STMicroelectronics N.V.
Q3 2021 Earnings Call Transcript
Published:
- Operator:
- Ladies and gentlemen, welcome to the STMicroelectronics Q3, 2021 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 is being recorded. The presentation will be followed by a Q&A session. The conference must now be recorded for publication of broadcast. At this time, it's my pleasure to hand over to Celine Berthier, Group Vice President, Investor Relations. Please go ahead, madam.
- Celine Berthier:
- Thank you Moena. Good morning everyone and thank you for joining our third quarter 2021 financial results conference call. Hosting the call today is Jean-Marc Chery, as he is President and Chief Executive Officer. Joining Jean Marc on the call today are, Lorenzo Grandy (ph), President of Finance, Divestiture and Services and Chief Financial Officer, and Marco Cassy, President of Sales, Marketing, Communication, and Strategy Development. This live webcast and presentation materials can be accessed on ST's investor relation website. A replay will be available shortly after the completion 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 for a full description of these risk factors. Also to ensure all participants have an opportunity to ask questions during the Q&A a session, please limit yourselves to one question and a brief follow-up. With this I'd now like to turn the call over to Jean-Marc, ST President and CEO.
- Jean Marc Chery:
- So good morning, everybody. And thank you for joining, for walked through tweet 2021 Earnings Conference Call. Let me begin with some opening comments. Starting with Q3. Net revenues increased 6.9% on a sequential basis to $3.2 billion. So certainly in line with the midpoint of our wealth business all through college, the revenue performance was driven by strong global human and by overall engaged customer programs intestinally electronics. This was partially offset by low volume than expected revenues in automotive caused by mostly more than reduce operation at our management manufacturing facility due to the pandemic. Our gross margin at 41.6% came in 60 basis points above the midpoint of the launch. Looking at our year over year performance, net revenues increased 19.9%. Of those margin at 41.6% and operating managing of 18.9% improved from 36% and 12.3% respectively. Our net income nearly doubled %474 million. On year-2 basis. Net revenues increases, 30 point -- 31.8% to $9.2 billion driven by growth in whole product groups except Zohydro frequency communications subgroup. While the nine months value. But we eat both to the gross margin of 40.4%. Hope assay margin of 16.7% and net income of $1.25 billion on Q4 2021 at the midpoint of our outlook, we expect network. It was in the first quarter to be about $3.4 billion representing an increase of 6.3% sequentially. Gross margin is expected to be about 43% at the midpoint, representing a sequential increase of 140 basis points. For the full year of 2021, based on the midpoint for Q4 21 guidance, we now expect full-year revenues of about $12.6 billion representing a year-over-year increase of 23.3% at the end of their launch, we provided in July. This growth is expected to be driven by continuing strong dynamics in all the end markets, we advise. And, Our 2021 Capex investment plan of about $2.1 billion remain unchanged. Now, let's move to a detailed review of the third quarter. The revenue performance was driven by strong global demand and by our engaged customer programs in Personal Electronics, partially offset by the impact of the pandemic in Malaysia. Network renewals increased 19.9% year-over-year, with annual sales in our three product groups and all subgroups except -- as expected larger Frequency Communications subgroup. Year-over-year sales to OEMs increased 9.9% 48.6% to Distribution. On the sequel showed basis net revenues increased 6.9%. Chipsoft Chevy in line with the midpoint of our outlook. This growth was mainly driven by IMS up 25.2%, and to a lesser extent, MDG up to 2.6%. While IDG decreased by 6.7% caused by mostly more than anticipated reduce operations at our Malaysian manufacturing facility due to the pandemic. Specifically, the income revenue impact into 3 related $1 million of both our initial assessment, mainly for the automotive subgroup. Gross profit was $1.33 billion, increasing 38.7% on a year-over-year basis. increases your value upto 41.6% from 36% mainly driven by manufacturing, both efficiency and better loading, as well as and more favorable pricing. These positive drivers were partially offset by negative joint effects -- net of joint effect sorry, net of aging. Our first factor gross margin was 60 basis points above the midpoint of our guidance driven by product mix. Such cluster double-counting margin was 18.9% from 12.3% in Q3 -20. With improvements in all three product groups, both net income and diluted earnings per share nearly doubled year over