Ladies and gentlemen, welcome to the STMicroelectronics Q3 2023 Earnings Results Conference Call and Live Webcast. I'm Andre, the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] At this time, it's my pleasure to hand over to, Celine Berthier, Head of Investor Relations. Please go ahead, madam.

Thank you, Andre. Good morning and thank you, everyone, for joining our third quarter 2023 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, our Chief Financial Officer; and Marco Cassis, President of Analog, MEMS and Sensors Group and Head of STMicroelectronics' Strategy, System Research and Applications, Innovation Office. The live webcast and presentation materials can be accessed on ST's Investor Relations website. The 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 results this morning and also in ST's most recent regulatory filings or 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. And now, I'd like to turn the call over to Jean-Marc, ST's President and CEO. Jean-Marc Chery: Thank you, Celine. Good morning, everyone, and thank you for joining ST for our Q3 2023 earnings conference call. Let me begin with some opening comments, starting with Q3. For third quarter net revenues of $4.43 billion came in above the midpoint of our business outlook range, and Q3 gross margin of 47.6% was 10 basis points above guidance. Q3 net revenues increased 2.5% year-over-year. As expected, the revenue performance was driven mainly by continued growth in automotive, partially offset by lower revenues in Personal Electronics. Looking at our year-over-year performance, gross margin remained stable at 47.6%, while as expected, operating margin decreased to 28% from 29.4%. And net income was stable at $1.09 billion. For the nine months period, net revenues increased 11.1% year-over-year to $13 billion, driven by growth in the ADG and MDG Product Groups and partially offset by a decline of the AMS Product Group. We reported gross margin of 48.7%, operating margin of 27.6% and net income of $3.14 billion. On Q4 2023, our fourth quarter business outlook is for net revenues of about $4.3 billion at the midpoint, declining year-over-year and sequentially by about 3%. Gross margin is expected to be about 46%. For the full year 2023, the midpoint of our Q4 guidance translates into revenue growth of about 7.3% to $7.3 billion with a gross margin of 48.1%. Now, I will move to a detailed review of the third quarter. Net revenues increased 2.5% year-over-year. This performance was driven mainly by ADG on total strength in automotive and to a lesser extent by FDG. As expected, AMS revenue decreased mainly reflecting lower revenue in Personnel Electronics. This includes the impact of the change in product mix in an engaged customer program in Personnel Electronics that I first mentioned in January. Year-over-year, sales increased 2.1% to OEM and 3.4% to distribution. On a sequential basis, net revenues increased 2.4% with ADG up 3.6%, IMS up 5.3% and MDG down 1%. Net revenues came in 130 basis points above the midpoint of our outlook, mainly reflecting higher sales than expected in Personnel Electronics. Gross profit was $2.11 billion increasing 2.4% year-over-year. Gross margin of 47.6% was stable year-over-year, as improved product mix was offset by higher manufacturing costs and unused capacity charges. Year-over-year, third quarter operating income decreased 2.4% to $1.24 billion. Operating margin was 28%, decreasing by 140 basis points versus 29.4% in the year ago quarter. This was due to a higher OpEx to sales ratio, as we continue to invest in innovation and in the digital transformation of the Company. On a year-over-year basis, both net income and earnings per diluted share in the quarter was stable at $1.09 billion and $1.16 respectively. Looking at the year-over-year sales performance by product group, ADG revenues increased 29.6% on a double-digit growth in both the automotive and power discrete subgroups. IMS revenues decreased 28.3% with lower revenues in the three subgroups. MDG revenues increased 2.8%. Revenues grew in an RF communication and were substantially flat in the Microcontrollers subgroup. In terms of operating margin by product group on a year-over-year basis, ADG operating margin increased to 31.5% from 25.9%. IMS operating margin decreased to 18.8% from 27.2%, while MDG operating margin decreased to 35.1% from 36.7%. Net cash from operating activities increased to $1.88 billion in Q3 versus $1.65 billion in the year ago quarter. Net CapEx in the third quarter was $1.15 billion, compared to $955 million in the year ago quarter. Inventory at the end of the first quarter was $2.87 billion, compared to $2.38 billion in the year ago quarter. Days sales of inventory at quarter end was 114 days, compared to 126 days in the previous quarter and 96 days in the year ago quarter. Free cash flow was $707 million compared to $676 million in the year ago quarter. During the third quarter, ST paid a $58 million of cash dividend to stockholders, and