STMicroelectronics N.V.

Ladies and gentlemen, welcome to the STMicroelectronics Q3 2021 earnings release conference call and live webcast. I'm 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 1 on your telephone. For operator assistance, please press star and 0. 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, Moïra. Good morning, good morning, everyone, and thank you for joining our third quarter 2021 financial results conference call. Hosting the call today is Jean-Marc Chery, ST's President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer, and Marco Cassis, President of Sales, Marketing, Communications and Strategy Development. This live webcast and presentation materials can be accessed on ST's Investor Relations website. A replay will be available shortly after the completion 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 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 yourself to one question and a brief follow-up. With this, I'd now like to turn the call over to Jean-Marc, the Vice President of STO.

So, good morning everybody, and thank you for joining ST for our Q3 2021 earnings conference call. Let me begin with some opening comments, starting with Q3. Net revenues increased 6.9% on a sequential basis, and more. The revenue performance was driven by strong global demand and by our engaged customer programs in personal electronics. This was partially offset by lower than expected revenues in automotive, Our growth margin at 41.6% and operating margin of 18.9% improved from 36% and 12.3% respectively. Our net income nearly doubled to $474 million. On a year-to-date basis, net revenues increased 31.8% to $9.2 billion Driven by growth in whole product groups except the radio frequency communications subgroups. For the nine months period, we reported a growth margin of 40.4%, operating margin of 16.7%, and net income of $1.25 billion. On Q4 2021, at the midpoint of our hot look, we expect net revenues in the fourth quarter, to be about $3.4 billion, representing an increase of 6.3% sequentially. Gross margin is expected to be about 43% at the midpoint, representing a sequential increase of 140 basis points. For the full year 2021, based on the midpoint of our Q421 guidance, We now expect full year revenues of about $12.6 billion, representing a year-over-year increase of 23.3% at the high end of the launch we provided in July. This growth is expected to be driven by continuing strong dynamics in all the end markets we address and our engaged customer programs. Our 2021 CAPEX investment plan of about $2.1 billion remains unchanged. Now, let's move to a detailed review of the third quarter. The revenue performance was driven by strong global demand and by our engaged customer programs in personal electronics, partially offset by the impact of the pandemic in Malaysia. Net revenues increased 19.9% year-over-year with higher sales in our three product groups and all subgroups except, as expected, the radio frequency communications subgroup. Year-over-year sales to OEMs increased 9.9% and 48.6% to distribution. On a sequential basis, net revenues increased 6.9% Substantially in line with the midpoint of our outlook, this growth was mainly driven by IMS up 25.2% and, to a lesser extent, MDG up to 2.6%. While IDG decreased by 6.7%, caused by more severe than anticipated reduced operations at our Malaysian manufacturing facility due to the pandemic. Specifically, the incremental revenue impact in Q3 related to Muar is about $100 million above our initial assessment, mainly for the automotive subgroup. Gross profit was $1.33 billion, increasing 38.7% on a year-over-year basis. Growth margin increased year-over-year to 41.6% from 36%, mainly driven by manufacturing, both efficiency and better loading, as well as product mix and more favorable pricing. These positive drivers were partially offset by negative current effects, net of edging. Our third quarter growth margin was 60 basis points above the midpoint of our guidance, driven by product mix. Third quarter operating margin was 18.9% from 12.3% in Q3 2020, with improvements in all three product groups. Both net income and diluted earnings per share nearly doubled year over year, respectively reaching $474 million and $0.51 from $242 million and $0.26 per share into $3.20. Looking at the year-over-year performance, all product groups recorded double-digit growth. EDG revenues increased 18.1% on growth in automotive and power districts. EMS revenue increased 27.1% on higher analog MEMS and imaging product sales. MDG revenues increased 12.9% on growth in microcontrollers, partially offset by the expected decline in radio frequency communication. By product group on a year-over-year basis, all product groups showed improvement in operating margins. ADG operating margin increased to 10.8% from 5.8% IMS operating margin increased to 24% from 17.5% MDG operating margin increased to 23.9% from 17.4% Net cash from operating activities more than doubled to $895 million in Q3 versus $385 million in the year-ago quarter. CAPEX in third quarter was $437 million compared to $390 million in the year-ago quarter. Free cash flow improved to $420 million compared to a negative $25 million in 2023. We exercise the call option of the early redemption of our 2024 tranche B convertible bond issued in 2017. As a consequence, bondholders exercise their conversion rights on the total of $750 million, principal amount of the bond. In the third quarter, we fully settle this bond, delivering about $5.8 million Treasury Shares, and paying $1.26 billion in cash, which includes the $750 billion principal amount. During the third quarter, we paid $55 million of cash dividends to shareholders, and we executed an $87 million share buyback, in connection with our new share repurchase program, initiated on July 1st of this year. Our net financial position was $798 million at October 2, 2021, reflecting total liquidity of $3.46 billion and total financial debt of $2.66 billion. Let's now discuss the market and business dynamics. Similar to the second quarter, the backdrop of strong global demand continued, with supply chain remain In automotive, bookings remain strong in Q3 and the backlog still covers about 18 months of demand. Demand continues to be well above our current and planned manufacturing capacity. One of the biggest challenges in the quarter for the whole automotive industry has been the pandemic situation in Malaysia. A country accounting for 13% of the worldwide ship assembly testing production. This had an impact also on us. First of all, to our deepest regret, it impacted our employees and their families at our site in Murat. Then, there was the operational impact. With the worsening of the situation in July and August, the impact of reduced operations in our facilities in Muar became more severe than anticipated when providing our Q3 2021 business outlook. Our site