STMicroelectronics N.V.

Ladies and gentlemen, welcome to the SC Microelectronics first quarter 2021 earnings release conference call and live webcast. I am Moira, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Celine Berthier, Group Vice President, Investor Relations. Please go ahead, madam.

Thank you, Moira. Good morning, and thank you, everyone, for joining our first quarter 2021 financial results conference call. Hosting the call today is Jean-Marc Chery, Estes 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. These live webcasts 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 ST'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 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. And I would like to turn the call over to Jean-Marc, ST's President and CEO.

So thank you, Celine. Good morning. And thank you for joining ST for our Q1 2021 earnings conference call. Let me begin with some opening comments, starting with Q1. So year over year, net revenues grew 35.2% to $3.02 billion. All product groups contributed to this growth and continued acceleration of demand globally. Our operating margin increased to 14.6% and our net income rose 89.6% to $364 million. On a sequential basis, net revenues decreased 6.8%, 270 basis points above the midpoint of our outlook. Our gross margin was 39%, 50 basis points above the midpoint of our outlook. Our free cash flow during the first quarter was $261 million. after net capital expenditure payments of $405 million. We exceeded the first quarter with a net cash position at $1.19 billion. On Q2 2021, at the midpoint of our hot look, we expect net revenues in the second quarter to be about $2.9 billion, A year-over-year increase of about 39%, growth margin is expected to be about 39.5%. For the full year 2021, we plan for solid revenue growth outperforming the market return. We will drive the company based on a plan for full year 2021 revenues of about $12.1 billion plus or minus $150 million. A year-over-year increase of 18.4% at the midpoint. This growth is expected to be driven by strong dynamics in whole-end markets we address and our engaged customer programs. We now plan to invest about $2 billion in CAPEX to support the strong market demand and our strategic initiatives. This level of investment is at the high end of the range we communicated in January. Now, let's move to a detailed review of the first quarter. Net revenues increased 35.2% year-over-year, with higher sales in all product groups except, as expected, the radio frequency communications subgroup. The overall sales to OEMs increased 21.4% and to distribution rose 76.2%. On a sequential basis, net revenues decreased 6.8%, so 270 basis points better than the midpoint of our outlook. Automotive and power discrete products and microcontrollers increased sequentially, Partially offset by a decrease in personnel electronics products. Gross profit was $1.18 billion, growing 38.9% on a year-over-year basis. The gross margin increased 110 basis points year-over-year to 39%, mainly due to the lower unloading charges, manufacturing efficiencies, and improved product mix. partially offset by negative currency effects, net of hedging. Our first quarter gross margin was 50 basis points above the midpoint of our guidance, mainly thanks to better product mix. First quarter operating margin was 14.6%, A year-over-year increase of 420 basis points with improvements in ADG and MDG and a decrease for AMS. Net operating expenses were $735 million. Net income increased 89.6% to $364 million on a year-over-year basis. And our diluted earnings per share were $0.39. Looking at the product group year-over-year performance. All three product groups had double-digit growth. ADG revenue increased 38.4% on growth in both automotive and in power discrete. AMS revenue increased 27.1% on higher analog, MEPS, and imaging product sets. MDG revenues increased 42.2% on growth in microcontrollers, partially offset by the expected decline in radio frequency communications. By product group on a year-over-year basis, ADG operating margin increased to 8.2% from 3%, AMS operating margin decreased from 17.2% from 20.8%, and MDG operating margin increased to 19.4% from 11.5%. Net cash from operating activities increased 70.9% to $682 million in Q1, compared to $399 million in the next year-ago quarter. Free cash flow increased to $261 million, compared to $113 million and others. During the first quarter, we paid $38 million of cash dividends to shareholders and we executed a $156 million share buyback as part of our Our net financial position was $1.19 billion at April 3, 2021, compared to $1.10 billion at December 31, 2020. It reflected total liquidity of $4.16 billion. and total financial debt of $2.97 billion. Let's now discuss the market and business dynamics. During the first quarter, global demand continued to accelerate following the already faster and stronger than expected restart of demand which began in Q3 2020. In automotive, the rebound from Q4 2020 was much faster than anticipated, and it has caused supply chain constraints across all the entire semiconductor industry. This rebound was and remains broad-based across all customers, including distribution and geographies, and is driven by three main factors. First, obviously, the number of cars produced. Second, the replenishment of inventories across the automotive supply chain. And third, semiconductor content increase related to digitalization and electrification, as well as higher content in traditional cars driven by accessories. During Q1, automotive demand remained strong with our bookings well above. Our current and planned manufacturing capacity. Booking visibility is now extending to about 18 months. Our customer activity related to electrification and digitalization, the long-term trends driving automotive semiconductor content, increase and continue to accelerate into one. In car electrification, we added to our list of design wins for silicon carbide devices in application, such as traction inverters and on-board chargers. We also won a number of designs with complementary technologies, such as our high-voltage MOSFETs for an on-board charger and an electrical vehicle's auxiliary power supply. Vertical intelligent power products for battery management systems and with our 32-bit automotive microcontrollers for a traction inverter and for a battery management system. We are also winning sockets in these electrical vehicle designs with our legacy automotive products for domains such as body and convenience and infotainment. In-car digitalization. We are focused on technologies and solutions for driver assistance and autonomous driving, V2X communication, and embedded processing solutions supporting new domain controllers or zone server car architectures. For example, we had additional awards for our 28 nanometer MTSOI Phase change memory microcontrollers called STELLA. We want a number of designs in addition to what I mentioned before for electrical vehicles with our 32-bit automotive MCU and model processing solutions. All these products are designed on our own proprietary technologies and manufactured in our own internal 300mm wafer fan. Overall, in ADAS, we continue to see an acceleration trend on level 2 and level 2+. To conclude this automotive overview, we also expanded our sensor business with automotive-grade motion sensors for global positioning modules and navigation units. And we ramped a global shutter image sensor for a well-known electrical vehicle carmaker. The latest example of our diversification strategy is optical sensing solution. Moving to industrial. During the quarter, we saw very strong demands, both in high-end and consumer industrial. Factory automation was one of the main demand drivers, but also But we also saw a similar trend for power tools, home appliances, motion control, and power-related applications, including renewable energy. Demand was strong, both with distribution as well as OEMs, in line with our approach to be broad in the highly fragmented industrial market. Inventories of our products and distributors are currently lean across all product families with high inventory terms. Point of sales remains strong in the first quarter across all products and geographies. We