STMicroelectronics N.V.

Ladies and gentlemen, welcome to the STMicroelectronics full year 2025 earnings release conference call and live webcast. I am Sandra, the chorus call operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Jerome Ramelle, EVP, Corporate Development and Integrated External Communication.

Please go ahead, sir. Thank you, Maura, and thank you, everyone, for joining our fourth quarter and full year 2025 financial result call. Hosting the call today is Jean-Marc Chéry, SC 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 Group, and Head of STMicroelectronics Strategy, System Research, and Application and Innovation Office. This live webcast and presentation material can be accessed on 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 reserves to differ materially from management expectations and plans. We encourage you to review the Safe Harbor Statement contained in the press release that was issued with the result this morning, and also in STMOS's recent regulatory finding 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-Marc Chéry, ST President and CEO.

Thank you, Jérôme. Good morning everyone and thank you for joining ST for our Q4 and full year 2025 earnings conference call. I will start with an overview of the fourth quarter and the full year 2025, including business dynamics and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q4, we delivered revenues at $3.33 billion above the midpoint of our business outlook range, driven by higher revenues in personal electronics and to a lesser extent in communication equipment and computer peripheral and industrial. while automotive was below expectations. Gross margin of 35.2% was also above the midpoint of our business outlook range, mainly due to better product mix. Excluding impairment, restructuring charges, and other related phase-out costs, diluted earnings per share was $0.11, including certain negative one-tax expenses impact of $0.18 per share. Q4 revenue marked the return to year-over-year growth. During the quarter, we further worked down inventories, both in our balance sheet and in distribution, and we generated a positive return $257 million free cash flow. Looking at the full year 2025, net revenues decreased 11.1% to $11.8 billion, mainly driven by a strong decrease in automotive and, to a lesser extent, in industrials, while personal electronics and communication equipment and computer peripherals both grew. Gross margin was 33.9%, down from 39.3% in full year 2024. Excluding impairment, restructuring charges, and other related phase-on costs, diluted earnings per share was $0.53. We invested $1.79 billion in net capex, while generating free cash flow of $265 million. Let's now discuss our business dynamics during Q4. In automotive, during the quarter, we grew revenues 3% sequentially. Year-over-year revenues declined, but with continued improvement in the trend. Automotive design momentum progressed with design wins across both electric and traditional vehicle domains for applications such as onboard chargers, DC-DC converters, powertrain, and vehicle control electronics. These included design wins for power semiconductors, smart power devices, automotive microcontrollers, analog and sensors. These awards, supported by engagements with various OEM and Tier 1 ecosystems, strengthened our position as a key supplier to the automotive industry. Regarding the acquisition of NXP's MEMS sensor business, the transaction we announced in July is still expected to close in H1 2026. In industrial, revenues were better than expected, showing increases of 5% sequentially and 5% year over year. Importantly, inventories in distribution further decreased and are now normalizing. In industrial, our portfolio of microcontrollers, sensing technologies, and analog and power devices is strongly positioned to support industrial transformation trends and the need of physical AI. During the quarter, we saw design wins across industrial automation and robotics, building automation, power systems, healthcare, and home appliances. In November, we held our STM32 Summit, where we announced several key innovations including the first microcontroller built on the 18-nanometer process, a next-generation wireless microcontroller, and an updated suite of Edge AI software tools. For personal electronics, fourth-quarter revenues were above our expectations, down 2% sequentially, reflecting the seasonality of our engaged customer programs. During the quarter, we strengthened our position in mobile platform and connected consumer devices, both with our engaged customer programs as well as our open market offering for devices such as our sensors, secure solutions, and power management products. Revenues for communication equipment and computer peripherals were up 23% sequentially better than expected. In AI and data center infrastructure, we continue to reinforce our position, supporting the increasing demands for higher power density and energy efficiency. During the quarter, we secured multiple design wins for silicon and silicon carbide based power solutions, supporting next generation AI compute architectures. We also continue to work with customers to bring our silicon photonics technology to the market. This strong momentum in optical technologies for data centers also contributed to a significant rise in demand for our high-performance microcontroller used in pluggable optics. The low-Earth orbit satellite business, based on our BISIMOS and panel-level packaging technologies continued to progress during the quarter, with shipments ramping to our second largest customer. Moving to sustainability, we remain on track for our key 2027 commitments. Carbon neutrality in all direct and indirect emissions from scope one and two, and focusing on product transportation business travel and employee commuting emissions for scope 3, and 100% renewable energy sources. A major milestone this year was the launch of Singapore's largest industrial district cooling system at our home OQ facilities in Q4. We also continue to maintain our strong presence in the major sustainability indices where we were honored to be recognized in the Time World's Most Sustainable Companies list for the second consecutive year. Now, over to Lorenzo, who will present our key financial figures.

