Good morning. Thank you, everyone, for joining our Second Quarter 2021 Financial Results Conference Call. Hosting the call today is Jean-Marc Chery, ST’s President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer; Marco Cassis, President of Sales, Marketing, Communications and Strategy Development. This live webcast and presentation materials can be accessed on ST’s 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’s results to differ materially from management’s 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 the most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask during the Q&A session, please limit yourself to one question and a follow up question. And now I’d like to turn the call over to Jean-Marc, ST President and CEO. Jean-Marc Chery: So thank you, Celine. Good morning, everybody, and thank you for joining ST for our Q2 2021 earnings conference call. Let me begin with some opening comments starting with Q2. Net revenues and gross margin came in at the high end of our business outlook range, driven by continued strong demand globally. Year-over-year, net revenues grew 43.4% to $2.99 billion. Our gross margin of 40.5% and operating margin of 16.3% improved from 35% and 5.1%, respectively. Our net income rose to $412 million. On a sequential basis, net revenues decreased 0.8% due to the normal seasonality in Personal Electronics. On H1 2021, net revenues increased 39.1% year-over-year to $6.01 billion, driven by growth in whole product groups, except the Radio Frequency Communications subgroup. H1 operating margin was 15.5% and net income was $776 million. On Q3 2021, at the midpoint of our outlook, we expect net revenues in the third quarter to be about $3.2 billion, representing an increase of 20% year-over-year and 7% sequentially. Gross margin is expected to be about 41% at the midpoint. For the full year 2021, we will now drive the company based on the plan for full year 2021 revenues of about $12.5 billion, plus or minus $100 million, a year-over-year increase of 22.3% versus our prior plan of 18.4% growth at the midpoint. This growth is expected to be driven by strong dynamics in all the end markets we address and our engaged customer programs. We also now plan to invest about $2.1 billion in CapEx to support the strong market demand and our strategic initiatives. Now let’s move to a detailed review of the second quarter. Net revenues increased 43.4% year-over-year, with higher sales in our three product groups and all subgroups except, as expected, the RF Communications subgroup. Year-over-year sales to OEMs increased 38.4% and 53.1% into distribution. On a sequential basis, net revenues decreased 0.8%, but were 300 basis points above the midpoint of our outlook. ADG and MDG reported increase in net revenues on a sequential basis, while AMS decreased. Gross profit was 1.1 – $1.21 billion, sorry, increasing 66.1% on a year-over-year basis. The gross margin increased by 550 basis points year-over-year to 40.5%, mainly driven by the full saturation of our fab compared with the high level of unloading charges last year, driven as well by manufacturing efficiencies, favorable pricing and improved product mix. These positive drivers were partially offset by negative currency effects net of hedging. Our second quarter gross margin was 100 basis points above the midpoint of our guidance, mainly thanks to more favorable pricing and improved product mix. Second quarter operating margin increased to 16.3% from 5.1% in Q2 2020 with improvements in all three product groups. Net operating expenses were $725 million. Net income increased to $412 million from $90 million in Q2 2020 and our diluted earnings per share were $0.44. Looking at the year-over-year performance, all product groups registered double-digit growth. ADG revenues increased 48.2% on growth in both Automotive and in Power Discrete. AMS revenues increased 62.3% on higher Analog, MEMS and Imaging product sales. MDG revenues increased 22.3% on growth in Microcontrollers, partially offset by the expected decline in Radio Frequency Communication. By product group, on a year-over-year basis, all product groups showed improvement in operating margin. ADG operating margin increased to 9.5% from 2.3%, AMS operating margin increased to 18.6% from 9% and MDG operating margin increased to 22.9% from 15.9%. Net cash from operating activities increased to $602 million in Q2 compared to $387 million in the year ago quarter. Free cash flow increased to $125 million compared to $28 million in the year ago quarter, with CapEx of $438 million versus $312 million in the year ago quarter. During the second quarter, we paid $52 million of cash dividends to shareholders and we executed a $156 million share buyback, completing our $750 million share repurchase program launched in 2018. On July 1, 2021, we announced the launch of a new share buyback program of up to $1.04 billion to be executed within a three year period. Our net financial position was $1.08 billion at July 3, 2021, compared to $1.19 billion at April 3, 2021. It reflected total liquidity of $4.25 billion and total financial debt of $3.17 billion. During Q2, we exercised the call option for the early redemption of our 2024 Tranche B convertible bond issued in 2017. The settlement of the $750 million principal amount bond is expected to be completed in Q3. Let’s now discuss the market and business dynamics. During the second quarter, we were again operating with a backdrop