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spk09: 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.
spk08: 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.
spk04: 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.
spk09: Thank you.
spk05: Good morning, everybody. Thank you for the question. For the gross margin of Q1, when I look at sequentially this improvement, this is mainly driven by two factors, I would say. The first one is related to a positive product mix that is continuing impacting positively our revenues and our gross margin. Actually, I would say that in this first quarter, we have still some positive effect on price increase. This was mainly on some specific customer and some specific area. I would say mainly in automotive and partially also for some customer in the industry. Of course, it's not the same magnitude that we experienced last year, but still there are some positive negotiations that are improving our gross margin. On the other side, of course, our gross margin is impacted by some increase also in our input cost in the manufacturing. All in all, anyway, we see this improvement in respect to the previous quota, in respect to Q4 of around 50 basis points. Moving forward, the gross margin at the midpoint of our revenue indication for the year is expected similar to the one that we had in 2022. So we are substantially confirming what I was saying also during Q4. On one side, we have a positive product mix. The manufacturing productivity, we expect some improvement. In term of pricing, we expect substantially stability in term of prices. So with day price, we do not expect in the course of the year play significantly positive or negative, but to stay substantially stable. All these will be accepted for sure by increased input cost in our manufacturing. And then we have not to forget that we start our 300 millimeter in Agrate that is sub-optimal in terms of, let's say, volume and production this year. And this will impact, for some extent, our gross margin, especially in the second part of the year. So at the end, starting from the 48%, we see As an average in the year, something similar to 47 for the total year.
spk04: Excellent. Thank you very much. Just a quick follow-up, if I may. Can you tell us how far out your current and planned capacity is currently fully booked? Is the top end of your guidance range aligned with the hypothesis that you remain sold out into year end? How does this work out? Thank you.
spk09: About capacity, there is a different dynamic. It is clear that we have to look now by technology and packaging clusters. It is clear that all technologies which are related to automotive and B2B industrials, and here I have spoken about power, technology, so SIG MOSFET, IGBT, vertical integrated power, high voltage, low voltage MOSFET. But as well, OK, some advanced power driver like BCD and high performance microcontroller on 14 nanometer, our capacity are fully booked for the year, definitively. Well, for the other one, which are more addressing personal electronics, consumer market. We are going back to something we classify normal. So entering the year, the capacity is well utilized, but not fully booked for the year. And that's the reason why for such, let's say, market, now our lead time are improving moving forward.
spk04: Thank you very much.
spk08: Next question, please. The next question is from Didier Shimama from Bank of America. Please go ahead.
spk02: Yes, thank you very much and congratulations on the spectacular guidance for Q1 and 23. Jean-Marc, I'd like to understand one thing on your silicon carbide business. So number one, is it clear or did I understand correctly that you've slightly raised that guidance from $1 billion to $1 billion plus? And then secondly, in that number, can you tell us a little bit about the mix between discrete versus modules? Because it seems like some of your competitors are shipping mostly modules, whereas you're shipping mostly discrete. And obviously the value added of modules is substantially greater than the value added of discrete. In other words, not comparing apples to apples, if that makes any sense. And I've got a follow up. Thank you.
spk09: Well, thank you. Yes, I confirm that our plan for 2023 is above $1 billion. and uh and and clearly uh the the the mix okay we have is mainly modules okay first of all okay uh with one of our main customers and uh the main part of the program okay we have been awarded uh are significantly based on the ace pack okay module we have so our main business is module related However, this is not a KPI. We communicate in detail. But qualitatively, I can confirm to you that it is mainly on module.
spk02: OK, excellent. And on the second half gross margin comment that you made, Lorenzo, can you quantify the sort of startup cost in IGRATEN Catania in the gross margins? That would be helpful. Thank you.
spk05: In terms of the start-up cost, we have two components, I would say. One is what is qualified start-up, so means that this cost will not hit our gross margin, but will be reflected in other income and expenses. These, from an accounting standpoint, let's say, are the pure startup cost. When your FAB is not yet, let's say, at the minimum capacity. These will be visible in the line other income and expenses that actually this year will be somehow lower in respect to what we have seen in 2022 for this reason, but not impacting the gross margin. What I'm referring to once the FEB will be out of the startup and will start to produce, will be still in an optimal situation in terms of efficiency because the volume is not yet enough really to have a wafer cost that is comparable with a full build-out FEB at 300 millimeters. This will impact the second part of the year of our gross margin, but what I'm saying is that starting with 48%, the average of the year will be in the range of 47. So it means that it will not give us an opportunity to improve in respect to the first quarter, but will not be even a big detractor because at the end, the average will stay in this range.
