STMicroelectronics (NYSE:STM) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
Access the full call at https://event.choruscall.com/mediaframe/webcast.html?webcastid=fXICoiPS
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 per share stood at 0.$13. Net cash from operating activities totaled $534 million in the first quarter compared to $574 million in the year ago quarter. Net CapEx was $362 million in the first quarter compared to dollars in the year ago quarter. Free cash flow was negative at $723 million in the first quarter compared to a positive $30 million in Q1 2025. Q1 26 free cash flow includes $895 million cash out related to the payment for the acquisition of nxts.
Jean Marc Cheri (President and Chief Executive Officer)
MEM sensor business inventory at the end of this quarter was $3.17 billion compared to $3.14 billion in Q4 2025 and $3.01 billion in Q1 2025 days. Sales of inventory at quarter end were 140 days in line with our expectation compared to 130 days of the previous quarter and 167 days in the year ago quarter. Cash dividend paid to stakeholders in the first quarter of 2026 totaled $71 million. ST maintain its financial strength with a net financial position that remain solid at $2 billion as of March 28, 2026 reflecting total liquidity of $4.57 billion and total financial debt of $2.57 billion. Now back to Jean Marc who will comment on our outlook. Thank you Lorenzo. Now let's move to our business outlook for Q2 2026. We are expecting Q2 2026 revenues at $3.45 billion plus minus 350 basis points at the midpoint. Our Q2 2026 net revenues will increase 11.6% sequentially and by 24.9% year over year. We expect our gross margin to be about 34.8% plus minus 200 basis points, including about 100 basis points of unused capacity charges. Non US GAAP gross margin is expected to be about 35.2%. This business outlook does not include any impact for potential further change to global trade tariffs compared to the current situation. To conclude in the first quarter, despite the macroeconomic uncertainty, we saw improving demand with strong booking and normalized inventory in distribution. In the second quarter, we expect revenues well above average seasonality as well as an increased gross margin. We have a clear path to improve gross margin while staying at the forefront of innovation. We expect 2026 revenues to show double digit growth beyond our addressable market dynamics and our already engaged customer programs. This growth will be driven by new AI programs for which we leverage our specialized technologies to enable the evolving AI infrastructure. Before handing over to Jerome, I am pleased to announce that as we did in March for Cloud, AI and Intelligent Sensing, on May 4th we will host a dedicated call on ST's Low Earth Orbital satellites explaining how we are going to achieve our ambition of well above $3 billion cumulative revenues over the period 26 to 28. For this opportunity, you will receive the invitation today. Thank you and we are now ready to answer your question.
OPERATOR
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to one question only. Anyone who has a question or a comment may press Star and one at this time. The first question comes from the line of Joshua Buchalter from TD Securities. Please go ahead.
Joshua Buchalter (Equity Analyst at TD Securities)
Hey guys, thank you for taking my question. Congrats on the very solid results. So you have a lot of idiosyncratic growth drivers hitting this year across data center, Silicon Photonics, Leo Satellite and then your your largest customers normal seasonal ramp. Can you sort of help us with the shape of the year and how we should expect them to layer into the model? Like should we expect 3Q and 4Q this year to also be above seasonal because of these company specific growth drivers? Thank you.