Thank you, Jean-Marc, and good morning, everyone. Let's have a detailed review of the fourth quarter, starting with the revenues on a year-over-year basis by reportable segment. Analog products, MEMS, and sensor grew 7.5%, mainly due to imaging. Powering discrete products decreased by 31.6%. Embedded processing revenues were up 1.2%, with higher revenues in general parcels and automotive microcontrollers, offsetting declines in connected security and custom processing products. Erasing optical communication grew 22.9%. Buy and market. Communication equipment and computer peripherals and personal electronics both grew by about 17%. Industrial grew by about 5% while automotive decreased by about 15%. Year-over-year sales increased 0.6% to OEM and decreased 0.7% to distribution. On a sequential basis, power and discrete was the only segment to decrease by 3.9%. All the other segments grew, led by RF and optical communication up 30.5% while embedded processing and analog products, MEMS and SENSO, were up respectively 3.9% and 1.1%. Buy and market. Sequential growth was led by communication equipment and computer peripherals, up 23%. Industrial was up 5% and automotive was up 3%, while personal electronics declined 2%. Turning now to profitability. Gross profit in the fourth quarter was $1.17 billion, decreasing 6.5% on a year-over-year basis. Gross margin was 35.2%, decreasing 250 basis points year-over-year, mainly due to lower manufacturing efficiencies and, to a lesser extent, negative currency effects. and lower level of capacity reservation fees. On a sequential basis, gross margin improved by 200 basis points. Q4 gross margin included about 50 basis points of negative impact resulting from a non-recurring cost related to our manufacturing reshaping program. In the next few quarters, we expect a similar negative impact on gross margin from the just-mentioned no recurring cost. Total net operating expenses, excluding restructuring, amounted to $906 million in the fourth quarter, slightly increasing year-on-year due to unfavorable currency effect. They were slightly better than expected. reflecting our continued cost discipline and the initial benefit from our cost savings initiative. For the first quarter of 2026, we expect net OPEX to stand at about $860 million, decreasing quarter on quarter. As a reminder, these amounts are net of other income and expenses, and exclude the restructuring. In the fourth quarter, we reported $125 million operating income, which included $141 million for impairment, restructuring charges, and other related phase-out These charges are related to the execution of the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Excluding these non-recurring items, Q4 non-US GAAP operating margin was 8%, with analog product MEMS and sensors at 16.2%, power and discrete negative 30.2%, embedded processing at 19.2%, and RF and optical communication at 23.4%. Fourth quarter 2025 net loss was 30 million, including certain one-time non-cash income tax expenses of 163 million dollars. compared to a net income of $341 million in the year-ago quarter. Diluted earnings per share was negative $0.03, compared to $0.37 of last year. Excluding the previously mentioned non-recurring items related to the impairment, restructuring charges, and other related phase-out costs, no U.S. GAAP net income stood at $100 million. And non-US GAAP diluted earnings per share stood at 11 cents, including certain negative one-time tax expenses impacting of $0.8 per share. Looking now at our full year 2025 financial performance. Net revenue decreased 11.1% to $11.8 billion in terms of revenue by end market. Automotive represents about 39% of our total 2025 revenues. Personal electronics, about 25%. Industrial, about 21%. And communication equipment, computer peripheral, about 15%. By customer channel, sales to OEMs and distribution represent 72% and 28% respectively of total revenue in 2025. By region of customer origin, 43% of our 2025 revenues were from the Americas, 31% from Asia Pacific, and 26% from EMEA. Gross margin decreased to 33.9% for 2025, compared to 39.3% for 2024. Mainly due to lower manufacturing efficiencies and, to a lesser extent, price mix, lower level of capacity reservation fees, negative currency effect, and higher unused capacity charges. Operating income stood at $175 million compared to $1.68 billion in 2024. Excluding $376 million for impairment, restructuring charges, and other related phase-out costs, non-U.S. gap operating margin was 4.7%. On a reported basis, Net income was $166 million and EPS was $0.18. On a non-US GAAP basis, they stood respectively at $486 million and $0.53. Net cash from operating activities totaled $2.15 billion compared to $2.97 billion in 2024. Net capex expenditure was $1.79 billion in 2025, in line with our revised expectation, and lower than the $2.53 billion of 2024. was $265 million positive in 2025 compared to the $288 million positive of the previous year. Inventory at the end of the year was $3.14 billion compared to the $3.17 billion at the end of the third quarter and the $2.79 billion one year ago. Days of sales of inventory at quarter end were 130 days, slightly better than our expectation compared to the 135 days for the previous quarter and 122 days in the year-ago quarter. Cash dividends paid to stockholders in 2025 totaled $321 million. In addition, during 2025, ST executed a share by BEX totaling $367 million. ST maintained its financial strength with a net financial position that remained solid at $2.79 billion as at the end of December 2025, reflecting total liquidity of $4.92 billion and total financial debt of $2.13 billion. Now back to Jean-Marc, who will comment on our outlook.

