireless TRO headsets and game consoles. In communication equipment and computer peripherals, we saw solid demand through the years for products related to hardworking and enterprise servers, while the overall market for hard disk drive was softer. This was also valid in Q4. The 5G equipment rollout went through a significant slowdown in China during Q4. Looking now at our full-year financial results. Net revenue were $10.2 billion for 2020, increasing 6.9% year-over-year, progressively strengthening compared to the full-year expectation shared in April and the regular updates we gave during the year. Sales to OEMs represent 73% of total revenues, while distribution represented By region of origin, 42% of our 2020 revenues were from America, 34% from Asia-Pacific, and 24% from the EMA. In terms of revenues by product group, two groups grew while one declined. ADG revenue decreased 8.9%. Revenue from automotive product subgroup decreased. mainly due to a decline in legacy automotive, partially offset by growth in HEDAS. Revenues for the power discrete subgroup saw a lower decrease, with soft market conditions for industrial in Europe and in America, partially offset by growth in car electrification. IMS revenues increased 18%, mainly driven by imaging and analog products for personal electronics. MDG revenues increased 14.9%, driven by strong growth in microcontrollers at both OEMs and distribution, and partially offset by the strong decline in RF communication products in Q4. Growth margin was 37.1%, 160 basis points lower than 2019. principally reflecting higher on separation charges of about 150 basis points compared to about 70 basis points in full year 2019. Our operating margin for 2020 was 12.9%, in line with the double-digit target we had shared. AMS posted an operating margin of 20.8%, MDG was 16.6%, and Adigie was 5.5%. Net income increased 7.2% to $1.1 billion, translating into debuting earnings per share of $1.20. Moving now to the other financial indicators. Net cash from operating activities increased 12% to $2.09 billion, CAPEX was $1.28 billion, substantially in line with the updated investment plan we announced last April and further refined in Q2 from the initial expectation of $1.5 billion. Free cash flow in Q4 was $512 million, bringing the full-year free cash flow to $627 billion, up 26%. Cash dividends paid to stockholders totaled $168 million. As part of our existing share-buy-break plan, we repurchase shares totaling $125 million during the year. During Q3, ST exercised the call option for the early redemption of its $750 million 2022 Tranche 8 and many more. Our next final shunt position Exiting the year was $1.1 billion, up from $672 million at the end of 2019. Now, let's move to our first quarter 2021 hot look and our perspective on the full year 2021. For Q1, we expect at the midpoint Net revenues of $2.93 billion, increasing year-over-year by about 31.2% and decreasing sequentially by about 9.5%. On a year-over-year basis, all product groups will contribute to the growth. On a sequential basis, the decline will be lower than the usual seasonality. We expect a decline in HMS due to the seasonality in personal electronics, Our gross margin at the midpoint is expected to be about 38.5%, representing a sequential decrease of about 30 basis points. Year-over-year, the increase of about 60 basis points is mainly due to the much lower unloading charges. For the full year, We plan for solid revenue growth outperforming the market we serve. The broad long-term trends in electronic systems that we are focused on have accelerated during 2020 and are driving demand for our products. These trends are smart mobility, power and energy applications, and IoT and 5G. We are also facing an unprecedented market situation. Semiconductor demand is increasing across the entire industry, driven by car production volumes and replenishment of inventories across the automotive supply chain, very low inventory levels of distributors, and stay-at-home effects boosting demand of personal electronics and communication products. In terms of CapEx, So we plan to invest about $1.8 billion to $2 billion in 2021 in order to meet the strong market demand and also to advance our strategic initiative. This amount includes mainly the addition of capacity for our existing whole 300 mm fab, mixed evolution for our most advanced 200 mm fab, and Silicon Carbide Strong Capacity Expansion. It also includes about $400 million of investments for strategic initiatives, as well as the support of R&D activities and the maintenance required by our manufacturing operations. These strategic initiatives are continued investments in our new Agra 300 mm slab, R&D for Gallium Nitride Power Technologies, and the fabrication of silicon carbide substrates. To conclude, on 2020, by return to solid revenue growth, outperforming the market we serve, we maintain our profitability with an operating margin at 12.9% and net income at $1.1 billion, We strengthened our net financial position with strong growth in operating and free cash flow. SP demonstrated both resilience during the first half of this unprecedented year and the ability to support the strong and sudden upswing in demand during the second half. Working alongside our customers and partners, here I am thinking about distributors, Osad, Fondry, and of course, Marius Landau. During all the different phases, we have to go through together in 2020. For 2021, we are determined to continue to make ST stronger. We are convinced that we have the right strategy and resources to do this. Our balanced market position, our focus on high-growth applications, and our solid product IP technology portfolio. These are supported by our operating discipline and agility, now more important than ever in such a dynamic market, and by the improvement programs and transformation programs we are engaged in. This will translate into solid revenue growth and improved financial performance. Thank you. We are now ready to answer your questions.