went through a period of partial or complete closures with a progressive return to 100% production capacity during Q3. Moving now to car electrification and digitalization. In car electrification, we added to our list of projects for silicon carbide devices. Overall, our engagement increased again during the quarter, now with 85 ongoing programs and 70 customers, equally split between industrial and automotive. I am pleased to announce that Based on our strong pipeline of design wins and market dynamics, we now anticipate to reach our target of $1 billion of silicon carbide renews in 2024, one year earlier than planned. New design wins in Q3 include a Generation 3 silicon carbide MOSFET for an electrical vehicle climate control compressor, There were also a number of other electrical vehicle applications where we had success with complementary technologies. These include sockets for high and low voltage silicon MOSFETs and microcontrollers in battery management systems and traction inverters. MOSFETs in inverters, outbound chargers and DC to DC converters and VI power in electrical Vehicle battery packs. In car digitalization, during the quarter, we had a number of design wins with our 32-bit automotive microcontroller family in applications like body domain, smart gateways, as well as a win for our Teseo GNSS chipset in an audio-video navigation system. Also, in our automotive sensor business, we run sockets with automotive-grade inertial measurement units across multiple applications such as telematics, door control, and navigation. Moving now to industrial. We continue to see very strong demand both in high-end and consumer industrial. and with distribution as well as OEMs, in line with our broad approach in the highly fragmented industrial market. Inventories of our products at distributors continue to be lean across all product families with high inventory terms. We address the industrial end market with our general purpose and secure embedded processing solutions Power Energy Management Products, and our sensors and analog portfolio. In our model processing, we are continuing to strengthen our leadership through the SCM32 family, offering an ecosystem. As I have mentioned before, we have a particular focus on wireless connectivity, security, and artificial intelligence. We are seeing increasing success with our STM32 wireless product line, achieving design wins across a broad customer base. We strengthen support for wireless design with additional software tools, as well as new modules that will help developers go faster. In artificial intelligence, we release tools that add new artificial intelligence methods to our STM32QEI. In power and energy management, we achieve a number of wins with our power discrete portfolio. For example, with silicon carbide transistors and modules, with high and low voltage silicon MOSFETs, with IGBTs, and with diodes. Applications include solar inverters, energy storage systems, power adapters, home appliances, air conditioning and lighting, welding, and industrial power supplies. We also want a 1200sic base power module for an electrical vehicle charging station. In the quarter, we also add many new designs with our industrial analog products, with awards in applications like motion control, smart grid, factory automation, and home appliances. We continue to win business in sensors for industrial applications such as power tools and with our specialized devices like inclinometers. Moving now to the personal electronics market. In Q3, we continue to see strong demand for smartphones and for other connected devices, including wearables, tablets, wearables, through wireless TRO headsets and game consoles. Our first strategic objective in personal electronics is to lead in selected high-volume smartphone applications with differentiated products or custom solutions. During the quarter, we want sockets in a number of devices with motion sensors, ambient light sensors, time of flight ranging sensors for laser autofocus, wireless charging products, touch display controllers, and secure solutions. Our second objective is to leverage our broad portfolio to address high-volume applications. Here, we had wins with a broad range of light, motion, and environmental sensors, as well as with analog power and microcontrollers in applications such as smartwatches, 2IRS0 headsets, and smart shoes. We also progressed on engagements with several leading players for our laser beam scanning solutions for augmented reality. In communication equipment and computer peripherals, we continue to see adoption of 5G-related products, as well as a sustained demand for PCs, mainly for enterprise notebooks. However, following the recent Helios satellite launches, I can confirm that our programs and ramp-up are on schedule. We have three strategic objectives in our approach to this end market. One is to address selected applications in cellular and satellite communication infrastructure. In this area, we were awarded new sockets in a radio frequency designed for satellites. We also target selected high-volume applications with differentiated products or custom solutions while leveraging our broad portfolio. Our wins here include time-of-life sensors for laptops, many general-purpose MCU design hints, as well as a win with our MasterGAN family for smart charging controls in an ultra-slim power adapter. Now, let's discuss the fourth quarter outlook. For the fourth quarter, we expect net revenues to be about $3.4 billion at the midpoint, representing a growth of 5.1% year-over-year and 6.3% sequentially. Growth margin is expected to be about 43% at the midpoint, representing year-over-year and sequential increase of 420 basis points and 140 basis points, respectively. Based upon our year-to-date results and Q4 midpoint, we now expect 2021 net revenues of about $12.6 billion at the high end of the range we provided in July. This plan will translate into year-over-year growth of 23.3% at the midpoint. Drivers of this expected growth are the continuing strong dynamics in all the end markets we address and our engaged customer programs. To conclude, our results in the third quarter and higher sales plan for the full year reflect strong year-over-year revenue growth, translating in higher operating profitability, net income, and free cash flow. Revenue growth stems from the expected continuation of strong dynamics in all the end markets we address and our engaged customer programs. Our focus stays on customers. We continue to adapt our supply chain to support their strong demand. We also continue to provide leading-edge technology and product innovation to enable smarter mobility, more efficient power and energy management, The wide-scale deployment of IoT and 5G in a more sustainable world. Thank you and we are now ready to answer 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 Stefan Huri from Odoo. Please go ahead.

