STMicroelectronics (NYSE:STM) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
STMicroelectronics reported first-quarter net revenues of $3.1 billion, with a contribution from the NXP MEMS sensor business acquisition.
The company experienced strong growth in segments like automotive and industrial, with significant design wins in electric vehicles and AI data centers.
Gross margin was 33.8%, negatively impacted by temporary suboptimal efficiencies due to manufacturing transitions.
Free cash flow was negative $720 million, primarily due to the $895 million cash out for the NXP MEMS acquisition.
Strategic initiatives include integrating ST products with Nvidia’s robotics ecosystem and expanding engagement with AWS for AI data centers.
Future outlook includes expected Q2 revenues of $3.45 billion and a gross margin of 34.8%, with plans to achieve double-digit growth in 2026.
Full Transcript
Moira (Operator)
Ladies and gentlemen, welcome to the STMicroelectronics First Quarter 2026 Earnings Release Conference Call and live webcast. I am Moira, the chorus call operator. I would like to remind you that all participants will be in listen only mode and the conference has been recorded. The presentation will be followed by a Q and A session. You can register for questions at any time by pressing 1 on your telephone. For operator assistance, please press and 0. The conference must not be recorded for publication or broadcast at this time. It is my pleasure to hand over to Jerome Bramel, EVP Corporate Development and Integrated External Communication. Please go ahead.
Jerome Bramel (EVP Corporate Development and Integrated External Communication)
Thank you Moira thank you everyone for joining our first quarter 2026 financial result call. Hosting the call today is Jean Marc Cheri, ST President and Chief Executive Officer. Joining Jean Marc on the call 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. These live webcasts and presentation materials can be accessed on STMicroelectronics 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 was issued with the result this morning and also in ST most recent regulatory findings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q and 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 Cheri, ST President and CEO.
Jean Marc Cheri (President and Chief Executive Officer)
Thank you Jerome. Good morning everyone and thank you for joining ST for Q1 2026 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 outlook and conclude before answering your questions. So starting with Q1, our first quarter net revenues were $3.1 billion including about $40 million revenues associated with NXP’s MEM sensor business which we acquired during the quarter. Excluding this contribution on a sequential basis, net revenues were above the midpoint of our business outlook range, driven mainly by higher revenues in our engaged customer programs in personal electronics and in communication equipment computer peripheral. Gross margin was 33.8% or 34.1% excluding the impact of the purchase price allocation so called ppa. Following our acquisition of NXP MEM Sensor business excluding impairment, restructuring charges and other related phase-out costs and purchase price allocation effects from our acquisition of NXP MEM Sensor business non US GAAP diluted earnings per share was $0.13 during the first quarter. Inventory in our balance sheet increased slightly and we continue to work down inventories and distributions. They are now normalized. We generated a negative $720 million free cash flow including $895 million cash out related to the payment of our acquisition of NXP MEM Sensor. Let’s now discuss our business dynamics during Q1. Well, first we had a strong booking momentum during Q1 with booked to be well above 1 across all end markets and regions in automotive during the quarter, revenue declined 10% sequentially year over year revenues increased 15%, marking the return to your overall growth. Automotive design momentum progressed with various OEM and Tier one ecosystems. We had design wins across electric, hybrid and traditional vehicles spanning onboard chargers, DC DC converters, powertrain, active suspension, vehicle control electronics. Key products include power semiconductors, smart power devices, automotive microcontrollers, analog devices and sensors. In February, we completed the acquisition of NXP’s MEMS sensor business. The acquired technology and product portfolio are highly complementary to eSteeze and strengthen our automotive sensor business. We are progressing as planned with the integration into our portfolio and operational flows. Industrial decreased by 1% sequentially and improved 26% year over year. Importantly, inventories in distribution further decreased and are now normalized in industrial Our broad portfolio of microcontrollers, sensing, analog and power devices is strongly aligned with industrial transformation trends and the evolving needs of physical AI. During the quarter we saw design wins across industrial automation and robotics, building automation, power systems, health care and home appliances. We announced our collaboration with Nvidia to integrate ST sensors, microcontrollers and motor control solutions with Nvidia robotics ecosystem. This aims to help developers design, train and deploy humanoid robots and other physical AI systems with higher efficiency, readability and scalability. We are also proud to have been ranked the number one vendor worldwide for general purpose microcontrollers for the fifth consecutive year based on research by UBDIA. During March, we announced that the first batch of STM32 wafers fully produced in China for ST by our partner Waiwan has been delivered to customers in China. This was a major step forward in St China 4 China supply chain strategy for personnel electronics first quarter revenues were down 14% sequentially reflecting the seasonality of our engaged customer programs and up 21% year over year reflecting increasing content. During the quarter we reinforced our position in mobile platforms and connected consumer devices supported by both engaged programs and a broad open market portfolio spanning sensors, secure solutions and power management. We announced Super Formation Sensing and secure wireless technology on Qualcomm Technologies newly launched personal AI platform based on ST smart sensor and secure NFC controllers for communications equipment and computer peripherals. First quarter revenues were above our expectations, up 3% sequentially and 41% year over year. We continue to reinforce our position as a supplier of critical semiconductors that power, cool and connect AI data centers from the grid to the core and from the core to the user. ST is now strategically positioned to capture upside from new AI driven program leveraging specialized technologies to enable the evolving AI infrastructure. We confirm our data centers revenue expectation to be nicely above 500 billion US
Lorenzo Grandi (President and Chief Financial Officer)