The first question is from Andrew Gardner from Barclays. Please go ahead.

Good morning. Thanks very much for taking my question. Jean-Marc, I was hoping you could perhaps sort of compare and contrast some of the statements you had made in December at the final CMD session compared to what you're saying this morning. I mean, if we look at how you outperformed in the fourth quarter and the very strong guidance you've given for the first quarter of this year, plus the Your statements about, quote, solid growth for 2021, you're already annualizing at that $12 billion target today. And yet, back in December, you gave what I think, if I remember rightly, you referred to as prudent or conservative guidance of calling for $12 billion by 2023, hopefully a bit sooner, but certainly by 2023. Like I said, it feels like you guys are already annualizing there and there's solid growth expected for this year. It could be very well near that in 2021. Have things changed since you gave us that outlook in December materially enough to drive that kind of upside? How do you see the balance of your business and why still be so cautious on that long term? Thanks very much.

Thank you for your question. Clearly, what we are seeing is, let's say, an accelerated path to our trajectory to deliver $12 billion of revenue. It is clear that with the backlog we have, the current dynamic of the market we have. I would like also to recall that in December, what I told you, that Basically, by fact, we have lost one important customer due to the implication of the trade war between USA and China. And our visibility at this time was that the other vertical we address, so industrial and automotive, with data points we own at this time, would not certainly offset this customer loss. It is clear that after, let's say, a very strong order booking in Q4, which has accelerated in November and in December on automotive and industrial markets, yes, I confirm today that we are clearly on an accelerated path versus this trajectory. and we are working, we update every month our sales and operating plan for, let's say, rolling 12 months. So we see clearly this accelerated path. That's the reason why we have decided to increase our capex plan versus the model we have in order to fulfill the strong market demand and to continue our, let's say, strategic initiative. Well, and then another point, okay, is important to mention is personal electronics. Well, it is clear that something happened in the overall personal electronics, which is, let's say, in same time, okay, the 5G deployment of device, and we know that Our major customer is very successful in this area. We see all the accessories, the wearables, are very, very successful. And this is certainly one of the effects of the work at home, stay at home, which will remain definitively whatever is the pandemic evolution during the year. So, yes, I confirm to you that the megatrain we are accelerated more than expected. Certainly, this megatrain in automotive, in industrial, in person electronics will offset the fact we lost this important customer due to the trade war. And today, our current view is clearly, yes, we are in an accelerated path.

Thank you very much, Jean-Marc. Just one quick follow-up, if I may. As we look forward throughout this year, based on what you just said, can we expect somewhat normal seasonality? I know things are, as you said, unprecedented in some end markets, but would you still say that second half should be up on first half?

Well, you know, we try to be quite disciplined in the way we do. We drive and we give indication to you, the best indication. In January, we give our Q4 earnings, the guidance of Q1. We give important information about the CAPEX, which is, of course, linked to the expectation we have on the full year revenue for 2021. And then in April, we will provide to you, let's say, the full visibility of 2021. Yes, most likely we will have a different, let's say, breakdown between H1 and H2 in 2021. Simply because today we have a very strong demand in automotive. I think everybody was well aware of the automotive, let's say, supply chain situation. So the demand is very strong, which will boost definitively the first half of the year. and this is valid as well for personal electronics and industrial markets.