we executed an $87 million of share buyback under our current share repurchase program. ST net financial position of $2.46 billion as of September 30, 2023, reflected total liquidity of $5.05 billion and total financial debt of $2.59 billion. I will now go through a short update on some of our strategic focus areas in Q3. First, wide bandgap semiconductors, we began volume production of gallium nitride transistors, which simplifies the design of high-efficiency power commercial systems. We support the development of safe and valuable wide bandgap-based power systems for high-power application with industry-leading galvanically-isolated drivers. In the quarter, we introduced new STGAAP products, specifically designed for power GaN transistor based on ST’s unique IP and advanced BCD technology. In silicon carbide, we continue to increase the number of engagements, we are now working with 94 customers and 150 projects up from 90 customers and 140 last quarter, wins here ranged from electrical vehicle applications, such as on board chargers to power module in solar power system. We confirm our revenues for silicon carbine products will reached about $1.2 billion this year. In car digitalization, we saw continued design win momentum with our later generation of automotive microcontrollers, called Stellar across key applications. This includes design wins in zonal modules for software defined vehicle architectures and in next generation battery management systems, in partnership with major carmakers. In ADAS, the EyeQ6 project with Mobileye is progressing to plan with early volume ramp up this year. We have also seen strong market interest in ST high precision GNSS solution TESEO V adapted to our ADAS system. At the end of September, we add our annual Industrial Summit event in China. It drew over 1,300 customers in person another 50,000 participating online. The theme of this year’s event was Powering Your Sustainable Innovation and was focused on helping customers address climate-related challenges. We showcased 150 demos in three market segments: Automation, Power & Energy, and Motor Control where ST has created dedicated Competence Centers located close to customers. The registration of new designs in distribution we are receiving for our flagship STM32 family is increasing year-over-year on all our products, including mature ones. This is a positive indication of the market structural appetite for our product. Moreover, we released the first ST cellular Narrow-Band IoT ultra compact and low power modules, combining cellular IoT connectivity and geolocation capabilities for wide-ranging IoT, smart metering and industrial applications. We further enlarged the reach of applications and use cases for Industrial customers by introducing new products such as Time-of-Flight and Thermal MOS infrared sensors, as well as the third generation of inertial sensors. To support our strategic focus areas in embedded processing we announced new ecosystem tools for our STM32 family. We also continued to expand our engagements with customers to deploy edge AI for a growing range of use cases. This is based both on our extensive toolset allowing porting of AI algorithms to our existing MCU portfolio as well as the customer engagements for our latest neural processor enabled MCU. To conclude this review, in our RF communications business we are continuously expanding our strategic collaboration on SpaceX’s Starlink, which provides high-speed internet connectivity to a growing customer base in more than 60 countries around the world. They are ramping up their next generation products, which leverage our BiCMOS9 processes as well as innovative and highly differentiated packaging technology. Now, let’s move to our fourth quarter 2023 financial outlook and our plans for the full year 2023. For the fourth quarter, we expect net revenues at the mid-point to be about $4.3 billion, representing a year-over-year and sequential decline of about 3%. Q4 gross margin is expected to be about 46% at the mid-point, including about 130 basis points of unused capacity charges. For 2023, our Q4 guidance at the midpoint translates into 2023 net revenues of about $7.3 billion. This represents growth of about 7.3% year-over-year with a gross margin of about 48.1%. The $7.3 billion is consistent with the indicated range we provided late July, the $100 million sales at the midpoint relates mainly to the industrial end market in Asia, where the level of orders materializing toward the end of Q3 to load our Q4 backlog has been below our expectation. We confirm our 2023 net CapEx plan of about $4 billion. To conclude, in September, the Supervisory Board asked me to be available for a reappointment as a sole member of the Managing Board and President and CEO. I was very honored and pleased to accept the proposal. This will be proposed for shareholder approval at ST's 2024 Annual Meeting of Shareholders. Thank you for your attention, and we are now ready to answer your questions.