Thank you, Lorenzo. Now let's move to our business outlook for Q1 2026. We are expecting Q1 2026 revenues at $3.04 billion, a decrease of 8.7% sequentially, plus or minus 350 basis points. We expect our gross margin to be about 33.7%, plus or minus 200 basis points, including about 220 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global tariffs compared to the current situation. In terms of net capex for 2026, we plan to invest about $2.2 billion to support capacity addition for selected growth drivers, like those for cloud optical interconnect, and our manufacturing reshaping plan. To conclude, 2025 turns out to be a challenging year for the hand market we serve. characterized by continued inventory correction in automotive and industrial, in particular the first part of the year. The second half was better with gradual improvement of the revenue trend and a return to a year-on-year growth in the fourth quarter. We are entering 26 with a better visibility than entering 25 with the inventory correction in distribution progressively improving. Beyond the evidence of a cycle recovery, ST will benefit from the following company-specific growth drivers. In automotive, we see solid momentum in our engaged customer programs in HEDAS, where we expect to grow this year and in the coming years. In silicon carbide power devices, following a significant contraction in 2025, we anticipate a return to revenue growth in 2026 with revenues projected to recover to 2024 levels by 2027. In sensors, we see strong demand both in MEMS and imaging sensors and our planned acquisition of NXP MEMS business will strengthen our leading position across the automotive and industrial segments. In industrial, In general purpose MCUs building on market share gains 2025 and a roadmap of new product launch for 2026, we are on track to return to our historical market share of about 23% by 2027. In personal electronics, where we continue to see strong momentum in our engaged customer programs in SunSource and Analog, we should keep on benefiting from increased silicon content in 2026 and beyond. In communication equipment, computer peripheral, in data centers, including cloud, optical interconnect, and power and analog for AI servers and data centers, with the current market dynamic, we believe we can deliver $1 billion revenue before 2030 with already 500 million US dollar in 2026. In low earth orbit satellite, we are expanding our customer base and we anticipate continued revenue growth as low earth orbit constellation projects expand globally and penetrate new application such as direct to cell constellation. Lastly, ST is uniquely positioned to address humanoid robotics through our broad portfolio spanning MCUs, MEMS, optical sensors, GNSS, and power management. We are already generating revenues through engagements with major OEMs, and we estimate our current addressable bill of material at about $600 per system. Thank you. And we are now ready to answer your question.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the 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 disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question may press star on one at this time. Our first question comes from Francois Bouvigny from UBS. Please go ahead.

Thank you very much. My first question may be for Jean-Marc. I wanted to come back to what you said about the outlook. I mean, if we look at your revenue guidance down 8.7% quarter on quarter, this is below seasonal, better than seasonal, sorry, of minus 11%. And if we take into account, you know, less days, it's actually significantly above seasonal. So I was wondering, I mean, this is looking quite interesting. And if we compare to other peers like TI yesterday or ADI and, you know, microchip, you see a number of your peers talking about above seasonal data. What's your view on the trajectory from here? Do you think this above-seasonal trend can carry on a little bit, or we shouldn't get carried away like we did in the last two years where we had many false starts? Do you see a very genuine evidence of a cycle recovery from here?