year respectively reaching $474 million and $0.51 from $242 million and $0.26 per share into Q3-20. Looking at the year-over-year performance, all product groups recorded double-digit growth. ADG revenues increased 18.1% on growth in Automotive and Power in Discreet. revenue increased 27.1% on higher Analog, MEMS and Imaging product sales. MDG revenue is increasing 12.9% on growth in Microcontrollers, partially offset by the expected decline in Radio Frequency Communication. Byproduct group on a year-over-year basis, all product groups showed improvements in . increased to 10.8% from 5.8%. operating margin increased to 24% from 17.5% and MDG operating margin increased to 23.9% from 17.4%. Net cash from operating activities more than doubled to $895 million in Q3. $85 million in the year-ago quarter. Capex in third quarter was $437 million compared to $390 million in the year-ago quarter. Free cash flow improved to $420 million dollar compared to a negative $25 million in Q3 -20. We exercise the call option on the heavier redemption of our 2024 tonnage B convertible bond issued in 2017. As a consequence, bond exercise the conversion rate of the total of $750 million multple amount of the bond. In the third quarter, we fully set tled this bond, delivering about 5.8 million treasury shares and paying $1.26 billion in cash, which includes the $750 million principle amount. During the third quarter, we paid $55 million of cash dividends to shareholders, and we executed $87 million share buyback in connection with our new share repurchase program initiated on July 1st of this year. Our net financial position was $7,098 million at October 2021, affecting total liquidity of $3.46 billion and total financial depth of $2.66 billion. Let's now discuss the market and business dynamics. Similar to the Second Quarter, the backdrop of strong global demand continues. We supply chain, remaining straight showing. And just overachieve bookings remains for Q3 and the backlog still covers about 18 months of demand. Demand continued to be well above your roles and planted manufacturing capacity. One of the biggest challenge in the quarter for the 3 has been the pandemic in Malaysia, a country accounting for 13% of the worldwide ship assembly testing production. This had an impact also on us. First of all, to our deepest regret, it impacted our employees and their families at our site in . Then, there was operational impact with the worsening of the situation in July and August, the impact of reduced operation while facilities in became mostly unanticipated when providing our Q3 2021 business outlook. Our website went through a period of partial or complete closure. We supported to 100% pollution capacity . Moving now to candidate classification and digitalization. In gas liquification, we added to our list of projects of Overall our engagement increased again during the quarter now with 85 ongoing programs and 70 customers equally split between industrial and automotive. I am pleased to announce that based on our strong pipeline of design wins and market dynamics. We know anticipate to reach our target of $1 billion silicon carbide renews in 2024. One year already landed. New design wins in Q3 include our Generation-3 silicon carbide MOSFET, from electrical they include climate control comp ressor. There we saw a number of electrical applications and we had success with complete multiple 3D technologies. These includes sockets for high and low-voltage silicon and microcontroller in Battery Management System . In digitalization, during the quarter, we had a number of design wins with our 32-bit automotive microcontroller family. In applications like boody domain, Smart Gateway as well as a win for chipsets in an audio - view navigation system. Although in our Automotive sounds cell business, we will showcase with automotive grade in unit across multiple applications, such as steady metrics, door control, and navigation. Moving now to Industrial, we continue to see very strong demand, both in high-end and consumer in the field and with distribution as well as whole year, in line with our broad approach in the highly-fragmented industrial market. Inventories of our products at distributors continue to be lean across all products, with high inventory sales. We processing solutions, power energy management products. And our sensor portfolio. Processing. We're continuing to strengthen our leadership through the Family offering an ecosystem. As I have mentioned before, we have a particular focus on wireless connectivity, security, and artificial intelligence. We are seeing increasing success with the world wireless product line, achieving design wins across a broad customer base. We think then support design for with additional software tools, as well as the new volumes that we've had developed bills go faster. Thank you. Shunning televisions. We released towards that at new