of strong demand, stretching the global supply chain. We have continued to work closely with our customers across all verticals and channels to adapt to this difficult allocation situation. At the same time, we were and are optimizing our investments to increase our manufacturing capacity. COVID-19 continues to be a challenge for the world. During Q2, we saw the spread of new variants, especially in some of the countries in Asia where we operate, such as in India earlier and more recently in Malaysia. Over these days, we feel particularly close to and we strongly support our colleagues and their families in Malaysia seriously hit by this new wave. Due to this situation, we recently temporarily closed our assembly plant in Muar, Malaysia. Following approval from the authorities, we resume operations after 11 days of closure. Moving to Automotive vertical, bookings remained strong in the second quarter with demand still well above our current and planned manufacturing capacity. Bookings now cover about 18 months of demand, and we are working on allocating our planned capacity for next year. Our customer activity related to the long-term trend of electrification and digitalization continue to be strong in Q2. In car electrification first. We added to our list of design wins for silicon carbide devices in applications such as DC-DC converters and onboard chargers. We announced a strategic cooperation with the Renault Group to supply advanced power semiconductors for electric and hybrid vehicles. As being a key innovation partner, ST will benefit from significant volumes of these power modules and wide bandgap power transistor from 2026 to 2030. Overall, our silicon carbide engagements increased again during the quarter, now with 81 ongoing programs equally split between Industrial and Automotive with 68 customers. Our strong pipeline of design wins continues to support well our target of $1 billion of silicon carbide revenues by 2025. We are progressing with our manufacturing investments in silicon carbide, in line with our plan to increase tenfold the front-end capacity versus 2017 and to have 40% of our substrate needs internally sourced by 2024. We are ramping production in our Singapore factory, and earlier this week announced that we have manufactured in our Sweden site our first 200-millimeter of silicon carbide wafer, a key step in our capacity increase plan. We are also investing in growth of our internal back-end manufacturing capacity for SiC products with expansion of our Bouskoura site in Morocco, alongside our plant in Shenzhen, China. We are maintaining our technology lead in silicon carbide, ramping in high volume our third-generation transistors for multiple automotive customers globally. This represents a major improvement in performance and in competitiveness versus the previous generation. We are also progressing on our next-generation transistor design in line with our plan. We are taking steps to accelerate our 300-millimeter fab strategy. We produced in Crolles our first IGBT 300-millimeter wafer lot for engineering qualification. This technology will be transferred to Agrate R3 with production ramp-up as soon as the fab is ready. Moving to other complementary technologies for electrical vehicle designs, we have various wins at vehicle makers. This includes high- and low-voltage MOSFETs in electrification subsystems, VIPower products for motor control and body control modules, 32-bit microcontrollers for IGBT inverter and electronic fuse technology for electrical vehicle power distribution. Moving to car digitalization, we are focused on technologies and solutions for driver assistance and autonomous driving, V2X communication and onboard processing solutions supporting new car architecture. During the quarter, we announced new additions to our next-generation automotive MCU family, so-called Stellar, which provides a scalable integration processing platform for advanced vehicle electronics. Also, in our automotive sensor business, we won multiple sockets with motion sensors for GNSS modules and navigation units, telematics, infotainment systems as well as key fobs. Let’s move now to Industrial. During Q2 demand, we are also very strong in high and consumer industrial, both as distributors and OEMs. Factory automation continued to be one of the main demand drivers, together with power tools, home appliances, motion control and power-related applications, including renewable energy. Inventories of our products at distributors continue to be lean across all product families with high inventory turns. Point of sales remained strong in the second quarter across all products and all geographies. We have had as many applications across Industrial end market with our general purpose and secure MCUs, power and energy management solutions and our sensors and analog products. In embedded processing, we are continuing to strengthen our leadership by expanding our STM32 family, with a particular focus on wireless connectivity, security and artificial intelligence. During the quarter, we took an important step. We acquired Cartesiam, a company specialized in software-enabling artificial intelligence on the edge. Adding their machine learning technology to ST existing solutions will provide the best edge artificial intelligence solution portfolio on the market. We have many design wins for our STM32 products during the quarter, and I would like to mention just one where we design-in multiple products