Yes, good morning everyone. Actually, I have two questions. The first one is an update because last quarter you basically said that M-Demand was More than 30% above the current supply. So can you please update this statement and comment on your visibility for 2022 revenue growth? And the second question is about the gross margin guidance in Q4. 43% is a level that honestly I haven't seen for many, many years, if ever. So can you comment a little bit on the elements of this gross margin evolution and if this level can be seen as a sustainable level going forward? Thank you very much.

Thank you for the question. So I will take the one related to the revenue perspective and Lorenzo will take the one about the gross margin. Well, I can confirm that for 2021, yes, we are seeing unconstrained demand, which will, let's say, really well above our manufacturing capacity and sales plan in the range you mentioned. Things will improve next year, definitely, but the gap will be still quite material. About 2022, what I can say, having the following elements in our hand. Basically, the market we serve will be supposed to increase by 8%. Looking at our backlog coverage, Again, it is above the manufacturing capacity we are planning. We are planning based on the investment we are doing currently and will contribute for the first half next year. And the investment we are planning for the first half next year will contribute to the second half. I can say that we are very confident that ST will perform well And again, we will communicate, okay, end of January, the CAPEX we intend to do for 2022, and we will provide the detailed number for the year indication in April. But I can confirm now that we are very confident to perform much better than the market we serve.

Yes, maybe I take the second question about the gross margin, the dynamic of the gross margin. Good morning to everybody. Gross margin of 43% is our guidance for the current quarter. Here we will see an improvement in respect of 41.6% that we post in the last quarter in Q3. And this is mainly driven by two elements. On one side we have still a positive growth Thank you very much. Looking at the total year, let's say if at a midpoint of our Q4 guidance, the gross margin for the total year will come in the range of 41%. Moving forward, of course, our gross margin has some seasonality quarter over quarter. Anyway, the price environment moving in 2022 Considering the backlog that we have and the situation of the business, I would say that they remain positive. And definitely, we still have room for manufacturing productivity gain and definitely also for a better product mix moving in the next year. We have also considered that, however, that there is an increase in our cost. There is inflationary Thank you very much. as, of course, the increased production and the capacity, there is a lack of time between when you can increase your production and have a full efficiency of your investment. Anyway, when I look at all these ingredients all together, I think that, let's say, we have moving in the coming quarters, we definitely will have opportunity to improve Our yearly gross margin in respect to the 41 moving in 2022.