Jean Marc Cheri (President and Chief Executive Officer)
Well I am taking the question well. Of course I will not guide on 26, but maybe we can share few elements first of all, okay, the strong booking of Q1 has shown absolutely no pull-in order. It is, let's say a well balanced loading of the 2026 quarter to quarter. So the buildup in 2026 from the booking we receive in Q1 represent approximately 85 to 90% of the booking we receive. So this is a positive to make us confident that in H2 we could achieve the usual seasonal pattern H2 versus H1 then what will be again positive on the year 2026? Looking at the current dynamic in terms of growth, well in automotive we confirmed that 26 will be a growth for ADAS, for sensor of course and also with a boost of the acquisition of MEMS from NXP, and for Silicon Carbide in industrial we will see a solid and strong growth and general purpose microcontroller in person electronics. As we have already seen in Q1, our engaged customer programs in sensor and analog will be, let's say a contributor of the growth but not a big one in H2 because a change of profile in the introduction of the new device in data center. It is clear that here we are seeing a really strong growth in terms of demand acceleration including a cloud optical interconnect Both for our PIC100 for BiCMOS. But I repeat for our general purpose microcontroller and analog and power discrete as well. So we confirmed the revenue nicely well above 500 million US dollar. But the only negative aspect of the revenue in 26 is capacity reservation fees that will decrease $140 million compared last year. So this is how we see the year 2026. So I repeat backlog now well loaded. Great confidence level to have H2 versus H1 at the usual seasonality on top
Joshua Buchalter (Equity Analyst at TD Securities)
of Advanced Driver-Assistance Systems (ADAS), SEQ, sensor, general purpose micro, clearly AI infrastructure and low earth orbital satellite will be very strong contributor to the performance of St in 2026. Thank you for all that color, really appreciate it. I was hoping you could comment on the pricing backdrop. I mean one of your large competitors last night said it would, you know, it was coming in a little bit better than they originally planned and now expect flat pricing. Have you seen changes in the pricing environment over the last three months and sort of what are your expectations on pricing for the year? Thank you.
Jean Marc Cheri (President and Chief Executive Officer)
So yeah, I let Lorenzo come in.
Lorenzo Grandi (President and Chief Financial Officer)
Yeah, thank you for the question. But if you remember last quarter we were talking about pricing decline on low to mid single digit expectation, but clearly there is some evolution in respect to this expectation. I would say that in Q1 our price decline was as expected Low single digit. What today we see, we see an environment in which actually there is some selected price increase that also we. So at this point I would say that in terms of pricing, our expectation is to have a very low, very low, low single digit, let's say price decline. So means that actually in terms of pricing, we see a better situation in respect to what was a few months. Thank you, Lorenzo.
OPERATOR
Thanks. Rosh Mayra, next question please.
Francois Bouvigny (Equity Analyst at UBS)
The next question comes from Francois Bouvigny from ubs. Please go ahead. Thank you very much. Maybe just a follow up on the pricing. I mean, we have seen some announcements that, you know, that you will increase your pricing in April and you are not the only one. So can you just give us an idea of how much of your revenues would be impacted by the margins? And also, Lorenzo, what about the gross margin with this pricing increase? I mean, should we, I would imagine it takes a bit of time to fuel into your P and L. So when we expect some gross margin impact from this gross margin increase that we see in the price. That's my first question on pricing cost margin.
Lorenzo Grandi (President and Chief Financial Officer)
No, clearly, let's say when we look at the price environment, I would say that at this stage, yes, there is some selected price increase is not a price increase for what concern us across all, let's say customer and products. Anyway, what I can say is that when we look at the dynamic, of course of the. Of the dynamic of our gross margin moving from Q1 to Q2 and we may say that pricing is quite neutral in respect, let's say to this dynamic means that at the end is not a boost, but it's not even a detractor. It will remain substantially flattish. When we look at the evolution of the gross margin, that is not what is the normal trend. When we look at, let's say the seasonality between these two quarters, for sure as a positive. When we look at our gross margin, there is the mix. Mix is continuing to be, let's say, positive on our gross margin evolution. But clearly there is also lower unused capacity charges. Our fabs are better loaded. Capacity charges is declining, moving from Q1 to Q2, but there are still some negative. The negative is mainly related to our manufacturing efficiency. Why? Because there is some temporary suboptimal efficiency. In the context of our reshaping plant. We are moving technologies products from 200
Francois Bouvigny (Equity Analyst at UBS)
millimeter fabric to 300 millimeter from the 150 millimeter of silicon carbide to 200 millimeter. And we are really in the middle of this kind of programs that for sure, let's say, are somehow impairing a little bit the efficiency of our fabs. And this, I would say is the main detractor when we look at the evolution on a sequential basis of our gross margin. Pricing, as I said, is really neutral at this stage. Thank you, Lauren. It's a very detailed answer. Maybe one for Jean Marc. I mean, if you look at your customer programs, if I exclude the personal electronics, so if I take Silicon Carbide, Botanics and Satellites, so your big programs, should we expect your revenues to grow quarter on quarter from here? Like, you know, the fundamental, you know, that is increasing gradually, so no seasonality, I would imagine. So you should able to see a growth across the board here. Quarter on quarter through the year. Is that the right assumption? Excluding personal electronics?
