STMicroelectronics N.V.

Ladies and gentlemen, welcome to the STMicroelectronics fourth quarter and full year 2021 earnings 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 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 Céline Berthier, Group Vice President, Investor Relations. Please go ahead, Madam. Céline Berthier Thank you, Moira, and good morning.

Good morning, everyone. Thank you for joining our fourth quarter and full year 2021 Financial Results Conference Call. Hosting the call today is Jean-Marc Chéry, Chief President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and Chief Financial Officer, and Marco Cassis in his new role since January 1st as President of Analog MEMS and Censor Group. And Marco has kept as well some global corporate role. He is as well head of STMicroelectronics Strategy, System Research and Applications, and Innovation Office. This live webcast and presentation materials can be accessed on ST's Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause SIS results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with ERISA this morning, and also in SIS'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. I'd now like to turn the call over to Jean-Marc, ST's president and CEO.

Thank you, Céline. Good morning, everyone. And thank you for joining ST for our Q4 and full year 2021 earnings conference call. Let me begin with some opening comments. Starting with Q4. As announced on January 7th, net revenues and gross margin came in better than expected, primarily due to better than anticipated operations in an ongoing dynamic market. Q4 net revenues of $3.56 billion were up 9.9% year-over-year and 11.2% sequentially, coming in 140 basis points above the high end of our business outlook. Q4 growth margin was 45.2%, 20 basis points above the high end of our guidance. Our operating margin was 24.9%, And our net income was $750 million. Looking at our full year 2021, net revenues increased 24.9% to $12.76 billion in 2021, reflecting a strong performance across all the end markets we address and our engaged customer programs throughout the year. This performance progressively strengthened expectations we provided during the year, despite the challenges faced by the global semiconductor industry supply chain. All three product groups achieved double-digit growth in 2021. Our profitability further increased. Full year 21 growth margin was 41.7%. and operating margin was 19%, compared to 37.1%, sorry, and 12.9%, respectively, in full year 2020. Our net income nearly doubled to $2 billion. Free cash flow for the year was $1.12 billion, and CAPEX was $1.83 billion. Our net financial position was $977 million at December 31, 2021, compared to $1.1 billion a year in 2020. On Q1 2022, at the midpoint, our first quarter business outlook is for net revenues of $3.5 billion, Representing an increase of 16.1% year-over-year, gross margin is expected to be about 45%. For the full year 2022, we will accelerate the execution of our strategy and value proposition, a strategy which stems from three long-term enablers, smart mobility, power energy management, IoT, and 5G. and a value proposition based on sustainable and profitable growth, providing differentiating enablers to customers, supporting them with an independent, reliable, and secure supply chain, committing to sustainability for the benefit of all our stakeholders. We plan to invest about $3.4 billion to $3.6 billion in CAPEX, to further increase our production capacity and to support our strategic initiatives. This includes the first industrialization line of our new 300 mm wafer sable in Agrate, Italy. Based on our strong customer demand and increased capacity, We will drive the company based on the plan for full year 2022 revenues in the range of $14.8 billion to $15.3 billion. Now, let's move to a detailed review of the fourth quarter. On a sequential basis, Q4 net revenues increased 11.2%. This growth was driven by both ADG and MDG, up 22% and 15.4% respectively, while AMS revenues were substantially flat. On a year-over-year basis, net revenues increased 9.9%, with ADG and MDG growing 28.6% and 23.7% respectively, and FMS decreasing 11.2%. Growth profit was $1.61 billion, increasing 28.3% on a year-over-year basis. Growth margin increased to 45.2% from 38.8% in the year-ago quarter, and was 20 basis points above the high end of the company guidance. principally driven by improved product mix, favorable pricing, and manufacturing efficiency. Net operating expenses in Q4 were $720 million. Q4 operating margin was 24.9%, up from 20.3% in Q4 20, with ADG at 17.6%, AMS at 26.6%, and MDG at 29.9%. Net income and deducted earnings per share increased about 30% in comparison to Q420, with net income of $750 million versus $582 million, and diluted earnings per share of $0.82 versus $0.63. Let's look now in more detail at our full year results, starting with a recap of the market and business dynamics we saw during 2021. A year marked by a strong market demand, but still impacted by the pandemic, and global semiconductor supply chain constraints. Here, I would like to take the opportunity to thank all of the ST employees who worked tirelessly through the year to support our customers, drive our increased manufacturing efficiency, and create innovative new products. All this in the context of the ongoing challenges of the pandemic, where we continue to support our employees across the globe, ensuring the most stringent health and safety measures in every site where we operate. For 2021 in automotive, we saw unprecedented demand across all geographies, and the industry continued to rebound from the difficult environment The rebound was broad-based across all customers and regions. It was driven by the volume of vehicles produced, the replenishment of inventories across the automotive supply chain. Most importantly, an accelerated transformation of the vehicle industry towards more electrification and digitalization. Bookings remain strong through the year. Backlog visibility is now about 18 months and well above our current and planned 2022 manufacturing capacity. In industrial, we saw through the year very strong demand, both in high end and consumer industrial. Electrification and digitalization are the main trends driving semiconductor content increase, also in this hand market. In terms of demand, factory automation was one of the main drivers, together with power-related applications, including renewable energy, motion control, power tools, and home appliances. Demand was strong both with distribution as well as royalties, in line with our approach to be broad in the highly fragmented industrial market. Through 2021, inventories of our products and distributors remain lean across