STMicroelectronics N.V.

Thank you, everyone, for joining our first quarter 2025 Financial Result Call. Hosting the call today is Jean-Marc Chéry, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO, and Marco Cassis, President Analog Power and Discrete MEMS and Sensor Groups, and Head of ST Microelectronics Strategy, System Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on the ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release. That's what issued with us this morning, and also in STMOS' recent regulatory filing 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. Now, I'd like to turn the call over to Jean Marchery, ST President and CEO.

Thank you, Jérôme. Good morning, everyone, and thank you for joining ST for our Q1 2025 earnings conference call. I will start with an overview of the first quarter, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the hot look and conclude before answering your questions. So, starting with Q1. In a persistently uncertain environment, our first quarter net revenues were in line with the midpoint of our business outlook range, driven by higher revenues in personal electronics, offset by lower revenues in automotive and industrial, compared to expectations. Q1 gross margin was slightly below the midpoint of our business outlook range, mainly due to product mix. On a year-over-year basis, Q1 net revenues decreased 27.3% to $2.52 billion. Gross margin decreased to 33.4% from 41.7%. Operating margin decreased to 0.1% from 15.9%. and net income decreased 89.1% to $56 million. Let's now discuss our business dynamics during Q1. In automotive, we expect Q1 to be the low point of our automotive revenues. During the quarter, we saw lower revenues across all geographies. The current situation on trade and tariffs is creating uncertainty in car production levels, leading to a slight downward revision of forecasts for the year. More problems for electrical vehicle volumes. Despite this, our book-to-bill ratio was above 1. In dollar terms, bookings were also up significantly quarter on quarter. During the quarter, we continued to execute our strategy in car electrification. We had wins with both silicon carbide and silicon devices and modules for new onboard charger and traction inverter designs, as well as with our smart power and smart fuse solutions for electric vehicle power systems. We remain focused on solid execution in power and discrete for car electrification in a continuing challenging market environment. In car digitalization, we saw further traction with our portfolio of automotive microcontrollers. Automotive microcontrollers are one of our revenue growth drivers beyond the medium-term horizon. We are confirming strong progress in executing our roadmap with many new products set to launch in 2025 and in 2026 across our Stellar and STM32A product families. We also continuing to see strong designing momentum in China, EMEA and the Americas with both large-scale OEMs and TR1s. During Q1, our Stellar-P microcontroller family was selected in a dual-inverter powertrain application by a fast-growing OEM in China. And we continue to expand our business with our current high-volume automotive microcontrollers in applications like high-vacuum air-compressed systems. To support the challenges of developing software-defined vehicles, we recently announced our extensible memory offer for stellar microcontrollers. ST's proprietary PCM technology enables the smallest memory cell size for the automotive market. Thanks to this, our customers can benefit from increased headroom to continuously innovate their products over time and in the field, while also simplifying logistics. In ADAS, we saw our customer Mobileye IQ6H being adopted to improve safety and driving comfort in high volume vehicles. This enables entry driving, smart parking, and improve occupant and pedestrian detection with a single integrated system. We also introduce our newest family of global navigation satellite system receivers and an advanced driving system for ADAS and autonomous driving. They are the industries first to integrate multi-constellation and co-advanced signal processing in a single dial. With our automotive-grade sensors, we have a number of wins for head-ass vehicles, angle detection and occupancy monitoring applications. Also, this is a clear growth opportunity for us in the mid-term. In industrial, we expect Q1 to be the low point in terms of revenues. In Q1, Orders were also up versus Q4, and overall, inventory decreased, particularly for smart industrial and, to a lesser extent, power energy. By region, the improvement in inventory was driven by Asia, while we have not seen significant improvement in Europe and in Americas. Our book-to-bill ratio was above one. During the quarter, we had wins for our power and analog portfolio across a range of applications. This included motor control, industrial drives, wild goods, solar panels, air conditioning, and data switches. At the end of March, we signed a development and manufacturing agreement for gallium nitride technology with Innoscience. It includes a joint development initiative on GaN power technology as well as a reciprocal agreement allowing each company to use the other front-end manufacturing capacity. This allows ST to accelerate our roadmap in GaN power technology to complement our silicon and silicon carbide offering. For ST, this is a further step in the China-for-China operating model, coming on top of the joint venture with Sanan for front-end manufacturing of silicon carbide, and the foundry agreement with HS Grace on multiple technologies, including 14nm nodes. In embedded processing, our STM32 microcontrollers continued to gain traction with the broad developer community. Pacing the current challenging market conditions, we were able to reconfirm our number one ranking on the general purpose microcontroller market in 2024, with a market share that has consistently grown sequentially from Q2 2024 onwards. In 2024, our software ecosystem grew 30% to over 1.3 million unique users, and we continue to see a strong growth trend in the first quarter of 2025. One area of particularly strong growth is in Edge AI projects developed on our tools. Over the past 12 months, we saw over 160,000 projects, more than twice the number in the previous 12 months. We continue to reinforce our portfolio and ecosystem with new innovative products, leveraging our proprietary 14nm and 18nm process node technologies. In 2025-2026, we plan to introduce 18 new lines leveraging modern non-volatile memory technologies at and below 40nm. Between 2025 and 2027, the percentage of our STM32 revenue coming from this advanced product at 40nm and below will double, reinforcing our leadership in this market segment. Based on our design-in momentum, we are equipped to grow faster than the market, going back to well above 20% market share. In personal electronics, Q1 was slightly better than expected, while communication equipment and computer peripherals was in line with our expectations. Here, our engaged customer programs are progressing to the plan. Our high level of innovation and ability to execute with MEMS and optical sensing, as well as with our analog technology portfolio, are a key competitive advantage, enabling us to win and grow our business. And our specialized proprietary technologies also position us for growth in low Earth orbit satellites and data centers. For example, during the quarter, we introduced new technologies to enable higher performance optical interconnect in data centers and AI clusters. Our silicon photonics and next-generation by CMOS proprietary technologies bring better performance to address the ongoing evolution of optical interconnect for customers like Amazon Web Services. Finally, in terms of corporate development activities, During Q1, ST announced the detail of its three-year program to reshape the manufacturing footprint and resize the global cost base. We also confirmed the annual cost savings target in the high triple-digit million-dollar range exiting 2027. The reshaping and modernization of ST's manufacturing operations aim to achieve two main objectives. Pre-utilizing planned investments towards future read infrastructure such as 300 mm silicon and 200 mm silicon carbide wafer tabs to enable them to reach a critical scale and maximizing the productivity and efficiency of legacy 150 mm capabilities and mature 200 mm capabilities. This program is expected to see up to 2,800 people leaving the company globally on a voluntary basis over three years on top of normal attrition. This is expected to occur mainly in 26 and 27. To conclude, for sustainability, we issued our first annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2024. We remain on track for our commitment to becoming carbon neutral by 2027 on scope 1 and 2 and on product transportation, business travel and employee commuting for scope 3. Our carbon neutrality program includes a comprehensive strategy covering the reduction of direct and indirect greenhouse gas emissions, and the sourcing of 100% renewable electricity by 2027. Now, over to Lorenzo, who will present our key financial figures.