address the industrial and market with our general purpose and secure MCUs, analog and sensors, power and energy management solutions. Our first strategic objective in industrial is leadership in embedded processing solution. I am glad to say that preliminary rankings for 2020 indicate that ST was number one for combined general purpose and secure MCU revenues. To continue to lead, we are strengthening our embedded processing offer around the STM32 family in terms of wireless connectivity, security, and artificial intelligence. During the quarter, we announced a number of products and solutions supporting this strategy. We launched a new extreme low-power STM32 series with advanced performance and cybersecurity features. The new devices have already won designs at major industrial OEMs and in metering applications. We also announced new STM32 Bluetooth low-energy devices and the first STM32 wireless microcontroller module. And we introduced a new artificial intelligence firmware and camera module bundle to help developers building Computer Vision Applications Our second objective in industrial is expansion in power energy management. Here we capture many wins with our power discrete products. For example, with silicon carbide and high voltage silicon MOSFETs, as well as IGBT in applications such as industrial power supply, electrical vehicle chargers, battery test systems, Air conditioners, of appliance and lighting. Overall, our silicon carbide engagements increased again during the quarter, now with 68 customers, equality split between industrial and automotive in 77 ongoing programs. A third strategic objective is to accelerate our growth in analog and sensors for industrial. In the first quarter, we had many new designs with our analog products for industrial applications. We received awards in metering, motion control, factory automation, and home appliances. And we also continue to expand our business in sensors in industrial applications with design wins for motion sensor and time of flight solutions in applications like Cleaning Robots Moving now, the personal electronics market. Today, more than ever, smartphones are a national source of social connection and streaming services for entertainment, fitness, gaming, and music. 5G adoption remains the main driver for smartphone growth moving forward. There is also strong demand, as we continue to see during Q1, for other connected devices including wearables, tablets, wearables, through wireless TRO headsets, and game consoles. In National Electronics, we are progressing on our two strategic objectives. First, to lead in selected high-volume smartphone applications with differentiated products or custom solutions. Here we continue to win sockets in flagship devices with motion sensors, multi-zone time-of-flight ranging sensors, wireless charging products, touch display controllers, and secure solutions such as an embedded SIM and secure elements with near-field communication. Our second objective is to leverage our broad portfolio to address high-volume applications such as True Wireless Tero headset, smartwatches, bracelets, and smart shoes. Here we had wins for standard and specialized motion and pressure sensors, analog and power products, as well as for microcontrollers. We also progressed with our solution for augmented reality based on laser scanning. The laser alliance we announced last year is now open to accept new members We signed an agreement with a technology specialist to jointly develop ultra-compact low-power laser beam scanner and we demonstrated augmented reality glasses based on ST component at Mobile World Congress, Shanghai. In communication equipment and computer peripherals during Q1, we saw continued adoption of 5G-related products as well as sustained demand for PCs and especially Notebook and Chromebook as they continue to move from being shared household devices to individual ownership. Our approach to this end market has three objectives. One is to address selected applications in cellular and satellite communication infrastructure. In this area, we capture multi-radio frequency CMOS ASICs for telecommunication infrastructure from a new customer. Our other objectives are to address selected high-volume applications with differentiated products or custom solutions and to leverage our broad portfolio. Our wins here include time of flight and motion sensors for laptops and Chromebooks. Now, let's move to a discussion on the second quarter 2021 outlook and some comments on the full year 2021. The unexpected magnitude and speed of the upturn in semiconductor demand has put the whole supply chain under strain. Manufacturing capacity worldwide, including at foundries, is currently saturated and went below the global level of customer demand, at least for the next six months and most likely for the full year 2021. LG reacted fast. Fully saturating our existing manufacturing capacity with the right product mix and by working to increase capacity faster and above our initial operating plan in our wafer fabs. Particularly for digital mixing hall CMOS based and advanced smart power and silicon carbide technologies to serve automotive Power and microcontrollers. Our current and planned 2021 manufacturing capacity is fully loaded with a confirmed backlog. We are now planning for 2022. We are working closely with our customers and partners across all end markets and channels to adapt to this unprecedented situation. For the second quarter, we expect net revenues to be about $2.9 billion, increasing year-over-year by about 39% at the midpoint, with again growth across all product groups. On the sequential basis, this translates into a sales decrease of 3.8% at the midpoint due to the usual seasonality in personal electronics. We expect the gross margin to be about 39.5%, representing a year-over-year increase of 450 basis points, mainly due to higher loading and improved efficiencies in our plants. Sequentially, this represents an increase of about 50 basis points at the midpoint. For the full year, So we will drive the company based on the plan for full year 2021 revenues of about $12.1 billion plus or minus $150 million. With this plan, which translates into a year-over-year growth of 18.4% at the midpoint, we expect to outperform the markets we serve. This growth is expected to be driven by strong dynamics in all end markets we address, and our engaged customer programs. We now plan to invest about $2 billion in CAPEX to support the strong market demand this year 2021, but prepare 2022 as well, and our strategic initiatives. To conclude, on Q1, ST showed its ability to adjust to the strong and sudden upswings in semiconductor demand, which started in Q3 last year and accelerated in Q4 and in Q1. We did that working alongside our customers and partners and pursuing our objectives with a diversified and balanced approach across end markets that is at the heart of our strategy. We continued to focus on customers, adapting our investments to increase our manufacturing capacity to support the higher level of global semiconductor demand and our engaged customer programs. We maintain our financial strength as demonstrated by our operating profitability and cash flow generation. For 2021, So we will drive the company base on a plan for full year 2021 revenues of $12.1 billion, plus or minus $150 million. We also plan to invest about $2 billion in CapEx, not only to increase manufacturing capacity, to support the strong global demand, including engaged customer programs. As an example for this year, We are preparing another extension of crawl to prepare next year 2022. But also we continue to run our manufacturing strategic initiative in order to enable our future growth. I have expectation we will deliver production wafer from Agra T300 by end of next year. On this accelerated revenue growth path, we will continue to make ST stronger determined to achieve our strategic objectives by leveraging our balanced market position, our focus on high-growth applications, and our solid product IP technology portfolio. All these are well supported by ST's unique internal manufacturing infrastructure, with our teams executing with strong discipline and Flexibility, no more important than ever under this market dynamics.

