STMicroelectronics N.V.

On Q1 2023, at the midpoint, our first quarter business outlook is for net revenues of $4.20 billion, increasing by 18.5 year over year and decreasing 5.1% sequentially. Growth margin is expected to be about 48%. For the full year 2023, we will continue to execute our strategy with a strong focus on automotive and industrial as a broad range supplier and a selective approach in personal electronics and communication equipment and computer peripherals. We enter this year with a backlog higher than what we had entering 2022. We plan to invest about $4 billion in CAPEX, mainly to increase our 300-millimeter wafer subs and silicon carbide manufacturing capacity, including our substrate initiative. Based on our strong customer demand and increased manufacturing capacity, we will drive a company based on a plan for full year 2023 net revenues in the range of $16.8 million to $17.8 million, representing a gross range of 4% to 10% compared to full year 2022. Now, let's move to a detailed review of the fourth quarter. Both revenue and gross margin came above the midpoint of our guidance by 60 and 20 basis points, respectively. On the sequential basis, Q4 net revenues increased 2.4%, driven mainly by ADG, which increased 8.5%. MDG revenues increased 0.7%, while AMS revenues decreased 3%. On the year-over-year basis, net revenues increased 24.4%, with ADG and MDG growing 38.4% and 29.1% respectively, while IMS increased 7% year-over-year. Sales to OEMs increased 26.8%, and 19.5% to distribution. Gross profit was $2.1 billion, increased 30.7% on the year-over-year basis. Gross margin was 47.5%, increasing 230 basis points year-over-year, mainly driven by favorable pricing, improved product mix, and currency effect net of edging, partially offset by the inflation of manufacturing input costs. Fourth quarter operating income increased 45.4% to $1.29 billion. Q4 operating margin was 29.1%, up from 24.9% in the year-over-year period. with ADG at 27.7%, AMS at 25.8%, and MDG at 35.8%. Q4 net income was $1.25 billion, including a one-time non-cash income tax benefit of $141 million. compared to $750 million in the year-ago quarter. Earnings per diluted share were $1.32, compared to $0.82. Let's now discuss our full year results, starting with the business dynamics. 2022 was a year marked again by strong demand in automotive and industrial. Still impacted by supply chain challenges due to continuing shortages and capacity constraints. In the second half, we started to see a market softening in personal electronics and computer peripherals. In automotive, we again saw unprecedented demand across all geographies, driven by increasing semiconductor prevention, structural transformation, and inventory replenishment. We continue to execute our strategy for car electrification, in particular in our silicon carbide business. We added a wide range of wins in next-generation electrical vehicle design. with our forward discrete solutions. The latest one is with Hyundai Motor, who has chosen our H-PAC drive silicon carbide MOSFET generation 3 base power module for traction inverters in its current generation electrical vehicle platform. In silicon carbide for automotive and industrial, we achieved $700 million of revenues with silicon carbide in 2022, with a plan to be above $1 billion in 2023. We finish the year with 115 awarded projects spread over 80 customers, adding 25 projects and 8 customers during 2022. About 60% of these projects are for automotive customers, We continue to lead in silicon carbide as we have moved to high-volume production of our third-generation transistors for multiple automotive customers. And we will wrap our fourth-generation transistor in volume in the second half of this year. In car digitalization, we have a range of wings with our NCUs and power solutions for new zonal car architectures. We won designs with our next-generation Stellar Automotive MCU and announced a cooperation model with Volkswagen Carian, including the joint development of a system on-chips MPU. We also received awards with our partners, Mobileye for HEDAS and Autotalks for V2X. In our automotive sensors, We continued to increase the scale of our business in inertial sensors, growing by over 40% year-over-year. In global shutter imaging sensors, we received awards for five key programs during the year. In industrial, demand was also very strong through the year, especially in power and energy. factory automation and robotics, and in industrial infrastructure, for what we define the B2B part of the industrial market. We continue to strengthen our 100th processing solution leadership with our STM32 microcontroller and microprocessor families and ecosystem. We continue to win many designs in a wide range of industrial applications, and to achieve record volumes and sales of STM32 products. In power and energy management applications, such as