artificial intelligence methods to a well SDN for Q2. In power and energy management, we achieved a number of wins with a our well discrete portfolio. For example, we see the CRO, gallon Bitcoin distilled and modules with IDA in low voltage MOSFET with IGBTs, and with Diodes. Applications include solar inverters, energy storage systems, adapters, home appliances, air conditioning and lighting, welding, and industrial power supplies. We also won power module for an electrical vehicle charging station . We also add many new designs with our industrial and analog products with our like motion control. Smart grid, factory automation, and appliances. We continued with business in some cell phone application such power tools and with our specialized devices, like in metals. Moving now to the Personal Electronics market. In Q3, we continued to see strong demand for smartphones and for other connected devices, including wearables, tablets, hearables, true wireless stable headsets, and game consoles. Our strategic objective in Personal Electronics is to lead in selected high-volume smartphone applications with differentiated products of custom solutions. During the quarter, we once again. The number of devices with motion code sensor, object light sensors, time-of-flight ranging sensor for laser autofocus, wireless charging products, touch display controllers and secure solution. Our second objective is to leverage our broad portfolio to address high volume application. Here, we had wins with a broad range of light, motion and environmental sensors, as well as we've analog power and microcontroller in applications such as a smartwatches, cable headset and smart shoes. We're still focused on engagements wth several leading players of our laser beam scanning solutions/augmented reality. In communcation equipment, and computer, we continue to see adoption of 5G related products, as well as assisted useness for PC, mainly for enterprise notebook. Moreover, following the recent head yields set that launches, I confirm that our programs and the homepage are on schedule. We have 3 strategic opposite TV Novod push to this end market. One is to address stricter application in cellular and satellite communication in foster chill. In this area, we were awarded new sockets in a radio frequency design we also target selected high-volume application with diesel shuttered products of custom solutions while leveraging our broad portfolio. Our wins here include, time-of-flight sensor for laptops, managed enu, unfilled foods, MCU designing, as well as the win with the world, must StealthGas family for much challenging control in a stream power adapter. Now, let's discuss the forth quarter output. For the fourth quarter, we expect net revenues to be about $3.4 billion at the midpoint, resulting a growth of 5.1% year-over-year and 6.3% sequentially. Gross margin is expected to be humble at 43% at the midpoint resulting in year over year and sequential increase of 420 basis points and 140 basis points respectively. Based upon our year-to-date results and Q4 midpoint, we do expect 2021 net revenues of about $12.6 billion at the end of the launch we provided in July. This plan will translate into year-over-year growth of 23.3% at the midpoint. Drivers of this expected growth are the continuing funding and mix in all the end markets we address and a well-engaged customer programs. To conclude a lot dosing, cluster and IEO sales plan for the full-year reflect strong yellow value over when new groups conflicting in ER, opioids in profitability. Net Income and free cash flow. Revenue growth stems from the expected continuation of strong dynamics in all the end markets we address. And our engaged customer programs. I'll wealth focus stays on customers. We continue to adapt our surplus share to support their home demand. We also continue to provide leading-edge technology and product innovation to enable smarter mobility. More efficient power and energy management. The wide-scale deployment and 5G in a more sustainable worlds. Thank you. And we are the ready to answer your question.
- Operator:
- We will now begin the question-and-answer session. . . Participants are requested to use only handsets while asking a question. . The first question is from Stephane Houri from DODO please go ahead.
- Stephane Houri:
- Yes. Good morning, everyone. Actually, I have two questions. The first one is an update because last quarter you said that end demand was more than 30% above the current supply. So can you please update this statement and comment on your feasibility for 2022 revenue growth? And the second question is about the gross margin guidance in Q4. 43% is a level that, honestly, I haven't seen for many, many years, if ever. So can you comment a little bit on the elements of this gross margin evolution, and if this level can be seen as a sustainable level going forward? Thank you very much.