spk02: All right, and maybe just one quick one for Jean-Marc. Is there anything you want to call out for the second half for personal electronics, either a win or a loss, or anything that we should be aware of when we model the business, please?
spk09: Okay, so here maybe I will comment the full year plan we have indicated at the midpoint. Well, clearly, at the midpoint of the plan we indicated, so $17.3 billion, it is clear that we will grow every quarter sequentially, and we will grow every quarter year on year basis. But moving forward, okay, at, let's say, software pace. And why? Because we have to look dynamics. by product group and dynamics by verticals. So by product group, as we said, clearly ADG and MDG will grow double digit, while IMS will have, let's say, a slightly decrease. Buy and market. It is clear that on automotive and industrial, the company will grow and will perform better than the market we address with double digits, driven by the high-growing application we are focusing on and by the increasing capacity we built in H2 2022 and we are building in H1 2023. On communication equipment, and computer peripheral we will grow slightly in line with the market and clearly here it is driven mainly by the engaged customer program we have offset by let's say the computer the computer peripheral well now in personal electronics It's another dynamic here. We will have a decrease. We will, let's say, decrease our revenue so lower definitively than the market. Why? Because we will have a change in the important engaged customer program, which will be accretive on our gross margin, but with less revenue. So this is the dynamic we will have moving forward in 2022. Marvelous. Thank you so much.
spk07: Thank you. Next question, please.
spk08: The next question is from Matt Ramsey from Cohen and Company. Please go ahead.
spk00: Hi, this is Josh Buckhalter on behalf of Matt. Thank you for taking my question and congrats on the awesome results. I guess I wanted to follow up on the previous question in And double-click on industrial and auto in particular. I mean, there's widespread, I guess, concerns of macro softening. And one of your large peers earlier this week called out some weakness in digestion in industrial. I guess, can you walk us through and provide a little more granularity on what gives you confidence in industrial and I guess also auto? Is that still benefiting from replenishment inventory like it was last quarter? Thank you.
spk09: I think it's important to spread the industrial market into. I repeat, this is what we classify the B2B. In B2B, first of all, there is power and energy. And when I have spoken about power and energy, I have spoken about the generation of energy, conversion of energy, and storage. And with all the initiatives you have worldwide on renewable energy, and in all geographies, the demand for power electronics and, let's say, board controllers encompassing microcontroller, gate driver, and sensor is huge. There is absolutely no investment softening in the field of power energy. Then the second point about power energy is the main consumption of electricity in the world is related to motion, engine, motor, electrical engine. Everywhere in the world, there is initiative to make more efficient all the engines which are connected to industry and factories. Any of the demand for power electronics, again, in terms of inverters, in terms of board controllers, MCU power electronics is huge. This is exactly the same for factory automation and robotics. So because of the shortage of talent in the world, because of the lesson learned from the post-pandemic, there are many, many industries which are making them more automated and asking for more robotics. Here it's the same. It's also the same in the logistics. The robots you need in the massive, let's say, storage infrastructure are completely with the robot, okay, asking for many microcontrollers and so on and so forth. And last but not least, this is a heavy infrastructure that you have in countries and in cities. This market is growing at the same pace as automotive, asking for power, MCUs, and BCD technology for drivers. Then the second part of the industrial market is more what we call the consumer one, uh which are battery operated tool okay because you know since two three years there is an acceleration of all uh let's say the professional and consumer small tools okay to move from a thermal combustion engine base or a plug-in on the grid to battery operated yes here okay there is a softening of the market but the expectation of customer is a restart in Q2. And then there is healthcare, where the volume are less, but is in a, let's say, similar path. So here I would like to insist that on industrial market, you have two different dynamics. You have really a dynamic which is strong, the B2B, and here is driven by a transformation, so decarbonization, and automation of the industry so permission of semiconductor and there is a second dynamic which is going back to normal suffering which is battery operated tool all appliances is basically the same and healthcare so i don't know what the main competitor you you refer say but i can confirm to you this is what we see and this is the backlog we have And this is what the customer .
spk00: Thank you for all the color there. I guess for my follow-up, I wanted to ask about silicon carbide substrates. You've seen a player, the leading player in substrates sort of have yield issues over the last quarter or two. it was great to hear you reiterate the confidence of 40% internal substrates over the next year. Could you just walk me through, what gives you, how can you be so confident, I guess, in your ability to both medium-term and longer-term get access to substrates, and particularly given some of your peers are going full vertical, others are going to the other end and placing bets all over the place with multiple suppliers. It would just be great to hear an update on the silicon substrates your view of silicon carbide substrate supply. Thank you.