Okay, thank you very much.

Next question, please. Next question is from Matt Ramsey from Cowen. Please go ahead.

Yes, good morning, everyone. Thank you very much. I guess just following on the margin question a little bit, and congratulations guys, 43 is a heck of a level. I guess, Lorenzo, could you walk us through a little bit more specifically what kind of driver or I guess how material is the pricing increases in your gross margin that you're seeing and maybe what you plan for the next couple of quarters and I guess the reason for the question, I get asked a lot, how much of this pricing increase that you guys are seeing right now in this environment where demand is materially better than supply, how much of that price increase do you guys think is sustainable through the cycle versus transitory? And I guess my second question is just on the ADG business, obviously some headwinds in Malaysia. Jean-Marc, if you could talk about how you see that business recovering and potentially how quickly in the first half of the year and maybe even in the fourth quarter. Thanks.

I take the one of gross margin. When we look at the gross margin, let's say, for sure there is an ingredient that is, as I was saying before, related to the price. If you want... When we look at our progression of the gross margin, both if I look sequentially, even if I look here over here, of course, even over here there are many components. But I would say the two main drivers on one side are the price, price environment, and the other side is the product mix and manufacturing efficiency. This impact, I would say that all in all, when I look at, let's say, the progression is more or less in the 50-50. How much is sustainable the pricing crisis? I think that in a short, medium term, I think this situation will stay. also because as I was saying before let's say here is an inflationary environment both from our side let's say to our customers but also let's say for our cost. I said what I repeat what I said before let's say looking at the level of profitability in terms of gross margin of this year I think that combining together let's say price environment Manufacturing efficiency and also discounting, of course, on the other side, the headwinds that are mainly related to this price increase from our supplier. I think that there is room to progress moving year 2022, our gross margin compared to the year 2021. Of course, following some kind of seasonality that we normally have, in which, let's say, the gross margin in the first quote and first half in general is a little bit lower in respect to the gross margin in the second half.

About the second question on automotive and power discrete, yes, I can confirm that this group will be a key contributor to the growth. In Q4, Foresti. Just as a matter of transparency, I mentioned during my speech that versus what we already embedded in our guidance, the impact of Muar has been $100 million, mainly impacting the automotive product group. But what we already embedded in our guidance was $70 billion. So you see a total impact of Muar of $170 billion on automotive, mainly on automotive product group, and in a less extent on microcontroller. So now Muar operation completely resumed during September. All the people are vaccinated. We have, let's say, in full agreement with the Malaysian authorities, really ad hoc protocols to avoid any further lockdown and closure of our plant. So, yes, I am very confident that ADG will be a key contributor of the growth in Q4 and next year. Thank you very much, guys.

I appreciate it.

Thank you very much. Thank you.

Next question please, Maura. The next question is from Johannes Schaller from Deutsche Bank. Please go ahead.

Yeah, thanks for taking my questions. Firstly, we have seen a few semiconductor companies talking about destocking of components, even in this very strong demand environment. It's mostly in PC and smartphone and it relates to components that are not in tight supply but then there was restocking but the final product, the PC or the smartphone, couldn't be built. Can you maybe give us a bit of an overview on your product portfolio if you are seeing any of such dynamics in any of your businesses, Jean-Marc? I think you already mentioned on the distributor channel you see very lean inventories. But maybe there are some product groups we should consider here where inventories have recovered already. And then secondly, also, Jean-Marc, I think you maybe scared the market a little bit when you talked about flat imaging sales about a year ago in 2022. Can you now just maybe give us a quick update to better understand the dynamics in imaging and maybe also give us an idea of how that business is growing in the second half of this year compared to the second half of last year? Thank you.