all product families with high inventory terms. Also, point of sales were strong across all products and geographies. In personal electronics, smartphones continue to be an essential source of social connection and streaming services for entertainment, fitness, gaming, and music. Smartphone volumes returned to growth in 2021, about 3% year-over-year, driven by 5G adoption. Demand for accessories was strong throughout the year, with healthy dynamics related to other connected devices, such as wearables, tablets, earables, and true wireless stereo headsets and game consoles. In communication equipment and computer peripherals, we saw continued adoption of 5G-related products, as well as a sustainable demand for PCs and especially notebooks . The hard disk drive market recovered somewhat from its decline in 2020. We also saw low Earth orbit satellite programs launch or ramp up in a number of countries. Looking now at our full year financial results in greater detail. Net revenues were $12.76 billion for 2021, increasing 24.9% year over year, reflecting a strong performance across all the end markets we addressed, and our engaged customer programs through the year. Sales to OEMs and distribution return to a more balanced split in 2021, representing respectively 66% and 34% of total revenues. This compares with 73% and 27% split in 2020. influenced by the first phase of the pandemic affecting the industrial and market. By region of origin, 41% of our 2021 revenues were from the Americas, 34% from Asia Pacific, and 25% from EMEA. In terms of revenues by product group on a year-over-year basis, ADG revenue increased by 32.5% Both subgroups, automotive and power discrete, recorded double digit growth. EMS revenue grew 18.8%. Analog and MEMS recorded double digit growth for 2021, supported by continued growth in imaging product sales. MDG revenues increased by 24.3%. Microcontrollers, our largest subgroup, reported double digit growth. partially offset by the expected decrease in radio frequency communication revenues. Growth margin increased to 41.7% for 2021, extending from 37.1% for 2020. Reflecting manufacturing efficiencies and loading improvement, favorable pricing and product mix, partially offset by negative currency effects Our operating margin also significantly increased during 2021 to 19% from 12.9% in 2020. The increase in the company's operating margin was well supported by all three product groups. ADG operating margin expanded to 11.8% from 5.5%. EMS operating margin increased to 21.9% from 20.8%, and MDG operating margin increased to 24.3% from 16.6%. Net income increased 80.8% to $2 billion for 2021 from $1.1 billion in 2020. Divided earnings per share were $2.16 from $1.20. Moving now to other financial indicators. Net cash from operating activities increased about 46% to $3 billion for 2021. CapEx was $1.83 billion compared with the 2020 CapEx of $1.28 billion. Our 2021 investments were about $300 billion lower than what we had expected, many to later than planned equipment deliveries. Our full year free cash flow was $1.12 billion, compared to $627 billion in 2020, up almost 80%. Cash dividends paid to stockholders in 2021 totaled $205 million. During 2021, we repurchased shares totaling $485 million under our prior and new share repurchase programs. Our net financial position was $977 million at December 31, 2021. reflecting total liquidity of $3.52 billion and total financial debt of $2.55 billion. Now let's move to our 2022 first quarter outlook and our plan for the full year 2022. For the first quarter, we expect net revenues to be about 3.2%. $3.5 billion at the midpoint, representing a year-over-year growth of 16.1% and a sequential decrease of 1.6%. Growth margin in Q1 is expected to be about 45% at the midpoint, up 600 basis points year-over-year, and sequentially flat compared with Q4 2021. For the full year, we will accelerate the execution of our strategy and value proposition, a strategy which stems from the three long-term enablers, the smart mobility, power energy management, and IoT and 5G, and the value proposition based on sustainable and profitable growth, providing differentiating enablers to customers, supporting them with an independent, reliable, and secure supply chain, and committing to sustainability for the benefits of all our stakeholders. We plan to invest about $3.4 billion to $3.6 billion in CAPEX to further increase our production capacity and to support our strategic initiatives. Looking in greater detail, our CAPEX plan includes approximately $2.1 billion for capacity additions and mix change in our manufacturing footprint, in particular for our wafer fabs. Digital 300 millimeter in Kroll, analog 200 millimeter in Singapore, silicon carbide power MOSFET 150 mm in Catania and Singapore, as well as assembly and test operations. About $900 million for strategic investments. This includes the first industrialization line of our new 300 mm wafer farm in Agrate, Italy, as well as gallium nitride technology and silicon carbide raw materials initiatives. The remaining part of the CAPEX plan covers the overall maintenance and efficiency improvements of our manufacturing operations and infrastructure, as well as our carbon neutrality execution program. On this later topic, A key element of our sustainability strategy, we are moving ahead in our environmental roadmap to be carbon neutral by 2027. In 2021, we improve our total greenhouse gas emissions efficiency, minus 27% versus 2020. And our use of renewable energy reach about 51%. Based on the strong customer demand and our planned investment to increase capacity, we will drive the company based on the 2022 revenue plan of $14.8 billion to $15.3 billion, representing revenue growth of about 16% to 20%. To conclude. In 2021, ST delivered strong revenue growth and increased profitability. We work alongside our customers, continuing to adapt our supply chain to support their strong demand. For 2022, we continue to work on making ST stronger. We are convinced that we have the right strategy and resources in place. our balanced end market focus and position, our solid product IP technology portfolio, our integrated device manufacturer model, our transformation programs, and our focus on high-growth applications that continue to accelerate their strong positive dynamics. We are investing significantly to support this acceleration in order to capture new opportunities working alongside our customers, and to prepare our goals for the years to come. Before we take your questions, to set the date, we will be hosting our Capital Market Days on May 12th in Paris. We hope to be able to have an in-person event and will also waitcast live. Thank you. We are now ready to answer your question.