spk09: I would like to comment, okay, let's say the planning horizon of three to five years, okay, and to confirm what is our strategy. Again, on substrate initiative, our intention, okay, was to, let's say, build an internal source in order to warranty to any customer with whom we have a strategic agreement, let's say some security of the supply chain. We have seen during the past few years that some issues could occur. One of the lessons learned we have taken, this silicon carbide is so key enabling technology for the electrification of the and the decarbonization of the industry that we consider that for a while to offer a strategic independence to our key customer was, let's say, a key initiative of us. Then the second objective to acquire internal capability on this substrate initiative is R&D and efficiency. We want to be, let's say, not dependent anybody to move our production to 200 millimeter. And we do not want, OK, to be dependent anybody to insert strong innovation in our substrate initiative. As an example, the SmartSeq technology from . So now ST is equipped very soon with all this internal capability to offer strategic independence to our customer and to drive, in a self-management mode, our efficiency and innovation. So this is what we want during now and the next five years. Beyond this horizon, okay, we will see, okay, which complementary partnership or open partnership we can do. Well, ST is not a company close to partnership. I would like to recall Global Foundry Partnership, Tower Jazz Partnership. So ST, okay, is perfectly open to any manufacturing cooperation and agreement, but it's too early to speak about that.
spk07: Thank you very much. Thank you. Next question, please.
spk08: The next question is from Francois Bovigny from UBS. Please go ahead.
spk01: Hi, thank you very much. I have two quick ones. The first one is on maybe macrocontrollers has been a big driver in 2022 and seems to be still in Q1. Can you give some color around the dynamic in macrocontrollers specifically that has been you know, constraint for the last few quarters. I mean, it looks like inventories are going up significantly. So what do you see, I mean, in terms of supply demand and pricing dynamic inventories for macrocontroller specifically, even though you assume pricing to be flat, you know, on average, but, you know, it would be very interesting to have your macrocontroller view specifically. And the second question I had is on silicon carbides, actually, to confirm the 40% for zero substrate in-house for, I think it was 2024. Jean-Marc, I was not sure I understood your answer. I mean, do you still target to have 40% next year, or it may be more like a three, five years aspiration? And I just wanted to clarify that point. Thank you.
spk09: By 2024, we would like to have 40% internal production. Okay, and it's 200 mm or 150 mm? It will be 150 mm at the early stage, and step after step, we'll move to 200 mm.
spk01: Okay, good clarification. Thanks.
spk09: On MCU, the market remains strong overall. We have spoken about STM32, I guess. So the market remains very strong. Overall, I have spoken then. OK, I will give maybe some specific color. Yes, the demand, the capacity, and the inventories has started to be more balanced, clearly. And the lead time market is starting to reduce step after step in certain product family. And the pricing is stable. But where we have still, let's say, capacity constraints, it's on some ultra-performing microcontroller for industrial application, for B2B application. Because, OK, this ultra-performing microcontroller with sometimes including, let's say, connectivity, security, and AI are in competition with microcontroller for automotive. Basically, they are sharing the same 40 nanometer technology capacity. And here, clearly, we are still on the, let's say, important capacity saturation, lead time, which are, let's say, quite above a normal situation, and in a certain extent, okay, some allocation. For the mainstream microcontroller STM32, for the ultra-low power microcontroller STM32, we are moving step after step to a more normal situation, but I repeat, okay, with still a strong demand and in a pricing environment which is stable. Whatever is, let's say, go-to-market channel we use. Thank you, Jean-Marc.
spk07: Thank you very much. Next question, please. I think we have time for one or two questions, depending on the name, for the question and answer. So next, self-question, and then we will adjust.
spk08: The next question is from Sandeep Deshpande from J.P. Morgan. Please go ahead.
spk06: Yeah, hi. Thanks for having me on. Two or three questions, if I may, quickly. Jean-Marc, you've had a great guidance for the full year, and you are highlighting that in the second half that there is some mix shift with your main consumer electronics customer. So essentially, it looks like all your growth for the year is coming from the automotive industrial space. Is that correct? And I would like to understand what is exactly happening, because you mentioned in an earlier question that there is some shift happening in terms of the consumer electronics customer, in terms of the part. I'd like to understand that. And I have one quick follow-up.
spk09: Yes, okay. What I would like to confirm, okay, that in 2023, completing, okay, the plan we discussed to you at the midpoint, Our company will have about 70% of our revenue generated by automotive and industrial markets, and about slightly above 30% from personal electronics and communication equipment and computer peripherals. It is perfectly aligned with the 20% billion dollar ambition that we share with you at the Capital Market Day. This is exactly what we want to do. So this, yes, I confirm, okay, in 2023, we will finish the year in a mix in terms of vertical exposure, which is a strategic target we set up, okay, at the management team during the Capital Market Day. Then here, I repeat, on the personal electronic overall moving forward along the year, we have a big change in the important engaged customer program. Again, this big change will translate in less revenue year over year, but better gross margin generation.