Thank you, Jean-Marc. And before we open the floor to questions, let me add a few words on our upcoming Annual General Meeting. So our 2021 AGM will be on May 27. As usual, all related materials are available on the Investor Relations part of the ST Corporate website. As part of the resolution submitted for the approval of shareholders, SIS, the Treasury Board, is proposing a dividend of $0.24 USD per share, so back to the pre-COVID levels. If you recall last year, taking into account the global societal and economic turmoil caused by the COVID-19 outbreak, the dividend was decreased to $0.168 USD per share. Another submitted resolution I am happy to highlight is the reappointment of Jean-Marc Chery as sole member of the Managing Board and CEO for another three years term. With this, we are happy to take your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and one at this time. The first question is from Alexander Pederk from Societe Generale. Please go ahead.

Good morning and thanks for taking my question. Can I just explore a little bit the upside and downside on your current year Revenue forecast of $12.1 billion. So we see shortages propagating from auto into smartphones and other industries as you've pointed out. Do you see any risk that if production is held back at your key clients that that could have a negative impact on your overall outlook for the year? And then on the upside, you now appear fully booked for the year. Are there any possibilities for you to exceed this forecast? Can you increase or accelerate any CAPEX plans at all or are we basically really pretty much at capacity? And then just as a point of maintenance, could you give us an outlook for your CMD? What kind of format will we have in the calendar for this year? And second, the maintenance point just on OPEX, where do you see it in the second quarter? Thanks a lot.