Thank you, Jean-Marc. Good morning, everyone. Before commenting the Q1 results, Let me remind you that following this reorganization into two product groups and four reportable segments announced in January 2024, we have made further progress in reorganizing our global product portfolio. This results in some adjustment to our reportable segments effective starting January 1st, 2025. without modifying subtotals at product group level. Therefore, from Q1 2025, we report revenues and operating income according to those four adjusted reportable segments. For more details, please refer to the appendix of the Earnings Press Release we published today. And now let's start with a detailed review of the first quarter, starting with the revenues on a year-over-year basis. By reportable segments, analog products, MEMS and SENSO, AMS, was down 23.9%, mainly due to a decrease in analog. Power and discrete products decreased 37.1%. Embedded processing, AMP, revenues declined 29.1%, mainly due to general purpose and automotive MCU. RF and optical communication declined 19.2%. Buying market, automotive declined by about 39%. Industrial by about 32%. personal electronics by about 11% and communication equipment and computer peripherals increased by about 1%. On a year over year, sales to OEMs decreased 25.7% and 31.2% to distribution. On a sequential basis, revenue decreased 20.7% in AMS 34.1% in power discrete, 26% in AMD, and 16.5% in RF and OC. By end market, automotive declined by about 34%, industrial by about 18%, personal electronics by about 17%, and communication equipment and computer peripherals by about 40%. Turning now to profitability, gross profit in the first quarter was $841 million, decreasing 41.7% on a year-over-year basis. Gross margin was 33.4%, decreasing 830 basis points year-over-year. mainly due to product mix and to a lesser extent to higher unused capacity charges and lower sales price. Total net operating expenses, excluding restructuring, amounted to $830 million in the first quarter. This was better than anticipated, reflecting the continued strict monitoring of our expenses in the current market environment. In the second quarter of 2025, we expect net OPEX to stand between $860 and $870 million, a 6% year-over-year decline. As a reminder, these amounts are net of other income and expenses and exclude restructuring. First quarter operating income was $3 million. Q1 operating margin was 0.1%, with AMS at 7.7%, P&D at minus 6.9%, E&P at 8.9%, and RF and OC at 13.9%. Q1 2025 net income was $56 million, compared to the $530 million in the year-ago quarter. Earnings per diluted share were $0.06 compared to the $0.54. Net cash from operating activity decreased 33.2% in Q1 to $574 million. First quarter net capex was $530 million compared to the $967 million in Q1 2024. Free crash flow was positive $30 million in the first quarter compared to a negative $134 million in the year-ago quarter. Inventory at the end of this quarter was $3.01 billion, compared to the $2.69 billion in Q1-24. Days of sales of inventory at the quarter end was 167 days, in line with our expectation, compared to 122 days for both the previous quarter and the year-ago quarter. Cash dividend paid to stakeholders in Q125 totaled $72 million. In addition, ST executed a share buyback of $92 million. ST maintained its financial strength with a net financial position that remained solid at $3.08 billion as of March 29, 2025, reflecting total liquidity of $5.96 billion and total financial debt of $2.88 billion. Now, back to Jean-Marc, who will comment on our outlook.