- Marco Cassy:
- Thank you for the questions. So I will take the one related to the revenue perspective, and Lorenzo will take the one about the gross margin. I can confirm that for 20, 21 years, we are seeing unconstrained which we'll say, really well above our manufacturing capacity and SS plan here into launching mentioned. Things will improve next year definitively, but the gap will be still quite material. About 2022 what I can say. I think the following elements no offense. Basically, the market we sale , would be supposed to increase by 8%. Looking at the wall of backflow coverage. Again, okay, either both of the manufacturing capacity we are planning, We're planing based on the investments. We are doing and we've contributed for the fresh start next year. And the investments, we are planning for the fresh start next year, we will contribute to the,
- Jean Marc Chery:
- I can say that we are very confident that the SG will perform materially better than the markets resale for next year. And again, we will communicate, and generally the capex we intend to do for 2022 and we will provide the detailed number for the indication in a premium. But I can confirm though that we are very confident to perform much better than the market.
- Lorenzo Grandi:
- Yes, and maybe I take the second question about the gross margin, the dynamic of the gross margin. Good morning to everybody. A gross margin of 43% is our guidance for the current quarter. We see an improvement, the respected 41.6% that we post in the last quarter in Q3. And this is mainly driven by 2 elements on one side, we have still a positive price environment that is helping our gross margin. As well as, we also have improved efficiency. These especially will be in -- in our especially in our back end our plans, including, of course, at the Plenti Malaysia, anything more on running at full capacity and full efficiency. Looking at the total year, let's say if a midpoint of our Q4 guidance, the gross margin for the total year will come in the range of 41%. Moving forward, of course, our gross margin has some seasonality quarter-over-quarter. Anyway, the price environment moving into 2022, considering the backlog that we have and the situation of the business, I would say that we remain positive. And definitely we still have room for manufacturing productivity gain and, definitely, also for a better product mix moving in the next year. We have also to consider that however these increase in our cost, there is inflationary cost that are not yet the full-year reflected in our gross margin at the moment in Q4. This will progressively materialize in the next quarter. Additionally, you have also to consider that we are investing. Let's say, the investment that will increase our depreciation as of course increased production and Capex, there is a lack of time between when you can increase your production and have a full efficiency of your investment. Anyway, when I look at all these ingredients all together, I think that let's say we have moving. in the coming quarter so we definitely we have opportunity to improve our yearly gross margin, you expect to and moving in 2022. Okay. Thank you very much.
- Celine Berthier:
- Next question please.
- Operator:
- Next question is from Matt Ramsay from Cowen. Please go ahead.
- Matt Ramsay:
- Yes. Good morning, everyone. Thank you very much. I guess, just following on the margin question a little bit. And congratulations, guys. 43 is a heck of a level. I guess Lorenzo, could you walk us through a little bit more specifically what kind of driver -- or, I guess, how material is the pricing increases in your gross margin that you're seeing, and maybe what you plan for the next couple of quarters? And, I guess, the reason for the question, I get asked a lot, how much of this pricing increase that you guys are seeing right now in this environment where demand is materially better than supply, how much of that price increase do you guys think is sustainable through the cycle versus transitory? And, I guess, my second question is just on the AVG business, obviously some headwinds in Malaysia. Joe Mark, if you could talk about how you see that business recovering and potentially how quickly in the first half of the year, and maybe even in the fourth quarter? Thanks.
- Lorenzo Grandi:
- I think the one of gross margin -- when we look at the gross margin let's say for sure there is an ingredient that is as I was saying before, related to the pricing. If you want when we look at our organization of the gross margin and both if I look sequentially, even if I look the other way here, of course overall over here there are many components about that. I would say the two main drivers on one side are the price environment, on the other side is the product mix and manufacturing efficiency. These impact I would say that, all in all, when I look at, let's say the progression is more or less in the 50-50. How much is sustainable, the pricing price? I think that in short medium term, I think these situation will stay also because as I was saying before, let's say here is an inflationary environment, both from our side, let's say 2 our customers, but also let's say for our cost. I said what -- I repeat what I said before. Let's say, looking at the level of profitability in term of gross margin of this year, I think that combining together, let's say price environment, manufacturing efficiency, and also discounting, of course, on the other side, the headwinds that are mainly related to this pricing fees from our supplier, I think that there is room to progress moving year 2022, our gross margin compared to the year 2021. Of course, following some kind of seasonality that we normally have in which, let's say the gross margin in the first quarter and first half in general is a little bit lower in respect to the gross margins in the second half.