Thank you very much.

Thank you. Thank you very much.

Next question, please. The next question is from Jerome Ramel from Exxon BNP Paribas. Please go ahead.

Yeah. Good morning. Quick question. The first one, how should we model the OPEX for Q1 and maybe for the full year. And a follow-up question on automotive. Jean-Marc, you mentioned the disruption in the industry. Could you shed some light on what's going on, where is the bottleneck, and what is SCMicro doing to address this issue? Thank you.

So the OPEX, Lorenzo, you start with OPEX.

Good morning to everybody. I will start to talk about our OPEX. What we do expect for Q1 in terms of OPEX. You have seen, usually when we guide, we guide including other income and expenses. As you remember and as you have seen clearly in this quarter, the number of other income and expenses has been quite significant. Here we have a catch-up that was expected on our R&D grants in one jurisdiction due to the change of one law and we were in the position to recognize that this is for around $100 million. So Q4 for sure we benefit of this in our overall expenses. What we do expect for the next quarter? But for the next four, for sure, there will be some headwinds for our expenses. One is definitely the exchange rate. The guidance we are going to give, we gave for Q1, is one euro-dollar exchange rate of 120. and the level of other income and expenses are much more normalized in respect to what we see in Q4. So the expectation is to have expenses that will range in the quarter to one between $705,715,000, something in this range. This is our expectation. There should not be significant change moving forward, let's say some up and down in the year, let's say, but the expectation will be substantially to be in this range moving forward.

So, then, Jerome, it's a question about industrial automotive, okay, what we are doing to support the current demand. It is clear that the demand for automotive has been quite sudden. I don't want to repeat myself each time, but it is clear that coming after summer, with this strong acceleration, definitively has put under stress the supply chain. As far as he is concerned, Clearly, we are supporting our customers very closely in daily contact with them in order to be sure that each single piece we produce goes directly to a production line. So we are under emergency task force mode with close relationships between the tier 1, ourselves, and car makers. Then, the second action is... The capability of the company to synchronize for Q1, Q2 and H2 all our manufacturing assets, supply chain and the foundry to make the best triangulation between all the manufacturing sources we have in order to really maximize the amount of wafer we can deliver to our assembly plant and OSAT to support all these demands. It is clear that this is what we are doing. There is no too much flexibility because all the foundries are basically fully saturated, whatever their 8-inch or 12-inch. There is no more, let's say, equipment available on 8-inch. So it's impossible basically to increase an 8-inch capacity now. The situation is quite similar on HUSAT, so assembly and test. Here and there, there is also some type of shortage of material like a substrate. This is a situation which is very strange. As usual, the recipe is the following. All the actors have to increase, let's say, timely and steadily, their capacity to support their customers with the best visibility we can discuss with them. and cooperate in order to fairly balance the capacity across all the verticals we address, means automotive, industrial, personal electronics and communication equipment. So it's a pure, let's say, operating job and process, but we are, let's say, pretty well, let's say, equipped Thank you.

Thank you very much, Jerome. Next question, please. The next question is from Matt Ramsey from Cohen. Please go ahead.

Yes. Thank you very much. Good morning. Happy New Year, guys. Jean-Marc, I wanted to, I guess, dig a little deeper on the first question that Andrew asked to kick off the call. I think a lot of us in December... and a lot of investors were sort of struggling to square the circle of the strength that you're seeing in the business with pushing out the long-term revenue target and you addressed some of the things about conservatism and around the challenges at Huawei but maybe you could just confirm for us or address if there have been any changes to your key customer program visibility with a few folks, namely the large smartphone customer, the silicon carbide programs and also What's going on with Mobileye? If you could kind of confirm that there's no changes there in your view, I think that would help a lot of us in our forward modeling. And then I have a follow-up on gross margin. Thanks.