Thank you, Lorenzo. Now, let's move to our business outlook for Q2 2025. In the first quarter, our book-to-bill ratio improved with both automotive and industrial above parity. We are expecting Q2 2025 revenues at $2.71 billion, plus minus 350 basis points. At the midpoint, our Q2 2025 net revenues will decrease by 16.2% year-over-year and increase 7.7% sequentially. We expect our gross margin to be about 33.4% plus minus 200 basis points, impacted by about 420 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. For the full year 2025, considering the level of uncertainty for the economy globally and for ST and markets specifically, we are not providing an indication for the full year 2025 revenues. We plan to maintain our net capex plan for 2025 between $2 billion and $2.3 billion, mainly to execute the reshaping of our manufacturing footprint. To conclude, While we see Q1 2025 at the bottom, in the current uncertain environment, we are focusing on what we can control. We are maintaining strict expense control while protecting R&D, continuously innovating to enhance and accelerate the competitiveness of our product and technology portfolio. We are on track with our company-wide program to reshape our manufacturing footprint and And we confirm that the cost savings target is in the high triple digit million dollar range exiting 2027. ST medium term growth drivers remain solid. Specifically, they will come from MEMS and optical sensing solutions, general purpose microcontrollers, analog and device for low Earth orbit satellite communication. While we see a lower and delayed growth in power and discrete, due primarily to the well-known electrification market dynamics. We anticipate additional further growth beyond the medium-term horizon, thanks to automotive microcontrollers and AI applications at the edge and for power management and cloud optical interconnect in data centers and AI clusters. We will do so by leveraging our product and technology portfolio and roadmap and our competitive reshaped manufacturing footprint. Thank you and we are now ready to answer your questions.

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

Thank you very much. So the first question that is in everybody's mind, and you saw it with TI yesterday, is how much your Q2 is driven by tariff pulling. So effectively, you are plus 7% quarter on quarter guiding on the revenue side. And I was wondering if you saw any, you know, strange behavior or unusual behavior as maybe the industry is trying to get some inventory ahead of a tariff. So I just wanted to have your view on that. If you could provide any data that you have seen during the quarter that would support any pooling or not would be helpful. That's my first question.