- Jean Marc Chery:
- So about the second question on Automotive, yes. I can confirm that this group will be a key contributor to the growth in Q4 for us. Just as a material for 12 thousand fee. So I mentioned during my speech that that is what we already embedded in our guidance, the impact of mural has been $100 billion, mainly impacting the Automotive product group. But what we already embedded in our guidance was $770 billion. So you see a total impact of mural $170 million on automotive, mainly on automotive product. And $0.06 on microcontroller. So now our all operation completely resume during September, all the people are vaccinated. We have let's say, in full agreement with the Malaysia n authority allocated any adult. It's a protocol to avoid any pressure on lock down and closure of the work load. So yes, okay, I am very confident that 2k ADU would be a key contributor of the gross in Q4 and next year.
- Matt Ramsay:
- Thank you very much, guys. I appreciate it.
- Celine Berthier:
- Thank you. Next question, please, Mara?
- Operator:
- The next question is from your Johannes Schaller from Deutsche Bank, please go ahead.
- Johannes Schaller:
- Thanks for taking my questions. Firstly, we have seen a few semiconductor companies talking about de -stocking of components even in this very strong demand environment. And I think that's mostly in PC and smartphone, and it relates to components that are not in tight supply but then there was restocking. But the final product that PC or the smartphone couldn't be built. Can you maybe give us a bit of an overview on, on your product portfolio if you're seeing any of such dynamics in any of your businesses for market thing you already mentioned on the distributor channel, you see very lean inventories. But maybe there are some product groups we should consider here where inventories have recovered already. And then secondly, also the market. I think you may be scared the market a little bit when you talked about flat imaging sales, about a year ago in 2022, can you now just maybe give us a quick update to better understand the dynamics in imaging and maybe also give us an idea of how that business is growing in the second half of this year compared to the second half of last year. Thank you.
- Jean Marc Chery:
- Thank you, . Thank you for your question. Now, first of all, okay, about customer electronics and computer. As you know, our strategy is to address selectively this market, a custom design solution. So you have no inventory and custom design solution as a possible because we have a better connection with our customer. And we are looking okay, we forecast and let's say the real time sales store, we have not seen any inventory change because we have no inventories. We will. You know as well that we are addressing also this market, taking opportunity of let's say great non-GAAP post-project portfolios or like MCU on power. And clearly overall on personal electronics and computer, we have no senior care let's say adjustment in the inventory pipeline. I would like to recall that even if world wide we have seen there are some fluctuation in the smartphone market or the markets related to accessories. So let's say all this kind of stuff is very dynamic, is very strong. So we have absolutely not seen that. H2 this year compared to, let's say H2 last year, there is a profiling of delivering between Q3 and Q4. Because if you remember well, last year was a little bit exceptional, mainly related to one of the measure of customer, because the program and were a little bit delayed, which was notably is a normal . This year is coming back to normal. So we have a and basically that is the reason why we share with you that our IMS Group contribute a lot on the Q3 revenue growth, both sequentially and on the year-to-year basis. In Q4, definitively this year, okay is a different profile compared to Q4 last year, while also the number of the day of the quarter is materially lower. Basically, we have 6 days less in Q4 2021 versus Q4 '20. Last but not least, I guess you have seen like me, many communications up some count down on the architecture of the system that I will not comment. That's okay. By the way quite well balance between them and modification. And I would simply to confirm that this product group will contribute the sale for the growth of the Company. We have completed, as I said a few Nutrogo as efficient opiod seeing plan of the companies for next year that we target. A medtail, you'll gross better than the markets we sale. Imaging will materially contribute to the growth. And with the visibility we have, I'm really confident that Imaging we'd be a key contributor of the all new model. Okay, that this team will disclose of the net share of our capital marketing.
- Johannes Schaller:
- That's very clear. So Marc, thank you. Just maybe one quick follow-up on the inventory question. Is there anything in automotive, even some smaller components that maybe less supply constrained, where you see any inventory slide route right now or is there really nothing in your view in the supply chain at your customers?