spk06: so this is what i can confirm to you and this will happen okay smoothly moving forward across the year understood thank you and just quick follow-up on on manufacturing uh i have i mean how much of your production in 22 was 300 millimeters and Going forward with your ramping up of Agrate, how should we look at that 300 milliliters percentage of your production in 23 and then in 24?
spk09: It was, let's say, slightly above 25%.
spk05: Internal, eh? We are talking about internal only.
spk06: And Jean-Marc, because there was some conversation earlier on the margin mix because of the ramp up of the Agrate Fab, that there will be some negative impact on gross margin in the second half of this year, but will it be accretive in 2024?
spk05: Yes, yes, definitely. Of course, in the course of this year, in 2023, We are not be in a scale for our 300 millimeter in a graph such as that it will be a creative at the level of our gross margin. Because at the end, as we said, that we will end the year with the 1,000 wafer per week. Still is too low. And you know that our priority is to grow as fast as we can in this. In 2024, our expectation is that it will start to be neutral to our gross margin and then in the second part of next year to be accretive as we target to increase this capacity along 2024. This year, no, it will not be, let's say, accretive to our gross margin. This is one of the reasons that you see that In respect to the starting point of our gross margin in the first quarter, we have no opportunity to improve over the year. And our average for the full 2023 will be close to 47%, similar to the one that we had in 2022. Thank you so much.
spk07: Thank you very much, Hansip. And now we have time for our last question.
spk08: Today's last question is from Andrew Gardiner from Citi. Please go ahead.
spk03: Good morning. Thank you for squeezing me in at the end here. Lorenzo, perhaps one for you. Could you normally give us an update in terms of your operating expense outlook, if you could help both in terms of first quarter as well as how you see things trending through the year, and then a quick follow-up after that if you don't mind. Thank you.
spk05: In terms of expenses, net operating expenses actually in the first quarter are expected to increase in respect to our Q4 operating expenses. And this is mainly due to negative impact of the calendar because during Q4 we have, let's say, vacation at the end of the year, as you know very well with the Christmas period. We have an increase of activity. We have also some unfavorable currency effect in this quarter in respect to the previous quarter. We have also to consider that we will have a negative impact in the line of other income and expenses. There are two reasons for that. One I was explaining before is due to the startup cost that we account in this line. And the second reason is that we do expect in Q1 a lower level of R&D income and grants, let's say. Due to the fact that for administrative reasons we are not in the position to recognize, let's say, all the amount of R&D grants in Q1, most likely there will be a catch-up in Q2 of these R&D grants due to the renewal of the various conventions with the various authorities. So at the end, when we look at the Q1, our net operating expenses, including other income expenses, should fall in the range of $900, $950 million.
spk03: And then in terms of how you think that trends through 2023?
spk05: Well, for the year 2020-2023, let's say I would say that this year will be a year of quite a significant, let's say, investment in terms of R&D, in terms of activity, in terms of, let's say, digitalization of our company. So we have many programs running. I would say that at midpoint, while in 2022 we enjoy a significant, let's say, leverage on our expenses, My expectation is that, let's say, in 2023, we will not enjoy a significant leverage on our expenses at the midpoint of our revenues indication.
spk03: Okay. So steady as a percent of sales on 22. Yeah. Okay. And if I could just squeeze a quick follow-up in back to the personal electronics question. If I go back to how you guys framed the outlook for 23 back at third quarter, you'd given us an initial indication of growth, and you said at that time that you thought you could grow across all three divisions in 2023. As we start the year here in January, you now say no, AMS is going to be down, driven by this reframing of the personal electronics relationship. Has something material changed in the last few months With that, it's driving this mix towards lower revenue but higher gross margin. It feels like it's more socket change than any pricing dynamic because if it was pricing on a similar path, gross margins arguably wouldn't move up. Is there anything more you can add to that? Thank you.
spk09: Here, there is two points. Point number one is the usual seasonality of Q1 of the personal electronic overall. This is not a surprise. Again, what I commented of the exchange with an important engaged customer program is absolutely not a surprise.
spk03: Okay. I guess that's all you can say. I understand. Thank you very much, Garth.
spk07: And just to clarify, because we had a question from the book, the amount of net OPEX for Q1 is 900 to... 915 or something like that.
spk05: Not 950. Yeah, exactly. I take sometimes some cushioning in the invitation, but this time it seems a little bit too much.
spk07: So with this, thank you very much, Solediu. I think this is ending our...
spk09: Thank you everybody. Thank you. Happy New Year for everybody.
spk05: Thank you.
spk08: Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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