No, we have not seen a specific pooling ahead of the tariff. The Q2 forecast and guidance has been built smoothly in Q1 with our backlog we had entering in the year, plus a booking plan that has been achieved on a very linear and smooth model. So no specific cooling due to tariff for Q2. Thank you, François-Xavier.

Thank you, Jean-Marc. And maybe the second question is on your inventories. I mean, if I look at your inventory and the balance sheet is back to all-time high from when I look at my model, both on the absolute side on the days of inventories. And I was wondering, what does it mean for the gross margin? Because it looks like it will take some time to, you know, clear these inventories and with the uncertain environment on the top line.

um i was just wondering you know the consensus having gross margin increasing significantly in h2 is it really realistic i mean to have a significant improvement in gross margin given where the inventories are i take this question about the inventory yes it's true that our inventory in ending q1 is let's say 167 days is actually, let's say, on the high side. But this was expected. As you know, let's say, the revenue in Q1, also due to the particularly in unfavorable calendar, the length of the quote was a little bit, let's say, was lower than our normal trend. But at the end, we do expect to start already in this quarter to reduce the level of our inventory. We expect to go slightly down in terms of days, more in the range of 160 days. Consider that during this quarter, we are also preparing the ramp-up for the personal electronic for Q3. So, yes, clearly, let's say we have a path of reduction of this inventory, let's say, over the year 2020. then I would say that, yes, clearly this is something that we are monitoring strictly. And indeed, also during this quarter, we will have in one of our sites still one week of closure in order to keep under control this level of inventory.

And what does it mean for gross margin for H2? I mean, if inventory is coming down, does it mean that gross margin will, can it go up as well?

In Q2, our guidance for the gross margin, as you have seen, is substantially to stay flat in respect to the first quarter. there are few components of this dynamic of the gross margin. On one side is clearly, let's say, the gross margin is impacted negatively by the manufacturing efficiency that we had during Q1. Manufacturing efficiency during Q1 was impacted by the significant number of days of closure that we have done in our FEPS and in our back-end plant. you know that when you have this kind of, let's say, actions to close the sites, not all the efficiency, let's say, not all the negative impact of disclosure is captured by the unloading charges. There are some impact that is negatively impacting the efficiency, and this is reflected in the dynamic of the second quarter gross margin rate. On top of that, there is an unfavorable impact on the Eurodollars, moving from 1.06 to 1.08. This is offset on the other side by the improvement in the product mix. Product mix is improving as personal electronics is declining, automotive is improving in the second quarter, it's improving also industrial. This is offsetting Let's say the negative impact that we have related to the manufacturing that rightly you say is coming from substantially from our inventory. Why I would say that in term of pricing, we don't see any significant high pressure in term of pricing is the normal trend that usually we experience quarter after quarter. Thank you very much.

Thank you, François-Xavier. Moira, can we move to the next question, please?

Yes, sir. The next question is from Jean-Alain Menon from Jefferies. Please go ahead.

Yeah, hi. Good morning. Thanks for taking the question. Yesterday, going back to Texas Instruments, they were sounding quite bullish about their industrial business. They said that they're seeing a broad recovery across segments and geographies. and all their customers are at low levels of inventory. Those comments seem a little bit more bullish than the comments you've just made today on industrial. I'm just wondering why there would be a difference between the two. Is it that they have a more direct sales model and we'll see the improvement earlier than through the distribution channel where you are selling some more? And when we talk about second half sales, uh would would would the level of recovery of industrial microcontrollers be a key factor the level of uh in terms of your gross margin outlook into the second half all right so it takes a question for the for the revenue uh well it is clear that uh for for industrial we see some uh

positive trend. I repeat that our Q1 book-to-bill was above 1. In terms of orders, dollar, we were also up. More clearly, we have seen some inventory down in smart industrial and to a lesser extent in power energy. And also we see some positive dynamic by region, so especially in Asia. but still no improvement in Europe particularly and in America. So it's point number one. Point number two, you know that our industrial market Let's say go-to-market is mainly related to general purpose microcontroller. And there is still a situation of over-inventory on general purpose, going in the right direction, but at a slower pace than what we expected a few months ago. About H2... As I have said, we will not provide any indication about H2. Why? Because of the uncertainty of the environment, the low visibility we have. However, we already communicated that we are pretty confident about our engaged customer program in personal electronics and in communication equipment and computer peripheral. Definitively, this increase in H2 versus H1 related to this engaged customer program will not represent the full H2 growth versus H1. Another part, okay, should be related to industrial market, definitely, but it's too early to confirm this indication. But it is something that probably will happen.