Coming back to the 2021 accelerator pass, I would like to mention a few points. Clearly, the production of cars in 2021 Now, it's expected to be between 85 to 90 million vehicles. But, with also an amplification related to inventory replenishment. Because it looks like the industry in Q2 and early Q3 put the inventory close to zero. So, clearly, the run rate of what we are seeing today in terms of semiconductor demand for the automotive market is more aligned with 98 million vehicles rather than 85 to 90. So there is clearly an inventory replenishment, which was not the data point we had in November. In November, we were more around 80 million vehicles to be produced and without this So this is the point number one. Then about our, let's say, major engaged programs on, let's say, on the high-growing application we address. First, smart mobility. Smart mobility, I would clearly confirm to you that Our programs with Mobileye, our programs on silicon carbide are running very well. And on silicon carbide, our plan for 2021 is to generate a revenue between 450 and 500 million US dollars. Well, Mobileye I will not comment because we never comment specifically on the customer, but we will increase our plan. Well, then about Imagine and SafeID. Again, you know that I never comment on customers and customer programs. But however, I can confirm to you that we do not plan any material or significant change in our revenue in 2021 with our imaging business. So I hope I am quite clear.

Thank you, Jean-Marc. I really appreciate the candor there and don't shoot the messenger, had to ask the question. I guess in my follow-up question, Lorenzo, I wanted to talk a little bit about Gross margin, obviously there was an inventory correction in 2019 and then all of the turmoil that happened in the supply chain around COVID and demand in the automotive sector. And you've been kind of chasing under loading charges in your margins for a while. And maybe you could talk a little bit about what your expectations are for gross margin trends, tightness in the industry, seems to indicate that the underloading charges would go away. Additionally, we've heard some rumblings of potential pricing increases for S&P and other vendors. Anyway, the puts and takes on gross margin would be really helpful. Thank you.

Yes, maybe I can comment on that. Yes, it's true that during 2020, the combination of liquid demand in the first half, let's say, and lower workforce demand have impacted significantly our gross margin. We said that there is around 150 basis points impact on the gross margin with the combination of these two elements. What has happened now? In Q4, we already started to see some reduction in respect to the original expectation of our unloading charges. And this is one of the Main factor of having exited the Q4 is likely better than was the expectation of the 30 basis points, mainly driven by the fact that the unloading charges are a little bit lower. Then when we look at Q1, now Q1, I would say that unloading charges are substantially, let's say, gone. We have a really... No material residual unloading charge that is mainly driven by the fact that we are not yet ready to fully utilize some of our, to change, let's say, fully the mix in some of our plants. We are talking about 10 basis points of unloading charges in Q1. So the expectation is that definitely for this year unloading charges will not be any material number. Already in Q1, contrary to what was expected. On the other side, there are two, let's say, headwinds, let's say, for us. For sure, one is the exchange rate. This doesn't play in our favor. It's negative. You see that now we are guiding in the range of 120. You see how is the stock rate, so it means that we are at this level of exchange rate. Last year, the average of the year was 1.13. Q1 in 2020 was 1.11, so it means that there is definitely a significant change in this respect for what concerns the impact of the effects. I was modeling this, if you remember, during the Capital Market Day as impacting our costs and our costs. And then, definitely, there is also some impact related, let's say, to the cost of our materials, the cost of precious material that is another important component of our cost. Through that, on the other side, this is, in terms of revenue pricing, Fairly shared somehow with, let's say, our customers. So there is for sure, and this is visible in the guidance of this quarter, let's say, less seasonality in terms of price in respect to our usual situation. Indeed, when I look at At the gross margin, the combination price mix is substantially neutral. We do not have the usual negative impact, significant negative impact that we normally have at the beginning of the year. So there are all these ingredients that are combining together. Moving forward, we will see, let's say, We will see, let's say, the evolution. I do expect some improvement, but then it's a little bit early now to really size the level of improvement.

Thank you very much, guys. Appreciate it.

Thank you very much, Matt.

Next question, please, Moira. The next question is from Sandeep Deshpande from J.P. Morgan. Please go ahead.