in the drone for home security. Our second objective in Industrial is expansion in power energy management. Here, we capture a number of wins with our Power Discrete portfolio, for example, again, with silicon carbide transistors and modules with high- and low-voltage silicon MOSFET and with IGBTs. These were in applications such as solar inverters, energy storage, charging infrastructure, industrial power supplies, power adapters, home appliances, and finally, air conditioning and lighting. Our third objective is to accelerate our growth in analog and sensor for Industrial. In the quarter, we had many new designs with our analog products with awards in application like motion control, smart grid, factory automation and home appliances. We also continue to win business in sensors for industrial applications. One win I would like to mention is for circuit breaker products from a major player with a low-power, industrial-grade accelerometer. Moving now to Personal Electronics market. We saw the same trend as Q1, with strong demand both for smartphones and other connected devices, including wearables, tablets, hearables, true wireless stereo headset and game consoles. In Personal Electronics, we continue to progress with our two strategic objectives: first, to lead in selected high-volume smartphone applications with differentiated products and custom solutions. In Q2, we won sockets in flagship devices with motion sensor, multizone time-of-flight ranging sensor for laser autofocus, wireless charging products, touch display controllers and secure solution, such as embedded SIM and Secure Element with near-field communication. Our second objective is to leverage our broad portfolio to address high volume application, including wearable devices. Here, we have the wins with a broad range of flight, motion and environmental sensors, including a new generation waterproof pressure sensor as well as with analog and power products and microcontroller. We are gaining traction with our 60 gigahertz transceiver products for very fast contactless data transfer, the famous ST60. Here, we achieved key design wins and production launch for projects with multiple customers in different applications. We progressed with our solution for augmented reality base on laser scanning, and we signed a development agreement with a leading player for laser driver, ASIC, to be used in next-gen smart glasses. In Communications Equipment and Computer Peripherals, we continue to see the adoption of 5G-related products as well as sustained demand, especially for notebooks and Chromebooks. We also saw low-earth orbit satellite programs launched in a number of countries. We have three strategic objectives in our approach to this end market. One is to address selected application in cellular and satellite communication infrastructure. In this area, we received multiple RF-SOI front-end module awards, as well as several RF ASIC projects for telecommunication infrastructure. We also started production for a second-generation RF front-end IC for the user terminal of a satellite system from a leader in this area. Our other objectives are to address selected high volume application with differentiated products or custom solutions while leveraging our broad portfolio. Our wins here include time-of-flight and motion sensors for laptops and tablets, as well as many general purpose MCU design-ins. We also ramped production of our global shutter image sensor for a computer vision application at a major OEM. We also ramped production of the first ST design piezo MEMS printed in a commercial inkjet printer following a multiyear development with a leading printing company. Now let’s move to a discussion of the third quarter outlook. For the third quarter, at the midpoint, we expect net revenues to be about $3.2 billion, representing year-over-year and sequential growth of 20% and 7%, respectively. Gross margin is expected to be about 41%, representing a year-over-year and sequential increase of 500 basis point and 50 basis point, respectively. Looking at the full year, we will now plan to drive the company based on 2021 net revenues of $12.5 billion, plus or minus $100 million. This plan will translate into year-over-year growth of 22.3% at the midpoint. Drivers of this expected growth are the continued strong dynamics in all the end markets we address and our engaged customer programs. Our updated 2021 CapEx plan of about $2.1 billion will help increase our manufacturing capacity to continue to support the strong global demand of our customers. It will also support our strategic manufacturing initiative, such as our Agrate 300-millimeter fab. We recently announced that we are bringing Tower Semiconductor onboard to accelerate the ramp-up to large volume and scale. To conclude, in the second quarter, our net revenues and gross margin came in at the high end of our business outlook range. We also maintain our financial strength as demonstrated by our operating profitability and cash flow generation. For the full year 2021, we are driving the company with a plan based on net revenue of $12.5 billion, plus or minus $100 million. This growth stems from the expected continuation of strong dynamics in all the end markets we address and our engaged customer programs. We will continue to focus on our customers, adapting our supply chain to support the current strong demand and to fuel longer term growth. Thank you. And we are now ready to answer your question.