[Operator Instructions] The first question comes from the line of Didier Scemama with Bank of America. Please go ahead.

Maybe just a couple of questions Jean-Marc, if I may, on Q4, if you could give us a sense of the various end markets we're hearing, obviously, weakening demand in industrial, I think in a conference earlier this year, you mentioned that were fully booked for autos for 2024? So, I wondered whether you could maybe talk also about the rest of the business next year, any sort of early indication on revenue growth and also gross margins? Jean-Marc Chery: Well, for Q4, I repeat, clearly, we have seen on industrial market, especially in China, as you have China that the order booking entering is the lead time window, where we are not materializing at our expectation. And it has mainly impact the general purpose microcontroller. This is for Q4, but now we have to acknowledge altogether that, we went back to normal in term of lead time and capacity utilization for this kind of device, and for semiconductor industry except very few product lines like a silicon carbide as well. About 2024, so clearly, we have a very good visibility 2024 for automotive. And for whole, I have to say the engaged customer program with our global strategic key account, everywhere we have, let's say, custom design product or where we have proliferated our product. Moving forward, let's say, industrial market, both mass market distribution and OEM, but now the visibility is limited. And for sure, customer, let's say, wait a little bit to put order, when they are in the lead time window. So, we have to monitor very carefully the [indiscernible] entry in Q4. More to understand, all will be, next year for mass market industrial, both for OEM and distribution. If you want to classify next year, very, very simply, we are convinced that automotive will grow definitively because we have the visibility. And again, the demand will be driven by the mobility, by the digitalization, by the provision of electronic in legacy application. But it is based on the production volume that will remain around the 85 million, 90 million vehicles. We do believe that for personal electronic, we touched on some bottom in Q4, and next year, like-for-like, because again we have to remove the optical module still present in '23. Like-for-like, we will slightly grow. But then again, on industrial, mass market and distribution, it is a bit early. So, we have to monitor carefully what is happening in Q4, in term of our order entry. But it is clear that, discussing with some customer, they are assessing their end demand, they are assessing their inventory level and this could also trigger some inventory correction, both in Q4 and maybe early next year.

And on the under loading of the fabs in Q4, is that what do you think your inventories will end up at the end of this year? And do you expect the under loading of fabs to carry on into the first half? Jean-Marc Chery: I will handle to Lorenzo to answer.

Good morning, everybody. In respect to this quarter, we do expect, at the end of the year, to be substantially in term of inventory in the range of between 100, 110 days, midpoint 105 or something like that. So, there will be a further decline in our inventory during this quarter. This of course is triggering as it's been done already done in Q3, some unloading charges. These unloading charges in this quarter will impact, of course, our gross margin are fully embedded in our guidance. But as I said that for sure, let's say for the gross margin of the evolution of the loading in respect that with the next year, a lot will depend from what Jean-Marc said about the evolution of the market or the reentry for the industrial market, but we expect still some unloading charges continuing at least for the first half of next year.

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

Just following on the cost side of things, Lorenzo, obviously, you've given us some clarity in terms of unloading and how you expect gross margin to track. But given how the end market is shaping up at the moment, what are your plans in terms of OpEx? I suppose specifically for fourth quarter, can you help us there in terms of the breakdown? And then perhaps just more generally into 2024, again, I understand you don't want to quantify things too much, but just your initial thoughts in terms of OpEx trends into next year would be helpful as well?

About this quarter, the OpEx, let's say, last quarter in Q3 OpEx came quite low in respect also to our expectation. But this is mainly driven by the seasonality of Q3, you know that in Q3 we are impacted positively impacted in term of caused by the vacation period especially in Europe. Now looking at the current quarter, our expectation in this quarter to have OpEx ranging between 950, 960. This is including, I remind you always the other income and expenses, so let's call it net of tax. This is increasing compared to the previous quarter compared to the Q3. There is a lower level of grants, R&D grants. I remind you that the level of grants in Q3 was quite high also because there was a catch up over the previous quarter for grants that were possible to be recognized during Q3. And then for sure Q4, let's say unfavorable seasonality in respect to the previous quarter. But this means that for this year, our average quarterly net OpEx will be something between $925 million and $930 million, when we look at the full year. For next year, of course, our OpEx will be in line respect to the business evolution. We will maintain control on our operating expenses. For sure, we will continue to protect our R&D, and we will continue to protect our digital transformation programs.

If I could also just follow-up on the comment you've made in terms of seeing weakness start in industrial space, particularly in China, and that it's affecting general purpose microcontrollers. Clearly, I think that brings some flashbacks to September of 2018, where that was a part of the market that started to face troubles as we hit that particular down cycle. Things are a bit different this time around, but I'm just wondering how you're handling things, what you might be able to do a little bit differently this time around given that you're starting to see some of the same signs?