Okay, three questions. We'll start with the first one. The first one is the $12.1 billion up and down within the range. There could be some down driven by some changes in the profile of demand. I reiterate, Alex, and tell me if I'm wrong. And also up, is there any flexibility during the year to... Is there any up and down of the $12.1 million?

I think the plus or minus $150 million is basically the usual and standard uncertainty when you provide a such plan related to random events in the operation. I guess everybody are aware about what happened in Texas with the snowstorm and what happened in a Japanese competitor fire in the fab. So this kind of random event, you have to size it. So the range of plus minus $150 million is only related to random event on the operation, absolutely not related to demand. which again is well above our manufacturing plan capacity.

The second question was if we have any plans for capital market day next year or if we do anything.

For this year? No, for this year we have not yet planned. We will plan it during the course of the year.

And on OPEX?

Maybe I take the question about OPEX. Good morning to everybody. If I well understand, the question was on OPEX in Q2, how to model the OPEX in Q2. But in Q2, we see our expenses as likely decline compared to the one of Q1. Actually, the expenses in Q1 came a little bit higher than expected. While in Q2, we substantially, let's say, think the effects will stay similar to the one of Q1, slightly maybe down, but not significantly, where we have a more favorable calendar and maybe a little bit more favorable effects. but these will be substantially offset by increase in activities and don't forget that in the second quarter we have, let's say, the salary policy, so increase in terms of cost of labor. Thank you very much.

Thank you, Alex. Next question, please, Maria.

The next question is from Dominic Olszewski from Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for taking the question. First one's really just to follow up on the previous question. So does that imply that your sort of view on upside potential in the second half of the year because you're fully booked is more limited or what are the puts and takes on sort of that view on the second half? And then the second question is or the follow up is just around the mix of revenues that you're expecting for 2021. Thank you.

No, for the full year, again. Yes, by division. Yeah, by division?

No, for the full year, the mix of revenues. The first one was on H2, limited by capacity. And the second question is what is the mix of revenue for the year?

Okay, so I'll let Lorenzo to answer on the mix.

Let's say when we look at the growth in respect to 2020 by group, definitely we see that in our expectation of the $12.1 billion at midpoint, all groups are contributing. For sure, the groups that are contributing more is ADG with a significant growth, also based on the fact that last year, let's say, especially in the first part of the year, ADG was impacted by not a particularly strong market in automotive. This year is the opposite, so definitely ADG will be the driver of the growth. Followed by MDG. MDG for sure is impacted by the fact that in industrial there is a strong rebound in the market and our distribution as you have already seen in Q1 is much stronger, let's say, than it was last year. So the second driver will be Definitely MTG. And when we look at AMS, AMS last year had a stronger year, definitely will increase, will continue to on the path of growth, let's say at a less pace, lower pace compared to the other two groups. We'll say All of these three groups will contribute. First one, ADG, strong growth. MDG will be a significant growth. And also AMS will continue to grow significantly, let's say, contributing to the overall growth of the company.

Yeah, and for the second half and the full year, we can be at the upper range of what we mentioned. Assuming we execute 100% perfectly of all the operations we have set up, I would like to recall again that our operations are working 24 hours a day, 7 days a week, all the leave vacation, so we have absolutely no hold in our supply chain, and if we deliver it up to the last minute of 2021, We could be at the upper range of the 12.1 plus or minus 150 means 25.

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

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

Yes, hello, good morning everyone. So, the first question, and I have a follow-up, is can you, now that you gave some visibility for the rest of the year, your vision of your relationship with your largest customers, or customer, not customers, in the second half, and can you clarify in terms of content, and if you see sales growing with this customer, and as I said, I have a follow-up after.

Thank you. Okay, so this is an interesting question. What I would like to speak about, let's say, personal electronics. Clearly, now about ST, we are in all the platforms of the main players in personal electronics. because we are executing our strategic objective, what I would like to recall. With custom solution, we address selectively some, let's say, high-volume application out of the core digital of the smart devices. And on another end, we leverage our general purpose portfolio to capture, let's say, accessories inside the smart device and many other high-volume applications as well. And I take this opportunity to note that with our broad range portfolio, clearly we play in a multitude of devices everywhere with a major player. And this has enabled us to engage in many important customer programs around the world, and which for us again is essential to remain a key supplier in this phase-based personal electronics segment. Now, more specifically, our custom products that address selectively complex applications in the personal electronics segment play to our strengths. If we look at the typical design cycle time for these complex applications, I can confirm that we have a clear visibility on where ST products will remain a part of such application for the current three years and they will contribute to our revenue growth.