[Operator Instructions] The first question comes from the line of Aleksander Peterc from Societe General. Please go ahead.

Good morning and thanks for taking my question. Just firstly on your revenue guidance upgrade, could you help us understand if this is mostly driven by pricing or volume? Or is it really both? And then as a point of detail, at what point do you expect the RF business to return to growth within MDG? And again on this division, what explains the strong margins? Is it mostly microcontrollers pricing or anything else at play here? Thank you so much. Jean-Marc Chery: Thank you for your questions. So Lorenzo will answer.

Thank you, Jean-Marc. Thank you, and good morning to everybody. About our guidance on the revenues, yes, we have increased in respect to the previous visibility. How it comes this increase? Well, I have to say that it’s a combination. It’s a combination definitely of volumes, there is more volumes that we see. You will see also that our gross margin is improving. And here, we have a positive efficiency from our manufacturing machine. Of course, we are trying to get as much – the maximum that we can get from the investment that we are doing. So this will translate also in a little bit higher volumes that will help. And definitely, it’s also true that we are enjoying an environment in pricing that is a little bit better than we were expecting. The combination of these two factors definitely are the one that allow us, let’s say, to have increase in our guidance as well as also a better visibility on some, let’s say, engaged customer products that at this stage we see, let’s say, materialize with a little bit higher level in respect to what was the visibility that we had some months ago. Second question was about?

Radio frequency.

Radio frequency. When we will see, let’s say, radio frequency, let’s say, improve on...

On the year.

We do expect, let’s say, that already with our guidance of the next quarter, there will be an improvement in term of revenues for the radio frequency. And definitely, our expectation is that next year, there will be a significant change in the trend on this subgroup. And we will see, let’s say, with the engaged customer programs that we have, definitely an improvement in the revenues. But I would say that Q3 will be still a difficult quarter. Q4 we’ll start to see, let’s say, a significant improvement. And then the trend, there will be improvement trend all over the next year.

And MDG margin?

The margin of MDG, the rationale for the strength of the operating margin in MDG.

MDG, let’s say, is improving the margin, especially in the areas of microcontroller. We had a positive impact on the product mix, let’s say, in this area, positive. And definitely also, let’s say, thanks to a balance with a good, let’s say, level of price environment that we are experiencing in this area, let’s say. Of course, this is where we have increased and stability in term of pricing. This helped the market. Then for sure, also, thanks to the fact that our microcontrollers are bringing more and more added value to our customers. And here, it’s very visible also the return that we have done in our investment in R&D. And also, we started to see some return in our investment that we have done, let’s say, in the new acquisitions. So at the end, this is where we were expecting, to have a good return, and these are materializing.

Thank you. Thank you very much.

Thank you Aleksander, next question please.

The next question comes from the line of Matt Ramsay from Cowen. Please go ahead.

Yes, thank you very much and good morning everyone. Guys, I just wanted to ask about the seasonal patterns in some of your divisions. There’s going to be some – a flagship product from one of your large customers that maybe launches on time versus a little bit of a delay last year. But in particular, your AMS division seasonality is much, much stronger in the results that you just reported in the second quarter than it was seasonally last year. And I wonder if you might comment on that. Is it internal versus external supply that was imbalanced? Is there a different change in sort of buying patterns and maybe how we can expect seasonality in some of the businesses in the third quarter guidance? Thank you. Jean-Marc Chery: Thank you for your question. I already anticipated during the previous calls, okay, that this year the profile of the revenue for Personal Electronic will be rather different than last year. Because last year, you know that from, let’s say, February to April in Asia, the COVID impacted a lot activities and also delayed some program development. And as a matter of consequence, pushed out, let’s say, program start. And the revenue in Q2 last year was really low. And when we entered in the year, I already announced that this year, we see a much better profile. And then, after I do not comment customer’s, let’s say, results and success, I guess you have seen this year one of the major announcement of one customer overperforming. And of course, the vendor attached to this customer are benefiting of better seasonality this year in Q2 2021 versus last year.

Thank you, Jean-Mark. Just as my follow-up question. Lorenzo, I mean, 41% gross margin. I guess, thinking about things up five full points year-over-year. Obviously, the unloading charges have gone away. But as we look out forward and you increase CapEx, add more capacity, potentially get more capacity at foundries, and there are some rumblings of increased pricing from some of the foundries to their customers, how do you think about gross margins trending from here as we look forward and the business grows? Thank you.