dollars for 2026 and well above $1 billion for 2027. In a major development, we expanded our strategic engagement with Amazon Web services through a multi year multibillion US dollar commercial engagement to enable new high performance compute infrastructure for cloud and AI data centers. This engagement covers a broad range of semiconductor solutions leveraging ST portfolio of proprietary technologies. During the quarter we secured multiple design wins for silicon and silicon carbide based power solutions. This supports the drive for higher power density and increased energy efficiency for next generation AI computer and data center architectures. We announced the expansion of our 800 volt DC AI data center power conversion portfolio with new 12 volt and 6 volt architectures in collaboration with Nvidia. With this, ST now provides a complete portfolio for the 800 VDC power distribution inside gigawatt scale compute infrastructure leveraging ST power, analog and mixed signal and microcontrollers products. We also announced the start of high volume production for our silicon Photonics based photonics IC100 PIC100 platform used by hyper scalers for optical interconnected for data centers and AI clusters. The technology enables higher boundaries, low latency and greater energy efficiency. As I mentioned last quarter, the momentum in optical interconnect technologies is also driving demand growth for our high performance microcontrollers in pluggable optics. We are also seeing initial demand for our secure element in data server power supply units to support authentication and detect data manipulation attacks. Our Low Earth orbital satellite business, based mainly on our bicymos and panel level packaging technologies strongly progressed during the quarter. We were selected to develop a power amplifier controller for direct to cell satellites based on our proprietary BCD technology by our main Low Earth Orbike customer and we continue to ramp shipments to our second largest customer. For sustainability, we issued our annual integrated report during the quarter. This report integrates our sustainability statement detailing our performance in 2025. We made further progress and remain on track for our commitment to becoming carbon neutral by 2017 on scopes one and two and on product, transportation, business travel and employee commuting. For scope three, we also target the sourcing of 100% renewable electricity by 2027 and achieve 86% in 2025. Now over to Lorenzo who will present our key financial figures. Thank you Jean Marc Good morning everyone. Let’s start with a detailed review of the first quarter. Starting with revenues on a year over year basis by reportable segment. Analog products, MEMS and sensor grew 23.2% mainly due to imaging and MEMS and to a lesser extent analog power and discrete product decreased 1.8%. Embedded processing revenues were up 31.3% due to general purpose MCU and to a lesser extent custom processing and RF and optical communication grew 33.9% by end market. Communication equipment and computer peripherals grew 41%, industrial 26%, personal electronic 21% and automotive 15% year over year. Sales to OEMs and distribution increase at 24.5% and 19.2% respectively. On a sequential basis, analog product, MEMS and sensor decreased by 9.1%, power and discrete by 5.4%, embedded processing by 4% and RF optical communication by 9%. By end market on a sequential basis, communication equipment and computer and peripheral was up 3% while the other end markets declined. Industrial was down 1%, automotive 10% and personal electronic 14%. Turning now to profitability, gross profit in the first quarter was $1.05 billion increasing 24.3% on a year over year basis. Gross margin was 33.8% increasing 40 basis points year over year mainly due to lower unused capacity charges and better product mix on a sequential basis. Gross margin decreased by 140 basis points. Gross profit included $11 million purchase price allocation effects from our acquisition of NXP’s MEMS sensor business. Non US GAAP gross margin excluding this item was 34.1%. Excluding the impact of NXP’s MEMS sensor business and related BPA effects, gross margin stood at 33.9 20 basis points better than the midpoint of ST guidance which did not include impact related to our acquisition of NXP’s MEMS sensor business. Q1 gross margin included about 50 basis points of negative impact resulting from a non recurring cost related to our manufacturing reshaping programs. The negative impact on gross margin from the just mentioned non-recurring cost is expected to remain at similar level over the rest of the year. Total net operating expenses excluding Restructuring amounted to $904 million in the first quarter. Excluding the purchase price allocation PPA effects from our acquisition of NXP’s MEM sensor business, non US GAAP opex stood at 885 million. Non US GAAP net opex included OPEX related to the acquired NXP MEMS sensor business and a one off impact related to a settlement with a supplier. Excluding these two items, non US GAAP net opex was broadly in line with the expectations given in January, which did not include any impact related to our acquisition. For the second quarter of 2026 we expect a non US GAAP net opex to stand between 950 and 960 million dollars. The sequential increase is mainly due to calendar days effect, startup costs and one incremental month of OPEX related to the acquired NXP MEMS sensor business. Excluding these items, Q2 26 and non US GAAP net opex would slightly decrease sequentially in light of Our acquisition of NXP’s MEM sensor business and the new AI revenues opportunity. Let me give you some more color on the 2026 OPEX for a full year 2026 we now expect like for like net OPEX to be up mid to high single digit year over year versus our previous expectation for a low single digit increase as we are accelerating our investment in new business opportunities including NXP’s MEM sensor business acquisition and the exchange rate impact net opex should be up low double digit year over year. In the first quarter we reported a $70 million of operating income which include $71 million for impairment, restructuring charges and other related phase out costs. 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. Q1 operating income also included $30 million purchase price allocation effects from our acquisition of NXP’s MEMS sensor business. Excluding these items, Q1 non US GAAP operating income stood at $171 million. A non US GAAP operating margin was 5.5% with analog product, MEMS and sensors at 12.2%, power and discrete at negative at 21.5%, embedded processing at 16.9% and RF optical communication at 14. First quarter 2026 net income was $37 million compared to a net income of $56 million in the year ago quarter. Diluted earnings per share were 0.$04 compared to $0.06 one year ago. Non US GAAP net income stood at $122 million and non US GAAP diluted earning …
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