My first question is regarding what you've been hearing in the automotive market that there have been shortages in the market. Maybe STM can give a view on this market and is STM able to supply this market or there are other suppliers who are not able to supply to the market? and then secondly, again reverting to that question on CapEx and revenue guidance in your CMD, I mean, if you look at your CapEx figure at the moment or then you had died to 6.5% CAGR growth on the plan at that time, I mean, your plan now looks to be much bigger for this year though you're not guiding to this year. I mean, maybe you can help us understand Thank you. So I will take the CAPEX.

There is a capex culture. The capex and the automotive. And automotive. Well, automotive, so I will answer both, and of course Marco and Lorenzo will complement ourselves. Well, about automotive, first point I would like to mention about ST View is that on the, let's say, electrification of the car, so silicon carbide, We see a total different situation than on the legacy automotive. Despite the tremendous growth of our key customers on the silicon carbide, we are supporting them steadily. And as I mentioned, let's say, a few minutes ago, we plan to have a This year, revenue between 450 and 500 million U.S. dollars with a strong growth in H2. And silicon carbide, yes, will show a strong growth H2 versus H1. And you remember, OK, we move out 2020 with a run rate of, let's say, 300 million U.S. dollars on a novel basis. So here I answer partially both questions. But here, ST does generate at any moment shortage on silicon carbide, and we will grow very strongly H2 versus H1, and full year 2021 versus full year 2020. Then coming back to the legacy. To the legacy, clearly, yes, there is a gap, There is an important gap today between the short-term demand of the automotive industry, so carmakers and tier 1, versus the capacity installed in the semiconductor industry. And you know also for waterfowl and assembly, these capacities are shared with other verticals. And clearly the other verticals, personal electronics, servers, computers, but industrial as well, and industrial especially in Asia since Q2 and now in Europe, in America, all this, let's say, this market requests capacity. Unfortunately, the car industry wake up very late, and lead time of semiconductors are what they are, and you cannot overnight increase the capacity in a direct pulse. So yes, it is an industry problem. There is an overall industry problem showing an important gap between the demand and the capacity. ST in the past has always pretty well managed this kind of situation delivering and supporting our customers at best and fairly balancing our capacity in all the verticals in order to protect customers from the automotive market, from industrial, personal electronics and computer peripherals. Well, then I must not mention a specific bottleneck from a company or another one. I think it's not my job to do it, but it is an industry problem for sure. The contribution of our revenue for the sales and operating plan of 2021, as usual, will be pretty well balanced between engaged programs. So I confirm to you that Silicon Carbine will be one of the main ones, ongoing one on person electronics, Definitely, let's say, Huawei will be a strong decrease 2021 versus 2020 because up to now we have first not received any other license, especially on custom design product and technology. and if tomorrow we receive we will be ready to support this customer but with the lead time we have today no more no less because today with the capacity saturation our lead time are increasing so Huawei will be a detractor definitively in 2021 of the revenue and then we will have a well balanced increase of our microcontroller of our analog product power indiscreet on top of Thank you. I want to be clear. So, about the CAPEX, now, you know, our model, again, is well known, okay? For $1 growth, we invest, okay, at least $0.5. We need to keep 6%, 6%, 7% of our sales for the maintenance, for the R&D, for the corporate sustainability, okay? We need to invest, okay, to go to zero carbon neutrality and our strategic initiative. Yes, between... Our model was 1.6 to 1.7, this is what we said at the Capital Market Day, which was spread with 400 million dollars for, let's say, the strategic initiative, around 300 million dollars, 350 for the maintenance, and the rest, which was, let's say, 800 million US dollars for capacity increase. We have increased the capex, for capacity increase. So now the capex for capacity increase will be between $1.1 to $1.2 billion in order to support the automotive industry, the industrial market, and the personal electronics. We will, let's say, continue to maintain a high level of ratio of outsource production with our main foundry partners, so KSMC, Samsung, and other, let's say, specialty foundries. So this is the view of the CAPEX. You know, last year, entering the year, we announced $1.5 billion before the COVID effect. ST has always the capability to modulate the CAPEX on capacity adapting us very fast on the business finance. What will remain is a steady execution of our strategy program because we are convinced we need to set up a new 300 mm farm and we will increase the capacity of this farm timely with our business plan. We need to set up internal capacity for raw silicon carbide in order to have a partial production of our needs to support the $1 billion target we have by 2025. I guess you have well noted that in 2021, we will have achieved already half of this target. And then, okay, we have also initiative on gallium nitride for power device, which will be the next generation of technology important to address the power energy sector. For the rest, capacity, we adapt ourselves to the market dynamic. If market is strong, we invest. and we increase the production externally. When market decrease, okay, we correct immediately. This is what we have done in 2020. Thank you.