electrical vehicle charging stations, photovoltaic systems, and industrial power supplies, we have many important design wins with our power discrete portfolio of both silicon and wideband gaps-based devices. And we further extended our product offer during the year. We progressed with sensors for industrial applications with revenue growth of around 50% year-over-year. We introduced new industrial sensors, such as the first intelligent sensor processing unit, launched together with Generation 3 MEMS sensors, as well as time-of-life sensors for touchless sensing applications. These enable design wins with customers in many areas, such as equipment condition monitoring, asset tracking, and scale. During 2022, we introduced 80 new industrial analog products. with awards in application for factory automation, motion control, metering, power tools, and home appliances. In personal electronics and computer peripherals, we started to see a market softening in the second half of the year, while communication equipment remained solid throughout the year in the areas we are focused on. In personal electronics in 2022, we want many sockets in flagship smartphones with motion and environmental sensors, time-of-flight charging sensors, wireless charging products, touch display controllers, and secure solutions. We also leverage our broad portfolio to address high-volume personal electronics applications such as smart watches, headsets, and other wearables. as well as gaming accessories from leading players in each area. In communication equipment, we progressed well with engaged customer programs for selected applications in cellular and satellite communication infrastructure and received new awards based on our proprietary technologies. These were for satellites, Optical and wireless infrastructure IC is based on our mixed signal processes and 28 nanometer FDSRI. Let me now share a summary of our main 2022 manufacturing initiatives. We are transforming our manufacturing base to enable our future growth and drive enhanced profitability. with a significant expansion of over 300 millimeter capacity and a strong focus on the wideband gap semiconductors. In silicon carbide, we are following our plans to increase tenfold the front end capacity versus 2017 and to have 40% on our substrate needs internally sourced by 2024. We continue to run our silicon carbide front-end device production in our Singapore facility on top of the Catania one, and we increase back-end manufacturing capacity in our sites in Morocco and China. We are building an integrated silicon carbide substrate manufacturing facility in Catania as an important step in our silicon carbide vertical integration strategy. Volume production is expected to start in the second half of this year. And just recently, we have produced, in Catania, the first 150 millimeter ingot out of this facility. In terms of R&D activities, we have completed full MOSFET device processing using our internally produced 200 millimeter substrate. We will announce that we will cooperate with SOETech on silicon carbide substrate manufacturing technology with an agreement to qualify SOETech SmartSIG technology for future 200 millimeter SIG substrate production. In our 300 millimeter strategy, in 2022, we have further expanded capacity in our crawl front side. We also signed an MOU with GlobalFoundries to create a new 300 millimeter semiconductor manufacturing facility adjacent to ST's existing facility in crawl. In Agrate, Italy, having completed in 2022 the first industrialization line and the qualification of the engineering sample, We are now ramping our new 300 millimeter water farm. We plan to have a capacity of about 1,000 water per week by the end of this year. These initiatives will be aligned with our sustainability strategy and our sustainable manufacturing commitment in terms of energy consumption and greenhouse gas emissions, air, and water quality. We are on track to achieve our carbon neutrality and 100% renewable energy goals by 2027, as announced in December 2020. One important contributor to our plan was the adoption in 2022 of a district cooling system in Singapore, ST's single largest water fabrication site. We expect to eliminate 30% of the site's carbon emissions on completion. We also continue to work closely with external bodies and were well-ranked by the Carbon Disclosure Project and included in the Dow Jones Sustainability Award and Europe Indices. Looking now at full year 2022 financial performance in greater detail. Net revenues increased 26.4% to $16.13 billion. On a year-over-year basis, automotive revenue grew 51%. Industrial was up 34%. Communication equipment and computer peripheral increased 19%. and personal electronics grew 2%. This performance was consistent with both head market dynamics and our strategy. We have a strong focus on automotive and industrial as a broader supplier of application-specific