Marco, compared to, yes, I remember very well, 2018 and 2019. Well, first of all, okay, the overall economy situation and world is rather different. Here, I can only say fact. Okay, again, the dynamic in Q3 of order when customer acknowledged the fact that they are entering the entire window well below our expectation. This is a fact number one. Fact number two, yes, we discussed with our customer, OEM and distributor, and especially in China, but, this is also, overall, a bit of global dynamic. We see our customers that are really reassessing their end demand. They are revisiting their sales and operating plan. And of course, okay, as we supported well from supply chain point of view, since Q4 2022, of course, they will certainly they readjust their inventory. Well, then again, from the other side, for the industrial market, clearly, that's the reason why I mentioned, the registration on STM32. The demand will be clearly driven by all application related to renewable energy generation, energy storage, power conversion, charging infrastructure for in mobility, more factory automation and motor control, which are more related to CapEx. Well, this will be related to the overall economy. So, that's the reason why we have to monitor it. Well, consumer applications for the time being are still weak and discussing with our customer, they don't expect to have a strong recovery before Q2 next year. So, this is a situation that we have to monitor, and I know we know how to do it. We clearly monitor the other entry. We adapt to our supply chain, and for sure, on turning in January, we'll have a better visibility and moving forward as well.

The next question comes from the line of Joshua Buchalter with TD Cowen. Please go ahead.

I wanted to ask about gross margins also. So, I think last quarter, you had called out mix start up costs and underutilization is driving the sequential decline. As we go from the third quarter to first quarter, is it all underutilization charges or mix and start up also playing a role here? And then, as we think about exiting the year, you should have inventory at your target, but the first quarter is seasonally down. And so, I'm wondering how would underutilization charges trend in the first quarter of the year under that dynamic where you're at your inventory level but you're also seasonally down? Thank you. Jean-Marc Chery: No. As I was saying also before, yes, for sure, in Q4, we are impacted by some underutilization. You remember that we were preparing the year in the first half of 2023, let's say, expecting a stronger second part of the year second half of the year. So that was the reason why we were creating some inventory in order to serve this expected demand that at this stage did not materialize, as you see from our guidance of the second half. So, this is the reason why we put under control our inventory. This is creating some unloading charges that we have in this second half of the year, impacting our gross margin. Bringing back to the level of days of inventory, as I was saying before, I would say, stand at normal level by year end. As I said before, that will be ranging between 100 and max 110, but I think it will be closer to 100, 105 days of inventory. Moving on the next quarter in Q1 and in the first half, but a lot of will depend on how the order entry will materialize during quarter, especially for the industrial market because as you know, as was said, for the automotive, we have a quite clear visibility, whereas the visibility is less is on the industrial. But our expectation and still we will have some level of unloading in Q1 and probably also something in Q2. And the level of unloading in Q1 will be probably similar to the one that we have in this quarter.

Thank you for all that color. For my follow-up, I wanted to ask about silicon carbide. There is concerns given some slightly weaker commentary at your lead customer, that silicon carbide growth could slow. Could you talk about the diversification efforts that you are undergoing? And in particular, how is your visibility into substrate supply both externally and your internal vertical integration efforts going for next year? Thank you. Jean-Marc Chery: For us next year, it will be a step rate consistent with our objective to deliver $2 billion in 2025. And so, we have the capacity installed. We have the supply chain secured. And we have a customer base and backlog consistent with this objective. And I will communicate, at the Q4 earnings end of January, the objective of silicon carbide revenue, we would have next year. But, be sure it would be a consistent step with the $2 billion objective of 2025.

The next question comes from the line of Sandeep Deshpande with JP Morgan. Please go ahead.