But you are confirming that Q1 is the bottom in industrial, so it should be higher than Q1 at least.

We confirm Q1 is the bottom in industrial, yeah. Thank you.

Any follow-up, Jonathan?

So, you know, if the second half is on the, you know, personal electronics where you have an engaged customer ramp into the second half, And just going back to the gross margin issue where your personal electronics has lower gross margins than industrial automotive. So just from that perspective, would the level of improvement, all things being equal, just assuming that there is no big tariff impact in the second half, would your gross margin improvement be somewhat more muted?

In the second part of the year, clearly at this stage it's a little bit difficult to give any precise indication in terms of gross margin where we will land. But clearly we have some elements that we can share with you. Clearly the impact of the growing in terms of personal electronics and with the significant content in terms of silicon will definitely help significantly our, let's say, reduction in terms of uh unloading charges and also improving in our manufacturing efficiency and this is clearly a positive benefit that we will have in the second part of the year clearly in the second part of the year as we were mentioning before there will be improvement is expected very creative for us in terms of gross margin. So I would say that these elements are elements that are supporting for us some, let's say, expected improvement moving from the first half to the second half. Clearly, let's say there are also some add-ins that we have to take into consideration. One maybe is the dynamic of effects. that clearly, let's say, in this environment is not, let's say, helping us. And the other element that we have to take into consideration is the fact that, as we have said many times, the capacity reservation fees will progressively go down, also moving from the first half to the second half. Anyway, I have to say that it's fair to say that, let's say, the level of gross margin that we have seen in Q1 and in Q2 will be the bottom for our gross margin. Gross margin will improve moving Q3 and Q4.

So finishing on industrial revenue, what I can confirm to you is that the company will grow revenue at the midpoint of our guidance, 7.7%. Well, industrial will do as well. Very similar than the average of the company in terms of growth. The main detractor of the growth of Q2 versus Q1 is the usual seasonality for ST on personal electronics. But it's a good sign that for the first time since many quarters now, that sequentially the industrial market we address will grow about 8%. Sequentially.

That's very clear. Thank you so much.

Thank you, Jonathan. Mora, we can move to the next question, please.

The next question is from Joshua Buchalter from TD Cohen. Please go ahead.

Hey, guys. Thank you for taking my question. I appreciate all the color on the inventory and the balance sheet. I was wondering if you can maybe provide additional details on how you're viewing downstream inventory in the channel. I think you had You mentioned entering the year. You were sort of at two months more than you were hoping. Was there any progress on that front in aggregate, getting channel inventory lower during the quarter and sort of where you see things now? Thank you.

Yeah, yes, I take this question about the inventory issue. This time inventory that you are mentioning is the inventory in the channel. But during the last quarter in Q1, we have seen substantially one dynamic, very clear reduction of inventory in the channel, mainly in Asia. This was evident, while for what concerns EMEA and America, we have not yet seen any significant reduction of our inventory in the channel. Let's say that today, even if we have seen, let's say, some improvement in the course of last quarter, still we have some excessive inventory in the channel. This is clear. We do expect, let's say, that in Q2, with this dynamic in terms of industrial and expectation of our, let's say, POS so the sales of our distributor toward the final market to have a significant step down in term of inventory so for the time being what I can say is that yes there is still some excess of inventory this inventory should progressively go down let's say this excess of inventory should progressively go down to a normal, let's say, situation already starting in the current quarter.

Okay, thank you for the call there. And then maybe, Jean-Marc, I was hoping you could comment bigger picture on how you feel ST's position to sort of handle the backdrop where the global trade environment is different than it has been in the past, in particular from a manufacturing standpoint. Have your conversations with your customers changed much over the last few weeks? I know you're not guiding any changes, but I'd be curious to hear how your customers are viewing you guys, given your significant manufacturing footprint internally, but also it being in Europe. Are you viewed as sort of a neutral third party in this, or any details you can give us on the flexibility of your manufacturing footprint across your locations would be helpful as well. Thank you.