Okay, sorry, just to clarify, you can confirm for the current year or years?

Three years.

Okay, and then the follow-up is now that you have reached the $12 billion in 2021, well, you postponed that target from 2022 to 2023, so I understand the end demand has been much stronger than expected, but can you clarify if the $15 billion aspiration, I would say, that you talked about in the recent past can become your next target? Thank you.

I would like to come to the 12 billion. I think we share altogether two important changes versus, let's say, last December, November. First point, now the sum we are facing for our specific addressable market in absolute value is the one which was supposed to be in 2023, a few months ago. So first of all, the absolute value of the SAM we are facing now is the one we were supposed to be in 2023. And the company has demonstrated its capability to fast react in order to address it. Then, what is important to take note is that the mix inside the SAM is totally different than the one which was a few months ago. Because a few months ago, our SAM was very strong in, let's say, digital consumer part. And clearly here we were impacted by Huawei. And it was weaker in automotive and industrial. And the main change between now and a few months ago is acceleration, the strong acceleration of the automotive and the industrial part Okay, where ST is typically a broad range supplier and a leader. So that's the reason why with this brutal change in terms of overall size of the market, we have been, let's say, capable to deliver, and we will deliver, the $12 billion. So for me, it is totally consistent. Then for the next future, we are convinced that with our product portfolio, our technology, Our manufacturing supply chain, because again, as I said, I expect next year Agrate to start to deliver production wafer for revenue. We really expect that we have all the ingredients, including the visibility of our engaged customer program, to continue to overperform the market we sell. And definitively, when we will have and so on. So, we have to have the adequate confidence level about how the market will evolve, plus the visibility we have on our program to communicate on the next step. But let me, this quarter, as we are doing as usual, first of all, to give you the guidance of Q2, to provide This year's indication at $12 billion, and believe me, to deliver $12.1 billion, growing our internal manufacturing by 20%, not totally supported at the level we expected from Fondry, because they will increase only by 10%, is already very challenging, but the company is able to do it and will be able to deliver it.

Okay, thank you very much, Axel.

Thank you, Stéphane. Next question, please, Moira.

The next question is from Matt Ramsey from Cowen. Please go ahead.

Thank you very much. Good morning, everybody. I guess for my first question, Lorenzo, it looks like obviously you're producing as much as you can in your factory network and the gross margin is up, it looks like. Thank you.

The line was a little bit disturbed. What I captured is a question about the evolution of the gross margin along the year. This is my understanding. You see that in the first half the gross margin will be slightly above 39%. We are guiding 39.5 on Q2, is 39 Q1, so slightly above. What is the expectation moving forward from here? Of course, moving forward in the second part of the year, the contribution that we'll have from manufacturing efficiency, improvement of manufacturing efficiency, will be there, but will not be, let's say, very strong. Now we are running our FAPs at full capacity, at the best that we can do. For sure, let's say, in Q1 we were at 91%. More than that is impossible, you know, the limit there. Q2 will be similar and Q3 and Q4 will be the same, so without any kind of unloading charges. In respect to that, we will have a small improvement in terms of manufacturing efficiency. There will be some contribution from the mix. You have also to consider that the environment in pricing is, yes, favorable for our pricing, but on the other side we have also the supply chain. and the price overall, let's say, are increasing, partially offsetting what we can really share with our customer. So my expectation is to have some mild improvement in our gross margin, assuming there is no worsening in the currency environment because also these, you know, we are sensitive on that. Assuming that more or less we will stay where we are today in terms of currency, we do expect some mild increase in the second part of the year in terms of gross margin. Where we will end? Well, you know, the math is simple. Let me say that we will be between 39% and 40% gross margin for the year.

Got it. Thank you, and sorry about the breaking in the line.

No problem.

The phone is in the middle of the night as well. I guess my follow-up question, Jean-Marc, I know that Huawei has been a challenge for lots of companies in the ecosystem as a headwind, but for your company in particular, given some custom products that you were doing, It seems like now there may be a path forward for their smartphone business under the Honor brand that may do some fairly decent volumes going forward. I wonder if you might talk about some of the products that you might have targeted for the Huawei smartphone brand that many of us are modeling sort of at zero going forward if those might be applicable to the Honor brand if they get any volume in their smartphone business.

Thank you. Yes, Honor, we are addressing this customer in the frame of the other box in China. but also with our capability to confirm to them orders they ask us. So yes, we will deliver about maybe $100 million to HONOR in 2021. But it's totally different as a magnitude compared to what we were supposed to have with Huawei. Well, therefore, the remaining Huawei, we have, let's say, again, we have been rejected, okay, on all the licenses related to 5G and radio frequency, let's say, devices. And we have only a few standard, let's say, product licenses. And for us, it would be a really marginal revenue in 2021.