You know, we will not guide for 2026 today, clearly, but we are confident in our ability to grow organically for next year. It's clear that we enter in a better and healthier situation compared to 2025. If you remember last quarter, I already shared with you that we were seeing a backlog that were building okay during the quarter better than the usual seasonality and today with the visibility we have on OQ2 that generally speaking okay is plus let's say low mid single digit but we absolutely see no reason that we will not be at least capable to deliver it well more important i think Beyond the cycle is to share with you that we see for the company some specific growth driver. First of all, in automotive, clearly, we will have the sensor. And at a certain moment, when we will complete the acquisition of an XP, of course, it will bring additional revenue. This is obvious. But we see also positive momentum on EDAS ASICS and the silicon carbide after last year. That was pretty challenging. In industrial, clearly the dynamic is really strong. Thanks to the inventory correction gone, but more important is our portfolio. So we have done a tremendous effort in introduction of new products in 2025 and 2026. And this will contribute beyond the cycle. For personal electronics, our engaged customer program, you know that we have the visibility. So I confirm to you. So we confirm that it will support us beyond the cycle. And last but not the least, data center. Clearly, in 2026, cloud optical interconnects, so means both Photonics ICs and Analog Mixing Hall by CMOS ICs plus our high performance general purpose microcontroller will contribute because you know that the connectivity engine of the server will move to optical one. So this will be certainly an acceleration. And as well, we will start to contribute to the power supply unit and to the server from the grid to the processor. Last but not least, beyond the cycle, in 26, we see also low Earth orbit satellite communication with our engaged customer programs, so with our ASICs, really positive. This will be a bit upset by the capacity fee reservation. But only all, I confirm, really our confidence level to grow organically in 2026. And because we have, let's say, significant growth driver beyond the cycle of the market.

Very clear. Thank you, Jean-Marc. And yes, maybe on the growth margin side, I mean, with it, I mean, obviously it's a concern for the market to deliver the, you know, The guidance is in line on the gross margin, but 33.7. But when I look at the consensus, it has 35.6% of gross margin for the year. So it would assume a recovery from here. So with the top line that you described nicely, should we see as well an improvement of gross margin from the level in Q1?

Maybe I take this one, Jean-Marc, about the gross margin. But today, of course, gross margin will depend on the evolution of the revenue in the course of the year. As explained by Jean-Marc, we expect, let's say, to increase. But the gross margin today that we see in Q1, we believe is clearly the lowest point in the year. this expectation of 33.7. So we will see some increase. This increase is also driven by the fact that we expect to have constantly reduction in our unloading charges during the year. So we expect some mild increase for the second quarter and then a more significant increase also driven by the seasonality of the revenues in the second half of the year. Yes, at this stage, we can say that the expectation for us is to have an increase in our gross margin all over the year. Thank you.

Thank you. Thank you, Francois-Xavier. Moira, next question, please.

The next question comes from Andrew Gardiner from Citi. Please, go ahead.

Thank you for the question. Good morning, all. I was interested, Jean-Marc, in digging a bit deeper into the automotive space, clearly your largest end market and the one where we're still seeing the most difficulty in terms of getting through the bottom of this cycle. there's a number of sort of end market data points out there that are, you know, I suppose still causing investors questions in terms of the health of the market. power of threats back and forth admittedly but you know also not helping i'm just wondering how can you give us a bit more detail in terms of how you're seeing your your customers behave uh you know do you think inventory is is absolutely at a bottom in terms of the the automotive channel and at the oems and the tier ones uh what kind of you know confidence do you have as we look into the the future quarters that uh we can return to just from the demand trends

Well, first of all, OK, clearly, when we see WorkU4 revenue in automotive, it was slightly below our expectation and mainly, in fact, driven by the pulling from inventory a little bit lower than expected from some tier ones. Well, that means that the automotive market for legacy application clearly is pretty soft. Inventory correction is certainly gone, but there is a kind of softness of this kind of application. What will be positive on automotive is clearly what is around, let's say, the electronic architecture, the new software-defined electronic architecture calling for more complex MPUs, MCUs, definitively. So this will be an important growth driver. We know that the electrical powertrain will be still an important driver, but here it is more the competition landscape that changed completely compared to a few years ago, because you see that out of, let's say, more than 30 million vehicles produced in China, more than half are battery-based. Compared to America, where it is... more marginal in terms of production and and in europe it is a below one third so here is more a question of the competition is in china so you know that in china is more complex okay to to compete but but the powertrain electronics the demand the demand is there so all in all i think the the automotive market based on the 90 92 93 million vehicles out of which 17 to 18 million vehicles battery-based and a similar number in hybrid is still changing in terms of mix as well from the car classification is more middle-end or premium car. Even this car now embeds some electronics. So the market is not yet stable. So that's the reason why we have to be, let's say, cautious to adapt ourselves. But we see a different situation compared entering in 25, where we face very strong inventory correction in Q1 last year. If you remember from our main customer, this will not be repeated. It is more, let's say, a progressive stabilization of the market in terms of mix of car, electrical, hybrid, thermal combustion engine. and mix of cars between high premium, premium, and middle class, and a mix between China, APEC, Europe, and Asia. So this is something we have to, of course, closely monitor and adapt ourselves with our supply chain. So this is how we see the automotive market.