Thank you very much. Next question, please, Moira.

The next question is from Stefan Huri from Oddo. Please go ahead.

Yes, good morning. Actually, I have a clarification to ask and a question about diversification. So the clarification is when you talk about your main customer and the engaged program and you said that basically that the relationship is unchanged, does it suppose that you expect growth on this aspect? And the following question is about diversification. You've been talking during the CMD about the fact that now the game with your main customer was also to you know to diversify your revenues so can you highlight some of the initiatives there and same question basically about silicon carbide because there's going to be some growth this year but so far it was only on one customer basically and is the diversity coming this year? Thank you.

So about silicon carbide it is clear that As I said, during the various opportunities we have to discuss all together, 2021 will be the year when we will start to see, let's say, enlarging our customer base and they will start to contribute to the revenue. I guess with this order of magnitude of revenue at 500 million US dollars, I will not communicate the breakdown because, okay, you can make after correlation with our main customer and I think it's not fair for me. But for sure, it will be one of the, still one of the main driver of our revenue goals. But clearly in 2021, we will enlarge our customer base and they will really start to contribute to the revenue. About the diversification. Yes, I confirm to you that when now we see what happened in 2020 and when we look at the revenue we have generated with our main customer in personal electronics, ST address in a balanced way, all the major platforms of this customer, the personal computer, the pad, The phones, the accessories, the watches, and our product consistency with our strategy. Remember, we want to be selective on some custom design in imaging sensor, secure solution, analog product, but we leverage our, let's say, general purpose portfolio like microcontroller and forward. Yes, now, KFT is very well positioned and spread in whole platform of our six major customers, which, by the way, was the same strategy we had with, unfortunately, with Huawei, which has been, let's say, destroyed by the reason you know. So this is really a good diversification and a very good leverage of our product portfolio, definitely. And I would like to correct what you say I have not said that there is significant change in the relation with our customers. So I repeat what I said a few minutes ago. I say we do not plan any significant change in revenue in 2021 for our imaging business. I love relations. I prefer revenues.

Thank you.

Okay, okay, okay. Thank you very much for the clarification.

Thank you very much, Stéphane. We are running now close to the end of the timing. We will take two questions, two more questions, and I apologize for the ones that have any other. So next question, please, Moira.

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

Hi, guys. I'll keep it short from my side. But, you know, obviously, one of the discussions we had when we were talking in the past about the headwinds at Huawei was what opportunity you might have to gain at other OEMs that might benefit volume-wise from the challenges Huawei faces. So I just wonder if you could give us an update on how you feel about your design with traction and penetration into, I guess, the range of other Chinese OEMs that are hoping to gain on the back of Huawei's challenges.

Here, so our strategy for the personal electronics with the various OEM was the following. So two OEMs, two important OEMs, which was, let's say, basically Apple and Huawei went on. Our approach was to cooperate on R&D, on product development, on system development, and develop custom systems. Thank you very much. Thank you very much. and Pauline Dice, our products across all the platforms of these customers. On the other player, Samsung, Vox, Oppo, Vivo and Xiaomi, the approach was a bit different. Complementary means it's more application-specific, standard product. Here, for this customer, we do not develop custom design solutions. But we offer in the field of all the subsystems I have described, so sensing solution, secure solution, analog, charging, all this kind of stuff, power management, application standard products, and this is the way we work with them. And here, clearly, today we are leveraging The strong demand with this customer, as an example with our MEMS. So we are very, very successful with our MEMS with this customer. So this is the way we address this personal electronics. And then on top of that, it is clear that across the board, accessories, through wireless handset, were able and so on are very demanding and here we address this market either okay straight with the VM when you develop their whole solution and through the distribution channel when we address more the mass market.