Francois Xavier
Of course. Excluding personal electronics. This is what we expect. Thank you. Thank you. Thank you.
OPERATOR
Francois Xavier, next question, please.
Jeannard d' Armen
Next question comes from Jeannard d' Armen from Jefferies. Please go ahead. Hi, good morning. Thanks for taking the question. Just a follow up on gross margin. Lorenzo, looking into the second half, what would you see as the various puts and takes on that gross margin evolution? Your top line is growing perhaps much faster than what we had thought a few months ago. So would it be that that utilization and underloading charges will get used up faster? And what is, you know, there's normally a lag between the revenue trend and the, and the, and the gross margin. So just if you could give us any commentary on how, not in terms of actual numbers, but just the puts and takes perhaps of the second half. And how do you feel about your sort of your model of getting to 45%, given the kind of strength that you're seeing in markets and the favorable product mix that you're seeing right now? Thanks.
Lorenzo Grandi (President and Chief Financial Officer)
No, what I can say about the gross margin is definitely that gross margin, let's say this year will improve in respect to what has been last year, definitely, and will improve sequentially. When we look Q1, Q2, Q3 and Q4, this is something that definitely we expect. This is what we expected to continue to see a sequential increase and sequential improvement over Q3 and Q4. What are, let's say, the driver we expect clearly, as you said, the unused capacity charger will improve thanks to the fact that we will have higher revenues. Even if I confirm that will not completely disappear, we will still have some areas in which, especially related to the legacy technology, that we will still have a little bit of unused capacity charge, but much lower than what we saw the trade last year. Definitely there will be progressively some manufacturing efficiency improvement. Even if I repeat what I said before, we are not yet optimised because let's say we are in this transition. We will start to see this benefit of the transition mainly 2027 more and then in 2026, but for sure there will be some improvement. Moving mics will be another positive impact. We will continue positive impact on mix, but clearly we know that capacity reservation fees now are out. There will not be significant, I mean much lower, let's say there will not be significant variation moving from Q2, Q3 and Q4, but are much lower in respect of what it was, let's say last year. As I said, there is this cost related to this transformation of our manufacturing infrastructure. Maybe what we will have, let's say in the second half is a little bit higher input cost for our manufacturing considering, let's say the overall situation. But definitely I confirm that starting from our, let's say 35.2 gross margin in the second quarter, we will continue to see progressively improvement in Q3 and Q4.
Jeannard d' Armen
And maybe just a quick follow up on your Q2 outlook of 11.6. Is there already a very significant contribution from the optical connectivity on the data center which is driving that upside? Or is the Q2 more driven by a pickup in industrial general purpose microcontrollers, etc. And the optical kicks in more meaningfully into the second half of the year.
Jean Marc Cheri (President and Chief Executive Officer)
The optical are starting to contribute. In fact since Q1 is mainly through the high performance microcontroller. But the main part of the optical overall with photonics, bicymos will be niche too. But microcontrollers are already participating to the growth.
Jeannard d' Armen
Understood. Thank you.
OPERATOR
Thank you. Mayra, next question please.
Gianmarco Bonacina
The next question comes from Gianmarco, Bonacina from Banca, Akros. Please go ahead. Yes, good morning. I have a question more for the midterm. You gave some figures for your AI revenues for next year. About 1 billion. I just wanted to understand in terms of commercial activity, we commented the big contract with aws. So are you working on a commercial basis just to get potentially the revenues with other hyperscalers? And how confident you are that let's say the opportunity you realized with AWS can be also generated with other hyperscaler? Maybe I mean in the midterm, not just in the near term. Thank you. Bye.