I have two questions. Firstly, this is the first quarter that we are seeing since the whole COVID period that you are seeing a year-on-year decline in terms of your guidance, in the fourth quarter. How do you see this progressing? Clearly, you have seen this softness in the industrial space. First quarter is typically also a seasonally weak quarter for you. How do you see this progress on a quarter-to-quarter basis in the first and second quarter? Will you go back to growth in the first or second quarter of the year on a year-on-year basis? And then my second question is regarding the mix of the product into next year, et cetera, really. Now, you have lost some business in personal electronics and maybe that goes up a little as you said, but automotive will be a larger part of the suite. Will the mix overall help the gross margin into next year? Or is it that the underutilization charges continue and so that the gross margin is more going to be driven by underutilization charges rather than product mix? Jean-Marc Chery: Thank you, Sandeep for your question. So for next year, well, I repeat what we see. Again, for the visibility is very clear again on automotive and where we will grow next year. On the every quarter, we will grow year-on-year, I have to say. On guest customers per value is exactly the same. And I repeat, with our strategic accounts, so whatever are related to personal electronics, but also to communication equipment and where we have the all this important program. So, we have the full visibility and again, on personal electronics like-for-like, we should grow. Communication equipment and computer peripheral, now here, I have to say that next year would be a transition year, because we will shrink also step after step of our legacy activity. Well, we want to be no more present. It is basically enterprise communication, but we will accelerate with our one cash customer program with the SpaceX Starlink and the other opportunity we won. Well, the important question is mass market distribution and industrial OEM. Well, you know this market is fragmented. Yes, Q4 is a sign that, again, I repeat, we discussed with customer. They are revisiting and assessing their end demand, because it is related to the overall economy. It is related also to the automotive. Of course, making the sales difference, it could trigger some inventory adjustment and then inventory adjustment. It's difficult now to assess how long it would last. So this is what I can say. That's the reason why I say very candidly that Q4 order intake for industry or mass market will be very key to understand the dynamics. So this is what I can say at this moment.

And with the question on the group?

Well, the mix, I think, somehow Jean-Marc was answering, giving us some color. Of course, let's say, no doubt that, when we look at the industrial market for us is very accretive. So it means that depending on the way that this will evolve will of course being positive for our gross margin in respect to what is now in Q4. In respect to Personal Electronics, well, yes, actually, we have not lost anything here. Reality is a change of the architecture and which we are present, so it means that at the end, we have not any longer the optical module, but we have silicon inside. For us, it's positive in term of gross margin mix. Let's put it this way, not in the revenues, of course, because the ASP is different. But definitely in term of the gross margin, it's positive.

Next question come from the line of Aleksander Peterc with Societe Generale. Please go ahead.

My first question would be really on what we should expect on the price front. Usually, if I remember well, you had in the first quarter some customer price declines every year, so that was a little bit of a pressure on gross margins in Q1. That didn't really happen in this year because of the general price increases, but is the normal pricing pattern set to return in '24 in the first quarter? And then I have a quick follow-up. Jean-Marc Chery: Now about price and Lorenzo will comment. What I can say. Basically, I already said in April. We said some past effect in distribution, which is normal. When you go back to normal, let's say, situation in term of supply, POS, POP, that you are well balanced between demand and offer. You go back to normal, let's say, price effect. Let's say, low single digit on the yearly basis. We know it, everybody know it. This is something, which is fantastic, the semiconductor industry. So as I speaking, it stopped on distribution, so we have seen it in appeal. We see it in Q3, and we will see it in Q4, clearly. More than for the rest, there is no specific price effect and price pressure from customer. We have contract. We have new product. We have engaged customer program. Well, there is no surprise. There is a coming back to a normal situation. More than that, I cannot comment.

And a quick a quick follow-up just on automotive where you have very good visibility. Can you tell me if excluding silicon carbide, is your automotive business set to grow meaningfully next year or not? Jean-Marc Chery: Yes.

Meaningfully? Jean-Marc Chery: Yes. No. I don't have -- I well understood. So if I remove silicon carbide, yes.

Short answer.

The next question comes from the line of Francois Bouvignies with UBS. Please go ahead.