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 2. 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 congratulations for great results. Thanks for taking my question. I guess the first one I would have would be on how we should think about your gross margin developing throughout the year. I think you mentioned last year there could be some near-term headwinds. from higher input costs, but it's clearly not the case in Q1 where you guide for flat growth margins at this high level. So how should we expect this to develop over the year? Do you expect a pressure later or will you build on this strong growth margin in the first quarter? And then just very quickly, secondly, if you could comment on why R&D was so low in the fourth quarter and how you should think about OPEX modeling for the year. Thanks a lot.

Bronzo will take the question.

Sure. Good morning, everybody, and thank you for the question. Yes, about gross margin, what it will be the sustainability of the gross margin that we have posted during last quarter in Q4 and what we have announced for Q1. For sure, you have seen that in Q4, gross margin was stronger than expected. This was mainly thanks to more favorable product mix. and definitely also thanks to the price environment. We continue to see a gross margin at this level, let's say also for Q1. With the current market environment that we see, at the level of the revenues that we have, let's say, indicating in our plan, We think that we should be able to maintain, let's say, we should be able to maintain our gross margin around the current level as an average for the whole year. Of course, we expect some seasonality in our gross margin. It means that, for instance, we do expect some slight decline in Q2 in respect to what we stand in Q1, and then maybe some recovery in the course of the year in the second half. In the next following quarters, actually, the dynamic of the gross margin will be impacted by various elements. Some of them are positive, some of them are negative. On the positive side, we do expect some further revenue price increase and also some, let's say, positive impact from the manufacturing efficiency that is improving. On the negative side, of course, we have the full impact that is not yet totally reflected in our cost. of the increase on production of the material price, increase in the cost of the foundry and , as we added the increase in their quotation, as well as a significant increase in the energy cost, as you can image. Also, increased depreciation in our COGS as a consequence of our CAPEX plan will impact on short-term our gross margin. This will be before, let's say, to translate and improve manufacturing efficiency. Anyway, let's say all in all, we do expect that substantially we may stay at this level of the gross margin with some, let's say, up and down in terms of seasonality during the year. The second question was about expenses, let's say. Yes, indeed, expenses of Q4 came, let's say, lower than we were expecting or originally expecting. This was mainly driven by the fact that two main components, I would say, for this level of expenses in the Q4 quarter. on one side we had some lower discretionary expenses especially let's say on the on the on the last part of the quarter related to the fact that there was some impact in some sites due to the the pandemic so some of our employees were not allowed to go to work and, of course, some activity had some kind of slowdown, especially in the second part. Then, actually, there has been some positive one-time item, let's say, linked to the remeasurement of some accrued liability. And this, of course, is something that is impacting the quarter, but is not something that is recurrent. Maybe I take the chance maybe to anticipate some other question about what it will be the dynamic of the expenses moving forward. As I said, in Q4 were particularly low. What we do expect, for instance, in Q1 is that there will be some increase in our expenses. This increase is related, of course, some activity increase in our R&D and as I was saying before, the non-recurrent of some impact that we had during the previous quarter. So we may say that our expenses, it will be something in Q1, more in the range of net expenses, including other income and expenses, more in the range of $800, $820 million. I hope I have answered your question.