We have engaged since many quarters now adjustment of our manufacturing footprint. Basically, there is a Two legs. One is the most visible one, clearly, is our China for China strategy, where now we have, with our joint venture with Senan, a wafer fab that will be ready by the end of the year for mass production for silicon carbide. We have this strategic agreement with Innoscience for Ghana, And then, okay, we have a long-term agreement with HHS Grace, both for microcontroller, analog technology, and other power. So clearly, first, okay, we have worked since many quarters to have a China for China manufacturing infrastructure and ecosystem. Then with our customer, we've already anticipated the reverse dynamic means we move already in our wafer fab either in Europe or in Singapore. and respectively from our assembly plant and test out of China or out of Taiwan, thanks to our infrastructure in the Philippines, in Malaysia, in Malta and in Morocco. Honestly and transparently, what happened early April didn't change drastically anything. we have not seen any panic about customer or immediate reaction. I think, okay, it's urgent to wait and see because, okay, adaptation of the supply chain or decision to modify or structuralize the supply chain is very easy, heavy, sorry, in terms of qualification, in terms of transfer of product, And so on and so forth. So we have not seen immediate reaction or very, let's say, let's say classified emotional reaction about that. But I repeat, we have engaged a modification of our footprint structurally since many, many quarters. That's the reason why, of course, we are waiting what will happen moving forward, but we do believe that the company is well equipped to face this situation.

Thank you.

Thank you, Georges. Moira, we can move to the next question, please.

The next question comes from Stefan Uri from OdoBHF. Please go ahead.

Yes, good morning. I have a question about your comments on the automotive market. Could you maybe clarify what's your vision about your own revenues on the automotive side this year? versus the market and also you made the difference between electrification and let's say the bulk of the market. Could you clarify this for us? Thank you very much.

Indeed, in Q1 we have seen lower revenues in all geographies for automotive and including a mild non-warned revision for the forecast of the year because you know that automotive industry drives us with a frame order backlog. And clearly this behavior is more pronounced on electrical vehicles. The positive point is that at the same moment in Q1, our book-to-bill ratio was above 1 for specifically automotive. And in terms of dollar terms, the bookings were also up quarter on quarter. The other positive point for 2025 is we believe that one risk factor has been alleviated. So the one in Europe, because now the European Union is proposing some smooth approach on the three-year flexibility for the carmaker to comply with the CO2 standard. Of course, we will wait for the vote, but this is good news. However, we believe that the current situation on trade and tariff is creating uncertainty on the level of car production, clearly. And there is still some other risk factor. So taking into account all this situation, we believe that Q1 is a low point for automotive. Excluding the capacity reservation fees, we expect our auto revenue will decline Unfortunately, in 25 versus 24. And you know that the capacity reservation fee will decline substantially in 25 versus 24 by almost 300 million US dollars. Yeah. So takeaway is Q1 is the bottom. Full year revenue should decline versus 24. We have the indication for that. And there is still some risk around the production of cars. We know that some analysts provide a forecast at 92.4 million of cars produced in 2025, so a slight increase. But here, we prefer to remain cautious and wait what will happen in the next few weeks, especially related to the tariffs.

And just a quick follow-up, I know you're not guiding for 2025 obviously, but you haven't changed your capex budget which in general means that basically the outlook according to you hasn't really changed. When you look at the consensus, you see a very strong increase in H2 versus H1, 20-25%. Does it mean that this kind of evolution in the second half is still possible?