Thank you so much. Just a quick follow-up, David. You mentioned China at length there. How is the partnership with Sanam progressing? Is that going as you anticipated? Is it helping your competitiveness in that market or is it still too early?

So we will start to ramp up the facilities now. We have modellised, we know exactly the efficiency of this swab. And clearly, it will be a key success factor in our capability to compete on the Chinese market.

Thank you. Thank you, Andrew. Maura, can we move to the next question, please?

The next question comes from Joshua Buchardt from TD Cowen. Please go ahead.

Hey, guys. Thank you for taking my question. I actually wanted to drill into the personal electronics segment a little bit more. You know, I think there's some concerns of disruption or even pull-ins in the short term due to higher memory costs. You know, it came in better in the quarter. Maybe you can walk through what the drivers you're seeing are there and if you're seeing any changes in order pattern. And I believe you called out, you know, higher silicon content in 2026. Was that referring to expectations for your largest customer this year? Thank you.

Yes, you know that our revenue are mainly driven by our biggest customer and more on the high-end kind of product, which are in some extent less sensitive to the memory price. So at this stage, with the visibility we have, first of all, we don't see significant impact detected by us. And I confirm that we expect to keep growing in personal electronics, driven by our main customer in 2026, thanks to our increased device based on silicon and not module content increase in 2026. So, so far, PE will be a growth driver for us in 2026.

Thank you for the caller there. And then I think the last couple quarters you've been kind enough to give us your book-to-bill ratios in auto and industrial. It seems like things are getting better on the industrial side in particular. Can you update us, I guess, on those metrics and whether you're mostly done with the channel inventory clearing on the industrial side? Thank you, and congrats on the solid results.

No, in industrial, the book-to-bill was well above parity, clearly. Also, OK, beyond your question, I can tell you that the POS were going, let's say, between no-teens meetings, which is good news. So we continue to decrease our inventory. On automotive, the book to bill is a little bit more complex because we have some few key customers that are putting order in one shot for six months. So the book to bill must be, let's say, assessed on the one year moving average or six months moving average. So corrected from this let's say abnormal, let's say, process, the book to build was parity on automotive.

Got it.

Thank you. Thanks, Josh. Moira, next question, please.

The next question comes from Stefan Uri from Adobe HF. Please go ahead.

Yes, hello, good morning. Thank you for taking the question. I just wanted to come back a bit on the scenario for the year, and I know you're not guiding, but historically you've been saying that the second half is like 15% above the first half, that's the normal seasonality, and then on the top of that you may have some some specific programs. With the starting point you guide on Q1 and when I look at the consensus for the full year, it seems to be banking on something lower than that because of the starting point in Q1. Can you just confirm that you see now that the inventory correction is done normal seasonality throughout the year and maybe give some comments about the additions of some customer-engaged programs? Thank you.