Yeah, thank you very much.

Thanks a lot.

Thank you, Alexis.

So now we are doing another question. The next question is from Matt Ramsey from Cohen. Please go ahead.

Thank you very much. Good morning, guys. Good morning, everyone. Jean-Marc, I wanted to step back and ask sort of a multi-part question. I mean, if you look at remarkable results and congratulations 2021 you guys grew the company say 25 on revenue and it looks like you're you're guiding for for high teens growth off of that uh in 2022 and i guess what what i would like to get your perspective on is just the overall drivers of that growth i mean you're essentially growing the company by 50 um in a couple of years off of the pre-pandemic levels and I guess what I want to understand is how would you characterize the growth? Is it how much driven by secular things like electrification and digitization and autos, et cetera? How much driven by capacity expansion and how much driven by pricing increases? And particularly the question that I get from investors, not just for your company but for the industry, is how durable are some of these price increases through the cycle? And if you had any perspective there, I'd really appreciate it. Thank you.

Thank you. So I will comment on the megatrend and maybe Lorenzo will comment on the volume mix versus pricing. About the growth of ST, between 2019, 2020, 2021, and our indication for 2022, We see basically two elements to make it quite clear and simple. First of all, if we split the electronics market into the standalone electronics, which is personal electronics, consumer, and communication, computer. Our strategy has been very consistently clear since many years now. Here, we are very selective with some engaged customer programs. And we take opportunity of higher volume application with our general purpose MCU and analog and power device. So here, ST has the capability to both take into advantage, okay, the high volume from this part of the electronics. And for sure, we are quite successful with some very specific customer engaged program where we provide differentiation to the customer. So this is something that since 2016, okay, we are growing every year. The second part, which is the core of our strategy, is about embedded electronics, so the well-known automotive market and the industrial market. And here, post-2020, I would like to confirm that these two markets, these two verticals, are facing first recovery or rebound after 2020, definitively. But more importantly, it is a major transformation these two verticals are facing. Again, the electrification of the mobility is accelerating at a speed which was not expected in 2020. driven by the willingness of the world, of course, to improve the environmental footprint. And it is valid in all the regions of the globe, for all the car makers, all the truck makers, all, let's say, the two-wheeled vehicle makers. And cooling, of course, for more components in terms of power, like the silicon carbide, but also the power analog for the driver, MCU for battery management system, and in parallel, the digitalization of the car for more safety, so the HADAS. More recently, okay, you have seen Mobileye announcing, okay, 100 million cumulative IQ device delivery. Believe me, the 200 million will be achieved quite soon. So first of all, okay, the automotive market, which is the most well-known, is really facing an acceleration of the transformation, calling structurally for more components. So it will take many years, okay, to execute this transformation between 2022 up to 2027, 2030, and calling for a secular, okay, more semiconductor content. Then something which is less well-known because much more fragmented, it is the industrial market. And here for the industrial market is very similar. You have electrification of everything. The power tools, an example, okay, whatever for consumer but also for professional. The big infrastructure which are calling for much better efficient electronic system in order to optimize the power energy they consume. The factory automation, because again, if you remember well, one of the major lessons learned from the pandemic has been that the plant which resists better to stay at home was the plant with high level of automation. The consumer industrials, so the home appliance and basically all the consumer, let's say, applications, are being more and more, let's say, green neutral. So calling for more MCUs, more MOSFETs, more IGBT, more controls. So as a takeaway, I would like to say, as far as ST is concerned, our dual position to address modern electronics facing secular transformation, calling for much more semiconductor content. plus our position, very selective on standalone electronics, where we capture high-volume applications from general-purpose devices, which are quite efficient, our STEM32 as an example, plus very specific engaged customer programs where we bring differentiation, are the main growth drivers of the company. Now, okay, to give you some color about, okay, respectively, the volume and the price increment of the mix, because both played, okay, I let Lorenzo comment.