Well, there is two points to your question. Well, first of all, I would like to clearly repeat that the main purpose of the CAPEX this year is to enable our reshaping plan. We will disengage from 150 millimeter fab and we will disengage from 200 millimeter fabs. That's the reason why we need to increase our capacity on 300 mm fab silicon, respectively 200 mm fab silicon turbine. This is point number one. And to have them at the right scale, because it will be a booster for our gross margin. Respectively, a 300 mm FAB silicon is much more efficient than a 200 mm one, and the same for a 200 mm silicon carbide. So, the first objective of our capital expenditure this year is to enable our reshaping plan. Well, definitively, some part of the CAPEX has been dedicated to, as an example, an exchange. the device that will be introduced as one of the main engaged customer programs for H2 in personal electronics, which is an increasing dollar and silicon content in the application, has requested some capex to be spent in Q1. So one part of the CAPEX, of course, is mix adaptation. It is also valid in test and finishing as well. So I repeat, for 2025, the CAPEX is mainly submix adaptation, which are, let's say, awarded to us and sure. And a main part of the CAPEX is to prepare our plan to grow in 26-27 in a different way. reshape manufacturing footprint. This is really the objective of the CAPEX. So that's the reason why we still give this 2 billion to 2.3 billion range. You see that in Q1, we are basically slightly above a $2 billion run rate. About H2. Again, we don't give any indication. We have some visibility, we have a backlog. But you know, now, our backlog, except the normal terms and conditions of our sales contract, the backlog is not particularly protected. So it could be canceled in case, okay, something happens at the economy, okay, for end of the year or 2026. So that's the reason why, okay, we have been cautious. However, what we can say, we can say that taking into account our engaged customer program, taking into account what I say on automotive that Q1 is the bottom. Even if the full year will not show a growth, taking into account the trend of the inventory on industrial, we should expect to have H2 better than H1.

Thank you. Thank you. Thank you very much. Moira, can we move to the next question, please?

The next question comes from Sandeep Deshtande from JP Morgan. Please go ahead.

Yeah, hi. Thanks for letting me on. My first question is about tariffs. There have been some retaliatory tariffs from China on the U.S. product as such. Does this have any impact because of these retaliatory tariffs on their demand for demand for your product from China at all? And whether there have been any changes in the environment because of this?

And I have a quick follow up.

Sandeep, can you repeat the question, please?

My question is about the Chinese retaliatory tariffs on products from the U.S. as such, really. Given that the retaliatory tariffs, there could be potential for tariffs on U.S. semiconductor companies shipping into China. So does this have any potential impacts on STMicro?

As I told you, it is clear that with the current situation on tariffs, our peers that have FABs in the US for sure will be or could be penalized with some customers. But again, our American peers, generally speaking, are supplying to Chinese customers product with value and with some stickiness. So again, I repeat what I have said a few minutes ago. We don't see immediate panic reaction or emotional reaction versus the situation. Why? Because indeed, the situation is frozen for some days now. I do believe that customers and partners are waiting for the situation to move forward. But definitely, let's remain pragmatic. If some customer came to us and has taken decision in the past to allocate Socket to our competitor for various reasons, and if today our product comply with the specification and comply in terms of performance and price and so on, yes, certainly we will acknowledge some trend that ST could be a new vendor solution taking into account this tariff increase for American peers in China.

Thank you. My quick follow-up is on again on your auto business. Can you talk about how your share has evolved at your major silicon carbide customer in the first quarter? And if we can assume that any share loss that has occurred has already been factored into numbers or whether we will see further share loss at that customer through the rest of this year?

I will comment and Marco Cassis will compliment. So what we say, we have repeated since a few quarters. The way we have established the business relation with our main customer for silicon carbide was a warranty about some share. And it is automotive industry. And for automotive industry, it's a normal, let's say, process to have multi-source, to have at least two sources. So for us, it was super well-known. that at a certain moment, when the second source will be qualified and efficient, our main customer will manage his manufacturing and supply chain with two sources. We are in this situation. So we have absolutely not lost market share because of any reason. We are simply coming back on a normal share, consistently with what we contractually sign with our customers. well then after okay where we pay attention is more about the volume of cars sold by our main customer, production, inventory, and so on and so forth. But here, okay, you know we cannot comment. So, Marco, you want to add something?

No, I just confirm what you just said. We moved towards the contract or market share that we have with our major customers, and there will be no erosion of market share going forward. And on the longer trend, we confirm that we will be present in the silicon carbide market at least with a 30% or above market share overall.

Thank you. Thank you, Sandeep. Unfortunately, we don't have any time for more questions, so this is ending our call for this quarter. Thank you very much, all of you, for being there, and we remain here at your disposal should you need any follow-up questions. Sorry for the ones that didn't have time to ask the questions there. Thank you very much. Bye-bye.

Thank you. Bye. Thank you. Bye.