Yes. So we see in the next quarter gross margin in the range of 41%. I would say that what is our expectation is on this level, considering the situation of our fabs, manufacturing fully loaded, for sure to remain stable this year on this kind of levels. At the end, for the total year, we do expect that to be a little bit higher than the 40% gross margin with Q4 that we’ve seen to Q3. Moving forward, we do expect that we have all the ingredients to remain on this level of gross margin substantially. Of course, it will depend on the evolution of the market. But for the time being, let’s say, we see the market very, very positive, continuing to be very strong moving forward. This is more or less what we can say about the level of gross margin. Jean-Marc Chery: For this year.

For this year, yes.

Thank you very much guys, appreciate it.

Thank you Matt, next question please Andre.

The next question comes from the line of Sebastien Sztabowicz from Kepler Cheuvreux. Please go ahead.

Hi, good morning everyone and thank you for taking my question. What kind of visibility do you have for 2022 at this time of the year? Basically, do you start to receive any substantial orders that will be ramped during 2022 in any specific verticals? And as a follow-up, on the OpEx side, how should we model the OpEx in Q3 and in Q4? Thank you. Jean-Marc Chery: So thank you. Marco Cassis will take the question on the order booking and Lorenzo for the other questions.

Thank you very much for your question. Yes, in Q2, and this is true across all the segments, we have seen our orders booking extending 18 months. So basically covering the whole 2022. And I have to say that the demand is higher than our capacity, our planned capacity. So we are working now to allocate the capacity for – especially for the Automotive segment.

In term of expenses model, let’s say, we – I’m talking about net expenses, including also the grants and the other income and expenses. In Q2, we’re lending at the range of $725 million in the quarter for the expenses. We continue, let’s say, to really push on our programs in R&D. We try, let’s say, to accelerate our effort in this respect. So my expectation for the second part of the year is that we will land our expenses in the range – per quarter in the range between $735 million, $740 million expenses per quarter. This is the current visibility that we have. I would say both – let’s say, definitely for Q3 and also for the year, when you look at the total year, we will end the year, let’s say, with the quarterly expense in that range. Jean-Marc Chery: Just to complement the question about the coverage. Well, if you take the backlog on a requested date from customers we have in our hand, basically, it is covering 30% above the planned capacity we have for this year. And it is covering above the full capacity we plan for next year already. And based on the capacity CapEx, we have this year and the CapEx we will, let’s say, plan next year. So you see the coverage for 2021 and 2022 is very, very strong. And of course, let’s say, the additional dynamic is that this coverage is more and more done with, let’s say, firm and non-considerable order.

Thank you.

The next question comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead.

Yes. Hi. Thanks for asking let me on. Congratulations on good results this morning. I have a question on your Microcontroller business. I mean when you look at your Microcontroller business, it is growing incredibly strongly year-over-year when you look at the headline numbers, especially when you say that there is RF there, which has declined year-on-year. So given that the market is saying that there are shortages and you are supplying the market with potentially 30% up year-on-year in microcontrollers, is there not a risk of oversupply here happening sooner than what the market expects? And I have one quick follow-up. Jean-Marc Chery: Here, again, what we are monitoring on microcontroller is really the consistent dynamic between the POS and POP. We monitor also the inventory level at a distributor clearly. And we are monitoring, let’s say, the very spot market because we know it could happen. All this, let’s say, KPI are on the green. So – and they’re on the green because for the time being, overall, there is a shortage, okay. Because microcontroller are basically using capacity either from 8-inch wafer fab on, let’s say, 118-nanometer technology up to 130. Or massively, they are using 12-inch fab from 19-nanometer to 40-nanometer. And this capacity is fully saturated. So there is no risk of oversupply, and also simply because no new fab will be put on the market before a longer period of time, except five or fifty.

I mean my other question is regarding your CapEx. I mean you’ve raised CapEx again. Can you highlight where the spending is occurring from here? Is this to do with your particular programs with some customers? Or is this more general CapEx associated with your Agrate fab, et cetera? Jean-Marc Chery: No, it’s a global capacity increase adaptation on test, on assembly and, yes, in a certain extent in wafer fab, okay. Now part of the $2.1 billion of CapEx, pure capacity is about $1.4 billion, $1.5 billion. Yeah. Hello.

Is it okay?

Thanks. Thanks.

Is it – okay. We have lost you Sandeep. So you felt that.

I heard that. Thank you.

Thank you very much. Sandeep, next question please Andre.