Thank you, Jean-Marc. I wanted to give you some idea, some data point. Last year, in 2021, we grew respect to 2020 by $2.5 billion, our top line, our revenue. When we look and when we try to split this growth, in the various components, I can say that the main one representing around 80% of this growth is volume. They come from a higher level of volume. Don't forget that in 2020 we had 150 plus million dollars of unloading. This year we are running our FEBS with increased capacity due to investment that we have done. Let's say fully loaded, let's say our steps are running at 90% of loading. That is the maximum more than that is impossible. So I would say 80% is coming from loading. How about price and mix price and mix accounts for the remaining 20% of our growth. And I would say they are substantially even, half and half between the two. So this is to give you an idea. The biggest driver of our growth has been the volume. For sure, price has been important because definitely the trend was the other way around. That normally happens in our market, let's say. in a negative way. This year has been played in a positive way for a significant amount, but is not definitely the main driver of the growth. Definitely important on the profitability for sure.

Does it answer your question?

Yes. Thank you very much, guys. I really appreciate all the color and the detail there. Very, very clear, even in the middle of the night, I can understand it. Congrats again, and I'll jump back in the queue. Appreciate it.

Thank you.

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

Yes, good morning, everyone, and thank you for the question. Just a couple of quick ones. We heard overnight from one of your big U.S. also customers that they see tightness in automotive semis continuing until next year. I wonder to what degree you'd agree with that prognosis and to what extent you see a risk of some kind of correction or adjustment before the end of the year. Just wondered if you'd give a bit more color in terms of the semi-adventure levels you're seeing in the channel. And then secondly, a quick one on silicon carbide. I wondered if you could give an update on your latest view on the asset you'd acquired there and the extent to which vertical integration as a strategy is going to help SDMicro You mentioned just now that as part of your strategic investment, I believe some of that's going towards silicon carbide material. So I wondered how confident you are that you'll have enough wafer supply to deliver your long-term SIC targets and any updates on track with car models or platforms on silicon carbide. Thank you.

For your first question, Alex, was about automotive or was it globally? Yes, yes. Your first question is about the automotive and the trends and how we think that the situation should go back to a sort of normalization. How is inventory in the channel? How do you see this? The second question is on the vertical integration strategy on silicon carbide, correct? Where we stand, whether we have enough in our hands to what are the strategic initiatives we're going through? And the third is whether we have some new news on products, trends, et cetera, in terms of products. Did I correctly summarize your question?

Yes, make absolutely.

Thank you very much, Alex.