So, thank you. Sorry. Thank you for your question. Now, first of all, okay, about personal electronics and computer. Well, as you know, Our strategy is to address selectively this market basically with a custom design solution. So you have no inventory and custom design solution as a principle because we have a perfect connection with our customers. and we are working with forecasts and let's say real-time sales. So we have not seen any inventory change because we have no inventory. However, you know as well that we are addressing also this market, taking opportunity of our, let's say, great general purpose product portfolio, so like MCU on Power. and clearly overall on personal electronics and computers, we have not seen adjustments in the inventory pipeline. I would like to recall that even if worldwide we have seen here and there some fluctuations in the smartphone market, all the markets related to accessories, So, headset, okay, all this kind of stuff is very dynamic, is very strong. So, we have absolutely not seen that. So, clearly in H2 this year compared to, let's say, H2 last year, there is a different profile of the revenue between Q3 and Q4. because if you remember, well, last year was a little bit exceptional, mainly related to one of our major customers because the program and the introduction of phone were a little bit delayed, which was not the normal signature of revenue. This year, okay, it's coming back to normal. So we have a strong Q3 and basically, okay, that's the reason why we share with you that our IMS group contribute a lot on the Q3 revenue growth, both sequentially and on a year-to-year basis. And Q4, definitively this year, is a different profile compared to Q4 last year. Also, the number of the quarter, the day of the quarter is materially lower. Basically, we have six-day lace, in Q4 2021 versus Q4 2020. Then, last but not least, I guess you have seen, like me, many communications from Sam Tierdon on the architecture of the system that I will not comment, but are, by the way, quite well balanced between him and modification. and I would simply to confirm that this imaging product group will contribute this year to the growth of the company. We have completed, as I said a few minutes ago, the sales and operating plan of the company for next year that will target a material Growth better than the market we serve. Imaging will materially contribute to this growth and with the visibility we have, I am very confident that imaging will be a key contributor of the revenue model that ST will disclose certainly next year at our Capital Market Day.

That's very clear, Jean-Marc. Thank you. Just maybe one quick follow-up on the inventory question. Is there anything in automotive, even some smaller components that may be less supply constrained, where you see any inventories right now, or is there really nothing, in your view, in the supply chain and at your customers?

The day-to-day life we have with our customers, first the tier one and the carmaker, that The list of, let's say, components of honor to the capability of the semiconductor to support the automotive industry is quite wide. Then the car makers and the tier one, they manage their supply chain. and we don't know, we have not the visibility of the way they behave, facing this shortage of many components for the time being and how they prepare their Q4 and next year. But from our, let's say, visibility, for our own consignment stock, because we know that the business model with automotive industry is consignment stock, and then they push out to their own supply chain. We have no, let's say, over-inventory in our supply chain. If we have a slight inventory increase for ST, it's simply due to the fact that in Q3, we have seen our MUAR operation facing many closures. We have decided to not stop wafer supply. Why? Because we strongly believe that we will recover more, let's say, issues during the course of the next few months. And all this wafer will be absorbed thanks to the strong demand we have from the automotive industry.

That's very helpful. Thank you so much.

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

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

Good morning, and thanks for taking my question. I just wanted to come back to your gross margin, puts and takes. I think that was quite useful. I just want to understand one thing with regard to calendar year 2022. So you're talking about inflationary pressures, which I fully understand, coming from your subcontractors, materials, etc., but so far those costs have already started to come through and yet you are guiding for the highest gross margins in 3Q2000. I think you did 47% there if I recall. It was I think the second or third quarter I covered ST. So my question to you is when you look at 2022, pricing is starting to move up for you guys. Your long-term contracts probably starting to get repriced as well which was not the case I suspect in 2021. So, in other words, for your gross margins to not be above 43%, or at least well above 41%, you would have to assume that either your depreciation is going to go up massively into 2020-2022, or that you cannot, if you want more than pass on, or at least pass on the inflationary pressures you get from your subcontractors and materials. I'm just trying to understand why, what are the bits there that are missing?

Yeah, I take your questions.

It's quite a detailed question.

Yes, of course, when I look at the dynamic of our gross margin, there are different elements, as you were mentioning. On one side, for sure, the inflationary costs that we see are not fully reflected correctly in our current gross margin, in our expectation of the gross margin, let's say, even if also during this year they were progressively entering in our gross margin in 2021 already because we were Thank you very much. It's even true that on the other side we see positive impact on our gross margin moving in 2022, coming from product mix, coming from improvement in manufacturing, in our efficiency, in our back-end. So this will, on one side, offset this negative impact. There will be seasonality during the year, as I was mentioning before, and what we think and what we see looking at the next year is that our gross margin in average for the year 2022 will be, let's say, improving in respect to the average that we had in 2021. So we see, let's say, still opportunity to progress in gross margin in the next year.