That's great and just a quick follow-up obviously you've been developing custom RF power amplifier content for Huawei and that can't be sold anymore have you found ways to To repurpose that, can that be seen with a bit more development from yourself and more of a standard product over time that you can still get some benefit from the investment?

It is clear that here our strategy was, let's say, in two steps. Step number one was really the cooperation we developed across the past year with Huawei on RF technology. and then to diversify ourselves anticipating the expansion of IoT when the 5G infrastructure will be deployed and the capability of the network to enable millions of nodes per unit of surface to have the capability inside ST to offer the full product part of the system, means microcontroller or microprocessor, connectivity, analog power management, and the radio frequency, because we do not want to depend on third parties to address the IoT. So all the investments we have done with Huawei in technology and know-how Yes, we are reusing it on IoT, and also I would like to recall that we have acquired a startup last year called Somos, which has a strong capability to design radio frequency devices, like a power amplifier or other transceiver.

That's right. Thanks very much.

Thank you, and we will now take the last question. The next question is from Sebastian Stavrovics from Kepler Schiffer. Please go ahead.

Hello, everyone, and thanks for taking the question. On the market demand, the market is currently overeating right now. What kind of visibility do you have for Q2? Do you see any potential risk of inventory correction moving into Q2 and maybe in the back half of the year? And secondly, on the time of flight sensors, could you make an update on your roadmap and also How do you see the demand building up in this specific market? Have you seen any slowdown in the adoption of 3D sensors in the market? It seems that Samsung has stopped using time-of-life sensors for wall-facing applications in the last GF21. Thank you.

First of all, the demand is very clear in ECHOIS. and NH2 is really starting to be loaded very healthy. And again, we don't see, let's say, any overbooking because the inventory in the supply chain is very healthy. Again, I confirm to you that we have a total visibility on the distribution channel and the turn of inventory are incredibly high, well above 4, 5 or 6. So inventory are very low, so we don't see the business is very dynamic. But believe me, it is very, very obvious there is no inventory in the automotive industry, taking into account the number of calls we receive. and on the other, let's say, verticals, Person Electronics, similar. We know very well the supply chain of our main customer and we monitor very well the inventory level and we did not detect any other inventory. Now, again, we confirm to you that the current situation clearly links to the time demand where what is related person electronic, enterprise server, this kind of stuff are driven really by the stay at home, the work at home, the lack of traveling and this will last in a mixed way I think for a very long time. Then the industrial market in China, in Asia is very active, very healthy. is starting to recover in Europe and in America. And then on automotive, again, this industry is engaged now in a major transformation related to electrification in order to comply with the various norms and regulations like the WLTP in Europe. And this is very demanding in terms of components for, let's say, inverters, on board chargers, the battery management system. Okay, so you need to have a lot of control. More and more, all the vehicles will be equipped with level 2 or level 3 ADAS system. So this is very demanding in terms of components. So the content is increasing. And then there is a specific, let's say, situation where clearly, The overall production of cars worldwide will come back to the level of 2019 certainly one year earlier than expected a few months ago with an amplification in 2021 related to inventory replenishment. Why? Because this industry put inventory close to zero in Q2 and in Q3. So this is clearly a situation that The semiconductor industry has to manage, let's say, with all the capabilities of this industry to react fast and to control this situation. And then the other question was about the time of flight. I will not communicate our strategy on time of flight. to offer the best components for, let's say, the application we target, either on the front side or the rear side of the smartphone. We know that sometimes the direct time of flight is more adequate than the indirect time of flight. Then there is, let's say, the cost of the ownership is very important. Then the capability to put the components As much as we can under the OLED screen display of the phone is also very important. So this is okay on all these aspects as it is working and we want to continue to address with custom design solution our main customer, I guess I have already commented about that, and to address with more application specific standard solution the other smartphone players.

Okay, so this will end our call now for this quarter. Thank you very much for your attention and we keep in touch. Thank you. Thank you.