The next question comes from the line of Stephane Houri from ODDO BHF. Please go ahead.

Yes. Hello, good morning. So the first question is to know that with your full year 2021 sales guidance upgrade, you basically view Q4 at about $3.3 billion, if I’m correct. So my understanding was that there was no available capacities anywhere, neither or externally internally. So is it new capacity that you’re building up that are arriving faster than expected? Or is it coming from foundries? And the second question is could you share with us your view on 2022 CapEx because, as you said, with the CapEx of this year, you’re adding $1.4 billion to $1.5 billion. So if it’s same next year, it means that the $15 billion target could be within reach in 2023 under the current condition if I’m correct. Thank you very much. Jean-Marc Chery: In fact, okay, our capability, in fact, achieved $3.3 billion in Q4. And when you assess capacity, in fact, okay, we can go up to $3.4 billion because this is $100 million of range we have provided for random event. But from capacity perspective, it is $3.4 billion. Now our capability to go to $3.4 billion is related for the wafer fab side. To the CapEx we have injected in H1, taking into account the time you hook up equipment, you qualify them in one cycle time. Basically, we are enjoying the CapEx we had in H1 to support the revenue definitively of Q4. I have to say, unfortunately, that it has been – it is offset by the commitment of foundry, okay. We will receive less wafer in H2, mainly on our – from general purpose device from foundry partner, because they allocate more to automotive based on, I guess, you know the overall pressure on the automotive market.

Not our Automotive. Jean-Marc Chery: But not our Automotive, unfortunately. So, no, clearly, our capability to grow mainly in H2 is related to our internal manufacturing, offsetted for a while – okay, next year will be another story, offsetted for a period of time by a decrease of volume supply of foundry H2 versus H1.

And the 2022 CapEx? Jean-Marc Chery: The 2022 CapEx, I will communicate on January. As usual, we are working on it. We are working on it. We are working closely with our equipment vendor because cycle time of equipment increase a lot. So this is something we are working on. And of course, we will communicate in due time.

Okay. Thank you very much.

Okay. Thank you, Stephane. Next question please Andre.

The next question comes from the line of Andrew Gardiner from Barclays. Please go ahead.

Good morning, all. Thanks for taking the question. Jean-Marc, I had a follow-up to that last one in terms of CapEx, particularly as we look into next year and just sort of the potential for capacity expansion, given the lead times on the equipment side that you mentioned and the fact that this equipment really needs to be installed in the first half of next year in order to give you sort of upside relative to the current plan that you might have for 2022. Isn’t your – effectively, you already know what your maximum capacity for next year is given that – given those lead times? Or do you feel like you’ve got – is there still some flexibility with your equipment providers to actually upside that or not? Thank you. Jean-Marc Chery: No, no, we have a clear view. First of all, we have, let’s say, a clean room water fab expansion capability and where we can receive equipment. Well, first of all, we will – it will be Agrate because we will start to receive equipment in Agrate end of this year. In Agrate, 300-millimeter will start to contribute to ST revenue by Q4 of next year 2022. Then we have engaged in parallel – as soon as we have seen the market upturn in December, we have decided immediately an expansion of Crolles. When we share with you the manufacturing strategy in Crolles, we are capable, okay, to add on the material surface of a clean room in one year and grow very fast, okay? So starting at the end of this year, we will be capable basically to increase the capacity of Crolles well above 9,000 wafers per week. So it will be, let’s say, a very strong leverage to support the market we address. We will fully saturate the 8-inch fab in Singapore. We bought two, three years ago from Micron. So from an infrastructure point of view, we know exactly where we can add equipment, and we have booked all the slots. And so yes, I confirm to you the sales and operating plan of 2022 is well known. Now the challenge for us is allocation, how we allocate to verticals, regions and customers. But from a, let’s say, volume point of view, technology cluster, package cluster, manufacturing location, funding feedback, we have a very, let’s say, accurate view for next year and secure.

Understood. If I could just follow up on the point you made on Crolles. You think 9,000 wafer starts per week by the end of this year, is that – I recall you saying in the first quarter that you were... Jean-Marc Chery: Of next year.

Next year. Okay. And then just quickly on the pricing point where you’re highlighting that as part of the reason for gross margin outperformance in 2Q and 3Q. Is that – just given the time lines there, is that primarily on mass market distribution pricing? Can you comment perhaps on the difference between that versus your longer-term contracts? And how are those negotiations progressing? Are you – given the tightness we see in the market, are you able to get more better pricing out of those longer-term negotiations?