Okay, so I will comment automotive and but definitely if I miss some point, okay, Marco Cassis will complement. Well, first of all, on automotive, from a ST perspective, where we provide to this industry, let's say, power solution, means, okay, MOSFET, IGBT, and driver. but also embedded processing solutions or microcontroller. I simply would like to confirm to you that, first of all, our planned capacity for 2022 is sold out, and the supply chain taking into account the number of, let's say, calls and three-party calls we have between car makers, CR1s, EMS, there is no inventory in the channel. There is no inventory built up in the channel simply because the capacity, which is mainly when we are spoken about on-model processing solution, capacity using technology node between 19 nanometer to 14 nanometer, maybe 28. And the capacity for power and power analog which are mainly, let's say, technology where the node is not the differentiating factor, all these capacity are totally saturated at IDM level or at foundry level. And you know that the foundry are massively investing on node beyond, okay, 28 nanometer to support the standalone electronics world. So we don't see for the time being, let's say, any inventory buildup. And again, the challenge for a company like ST, but let's say for a peer like Infineon or NXP, is to have the capability to continue to support the critical and major transformation and successfully the major transformation of the, let's say automotive and mobility industry. We still see when cars and vehicles are using, let's say more advanced, let's say technology and processor, still for the time being some tension, okay, in the supply chain, more related to assembly materials, okay, like substrate, okay, or frame, this kind of stuff. But this tension, okay, should, let's say, improve progressively, let's say, through the year and in 2023. But for, again, the remaining diversified, let's say, semiconductor products and technology, the tension at least will remain in 2022. What about silicon carbide? Well, silicon carbide, we continue, let's say, to win sockets and programs. now engage with 90 ongoing programs addressing 72 customers. So we definitively confirm our target of $1 billion revenue by 2024. Our position, let's say, is well balanced between mobility leaders and industrial market. Part of the $2.1 billion of capacity increase this year, basically the three main parts are the digital 300 millimeter, then the silicon carbide wafer fab in Singapore and in Catania. and the advanced power analog technology, which are the key device, okay, as driver of MOSFET or driver of any solution in the car. And in parallel, part of the strategic initiative, I confirm to you that we have already started the building of some facilities in Europe to prepare our future supply. internally for raw material and epitaxy, where our target is by 2024-2025 to supply internally 40% of our needs. Beyond that, we are confident that we will be capable to continue to sustain our objective to have approximately 30% of market share of this booming market of silicon carbide, which is connected to the acceleration of the electrification of all vehicles, plus a very strong demand for all high-power inverters in the industrial market.

Any follow-up for Alex?

That's it, Abel. Thank you so much.

Thank you very much, Alex. Next question, please. The next question is from Sebastian Stabovitz from Kepler Shiver. Please go ahead.

Yeah, thanks for taking the question. One, what kind of visibility do you have on your large 3D sensing design that your main customers, sorry, at this point of the year? And also, coming back to the OPEX question, you provide some color, Lorenzo, on Q1. How do you see the OPEX evolving beyond Q1, and can you help us model a little bit the OPEX for the full year 2022? Thank you.

So we answer the OPEX first?

Yes, okay, sure. Thank you for the question. What is our expectation for the full year 22? How is the evolution of our OPEX? I was already mentioning, let's say, the level of OPEX that we do expect for the first quarter. I know I said that between 800 and $820 million. In 2022, this will be an year in which we will strongly invest in OPEX in our R&D activity. This is to fuel our future revenue growth course and also profitability as we wanted to push or to continue to improve our product mix. Additionally, on this, we will reinforce our effort in our programs to transform our company more and more in a digitalized company, addressing our supply chain, addressing the R&D methodology, the quality, the HR, our IT backbone. So many programs we have, let's say, in order to reinforce our processes, our methodologies. These, of course, all of these will have a for sure consequence on our expenses pending. That will increase in respect to what has been done in 2021. However, if I look based on the current sales plan that we have, what we have communicated, definitely, let's say, our expense to sales ratio in 2022 will improve in respect to what has been in 2021.

And Sébastien, would you mind repeating the question? We didn't hear the first question.

It was a question on your 3D sensing design at your main customer. What kind of visibility do you have on the next potential device that will be launched by your main customer? Thank you.

Well, generally speaking, we don't comment in very detail on our customers, but they have a really great process to drive their partners and suppliers. So we have one year of visibility, which, let's say, gives us the opportunity to drive our operations. So, and again, this customer will participate to the growth of ST in 2022. And as already a comment during some previous discussion we have together on the architecture of this subsystem of the smart device, we have three years visibility on the evolution. which make us confident that, again, this customer and specifically Imagine will continue to contribute to the growth of the company in 2022 and beyond.

Thanks.

Thank you very much.

Next question, please, Moira. The next question is from Francois Bovigny from UBS. Please go ahead.

Hi, thank you very much. It's maybe clarification from the questions before. Maybe the first one is on the, you mentioned Lorenzo, the very helpful, the volume and price performance in 21 that you saw. And, but I was wondering for 2022, what's the split is going to look like? Because when I look at your comments, I mean, previously you said that you were fully in 22, it's been Q quarters. You are saying that, but yet you are consistently you know, surprising the market and with a growth of 16 to 20%, you know, it's a very strong performance on the revenue side. So can you maybe clarify for 2022 what is a mix versus volume and price would be very helpful because I thought your previous comment was on 21, if I'm not wrong.