No, no. On inventory correction, what we communicated, OK, either Lorenzo or myself, is to say by end of Q2, we do believe will be halt the excess of inventory. And this today, OK, I can confirm this would be the case. It's already the case from many product family. We are still here and there some some pocket of excess inventory versus what we consider a standard but looking the current dynamic pos pop by n of q2 this will be gone so now it's sure that in h2 will be exposed directly to the to the to the end demand well about uh again what we consider uh engage customer program beyond the cycle, let's say we can split into two major ones. Three, I have to say. One is the usual person electronic, and why we say it's beyond the cycle is because silicon content increases. Okay, so we have the visibility with the current visibility we have. Okay, so this will help us to grow beyond the cycle of person electronics and assuming our main customer will perform in market share as he really well performed in 2025. Okay, so this will drive our growth. Well, then moving to clearly communication equipment. and computer peripheral. Communication equipment. Communication equipment, it is clear that forestry, the low earth or by satellite communication is important driver because thanks to our capability to supply and compete, our growth is driven by our largest customer in this field of activity. And as far as we see, it's pretty successful. And certainly this year will be another demonstration of the success. Now, since two quarters, we are supporting our second largest customer that is growing as well. So it is clearly beyond the cycle. So this will be a significant growth driver beyond the cycle for Estee. Last but not least is AI data center. You know that on AI data center, we were, let's say, a bit in delay for what we call the device addressing the power stage. But here we are in, let's say, a process to progressively close the gap and offer solutions to our customers. But clearly where we will be at the head of the business dynamic, it is in the optical engine of the cloud optical interconnect. So it's photonics ICs, by CMOS ICs and high performance general microcontroller. And this will contribute to the growth of ST significantly in 2026 beyond the cycle. Well, then moving to the more, let's say, traditional market focus we have, so automotive and industrial. For EDAS, ASIC, last year was a challenging one because we saw some inventory correction on, let's say, some legacy ASIC. But this year, OK, clearly, with the visibility we have, this will be a booster of growth. Finally, our SIGMOSFET about the difficult year of 25 will grow again. And I can confirm to you that up to now in Q1, we have a good book to build on the silicon carbide that is very encouraging. And definitively, our sensor contribution with the acquisition of NXP MEMS plus the existing imaging sensor and existing MEMS we have. And I am very pleased that Beyond the inventory correction done on general purpose microcontroller, the proliferation of our new products are really paying back very well. And I am really confident that in 27, we come back to our historical market share, and 26 will be an important step to demonstrate it. So this is basically, in a few words, how we can describe 26.

Thank you very much, Jean-Marc. Maybe I have a small follow-up on the gross margin comments. I think last quarter you said that you think you would end up Q4 2026 above the level of Q4 2025 in gross margin. Do you still feel confident with what you see developing, the mix, the underloading charges, etc.?

Yes, I confirm that At this stage, the expectation is that Q4 this year, 26 should be better than Q4 25.

Okay, very clear. Thank you very much. Thank you, Stefan. Moira, next question, please.

The next question comes from Dominica Gilotti from Equita. Please go ahead.

Good morning. A couple of questions. The first is on the unloaded charges. You are guiding for a significant drop in Q1. I'm trying to understand, so despite the lower sales, I'm trying to understand if you see this number at the bottom and if you are already benefiting from the efficiency plan that you carried out. And the second is some color on, if you can, on the second client in low Earth orbit, so should we assume that is a significant number or just a starting entrance of a new client or an add-on but not particularly relevant?

Maybe I take one of the unused charges. Yes, unused charges are declining in the first quarter. The main ingredient of the declining in this world is the fact that, as you know, we are progressing with our programs to reshape our manufacturing infrastructure. program is progressively reducing our capacity in six inch for silicon carbide, 150 millimeter for silicon carbide, and 200 millimeter for silicon. And we start, let's say, to move ahead on this plan. So this is, if you want, is something that is mechanical. At the end, the capacity is reduced. We are now moving our product on the existing capacity on one side, 18 inch for the silicon carbide and 300 millimeter for the silicon. So that's why we see the level of unused capacity, not withstanding that the revenue are lower in respect to the previous quarter to reduce. This trend will continue. unused capacity will not disappear in the year, but will significantly reduce in the year and will be one driver for our improvement in the gross margin in the course of 2036.

About the second question, yes, it's significant. If not, we will not mention. But I can just confirm you two numbers in Q4. our CCP segment grew sequentially 23%, and year-over-year, 22%. Definitively, it is linked to the low Earth or my satellite business we have, and it is driven both by our first customer and then by the second one. So at 22%, 23% growth sequential and year-over-year, so you can conclude it is significant.

Thank you. Mohan, next question, please.

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

Hi, thanks for letting me on. My question is about your fab loading into the current quarter. Given what is happening with the gross margin in the current quarter, how is the fab loading going through in the quarter? And how is the mix shifting overall in terms of the gross margin? Because you have a revenue decline, but the gross margin is declining. Are you reducing your fab loading this quarter? Are you increasing your fab loading? And my follow-up question associated with that is how the mix, particularly associated with your better margin microcontroller products is shifting?