It’s Marco, I will reply to this one. As you can imagine, we cannot go in the details of how we are splitting the price increase. But overall, the approach is, let’s say, fair and it is across the different segments. And of course, it is a price increase, which is happening through the full supply chain. And the price environment it’s in this moment is positive for us.

Okay, thank you guys.

Thank you Andrew, next question please Andre.

The next question comes from the line of Didier Scemama from Bank of America. Please go ahead.

Good morning and thank you for taking my question. I’d just like to push on a little bit on pricing, just to clarify things a little bit. One of your biggest competitors in Japan this morning just guided 500 basis points above on gross margins for Q3. I just wondered – clearly, 41% gross margin is a nice surprise. I’m just wondering how much conservatism is actually baked in that relative to what these data are saying? And related to that, I just wondered if you could quantify on the gross margin the impact of the Malaysia fab closure or back-end fab side closure for 11 days, if it has any impact, and whether that unwinds nicely in Q4? And I’ve got a follow-up. Jean-Marc Chery: Lorenzo?

About Malaysia, the main impact that we are going to have in Q3 is definitely on the top line and more than on the gross margin. On the gross margin, we will have a few basis point impact. But at the end, let’s say, it’s not the main impact that we will got during this quarter. Actually, you can understand that with days of closing; let’s say, definitely, we will have impact on our ability to serve our customers. This is the main impact that we have for our Malaysia. Yes, so about the pricing, about the pricing, yes, for sure, in our gross margin, there is a positive impact in term of pricing. It’s increasing in pricing. And also, let’s say, I would say that together with that, we have also positive impact on the product mix that is helping our gross margin. I can tell you that definitely, the increase in price is not 500 basis points, not yet. We are not there definitely. Let’s say, it’s much less than that. But in respect to different situation, let’s say, in the past in which substantially there was more balancing between capacity and demand and where the pricing impact was usually negative, ranging down, let’s say – and only, let’s say, having a negative impact on our gross margin and maybe, let’s say, somehow offset by the product mix and by innovation here. The two things are together, and so there is definitely a help in our gross margin. For sure, let’s say, I can say that compared to the of level the previous quarter, I can say that – I mean, in Q1, where we were in the range of 39%, our pricing increase would – has contributed by a little bit less than half in improvement.

Okay. My follow-up is on Automotive. So I saw that you signed a supply agreement with Renault, and it looks like virtually all the other OEMs, automotive OEMs are now in-sourcing the inverter. Asked that question last quarter and I think you told me that, Jean-Marc, the Tier 1s were your main customers, which I appreciate. It looks like the Tier 1; at least some of them are going to get squeezed out in the transition to electrical vehicles. I just wondered who’s going to take the gross margin of those Tier 1s? Is it equally split between the automotive OEMs and yourselves? Or do you feel that your engineering capabilities are going to warrant better pricing power? And is that part of the reason effectively why you feel confident now to sign long-term contracts with some of your customers that are non-considerable, reasonably firm pricing, if I quote what you just said? Jean-Marc Chery: Here, I think the automotive industry, for sure, is facing two major transformation. Well, there is one transformation which is well known, which is the one related to the electrification. Clearly, with more and more battery-based electrical vehicles, where here, clearly, the Powertrain and what is around the power cell is totally different, okay? So – and the sourcing of the electronic subsystems, the business model related to the electronic subsystem are really – could be really different, okay? And here, one very great example is a model of Tesla. Now the other transformation, that now the automotive industry is doing – but here, I cannot comment too much because we are not used to comment our customers, let’s say, plans and action. Yes, we will see in the future, let’s say, some – certainly some car makers doing maybe more the software and the design of some electronic subsystem, and then will subcontract to AMS and will not subcontract the turnkey solution to Tier 1. But we are convinced the Tier 1, let’s say, model will remain. So that’s the reason why. For us, what is important for the short-term to do and for the long-term to do, first, the short-term is to supply them fairly and properly in full respect of the Tier 1, which are our customers. When you are a carmaker making its own system, they address us straight, this is an example of Tesla, as an example. And for the long-term, ST to develop, let’s say, a technology package and module to enable this transformation. And here, we have to say we have both cooperation. We have cooperation where we work on platform with Tier one and the most well-known one, and we have example of cooperation like the one of Renault we have announced. So we are, let’s say, convinced that in the future, you will see dual agreed or complementary model living together. But more than that, I cannot comment on my customer.