Yeah, definitely. My comment was on 21, so precisely. I would say that, let's say, yes, for sure. When I look at our growth moving in 2022, volume will be still a significant driver for our growth. Of course, let's say you see that we have invested significantly during last year, in 2021. We are continuing to invest. It's true that the investment that we are going to do during 2022 will translate progressively in higher volume. But just to give an idea, let's say in Q1, we intend to invest in the range of $900 million. So it means that there is a significant effort in order to follow the demand and to serve our customers. Of course, there is also the portion of investment relevant for the 12-inch in Agrate that will not translate during this year in any significant volume. But in any case, I would say that still, also in 2022, we will see a similar evolution of our, let's say, revenues in terms of volume, mix, and price. There is still some room from price increase that is embedded inside our guidance. Mix, let's say, is definitely giving a positive effect also during this year, and the volume will be the big driver. This is our expectation.

Okay. That's very clear, Lorenzo. for my follow-up is on the capacity increase. I mean, one of the highlights of this quarter is probably your capex spend, which is a significant acceleration compared to previous. I mean, we need to go back to 2000. And weirdly, you had the similar almost gross margin of 46%, you know, when you spend the same level of capex. I mean, I hope we won't have the, you know, what happened after. But I was just wondering for For this CAPEX, can you give us a sense of the timing of the capacity that it will be released with this significant CAPEX? Because I believe that it's very tight in terms of, and you said it before, in terms of equipment. So when should we see the capacity meaningfully increasing following this CAPEX increase? And in your strategic program, you said that the increase mainly driven also by strategic initiatives like silicon carbide, but you still have 1 billion revenues for silicon carbide by 2024. So I'm just wondering, is it something that will come for capacity after that, or just are you preparing some capacity over your revenues just for the years ahead? Just trying to understand this capex, in other words. Thank you very much.

Okay, so I take the question, and Lorenzo will complement if needed. About CAPEX, so I repeat, if we split the CAPEX, there is $2.1 billion for capacity. This $2.1 billion will be including some carry forward of last year, because as I commented in my address We receive late the equipment during the quarter. That's the reason why the capex spent were below, let's say, the plan. But this, as you say, we will pay this capex, okay, in Q1. So clearly, the capex will spend in 2022. We'll start to participate for wafer fab of additional revenue in the last, let's say, five, four months of the year. And the CAPEX we will spend for assembly and test, okay, will participate basically immediately to the revenue. Well, for the capacity, I have to say that the main part of the CAPEX is clearly, approximately half of that. for our 300 millimeter 145 in crawl. And here, okay, it is driven mainly, mainly by embedded processing solution for automotive. So microcontroller and the industrial market. So MCU. Why? Because, okay, you see an acceleration of the conversion of the MCUs on 14 nanometer. because the capacity on mature technology 8-inch are totally oversaturated. There is no more investment on this kind of mature MCU, whatever is the region of the world. So first of all, the 300 millimeter will support the digitalization of the content, MCUs, in automotive. driving factor to increase the capacity for the 300 millimeter is Hadass. Okay, currently the important volume okay for Hadass is 14 nanometer and 28 nanometer as well. Then the second important part of the capacity is silicon carbide in Catania and in Singapore. And of course, this will contribute for this year where we will continue to increase our revenue, let's say above $700 million of revenue in 2022, going and prepare the $1 billion. Then after the other part of the capacity is again for automotive, because in terms of power management, analog mixing and ICs, in terms of driver of power MOSFET IGBT, you need to have power analog technology in the range of 110 nanometers, which is the most efficient technology. And this will be done in Singapore. So this big part, these three elements represent basically 80%, 75%, 80% of the total capacity increase will contribute from Wofford Fab perspective on the last part of the year and are preparing 2023. So this is point number one. Assembly and test will contribute for 2022. And I have to say that, unfortunately, assembly and test is really now a bottleneck because whatever the capacity at IDM level or OSAT are really fully saturated. And the equipment supplier are themselves limited by the semiconductor supply. So we have many, let's say, events where the equipment maker, they are not capable to Supply, what we need. About the investment for strategy. Guys, the move to 300 millimeter for, let's say, the market we address and the product we address. For the next 10 years, okay, when you address the market of automotive and industrial, the technology you will need will be between 90 nanometer, okay, to 60 nanometer. Of course, you will need a very specific case for automotive like the vision processor or some getaway. And for very specific case in industrial, very advanced technology, but it will represent below 15% of the need. 85% of the need will be massively 19 nanometer to 16 nanometer plus the power technology. And here you need to execute progressively the conversion to 300 millimeter. And that's the reason why ST decided in 2018 to start to build a plant in Agrape, Italy, to prepare this long-term megatrain. In 2022, this is the time to set up what we call the first industrialization line. where on two or three technologies we have decided, supporting our long-term revenue roadmap, to qualify. And to qualify a technology to address the automotive market and to address the industrial market cannot be done overnight. You need basically one year to qualify a technology. So it's a mandatory milestone to set up this 300 millimeter first industrialization line to be ready in 2023 and beyond to support the growth of the company addressing analog mix signal technology and embedded processing solution technology. So that's the reason why definitively 2022 is a specific year, because on one side, you have a very strong demand and backlog on industrial and automotive market that we have to support, because nobody can support them except ST, everywhere we are. And in parallel, you have to prepare yourself to prepare your future transformation and growth for the next five, 10 years. And this is a mandatory milestone to set up the industrialization line in Agraté. Last but not the least, I repeat that we have taken the decision a few years ago that ST want to have a part of our own supply chain on raw material silicon carbide. Why? Because we do not want to be limited in innovation, in cost decrease, and in wafer size increase. So that's the reason why we have decided to set up in Europe a mega factory for raw material. And this mega factory for raw material will have also the epitaxy capability. And this megafactory, OK, for the future, will have also the capability to support waterfowl fabrication. So this is a full picture of the CAPEX, which is driven, of course, by the short-term demand we consider very solid. And again, here, I would like to repeat, we have 18 months on visibility. And the total backlog of the company compared to the capacity of 2022 is basically 50% above. So, medium to short-term, and we are preparing the future for 300 millimeter conversion and silicon carbide, and by the way, gallium nitride as well. So, this is the full picture of the CAPEX.