- Jean Marc Chery:
- The day to day life we have the -- with our customer the list of, let's say, component of fundamental to the capability of the semi-public sale to support the automotive industry is quite wide. Then the car makers and the they may just operation. And we don't know, we have not the visibility of the way they behave facing this shortage of many components for the time being, and how they prepare their Q4 and next year. But from our VBT for our whole consignment stock because we know that their business model with automotive and displeased consignment stock. And then the push out to their own supply share, we have no let's say wholesale inventory in our supply chain. If we have a slight inventory increase for SD, you simply due to the fact that In Q3, we have seen a renewal of operation facing mainly closures. We have decided to not stop wafer supply, why? Because we strongly believe that we will recover, let's say, issues during the course,of the next few months and all this welfare will be absorbed, okay, thanks to the strong demand we have from the automotive industry.
- Johannes Schaller:
- That's very helpful. Thank you so much.
- Celine Berthier:
- Thank you very much, Johannes. Next question, please
- Operator:
- The next question is from Didier Scemama from Bank of America. Please go ahead.
- Didier Scemama:
- Good morning, and thanks for taking my question. I just wanted to come back to your gross margin puts and takes. I think it was quite useful. I just want to understand one thing with regards to calendar year 2022. You're talking about inflationary pressures which I fully understand coming from your sub-contractors, materials, etc. But so far those costs have already started to come through and yet you are guiding for as far as I remember the highest gross margins since 3Q '20 -- 2000 I think you need 47% there. I recall it was thing the second and third quarter, I call it a stick. So my question to you is, when you look at '22 pricing is starting to move up for you guys or long-term contracts per week, starting to get re-priced as well, which was not the case that suspect in 2021. So in other words, for your gross margins to not be above 43% or at least well above 41%, you would have to assume that either your depreciation is going to go up massively into 2022 or that you cannot, if you want more than pass on like pass-on. Did inflationary pressures you get from your subcontractors and materials? I'm just trying to understand why -- what are the bids there that I'm missing. Yes. I think your questions is quite a big question. Yes. Of course. When I look at the dynamic of our gross managing, there are different elements as you were mentioning, on one side, for sure. The inflation on R&D costs that that we see are not fully reflected correctly in our gross -- in our current gross margin, our expectation of the gross margin, let's say. Even if also during this year, they were progressively entering in our gross margin in 2021 already because we were protected by some long-term agreements, but progressively this long-term agreements were expiring. So yes, it's true that, let's say, a portion of these inflationary costs will come inside the 2022.
- Lorenzo Grandi:
- It's even true that on the other side, we have we see positive impact on our gross margin moving in 2022 coming from product mix, coming from improvements in manufacturing, in our efficiency, in our back-end. So, this will on one side offset this negative impact. There will be seasonality during the year as I was mentioning before. And what we think and what we see looking at the next year is that our gross margin in average for the year 2022 will be, let's say, improving in respect to the average that we have in 2021. So we see, let's say still opportunity to progress in gross margin in the next year.
- Didier Scemama:
- Very well. Thank you for the details on that. I wanted to ask also a little bit about the macro-environments. And so we've seen some reports of power cuts in China. So I just wondered if you could give us a little sense of the situation on the ground over there. You said you have distribution, inventories were lean. Have you seen, any sort of negative activity or negative impact from those power cuts or any slowdown in the China economy with regards to your distribution business, or direct business with OEMs in that region?
- Stephane Houri:
- Absolutely not. I think with what happened in Malaysia, i t's but in China, absolutely not. Okay, brilliant. And then maybe one tiny one since this one was short. You said that Q4 is short by six days. Is there any sort of number you can give us for Q1? Is it a more normal quarter for Q1?
- Lorenzo Grandi:
- Yeah. So Q1 will be -- let's say, Q4, I would qualify Q4 as a normal quarter because it's 90 days. What was not really normal was like Q4 last year. That was a longer calendar base for us. This year, let's say, this quarter is 90 days and that Q1 will be similar, I think. 92 days, okay.
- Stephane Houri:
- Thank you very much.
- Operator:
- The next question is from Jerome Romel from , please go ahead.