Can I squeeze in a quick one on silicon carbide? The 8-inch substrate announcement, can you just clarify when you expect the volume production for that product? And what could be the impact on gross margin if and when you ramp that, that would be great? And congrats on this, by the way. Jean-Marc Chery: Thank you for the congrats. Okay, now, we will have to move to mass production. So we will move to mass production when our own fab will be, let’s say, set up in Catania. So this one will be done end of 2023, 2024. But we will start on 8-inch before and mainly sourcing from Cree. And we will start on diodes next year and we will start on transistor in 2023. And then, we will source internally, transferring this 200-millimeter technology to our Catania infrastructure when it will be ready. And in Catania, we will have a mix between 150-millimeter and 200-millimeter because it will time take to have everything converted to 200 millimeter. More than about the contribution of 200-millimeter to gross margin, well, in semiconductor, the usual leverage for cost improvement is wafer size increase, so 200-millimeter. It is a die shrink. So our fourth generation of transistor device we are developing will shrink our transistor. And then you work on the design on modules. And here on modules, we are optimizing our design for custom design solution. And we are working in cooperation with important module maker also to decrease the cost. But I cannot tell you the detailed percentage of the contribution of the gross margin to silicon carbide. But I confirm to you our cost reduction program for silicon carbide is very strong.

Wonderful, thank you.

Thank you, Didier. So we have now – it was a very long question, very interesting. So unfortunately, we have now time only for one more question, the last one.

The last question comes from the line of Amit Harchandani from Citi. Please go ahead.

Thank you and good morning all. Amit Harchandani from Citi. If you don’t mind me squeezing in two. The first question is really with regards to the semiconductor cycle, a lot of debate in the industry on peak cycle fears. But based on inventory comments, pricing comments, your visibility, why shouldn’t we think of ST growing double digit next year purely based on some of the numbers you’ve given out there? So your perspective on the semiconductor cycle and any thoughts on growth visibility into next year? And secondly, if I may, a lot of debate also about 3D sensing. You’ve been a key player in the industry. There’s talk of technological changes there. Could you give us a sense for visibility on your engaged programs? I think in the past, you’ve talked about a three year visibility. So any thoughts on 3D sensing, where you stand today? Jean-Marc Chery: The first question is about?

About the cycle and the visibility we can get whether there is a debate on peak cycle or this kind of thing. So it may be difficult to answer on the cycle itself, but the visibility of ST growth in fiscal year 2022 as of today, in this is concept of... Jean-Marc Chery: Okay, this is what I said a few minutes ago. Today, we have a coverage in term of backlog with – basically this year is 30% above our maximum capacity plan. And with an increase of our material increase of our capacity next year, the backlog already fully covered, okay? And more and more, you have a nonconsiderable order. Well, it is simply due to the fact that there is an acknowledgment of the electronic industry that the capacity limitation and what we classify as semiconductor shortage will last next year, up to next year minimum. Especially on the onboard electronics, where you have, let’s say, specialty technology from 0.35 micron to 28-nanometer. We know that all this technology and capacity, related capacity are very saturated and will be saturated for next year as well. So that’s the reason why, okay, no customer acknowledge it and put orders properly, let’s say, on plan. So we consider the visibility is unprecedented, and the booking is really consistent with this effect. This is what we can say. Again, we monitor the inventories in the supply chain through our distribution channel. And I confirm to you that whatever are the geographies, whatever are the product group, this inventory are very lean. The inventory turn is incredibly high. There is consistent growth between what we supply to distributor and what they sell. So there is absolutely, no, let’s say, indication of visibility, which decline or something like that. So this is what I can say about the visibility. About, let’s say, Face ID, I can simply repeat what I say. You know this is a complex system. This is – you have software, it was very complex software and you have a hardware, let’s say, which are custom design component. And here, we have a visibility, three years ahead of what is happening. And that’s the reason why we are, let’s say, comfortable with what I say for 2021, and we have a very good visibility for 2022 and onward. But more than that, I cannot comment.

That’s very helpful. Thank you Jean-Marc.

Thank you very much, Amit. And this will conclude the session for today. Jean-Marc Chery: Thank you.

Thank you very much.

Thank you very much.