Thanks, guys.

Thank you very much.

Next question, please. The next question is from Alexander Duval from Goldman Sachs. Please go ahead.

Yes, good morning, everyone. A couple of quick questions. Firstly, obviously the issues around tightness and supply of components in the auto industry are very well publicized. I wondered if you could give a bit of an update on which quarter you think those kind of constraints could ease. and whether that might mean that there's a bit more sustainability of auto revenues into next year if they're capped a little bit this year. Secondly, you referenced digitalization as a driver of automotive. In the last few days, it's been reported that the UK government is looking at facilitating level 3 automated driving on highways and we're seeing increasing moves by premium OEMs into that level 2 plus autopilot arena. I wondered if you could share your view on how ST is positioned in some of these areas of semis required to facilitate those kind of developments and how you feel about the prospects of the ADAS market for semis as we move to those higher levels of automation. Many thanks.

Thank you for your question. So I will address to Marco.

Good morning. So first of all, yes, correctly as you say, Rebound that we had in the automotive, starting extremely strong from the late part of the Q4 2020, was much faster than was anticipated. And as you correctly say, this has driven at the end some supply chain constraints across all the semiconductor industries. We are working at this stage very close with our customers to support them. This is driven by all customers, including the distribution and by all the geographies. Why is this happening? Because first of all, the number of cars has been produced is increasing. There is clearly the need to replenish the inventories across all the automotive supply And let's not forget that the semiconductor content inside the cars driven by electrification and digitalization is going up, but also is driven by an increase of requirement of accessories inside the cars. All these together has brought to the situation a very, very tight situation. And we saw that during Q1, these demands stay extremely strong. The bookings that we have are in this stage above our current and planned manufacturing capacity. And the booking B2B that we have now is extended to 18 months. So what we are doing now is we are already starting with our customer about what is going to be the demand for fiscal year 2022. If you move now to others, yes. So the positioning, what we see in the market is that basically level two and level two plus is where the market is moving and is accelerating. And as you know, we are working here with the leader in the market in this kind of application, and we keep working with them to support the very strong demand that we do see in this portion of the market. I hope that this answers the question. That's great.

Many thanks. And we will prepare for level three. Absolutely.

Thank you very much, Alex. So next question, please.

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

Yeah, good morning. One question, Jean-Marc. You say you are fully utilized right now, but in Q4 you were capable of making $3.2 billion of revenues. So is the mix different that you are only, if I may say, at $3 billion revenue now on a current rate, or is it the access to the foundries that make the difference? And the follow-up question will be, with all the capacity increase, the capex you are putting in Kroll and Agrate and so on, could you quantify a little bit what kind of capacity expansion you are implementing in terms of welfare per month or just give us a hint of what kind of capacity by exiting the year you will be versus end of last year? Thank you.

So thank you for the first question. Also, I have to mention very transparently that in Q4, we have also a strong inventory decrease. So we fulfilled the demand, which was, let's say, not at this level. With the inventory we have on the shelf, okay, to support. So it is also, the reason why it's difficult to to compare Apple to Apple, Q1 versus Q2. Clearly, let's say in Q1, yes, there is also a mixed effect, definitively, because if I come up with an example, the revenue by verticals. Generally speaking, we... We command the revenue by product group, but here I can give some color on verticals. In Q1, year over year, we grow automotive by 31%. Industrial, 65%. Person electronics, 26%. And communication equipment and infrastructure, 20%. Secondarily, Q1 versus Q4, we grew automotive by 5%, industrial by 12%, we decreased personal electronics, as usual, by 27%, and we grew the communication equipment infrastructure by 10%. Yes, also there is an effect in terms of... Well, about capacity, where we are increasing capacity. Clearly, let's say the main three domains, let's say four domains we are increasing capacity are, first of all, CROLE 300, because CROLE 300, you know, is a FAB supporting strongly our personal electronic engaged customer program. Our microcontroller both for a secure general purpose and automotive and then okay we have let's say mixed signal technology addressing everything. So here we are going up to the limit of the current full build up let's say capability of DEFA but we have decided okay in December to make another extension because okay we have a A specific design in crawl to extend by modules. And this extension will be ready, let's say, by end of the year to support additional growth, both on customer-engaged programs, microcontroller, automotive, general purpose, secure, and diversified specialized mixing and technology to address everything. So this is the first domain. And by the way, our mid-term expectation with Scroll is to be capable to run close to 10k wafer per week. Then, the second area we are increasing a lot is in Agrate 200 mm for advanced smart power technology because here the demand is quite strong on the most advanced, what we call the BCD9. and, as a kind of copy-paste, Singapore. You know that we acquired, three years ago, the X-fab of Micron, which is, let's say, up to date 200 mm fab, and we are saturating this fab to support BCD9 again, to support microcontroller as well, and also vertical integrated power. The third domain is silicon carbide. Well, I have to say that part of the $12.1 billion, we have increased our revenue perspective on silicon carbide. If you remember very, very well, okay, I mentioned in January something in the range of $450, $500. Now it will be well above $550. So we are increasing, we are accelerating silicon carbide, both in Catania... but in Singapore as well. So now we are, let's say, on the way to qualify Singapore Silicon Carbide with us. And the rest is, let's say, in Catania to support IGBT and high voltage MOSFET to support the automotive market. So this is basically the three domain, the four domain, sorry, where we are. increasing our capex dedicated for capacity for this year, starting to preparing, okay, 2022. And then, important to share with you that we target to enter the first equipment in Agrat 300 millimeter, let's say, late this year, okay, and in Q1 next year. And I have a strong confidence level that the first revenue extracted from Agra 300 will happen, okay, by end of 2022.