Very well. Thank you for the details on that. I wanted to ask also a little bit about the macro environment. We've seen some reports of power cuts in China. I just wondered if you could give us a little sense of the situation on the ground over there. You said your distribution inventories were lean. Have you seen any sort of negative activity or negative impact from those power cuts or any slowdown in the China economy with regards to your distribution business or direct business with OEMs in that region?

Absolutely not. I think, okay, with what happened in Malaysia, it's enough for SP, but China, absolutely not.

Okay, brilliant. And then maybe one tiny one since this one was short. You said that Q4 is short by six days. Is there any sort of, you know, number you can give us for Q1? Is it a more normal quarter for Q1?

Yes, Q1 will be, let's say, Q4, I would qualify Q4 as a normal quarter because it's 90 days. What was not really normal was Q4 last year. It was a longer calendar days for ST. This year, let's say, this quarter is 90 days. and that one will be similar, I think. 92 days, okay. Thank you very much.

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

Yeah, good morning.

Christian, could you update us on the capacity coming from Foundry and also the ramp-up of your own capacity specifically for silicon carbide and gallium nitride? On the gallium nitride, when are we going to see this program to become material for STMicro?

Thank you. As I said, on a non-recurring point, The support we receive from the foundry in H2 versus H1, as far as volume are concerned, is below. I already explained why, because during last March, some decision has been taken about allocation to support the automotive industry at the detriment of the industrial market. I don't want to comment more than that. Good news is that part of our sales and operating plan, of course, there is our internal manufacturing capacity and foundry commitment to us. And I can confirm that next year, they will increase their support, especially to support our growth on microcontrollers. Silicon Carbide, we are continuing to increase quarter after quarter our capacity first in assembly in Shenzhen and in Buscoura, both for application specific modules or packages. We continue to increase our capacity in Catania and now we have the double source in Singapore. We are in close connection with our suppliers, so our capacity is steadily increasing to support the very strong demand of our customers and especially one with whom we are engaged. Gann, you know that our strategy was to go fast on the market with Gann using TSMC as a foundry. So this is what we are doing. So our revenue will start to grow next year. And in parallel, embedded in our CAPEX for 2021 and in 2022, there is capacity we are building in our wafer fabs that will contribute to the revenue more, let's say, in 2023, 2024 and beyond.

Thank you. And maybe a follow-up just on the OPEX. How should we model OPEX for Q4? Thank you.

In term of OPEX, let's say in Q4 we will see some increase in respect to Q3. Of course, there is seasonality. Q3 we are benefiting of the vacation. Anyway, when you model the expenses, I confirm what I was saying in July. When you take the full year expenses for 2021 and you split by four, let's say, to have an average quarterly OPEX, they will stay in the range of net OPEX, including other income and expenses, and net OPEX will remain in the range of $735-$740 million per quarter. Thank you.

Okay, thank you very much, Jerome. Next question, please, Moira.

The next question is from Francois Bovigny from UBS. Please go ahead.

Hi, everyone. I have two small questions. The first one is coming back on the silicon carbide. So you talk about your capacity, which is helpful, but you also said today that you expect one billion to reach in 2024 versus 2025. So I wanted to have a sense, can you explain what, you know, is driving this kind of accelerated roadmap? Is it one specific customer? Is it like more automotive, industrial, anything you can give around, you know, the drivers of this accelerated path would be helpful? And the second question is the inventory, coming back to that slightly, sorry about that. You talk about the inventory situation now, but I wanted to have your view with your experience, how you see the inventories in the next quarters, basically. How should we think about the development of these inventories given the high demand? Should we expect inventories to be different by products or inventories to increase slightly from here? Just to have your sense of how we should think about that going forward. That would be helpful. Thank you.