Thank you, Jean-Marc. Very, very clear answer.

We are, unfortunately, we are getting, we have already overpassed the time. We have time for one last question. Not too long. Thank you so much.

So, Moira, we take the last question. The last question is from Jerome Ramel from BMP Paribas Exxon. Please go ahead.

Yeah, good morning. Thank you for including me. Just a question, Jean-Marc, on the seasonality for Q1, which is much better than usual. Could you give us a little bit granularity per end market or division? And my second question, just on the capex, clearly big numbers and without front-running the capital market there in May, does that mean that you're also very confident that, globally speaking, you see more growth beyond 2022 for ST Michael? Thank you.

For Q1, the strong revenue guidance is driven by automotive and industrial market, definitively. We have the usual seasonality for personal electronics, driven by the various important OEMs we have, but clearly with the backlog we have requested by customers, even if we would have the capacity, but the guidance of Q1 would have been much, much, much higher. So it is clearly, okay, for the time being, okay, seasonality, except for personal electronics, which is still valid, but seasonality for automotive and industrial market is something we have to forget for a while because of the very strong demand. Then the second question is about Céline.

It was about, we have front running the analysis today. Is it level of CAPEX? Tell me if I'm right, Jérôme. Do we expect, does that mean that we expect to have a growth beyond 2020?

No, but we are, we are, As I conclude during my address, when we look at the market dynamics in the next five years, unprecedented transformation of the automotive and industrial markets. And the positioning we have on these two markets, plus the one we have on consumer personal electronic communication, where again, I repeat, we will be able to capture some important programs with technology, our differentiated technology. But as well, we will be capable to capture high volume application thanks to our general purpose device. We are convinced that our growth strategy based on organic one plus both on acquisition, okay, when we want to accelerate on some specific IP blocks or technology block will enable the company to grow and to perform better than the market we serve on the long-term trend. So yes, okay, what we are doing this year is, of course, to execute and supply 2022 and prepare 2023, point number one. And point number two, to prepare ourselves to the medium long-term growth that the company expects, thanks again to the strategy we have, market positioning, customer base. But clearly it's very important that, okay, we support our customer In the short term, we offer them the flexibility, the agility to support their strong demand.

Thank you.

Thank you very much. This is the end of the session. Thank you so much, all of you, for your attendance as usual.

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

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