I wanted to follow up on Alex's question on automotive. I mean, this quarter, you’ve delivered 30% growth. I mean, if you look at TSMC, it was down 11% year-over-year calling that the industry is going is through an inventory correction. And also, I'm sure you saw as well the macro data with OEMs, orders for auto is coming down significantly, especially in Europe. We also saw GM and Honda with like push outs of EVs. So, it seems to be very different than what you report and also what you save into next year, what you just said. So, I'm just wondering, do you see anything or is your guidance factoring some maybe EV penetration slowdown into next year, because I guess it's something that you would see that happening or it is just your lead time so long that, basically you don't see it yet? I am just trying to reconcile basically what we see on the ground and what you are delivering and how it can be disconnected, if you know what I mean? Jean-Marc Chery: No. Perfectly, I see there is no disconnection. Now if your question is, this year, basically, cement industry, the automotive segment we support, basically, will grow at 36%. More clearly, also embedded in this fantastic growth, more there is a specific item, which are related to the period of shortage that ST has benefited in 2023 was a capacity regulation, which is quite material. However, even if you remove this effect on our growth performance, our automotive segment in 2023 basically will grow 28%. So next year, I have to say that, this capacity regulation will be still present, but in a less order of magnitude than 2023 and it’s normal because exceptional product line. Now, we have the capability to better support the car maker through the Tier 1 or directly. But then the Tier 1 and the carmaker, they are acknowledging as well that we are reducing our low lead time and reducing our lead time by step-after-step. We could see booking with the book-to-bill below one on automotive. Simply the fact that they will stop to load 18 months in advance in '24 in advance, and we could anticipate that in 2025 instead to have a 100% backlog coverage, we will be maybe 80% backlog coverage. So this is a trend we are seeing point number 1. Point number 2, I'm sorry, again, with all the respect I have with the TSMC, they have a partial view of automotive. We have the full spectrum of product portfolio to see what is happening in automotive. And I confirm to you that, except like-for-like results of the silicon carbide, we will grow. For sure, we will not grow at 28%. We will grow significantly, but not at 28%. This I can confirm to you. So as a takeaway, I can tell you that, yes, next year we will have a little bit benefits less on capacity field as I mentioned. We will see our customer acknowledging our capability in '24 to better deliver with short early time. So normally, they are booking with a decline in order to adjust themselves to this fact. We would expect to enter in '25 with 80% coverage on automotive. So this is the point number 2. Point number 3, we will grow overall in '24, and it is based on stable production cars volume that we consider around 85. Now, the feedback we have from our customer and the feedback there is from analysts is next year's is more than 90 million vehicles produced. This is not the base of our forecast. Then point number 3, I repeat, this year is 11 million to 12 million of battery-based electrical vehicle. Next year, we can expect, okay, to go well above 15 again. So this will call for a big demand Personal Electronics and Micro. But then, you have the change of architecture that are coming from the old definitively. And then the customer, I think, acknowledges that we can better supply, they come back to better sophistication of the legacy. So, there is more and more semiconductor and a product in legacy application. So all in all, this is building a scenario for next year of growth for automotive, for ST taking into account the portfolio we have.

And maybe my follow-up would be on the CapEx. I mean, as we see the, orders, I mean, excluding autos a bit uncertain and the utilization charges. How do you think about the budget of your CapEx next year? And, obviously, I don't expect you to give your CapEx, I mean, you can if you want. But is it something that you review given the current situation that maybe delay some of the project or CapEx? How flexible do you want to be on your CapEx side given the current environment? Jean-Marc Chery: We are running every two months, let's say, two years SNOP with different scenario and so on and so forth. I can confirm to you that we have this flexibility to adjust our CapEx and, yes, in current circumstances, where there is not an automotive, I repeat, not on our global key account on guest customer program, but on mass market distribution and small OEMs, some uncertainty that we have to monitor, that the CapEx we will spend next year will be below the CapEx we have spent this year.

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

Actually, the question is about the Chinese market and the competition, you may face there because if you listen to the large equipment manufacturers, basically, they are selling a lot of machines and those machines are probably going to be used to manufacture or to build chips for automotive. So, how do you see this happening? Is it putting a bit more pressure? Is it changing your plans? And I have a follow-up. Jean-Marc Chery: Thank you, Stephane. I think sometime already answered this question. We have initiated now since two years, let's say, diversification in our source of this microcontroller, but analog as well, including, power analog, BCD, more in silicon carbide with our joint venture with the Sanan. We will have use -- okay, we will take benefits of this investment done in China to produce our microcontroller. And as I said during my address, we are building, and we have already built, I have to say, an infrastructure in China to support this market. So foundry, we will use local foundry for microcontroller including pursuing some of our technology. We have already built competence center to address the high growing application. So power energy, motor control, robotics, all this kind of stuff. So, we have reinforced our application engineer. We have a deep relationship with distributor for demand creation, and they have higher a lot of application engineer. And then, we have our ecosystem of the STM32 that we compete with all the different feature of connectivity and AI. So, in fact, we are competing in China, like Chinese, but stacking our ecosystem and our wide portfolio, which is a widest portfolio of STM32. But again, it's competition, but very Chinese, but we saw a source of America, so it's competition, as usual, I have to say. But yes, we have adopted our self step after step since two, three years when we have seen this trend to take advantage of the investment that are done in China.