Okay. First of all, about silicon carbide, we worked on the market data very recently and now clearly, when you look at the compound average growth rate of the electrical vehicles, is increasing a lot for the next three years versus what was expected one year ago. So first of all, the first input parameter is a data point we received from various analyses about an acceleration of the adoption of the electrical vehicles in the next three years. By the way, I will not make any advertisements. I guess you are aware that In September, the first vehicles which has been sold in Europe is an electrical vehicle. So you see it is a clear sign of an acceleration of the electrical vehicles within the overall, let's say, plan of production for cars. So this is the point number one. So our confidence level for the next three years of the market for electrical vehicles is really increasing. Then intrinsically for ST, it is clear that now we have a number of programs increasing. And then it's a mix. It's a mix where high volumes contributing to revenues are related to automotives. Well, we have already a famous ongoing, engaged program with one important customer that is, let's say, running very, very well. And I guess you can assess, okay, with the various publications. Then the other opportunities will start to fly in the near term. And this is clearly, from volume perspective and revenue perspective, the main driver of our $1 billion revenue that we will deliver full year in 2020-2024. And for sure, we have also the other contribution from industrial market, where here it's more fragmented. However, from the industrial market, our strong expectations are on the charging station. Because here, we expect a strong proliferation of the charging station everywhere in the world, in Europe, in order to support this electrical vehicle increase. Then about inventories. You asked for my experience. Simply what I can tell you, the inventory situation today in many supply chains is not sustainable. When you have complex supply chains between OEM customers, tier 1, tier 2, EMS, distributors, tier 3, you cannot operate smoothly all these operations. Point number one, if you have no inventories. Point number two, the logistics. I guess you are really aware that there is a congestion of, let's say, the logistics by sea, by boat. All the big harbors in the world are totally congested. A part of the traffic now is going to air flight. Air flights today are basically also congested. because of the reduction of number of flights and planes. And it is very similar. These logistic constraints, increase of lead time related to the logistics will also push all the manufacturing actors in the world to increase a little bit their security and safety inventory. So for me, that's the reason why the demand Thank you very much.

Yes, sir, thank you very much.

Thank you very much. So then we have time for one last question.

Moira? The last question is from Sandeep Deshpande from J.P. Morgan. Please go ahead.

Yeah, hi. Thanks for letting me on. My question is actually regarding your view into, you know, clearly you've been supply constrained this year, Malaysia issues, et cetera, but what your view is into looking into 22 based on your backlog, Not only on your revenue front, but also in terms of being able to continue to supply, will you continue to be supply constrained in 22? And then the follow-up is on costs, and the cost follow-up is related to what is your depreciation in 21 and what will it be in 22? Thank you.

Lorenzo, you will comment on depreciation. But sorry, Sandeep, I have not captured very well your first question.

Will you give some supply constraints? What is the level of supply constraints you will get in 2022?

Here it is clear that when we have completed our overall sales and operating plan constraints, I can confirm to you that the perspective, the feedback we have today, that we have constraints first in equipment delivery, so process equipment delivery, assembly, and test. Basically, now, if you want to have a slot for a scanner, I think you have to wait for Christmas 2022. More or less, for, let's say, other process tools, it's maybe a little bit Shorter in terms of lead time, but not so far. Assembly as well. And why? Because also, most likely, this equipment, they're also limited by semiconductor supply. So I have managed cases with my team that equipment supplier for WAF or FAB ask ST support to supply it. Well then, material for backend. The situation for substrate, for frame are quite stretched and we are in very close discussion with our supplier to provide long-term forecast but quite long-term engagement. It is valid as well. on, let's say, processed materials, so gases, chemicals, and last but not the least, silicon. Clearly, okay, the demand on 300-millimeter silicon for 2022 and 2023 is quite strong. So now, as a semiconductor company, it is clear that We have to be, let's say, very accurate and attentive, building our sales and operating plan to check our full supply chain, because a big mistake would be to think that we operate at infinite capacity. So it is not the case, and our semiconductor is not only the bottleneck. So you have the full supply chain under stretch, and that will, let's say, increase capacity smoothly in 2022 and then coming back to expected situation where you will have a balanced inventory, lead time and flexibility not before 2023.

The question about depreciation. This year, in 2021, our depreciation and amortization, mainly depreciation, I would say, we are in the range of slightly above $1 billion, $105 billion. I do expect with our plan, let's say, of investment that we are doing, we have done in 2018, This year, let's say, 2021, and then we will continue to invest also next year. There will be a similar increase in 2020. We had around $900 million of depreciation. They will increase in 2022 in a similar way, likely.

Understood. Thank you so much.

Thank you very much. I think this was the last question. And that will conclude our call for today.

Thank you. Thank you. Thank you. Bye-bye.