Jean Marc Cheri (President and Chief Executive Officer)
No, you know, if we speak about Minterm, our strategy on hyperscaler are the following. Basically, if you break down this let's say infrastructure in three main application Domain what we call the network flow. This is where we are spoken about. Let's say the optical cable and near technology. Let's say evolution with package, close optic or near package optics. Clearly here one of the main driver will be aws. But clearly ST is positioned to provide to be a provider of product and solution for optical cable far beyond only aws. This is a point number one. Then the second big domain is fairly well known is what we call the power flow. So means the capability for electronics to enable the supply of the processor from 20,000 volt to 0.8 volt. And here ST is engaged now with a large product portfolio from let's say sps, low voltage mosfet, microcontroller driver sensing
Gianmarco Bonacina
and so on and so forth. And this will come far beyond aws, of course, aws. Okay, we'll use this component that we will provide and we will compete far beyond aws. Well then last but not the least is all the infrastructure around the thermal cooling of this infrastructure. And we are already there with our power solution microcontroller and analog. So clearly AWS will be a fantastic driver for ST for the growth of the revenue during the next three, five years. But our ambition is well above thanks to our product portfolio. And I repeat, ST is a unique company capable to provide on this infrastructure from a photonic solution MEMS solution that will come pretty soon. Microcontroller definitively power switches, power drivers, controllers and including other sensor. So this unique position clearly position ST in the future to be important contributor to in terms of supply to this business line. Thank you. Just a quick follow up for Lorenzo if I can, the change in the guidance in the opex just to understand correctly. So you are talking about your clean OPEX excluding PPA and restructuring. Thank you.
Lorenzo Grandi (President and Chief Financial Officer)
Yes, yes, of course we exclude PPA and restructuring. And as I was saying before at the end, both after the fact that we have the addition of nhp that when we were talking previously was not taken into consideration. But I have to say that thanks to the fact that we see a significant, let's say opportunity in terms of revenues, we have some programs accelerating in term of let's say development and bringing a little bit more level of expenses. Thank you.
OPERATOR
I have to say that in any case, when we look our net OpEx, the expense to sales ratio 2025 compared to 2026, let's say in 2026 the expense to sales ratio will have materially decline with respect to the previously. Yeah, thank you. Thank you. Gianmarco Mayra Next question. Please.
Andrew Gardiner (Equity Analyst)
The next question comes from Andrew Gardiner from cd. Please go ahead. Good morning gentlemen. Thank you for taking the question. Just a couple of, I suppose follow ups to some of the topics that have already been discussed. First, on the AI side, Jean Marc, you've I think it's a reiteration of what you were saying last month in terms of the quote, nicely above $500 million of revenue for this year and quote, well above $1 billion for next year. Just I think they're moving very quickly in this part of the market, to put it mildly. What is the potential for upside there? And I suppose more importantly for you, where are you seeing capacity constraints at the moment that may indeed limit the level of upside relative to the demand that you're seeing? And then a quick one for you, Lorenzo, just again on the OPEX you said a low double digit gain 26 on 25 on one of the items that you were looking at. Could you just provide us the baseline of that? I missed that when you were saying it in the prepared comments. Thank you.
Jean Marc Cheri (President and Chief Executive Officer)
It is clear that we are on some part of the technology and components that are enabling the solution we provide to customer. We are in ramp up mode on photonics and associated technology.
Lorenzo Grandi (President and Chief Financial Officer)
We are in a ramp up mode. But overall what I can confirm today, that unconstrained demand we have today for 26 and 27 is well above the nicely above $500 million and the well above $1 billion. And our ambition is to fulfill this unconstrained demand. But the company first has to ramp up the capacity already installed as in the second half of the year to implement additional capacity. And our ambition is to fulfill as much as we can the unconstrained demand of customers. I will provide more color in July clearly during our next meeting. But I really confirm that 26 will show a significant breakthrough in our revenue. Linked to AI data center for what concern opex. I confirmed that net OPEX sales ratio will decrease in 2026 compared to 2025. What we expect now we expect when we say OPEX like for like means let's say the same effects and same perimeter means not including the NXP acquisition to be upper mid to single digit, let's say in 2026 compared to 2025. You have to consider that half of this increase is related to the startup cost that we have, let's say in the fab 300 millimeter and let's say 200 millimeter for silicon carbide that is let's say related to our transfer from the 200 to 300, 150 to 200 for the silicon carbide. So means that this is something that is not structural, is coming this year but will not stay forever. If we include the NXP MEMS business acquisition, it also included the impact of the exchange rate. Excluding the restructuring, we should be up low double digit versus 2025. This is assuming an exchange rate effective in the range of 115, 116 and is of course including, let's say the operation of an XPMEM's business that we can estimate in the range of $50 million additional expenses for us.