In the quarter, as I was saying before, the unloading charges is mainly related to the fact that we are moving out capacity, reducing capacity in certain specific fabs, where, of course, we are now moving production in different fabs in 300 millimetres, so reducing our capacity. So at the end, when you look at the level of loading, we are not overloading our production, let's say, in the quarter. Clearly, if you look at the inventory and you look where it will be the dynamic of the inventory in the quarter, as usual, you know that there is this seasonality in our inventory in which in the first half our inventory is somehow increasing and then decreasing in the second part of the year. So at the end, what it will be the impact is that now the expectation is to end the quarter Q1 in the range of 140 days of inventory compared to the 130 days where we stand today. But I repeat that this is more related, let's say, to the normal dynamic of our inventory over the year than, let's say, loading our manufacturing infrastructure in a way that is... The impact on unloading charges is mainly related to the fact that we started with our programs to reduce capacity in some specific area. Clearly, the positive impact, let's say, of this in terms of gaining efficiency and so on will come probably later, as you know, in our, let's say, manufacturing infrastructure. We do expect our program to be, to start to yield positive impact in our manufacturing efficiency more in 2027 than this year. But one of the impacts that's visible is the reduced level of unload. together also with the expectation of a growth in terms of revenues. These we will see during the year, let's say, depending on the level of growth.

And my follow-up question is regarding, Jean-Marc, about your microcontroller business, which is, you know, if you look at your embedded processing segment, it grew 1.2% year on year. I mean, many of your peers in this market are seeing better growth at this point. So why is SP growth in... a key segment for SE lagging at this point or something else happening in that division?

So the embedded processing segment, clearly the growth dynamic we have on the general purpose microcontroller is, let's say, at least consistent with our peers. Why it is a little bit offsetted It is offset by our automotive microcontroller because, OK, up to now, our automotive microcontroller are more the microcontroller that will be, let's say, for some model of car moving to the software-defined vehicle architecture removed, clearly. And I already explained that we have done a strong effort in 2025 to rework the roadmap of our micro. But this will be payback, OK, more, let's say, end of 27 and 28. For the time being, yes, we suffer on the automotive microcontroller that is, let's say, optically offsetting the real good health of the general purpose. But the general purpose microcontroller, let's say, maybe I can share with you one number. For Q1, the embedded processing solution segment will grow up low 30%. So above 30%, year over year. So you can imagine that the growth of general purpose will be really, really strong. Then, let's say, the secure microcontroller are going a little bit less because driven by the market. And, OK, of course, we have some offset linked to the automotive micro. But I can confirm to you that our general purpose microcontroller are performing or overperforming the market.

Thank you. Thank you, Sandeep. Moirati, we have time for one more question.

The next question comes from Sebastian Stavtovich from Kepler-Chevreux. Please go ahead.

Yeah. Hi, everyone, and thanks for taking my question. Coming back to the transformation program, have you made any specific progress so far, and notably on the manufacturing front, and are you still on track to reach your savings ambition for the end of 27? And the second one is more on the OPEX trend, so Q1, we know where it will stand. But for the full year, where do you see OPEX trending and who do you see the startup cost impacting the OPEX 2026? Do you plan to accelerate a little bit further the cost-cutting actions for OPEX? Thank you.

In term of our reshaping programs, I would say that is progressing in line with the expectation. In the course of 2025, the main, let's say, impact was related to the savings in our OPEX. That indeed, when you look at the overall declining, notwithstanding, let's say, the negative impact of the Eurodollars, So at this stage in the course of 2026, as I said, that we will start, let's say, progressively to transfer some activity from in silicon carbide to in silicon to the 300 millimeter. As I was saying before, is now expected to yield the benefit in our manufacturing infrastructure efficiency of this program. uh toward the the second part of 2027 and 2028 so my short answer here yes yes we we are on track in respect of what we have communicated previously so this is the situation in respect to the to the expenses of 2026 but now the expectation remains substantially the same means that at the end, at this level of exchange rate, including the impact of the edging, we should be able to stay with a net OPEX, means including other income and expenses on a low single digit increase, something in that range, mainly driven by the fact that we will have a reduction in other income and expenses in respect to the one of 2025, due to the phase-out cost, because of course, let's say, from one side, we reduce the capacity in our manufacturing six-inch, eight-inch, but on the other side, we have a progressive phase-out from these steps that will be reported in this line. It's a temporary effect, but it will be there during the 2026. Okay, thank you.

Thank you. Thank you, Sebastian, and thank you, everyone. I think this is ending our call for this quarter, so thanks very much, all of you, for being there, and we remain here at your disposal should you need any follow-up questions. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coral School, and thank you for participating in the conference. You may now disconnect the lines. Goodbye.