and general-purpose products, targeting leadership positions. Automotive represents about 33%, and industrial about 29% of our total revenues in 2022. We selectively address the personal electronics and communication equipment and computer peripherals market, targeting some leadership positions with a few differentiated products or custom solutions complemented by our general purpose product portfolio. In 2022, Personal electronics represented about 27% of our total revenues, and communication equipment's computer peripherals, 11%. My customer channel, sales to OEMs and distribution, represented 67% and 33%, respectively, of total revenues in 2022. similar to the split in 2021. By region of origin, 41% of our revenue 2022 were from Americas, 30% from Asia-Pacific, and 29% from EMA. Looking at the sales performance by product group, ADG revenues grew 37.2%, on strong growth in automotive and in power . EMS revenues were higher by 7.1%, with an increase in imaging and ,, partially offset by a decrease in analog. NDG revenues increased 37.5%, with strong growth in both microcontrollers and radio frequency communication. Gross margin increased to 47.3% for 2022 compared to 41.7% for 2021, principally driven by favorable pricing, improved product mix, currency effect net of aging, partially offset by the inflation of manufacturing input costs. We delivered a strong increase in operating margin to 27.5% for 2022, compared to 19% in 2021. All product groups demonstrated year-over-year growth, with ADG operating margin up to 24.6% from 11.8%, IMS operating margin up to 25.2% from 22.3%, and NDG operating margin up to 35% from 23.9%. Net cash from operating activities increased 70% in 2022, totaling $5.2 billion. After investing $3.52 billion in CAPEX in 2022, compared to $1.83 billion in 2021, our free cash flow increased 42.1% to $1.59 billion. Cash dividends paid to stockholders in 2022 totaled $212 million. In addition, during 2022, ST executed share buybacks totaling $346 million under our current share repurchase program. FT's net financial position of $1.8 billion at December 31, 2022 reflected total liquidity of $4.52 billion and total financial debt of $2.72 billion. Now, let's move to our first quarter 2023 financial outlook and our plan for the full year 2023. For the first quarter, we expect net revenues to be about $4.2 billion at the midpoint, representing euro-barrier growth of about 18.5% and a sequential decrease of about 5.1%. Growth margin is expected to be about 48% at the midpoint. For 2023, Based on our strong customer demand and increased manufacturing capacity, we will drive the company based on a plan for full year 2023 revenues in the range of $16.8 billion to $17.8 billion, representing growth over 2022 of about 4% to 10%. Automotive and industrial will be the key growth drivers of our revenues in 2023. We plan to invest about $4 billion in CAPEX. About 80% of this amount is mainly related to the increase of our 300 millimeter wafer fans and silicon carbide manufacturing capacity, including our silicon carbide substrate initiative. The remaining 20% is for R&D. Laboratories, Manufacturing Maintenance and Efficiency, and our Corporate Sustainability Initiative. To conclude, last May, at our Capital Markets Day, we shared our value proposition. This is based on sustainable and profitable growth with our 25 to 27, $20 billion plus revenue ambition, and the related financial model. Our end market focus on automotive and industrial as a broad range supplier of application-specific and general-purpose products targeting leadership positions. On-person electronics and communication equipment and computer peripherals with a selective approach targeting some leadership position with a few differentiated products or custom solutions, complemented by our general proposed product portfolio. Providing customers with differentiating enablers and a reliable and secure supply chain. And last but not least, a strong commitment to sustainability. In 2022, we made important progress in all these areas and we will continue along the same path in 2023. Thank you and we are now ready to take your questions and to answer.

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've 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 comes from Alexander Petrak from Societe Generale. Please go ahead.

Good morning and thank you for taking my question. Congratulations for strong results and very solid guidance. Now, I'd just like to understand, given your first quarter gross margin outlook is 48%, are there any specific positive mixed effects here at Play that will shape out differently in the remainder of the year? I remember, Lorenzo, you said previously that we should probably look at gross margin slaps to maybe slightly up for the current year. Is that still valid, and how should we think about the shape of gross margin? over the year.