Thank you very much.

Thank you very much, Jerome. We have now time to take two, I think, two more questions. So next question, please, Moira.

The next question is from Didier Chamama from Bank of America. Please go ahead.

Good morning. Thanks for squeezing me in. I just wanted to ask you a question, Jean-Marc, on the longer-term sort of consequences of the current shortages, especially in automotive. I wondered if you could maybe talk a little bit about the nature of your conversations with tier ones, whether even automotive OEMs are now talking to you to secure your long-term inventory levels, and whether you think that the behaviors in terms of purchasing are going to change, in particular as we move into the electrification of the powertrain where power semiconductor companies become, together with battery vendors, the most critical suppliers to automotive customers. Any views on inventories and how things are going to be managed going forward would be very interesting. And I've got a quick follow-up, thank you.

Well, I think today our view and, let's say, position is the following. Today you have, let's say, basically two kinds of business models. So you have a business model, and here I would like to mention carmaker Tesla, which is a mix where basically Tesla is developing its own embodied electronic system. And naturally, okay, spoken about its own embodied electronic system, he addressed the semiconductor vendor, okay, straight. And here, okay, with them, we have a, let's say, a business as usual supply chain relationship in terms of planning, update of planning, okay, inventory policy, and so on. But I have to mention that, okay, inside this business model, at any moment,

We are putting Tesla in difficulty.

Then, you know, there is the other business model, which is the... We are not. We are not, okay. And here, there is the other business model. There is the other business model, which is the classic one. So automotive tier one, making the abandoned electronics, and the tier one addressing nuts. In the future, if a carmaker wants to develop its own embodied electronic system on an hybrid mode, so some will remain with Tier 1, some he wants to do by itself, yes, okay, we will be ready to discuss with them and to interact our business with them. But if the rule is they want to skip the Tier 1 and discuss with us to secure inventory But continuing the current business model with CR1, this is something we will not consider. Because at a certain moment, we have to be consistent. Again, today what is happening is not a problem of shortage of semiconductors. Today what is happening is a pure lack of anticipation of planning and supply chain. It's not a question of business model. So our conviction that in the future we will have and also accelerated by the transformation of the powertrain, as you said, electrification, that we will run hybrid mode. So some carmakers will have their whole number of electronics and in such a case they will discuss with semiconductors and we will have the usual intimacy we have in R&D, in supply chain, in engineering and so on and so forth. And they will continue for another part of the electronics to use the tier one. And in such a case, our customers are the tier one. and I hope it's clarified.

That is very helpful. I'd like to have two quick follow-ups, if I may. First of all, on the pricing environment, you know, that's a question that a lot of investors are asking, you know, how can ST capitalize on the current shortages? I mean, are they levered to maybe potential price increases? So I wondered if you could maybe talk a little bit about that and if you could also talk a bit about your lead times maybe with the commodity products whether they could help you maybe break above the 40% gross margin that has been quite elusive, in fact, for the companies for quite some time. And my second question, Jean-Marc, sorry to put you on the spot, but that's my job. So you told us at the CMZ that you would do $12 billion in 2023 at the latest. Now you're going to do that in 2021. And you also flagged a $15 billion target midterm. I just wondered whether you could give us your level of confidence, maybe for 2022, whether you could outperform your total addressable market, if you think you've got the sort of visibility and confidence to do that. Thank you.

First of all, on price, Marco will answer because he's managing the sales and marketing.

Yes, correctly as you said, we are in an environment where the price increase is something that we are discussing and we are implementing with our customers. This was already discussed during January and this is Thank you very much.