Andrew Gardiner (Equity Analyst)
Thank you, Andrew. Thank you guys.
OPERATOR
Myra, next question please.
Sebastian Stabovitz
The next question comes from Sebastian Stabovitz. From Kepler Scheverer, please go ahead. Yeah. Hi everyone, thanks for taking my question. On the transformation program. Where are you standing right now in terms of capacity build and so on? And when do you expect to have the full synergies benefit? Is it for 27 or more for 2028? And the second question is on silicon carbide and your GV with Sanan in China, where are you in the ramp up mode with the gv? And when do you expect the first volume to start to ramp up meaningfully in China?
Jean Marc Cheri (President and Chief Executive Officer)
for the transformation program. Clearly now we are in the middle of the execution. Clearly we have to respect the customer qualification time. When for analog technology we move from 200 millimeter to 300 millimeter they have a good incentive to do it. Because clearly our capacity potential increase is related to Agra in 300 millimeter. We expect that the benefits of AGRAD at full speed will be more in the end of 27 and entering in 28. Not related to the fact that we don't go at the high speed in terms of qualification internal, but more related to the customer normal constraint. They have to qualify their own application.
Sebastian Stabovitz
More on silicon carbide, it's a bit similar in fact because here we are moving from 6 inch to 8 inch and this is mandatory to do it. Here is the same. We are not limited by our own capability both in Catania and in San' an in Chongqing the limitation is more related to the qualification time of our customer. And you know that we are engaged in a very very famous platform with an important player in Europe which currently has a great success for his new platform in electrical car. And here of course we cannot take any risk and it takes time before to move to 8 inches. So for sure here are the same. The benefits will be more end of 27 and entering in 28 more and San', an, we expect to start the production and to load this nice infrastructure starting the end of 2026. Okay, thank you.
OPERATOR
Thank you, Sebastian. Myra, next question please.
Sandeep Dishpandi
The next question comes from Sandeep Dishpandi from JP Morgan. Please go ahead. Yeah, hi, thanks for letting me on. My question is regarding the acquisition of the NXP census business. How did that business grow in the past and how will that contribute to growth in the current year? And then my follow up question is regarding the gross margin of the company. You said that your underutilization charges do not fully go away this year, but should we assume that in 27 the underutilization charges go away and with the mix shifting more to the AI products as well as some of the satellite products, etc. That there could be a much bigger move in the gross margin in full year 27?
Jean Marc Cheri (President and Chief Executive Officer)
Thank you, Sandeep. So Marco Cassis will take the first question on NXP, former NXP MEMS and Lorenzo of course the second question, yes on NXP.
Marco Cassis (President Analog Power and Discrete MEMS and Sensor Groups and Head of ST Microelectronics Strategy System, Research and Application and Innovation Office)
The combination of the capabilities of the two companies is translating in acceleration of course related to a market which is automotive and clearly is moving at the speed of the automotive, but is an acceleration of opportunities of design in and design win because we are putting together the best of the two worlds which is a very strong positioning of NXP MEMS in accelerometers where they do use, sorry for a little bit of technical but mono silicon crystals which are extremely good in terms of temperature performance for automotive and our capabilities on the six axis. So we do see that we are going to grow with NXP at faster speed than what is typically the market growth in NPX safety application. So it's going to be a contribution of the growth of the overall MEMS business. I hope I'm answering your question, Sandeep.
Sandeep Dishpandi
How much was the growth in the past couple of years in that business?
Marco Cassis (President Analog Power and Discrete MEMS and Sensor Groups and Head of ST Microelectronics Strategy System, Research and Application and Innovation Office)
Well, it was in the range around low single digit growth, which is the typical growth of safety application in automotive.