- Jerome Romel:
- Yeah. Good morning. Chris, could you update us on the capacity coming from and also the ramp up of your own capacity specifically for I think under gallium nitride, when are we going to see these programs to become material Thank you.
- Lorenzo Grandi:
- As I said, on the non-recurring point, the support we receive from the following in H2, there are few such one as far volume are concerned is below. I already explained why because during last month, some decision h as been taken about allocation to support the automotive industry. At the treatment of the industry on market would want to come up more than that. More good news is that part of our personal batching plant of course there s one turnover manufacturing capacity and foundry commitment to us. And I can confirm that next year they will increase their support specially to ship off the loan growth on microcontroller, silicon carbide -- the silicon carbide, okay, we are -- let's say, continuing to increase the quarter-after-quarter our capacity sales in assembly in okay both for applications, PCC, modules, all packages. We continue to increase our capacity in Qatar, Kenya, and now we have doubled in Singapore. We are in close connection with our supplier so our capacity is speedily increasing with -- to ship off of very strong demand of our customers and especially, one, . Got it. Okay. You know that our strategically was to go fast on market with again, using TSMC as a foundry. So this is what we are doing. So along with you we will start to grow next year in parallel our CapEx for 2021 and 2022, there is capacity, we are building . That's will contribute to K2 revenue. More let's say 2023, 2024 and beyond.
- Matt Ramsay:
- Thank you. And maybe a follow-up just on the OpEx. How should be model OpEx for Q4? Thank you.
- Lorenzo Grandi:
- In terms of OpEx, let's say in Q4, we will see some increase in respect that to Q3 of course, there is seasonality Q3, we are benefiting of the location. Anyway, when you model the expenses, I confirm what I was saying in July. When you take the full year expenses for 2021 and you split by 4, let's say on an average of quarterly OpEx, they will stay in the range of 7 -- net OpEx, including other income and expenses and net OpEx will remain in the range of $735 -- $740 million per quarter.
- Didier Scemama:
- Thank you.
- Celine Berthier:
- Okay. Thank you very much. Is you have next question, please.
- Operator:
- The next question is from Francois Bovinet from UBS, please go ahead.
- Francois Bovinet:
- Hi, everyone. I have two small questions. The first one is coming back on the Silicon Carbide. So you talk about your capacity, which is helpful. But you also said today that you expect 1 billion, to reach in 2024 versus 2025. So I wanted to have a sense or can you explain what is driving this kind of accelerated road map? Is it one specific customer? Is it like more automotive, industrial? Anything you can give around the drivers of this accelerated pass would be helpful. And the second question is the inventory coming back to that slightly, sorry about that. You talked about the inventory situation now, but I wanted to have your view with your experience, how you see the inventories in the next quarters. Basically, how should we think about the development of these inventories given the high demand? I mean, should we expect inventories to be different by product, or inventories to increase slightly from here? Just to have your sense of how we should think about that going forward. That would be helpful. Thank you.
