STMicroelectronics N.V. (NYSE:STM) stock fell sharply Thursday after the chipmaker issued an underwhelming third-quarter revenue outlook, overshadowing second-quarter results that topped Wall Street expectations.
The semiconductor supplier to Apple Inc. (NASDAQ:AAPL) and Tesla Inc. (NASDAQ:TSLA) reported revenue of $3.49 billion, up 26% from a year earlier and ahead of the analyst consensus estimate of $3.38 billion, according to Benzinga Pro. Sales to original equipment manufacturers increased 23.3%, while distribution sales rose 33.1%.
Margins Improve As Profitability Recovers
Adjusted earnings were 31 cents per share, exceeding analysts’ estimate of 27 cents.
Gross margin expanded 130 basis points year over year to 34.8%, matching the midpoint of the company’s guidance, helped by lower unused-capacity charges and a more favorable product mix. Operating margin improved 1,020 basis points to 5.4%.
Net income totaled $222 million, while operating income was $187 million.
Operating income included $58 million of impairment, restructuring and phase-out costs tied primarily to the company’s manufacturing footprint and cost-reduction program, along with $24 million of purchase price accounting effects related to the acquisition of NXP’s MEMS sensor business. Excluding those items, adjusted operating income was $269 million.
STMicroelectronics Segment Performance Shows Broad-Based Growth
Revenue in the Analog, MEMS and Sensors segment rose 26% to $1.43 billion, while Embedded Processing revenue increased 35.5% to $1.15 billion.
Power and Discrete revenue grew 3.7% to $464 million, and RF & Optical Communications revenue climbed 32% to $445 million.
Boosts Cash Flow But Issues Soft Third-Quarter Outlook
Operating cash flow increased to $502 million from $354 million a year earlier. The company generated $75 million in free cash flow, compared with negative free cash flow of $152 million in the prior-year period.
STMicroelectronics ended the quarter with a net financial position of $2.01 billion, total liquidity of $6.03 billion and total financial debt of $4.02 billion.
For the third quarter, the company forecast revenue of $3.58 billion to $3.82 billion, compared with the analyst consensus estimate of $3.72 billion. It expects gross margin of about 37%, plus or minus 200 basis points.
STMicroelectronics Raises AI Data Center Revenue Forecast
CEO Jean-Marc Chery said revenue growth is expected to accelerate in the fourth quarter, supported by customer programs in AI data centers and low-Earth-orbit satellite communications. He said fourth-quarter revenue is expected to exceed $4 billion, resulting in second-half growth above the company’s typical 15% seasonal increase.
Chery also raised the company’s outlook for its AI data center business. STMicroelectronics now expects data center revenue to exceed $1 billion in 2026, up from its prior forecast of more than $500 million. If current demand continues, the company expects revenue from the segment to exceed $2 billion in 2027, compared with its previous outlook of more than $1 billion.
Optical, Automotive And Industrial Demand Strengthen
Chief Financial Officer Lorenzo Grandi said growth in 2027 will be driven by customer programs and increasing demand for optical cable connectivity. He said adoption of 800-gigabit and 1.6-terabit-per-second pluggable optics continues to accelerate.
Chery said the company secured multiple design wins across silicon photonics, optical connectivity, electronic integrated circuits, microcontrollers and silicon- and silicon-carbide-based power solutions. He added that STMicroelectronics is also seeing demand from emerging AI server customers, including companies in solar power and battery storage.
The CEO said automotive revenue exceeded expectations in the second quarter, supported by application-specific integrated circuits, sensors, electric powertrain products and advanced driver-assistance systems. He also said industrial demand improved, driven by microcontrollers, analog products and power-conversion solutions.
Chery highlighted the company’s expanded collaboration with NVIDIA Corp. (NASDAQ:NVDA) to support physical AI through microcontrollers, sensors, motor-control technologies and security solutions.
Grandi said the company’s cost-saving program is delivering expected benefits. He added that 2026 capital expenditures are now expected at the high end of the company’s $2.2 billion target, reflecting increased investment in growth areas, including cloud optical interconnects.
STMicroelectronics Price Action
STM Price Action: STMicroelectronics shares were down 17.77% at $54.07 at last check on Thursday, according to Benzinga Pro data.
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