I comment again on the 12 and the future. Again, my first question, okay, would I do the same, okay, now knowing what is happening today, a few months ago, to say that 12 billion will occur only by 2023? My answer is yes. Why? Okay, because the data point we have in our hand, so market we address by verticals. Data points on, let's say, light vehicles to be produced in 2021-2023, smartphones, the why we lost. All the data points we had at this period of time was pushing us to say, with this visibility and on top of that, the potential implications of the trade war between the US and China, to put us in a situation to say, to drive the company, okay, we do believe that we will be capable to achieve the 12 by 2023. Simply between, let's say, November, December, and Q1, if my memory is well, we simply book close to $8 billion in five months of bookings. And then, okay, all the customers come to us and say, no, my transformation is accelerating, number of cars are increasing, okay, industrial market, okay, driven by corporate sustainability, want to have more automation, more system, okay, with lower power consumption and so on. So all the planets align in a very fast path. And here, we reacted because our capacity, first, was not planned. Well, in a certain extent, not fully saturated, which was good. So we have reacted very fast. We moved many technologies here and there, and we increased our capacity. And we will deliver the 12 now because, again, the market we are facing now is the one which was supposed to be in 2023. Well, now, okay, again, I repeat, we have a clear visibility on one part of the engaged customer program with some, let's say, custom design product or differentiated product addressing complex embedded processing system. And we know that this basically architecture of system in terms of design lead time are more or less, okay, minimum two, three years. And so we know, we know exactly that for the next two, three years, okay, that we will have to deliver this system and this customer. But then after, there is all what is related to the market condition. So if the market condition, as said by WSTS, will continue for 2022, 2023, and 2024 to be the compound average growth rate of 4-5%, the company will overperform this market based on our product portfolio, our supply chain and our capability to support, and our engaged customer program. Then we will size it when we will feel the time is adequate in order to give us a target in terms of revenue in our mid-term strategic plan that we will work in the next few months.

Yeah, that's brilliant. Thank you so much, everyone, and thank you, Jean-Marc, in particular.

Thank you, DJ. And I think we will take the very last question now.

Today's last question is from Michelle Sultania from Credit Suisse. Please go ahead.

Hi. Hi, Monique. Thanks for taking the question. Just, Jean-Marc, if I'm just trying to understand the seasonality for second half based on your four-year guidance. It seems that the analog and sensor business is likely to see very small growth in the second half of the year, year-on-year terms. So just trying to understand that, see clearly the demand from smartphones and accessories has been increasing. So what's causing you to be slightly more cautious, it seems, on the AMS business in the second half? Is it Is it predominantly related to the China customer that you had or is it something else as well built into that guidance?

Thank you. No, there is no specific customers. Again, this year is an unprecedented one. We are limited by capacity. Believe me, the pressure we receive from car makers is incredible. I guess everybody is not ignorant that some government has put pressure on some funders to decommit products for consumers to allocate to automotive. So this is very complex. So this year there is basically infinite demand, I can classify it, and all the industry is working closely with customers, with, let's say, partners, in order to allocate according short-term priorities without building any inventories, but to be sure that all the components are making all the plans of the customer running, and you see it's very difficult, but not absolutely related to one specific application or one customer. So for sure, we will have this year a very strong growth of automotive and industrial market within the $12 billion, and let's say a more soft growth on personal electronics and on communication infrastructure versus last year, forestry first of all because there is no more highway, and there is only a marginal honor and also because capacity has been allocated to support the automotive industry. So this is the reason why we will have this difference of growth between the various product groups and the various verticals.

Thank you. And maybe one quick follow-up. If I look at the SAM, you've been significantly outgrowing your overall SAM for the last couple of years, maybe three years. Do you think that outperformance continues into 2021 and 2022, given the visibility that you have?

2021, the public visibility we have from WSTS is our SAM to grow 14.6%. 14.3, sorry for the mistake. And as we forecast to grow 18.4, so let's say 1.3 times basically the market we address. Then for 2022, I would like to repeat what I said a few minutes ago. First of all, we are preparing ourselves to grow with our manufacturing infrastructure. And in the various plans I shared a few minutes ago, so I repeat, Kroll, the Singapore 8-inch, Agrat 200, Agrat 300, and Catania Silicon Carbide. And then, for sure, thanks to our engaged customer program, we have the visibility, we have the certainty, we have plus market conditions which are supposed to be at a compound average growth rate around 5% and our portfolio, so general purpose, SCM32, power, our general purpose analog, plus all our application-specific standard products. Yes, okay, I confirm that, okay, our ambition and our capability is to continue to overperform the market we address.

Great. Thanks a lot, Jean-Marc.

Thank you very much. Thank you, Hachelle, and thank you to all of you. This will now conclude our call for this quarter. As usual, thank you very much for your attention.

Bye-bye. Thank you very much. Thank you. Thank you. Bye.

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