- Jean Marc Chery:
- Okay. First of all, you can combine -- we worked on the market data very recently, and now clearly, when you look at the component of the logical strength of the electrical vehicles is increasing a lot for the next few years of . Okay? What was expected, one year or so. First of all, the first input parameter is a data point we received from and what that acceleration of the adoption of the electric vehicles. in the next three years. By the way, I will not make any advertisement, but I guess you're aware that in September is the first vehicle, which has been sold in Europe, is an electrical vehicle. So you'll see it is a clear sign of an acceleration of electrical vehicles, okay, within the overall, let's say, plan of production forecast. So this is point number one. So our confidence level for the next few years of the market for electrical vehicle is really increasing. Then fantastically for ST, it is clear that, okay, no, we have a number of programs increasing. And then it's a mix where high volume is contributing to other news related to automotive. Well, we have already famous ongoing on gauge to pull on suite, bolt-on customer that is let's say, running very, very well. And I guess you can assess okay with the values duplication. Then there's opportunities we start to fly in the near film. And this is clearly okay from volume perspective and all the new perspective. The main driver of our one-billion-dollar revenue that we will deliver full-year in 2024. And for sure, we have we're sole as there was no contribution coming to steel market where it's more fragmented. However, from the industrial market, a loss expectation on the charging station because here we expect a strong proliferation of the charging stations everywhere in the world. In Europe, in order to support this electrical leak decrease. Then about inventory, U.S. full-size. Thank you simply what I can tell you. So inventory situation today in many supply chains is not sustainable. When you ask complex supply chain between OEM system of tier 1, tier 2, EMS, distributor, JetSuite. You cannot operate smoothly all these operations. Point number 1, if you have no inventories. Point number 2, the logistics. I guess you are really aware of that there is conjunction of -- let's say the logistics by sheet, or by book, by vote or all the big armor in the world is totally congested, but the traffic now is going to air flight. Air flight to today are basically also congested because of the prediction of number of flight in play and it is very similar. These logistic constraints increase of lead time related to the logistics, will also push all the manufacturing action in the world to increase a little bit V8 Dallas security sub-60 inventory. So for me, that's the reason why the demand off Semiconductor, which is strongly driven by some mega trends. Okay, again, the smart mobility following efficiency, connectivity, 5G?IOT, on top of logistic, which? is becoming much more constrained in the situation today of inventory, which is very, will be really a sustained. And we last okay. For material guidance.
- Matt Ramsay:
- Thank you very much.
- Celine Berthier:
- Thank you . We have time for one last question.
- Operator:
- The last question is from Sandeep Deshpande from JP Morgan. Please go ahead.
- Sandeep Deshpande:
- Hi, thanks for letting me on. My question is actually regarding your viewing to -- clearly, you've been supply-constrained this year, Malaysia issues, etc. But what your view is into looking into '22 based on your backlog, not only on your revenue front, but also in terms of being able to continue to supply. Will you continue to be supply-constrained in '22? And then the follow-up is on costs. And the cost follow-up is related to what is your depreciation in '21 and what will it be in '22? Thank you.
- Stephane Houri:
- We will come out on the position, but so far you may have not captured very well your first question.
- Celine Berthier:
- Will you add CSU centers like consent, what's delivered off the bank of France question we get in 2022.
- Stephane Houri:
- No. Yeah, it's clear that -- why do we have the completed our overall self care plan constraints. I can confirm to you that the perspective, the feedback we have today that we have constraints in equipment delivery so process equipment delivery, assembly, and debt. Basically, now if you want to have a slot for a scan I think you have to wait at this month 2022. More or less showcase our let's say, all the process tool. It's maybe a little bit shorter in demo fleet type, but not so far as somebody as well. And why hedge towards so most likely these equipment, they're also limited by semiconductor supply we have managed case, we may team that's okay. Equipment supplier for wafer fab. Is it still okay to supply while then okay material for back-end,
- Jean Marc Chery:
- the situation for swayed, for frame are quite stretched and we are in the very close distribution with our supplier allocate to provide long-term forecast, but to keep quite long term engagements. It is valid as well on, let's say, process materials, gadgets, chemicals. And that's nice to see because the demand on the 300 millimeter silicone for 2022 and 2023. is quite strong. So, as semi-conductor Company. It is clear that we have to be let's say, very building our plan. Okay, to check our full supply chain because a big mistake would be to think that we operate at infinity capacity. So it is not the case. And . So you have the full supply chain on the stretch and that's will, let's say increase capacity smoothly in 2022. And then coming back to expected situation where you will have a balanced, inventively lease time and flexibility, not before 2023. Question about the DCR in 2001. our depreciation and amortization. Mainly depreciation, I would say we are in the range of slightly above $1.05 billion. I do expect that with our plan and let's say of investment that we are doing -- we have done in 2021, and then we will continue to invest those for next year. There will be a similar increase in 2020. We add there around $900 million of depreciation that they will increase in 2022 in similar ways like before.
- Sandeep Deshpande:
- Understood. Thank you so much.
- Celine Berthier:
- Thank you very much. I think this was the last question and that will conclude our call for .
- Lorenzo Grandi:
- Thank you.
- Sandeep Deshpande:
- Thank you very much.
- Jean Marc Chery:
- Bye-bye.
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