And then the follow-up is that, maybe you have heard that one of your big European competitors has said that then with a flat car market, they will grow more than 10%, basically. They said, low teens, I guess with that with all the things that you all the elements that you've given for next year, this statement would apply probably to you also, right? Jean-Marc Chery: I will give you indication only next year.

The next question comes from the line of Jerome Ramel with BNP Paribas Exane. Please go ahead.

First question, Jean-Marc, if I look at your, whatever your STM going to be and I understand the lack of visibility. Can you share with us what you think about your own market share trajectory versus your STM? And the reason I'm asking is because if I look at your Q4 guidance, I think for the first time in maybe 20 years, you have higher reviews than one of your largest competitors in the U.S., so just to understand the dynamic of your market share gain for the coming year? And how much of that is embedded in your guidance or target of reaching $20 billion revenue between 2025 and 2027? Jean-Marc Chery: Well, thank you for to have taken note potentially in Q4, if we deliver the midpoint of our outlook, and our main competitor delivers the upper range we will be able. Thank you more. It's good, but this is not the most important. Yes, certainly, this year, we have increased our market share, most likely because we know that WSTS will make a revision in November. So, we will see what will be the market. For the time being, as I said, in August, some should grow 3.4. So as by effect, we will grow 7%, so means we will win market share. We are also indication from [indiscernible] that our STM this year, we grow 1%. So, this is confirming. So when I take this data, I have to say that this year, we will win market share. And again, it has been mainly driven by our capability to grow in automotive. To grow in silicon carbide, clearly, $1.2 billion is quire material. We have taken benefits of this capacity reservation. We have been heavily impacted by the personal electronics definitively, but as everybody, okay, no more than everybody. And Q3 for sure, the industrial mass market was a solid, but now we are entering this period. About next year, it is difficult again to say today. But our ambition is to continue to win year-after-year market share, driven by a new product in production, technology, digitalization, but yes I confirmed the $20 billion plus model in term of revenue. But in the time frame, we indicated '25 to '27, more clearly, '24 will be a transition period to this model.

And just to make sure you are confirming also the gross margin target of 50%? Jean-Marc Chery: Yes, we confirm the model, yes.

And maybe just a follow-up question on silicon carbide. There were rumors that you might need another silicon carbide fab in the French newspaper. I don't know if you can confirm or not, but maybe another way to ask the question. With the current capacity you have, how much revenues can you target with the current capacity including the Sanan JV? Jean-Marc Chery: Clearly with the manufacturing footprint we have today installed, we can support above the 2 billion of '25. So, it's a good news, point number 1. Today, as you know, we are concentrating to ramp-up our raw material fab in [indiscernible] in order to achieve as soon as we can 40% of internal production. It would be a good cost driver. Then if we plan to go well above 5 billion between 2028 to 2030, and this is clear that, we will need to have two additional fabs, one in China that will support the Chinese market. So this is the JV we have just set up and progress are moving very well, and I will visit them very soon. More than, we will decide timely when we have to build another fab. And of course, we will communicate. But for sure, to go well above $5 billion between 2028 and 2030, we need Sanan and another fab.

Thank you very much.

Thank you. We have time for one last, I would say, short question if possible. If you can, I would like, let's have another one.

The next question comes from the line of Simon Coles with Barclays. Please go ahead.

Hi. Thanks for squeezing me in. You talked about the under utilization charges. But you didn't split out Agrate, so I was just wondering if you can confirm Agrate as sort of peaked drag in 4Q, and we can continue to expect that to improve in 2024 and be accretive in the second half of '24?

Yes. The plan for the 300 million in Agrate is substantially unchanged. It's true that this year and the first part of next year, the Agrate will not be accretive. At this stage, we can confirm that Agrate will start to be neutral and then to be adding a positive contribution starting the second part of next year in Q4 and then definitely 2025.

And can I just quickly clarify? The 130 basis points impact on gross margin in 4Q, that doesn't include the drag from Agrate?

No, it's only the impact of the unloading charges.

Thank you very much. Very shot. Thank you very much Simon. I think that now, this is the last question and we can conclude the call. Jean-Marc Chery: Thank you. Thank you everybody.

Thank you very much.

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