Lorenzo Grandi (President and Chief Financial Officer)
And you expect that to accelerate is what you're saying this one to accelerate? Yes, understood. Okay, maybe, maybe I take the one of the gross margin, let's say confirm and what I was saying before now the gross margin will improve starting from our 35.2 this quarter of Q2 after, let's say quarter after quarter this year,
Jean Marc Cheri (President and Chief Executive Officer)
driven by the seasonality of the revenues, the continued reduction of the unused capacity. As I said before, let's say still there will be some but reducing over the Second part of the year and then the continuing proof of the means. Clearly let's say this is our trend to the path above 40%. We said that when the company, let's say will be with the revenues above 4 billion quarterly revenues, let's say we expected to have our gross margin at 40%. After that our reshaping plan will be completed. So this is going in this direction. So what I can say today is that clearly let's say in our gross margin there is still some negative impact on this reshaping planet. Temporary negative impact due to the activity that we are doing that will be progressively go down and transform, let's say positive impact when we will start to have let's say the benefit of these programs. So yes, I confirm that at the end, let's say there will be you will see a progressive improvement in our growth marketing moving Q3 and Q4. Then of course in 2027. Thank you. Thank you. Sandy, we have time for very last question.
Lee Simpson (Equity Analyst at Morgan Stanley)
The last question for today is from Lee Simpson from Morgan Stanley. Please go ahead.
Jean Marc Cheri (President and Chief Executive Officer)
Great. Thanks everyone. Thanks for squeezing me in. Maybe just a couple of questions if I could around data center power and then on the photonic side, just on the data center power, it did look as though you were saying you've seen some design wins. It looked as though it was silicon, silicon carbide, most all of it. First stage. I just wondered if you could give us a sense for the engagements you're seeing around gallium nitride where regionally that may emerge and then maybe just on the voltage regulation side on the second stage. Anything really happening there? Certainly as we look out to 27. Thanks. So Marco will answer the detail interestingly for all of you guys and Lenny maybe what I can tell you that nicely above 500 million US dollar in 26 will be spread approximately between 40% related to analog and power and 60% related to microcontroller and radio frequency optical cable. Just for you to have the span of our revenue for 2026. And I let Marco to answer the detail.
Marco Cassis (President Analog Power and Discrete MEMS and Sensor Groups and Head of ST Microelectronics Strategy System, Research and Application and Innovation Office)
Yes for what is rated power compared to our positioning One year ago we put a major effort in expanding the portfolio to be sure that we can cover basically from grid up to driving the GPUs. And this goes through the full portfolio of ST, which is Silicon based silicon carbide with different voltages and new packages that we are introducing where we are not present. And of course the GAN, which is an important for the 800 volt where we are in sockets that I think will come to life during this year and next year. So the position overall in terms of portfolio is now much stronger than it was. And this will translate in revenues during 26, but mainly during 27. And this goes across the different ecosystem of suppliers, which means power supply makers based in many cases in Taiwan and of course the ecosystem that we have in us. So overall the trend is going through the full portfolio of st, again with a portfolio that has been expanded and now is rich and covering all the stages of the power conversion.
Lee Simpson (Equity Analyst at Morgan Stanley)
Thanks, that's very clear.
Jean Marc Cheri (President and Chief Executive Officer)
Maybe if I sort of move it on to the photonics side. It always seems, you know, ST is extremely good at getting a big lead customer, pipe cleaning a new market opportunity and creating advantages, if you like, in technology, leveraging some of the IP in house. But that transition to a standard product in the market for us always feels like the real roi where margins can be accretive. Are we seeing, when we look at the PIC and some of the engagements you have in the market, the possibility that this pic 100 becomes a standard product in the market? Thanks. Standard product. Okay. I will not classify it as a standard product. Okay, maybe application standard specific. Maybe yes. But one thing is okay, I prefer to to share with you again
Lee Simpson (Equity Analyst at Morgan Stanley)
to show how ST is and will be a reference on Silicon photonics. First of all, we are the unique company capable to provide silicon photonics technology on 12 inch. So we have the capability to increase our capacity both in Kroll and possibly later on in Agrate. So for sure ST will compete on this market largely. But to become a pure standard, you will have many innovations coming in. The optical cable and optical solution again, the near package optics, the CO package optics. All this will come and maybe faster than expected. And Silicon Photonics is a key enabler of all these technologies. That's great. Thanks so much and well done on this quarter. Thank you.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment