STMicro Is Driving Ahead to Reach Its $20 Billion Revenue Target 

Sector Director

Brian Colello

STMicroelectronics is one of Europe's largest chipmakers and holds one of the broadest product portfolios in the industry. The company has made structural improvements to its product mix and gross margin profile, which has allowed it to carve out a narrow economic moat. We think STMicroelectronics has some promising growth opportunities on the horizon in microcontrollers and automotive products, including silicon carbide-based semiconductors.

STMicroelectronics didn’t always have the best track record, regularly failing to earn robust profitability a decade ago due to investments in money-losing digital chip businesses and share loss in other chip products, among other stumbling blocks. It has turned around nicely as it exited these businesses and reduced its investments in various digital chips. Nonetheless, it is still in some highly competitive segments of the chip industry, such as commoditylike discrete chips that carry lower margins than analog chips and microcontrollers from U.S.-based peers.

Still, STMicroelectronics' leading technologies and strong position in the automotive market are reasons to be optimistic about the future, with especially promising opportunities in silicon carbide-based power products. The automotive industry is focused on safer, greener, smarter cars, which is leading to increased electronic content per vehicle. Broad-based chipmakers like STMicroelectronics stand to profit from greater demand for advanced infotainment systems, battery management solutions, and sensors associated with new safety features like blind-spot detection. Broad-based microcontroller sales also appear to be a nice growth avenue.

We anticipate decent growth and profitability improvement out of STMicroelectronics. However, we see wider moats and even more attractive product mixes and margin profiles across several pure-play U.S.-based analog chipmakers we cover.

Business Strategy & Outlook

We assign STMicroelectronics a narrow moat rating, consistent with other broad-based analog, microcontroller, and power semiconductor firms, thanks to intangible assets stemming from the firm's design expertise, as well as customer switching costs as STMicroelectronics' products are rarely ripped out once designed into a given electronics device, particularly in automotive, industrial and Internet of Things (internet-connected smart devices) applications.

STMicroelectronics is one of the largest chipmakers in Europe and a key chip supplier to the industrial and automotive end markets. The firm has an especially diversified product portfolio, from analog chips (used to process real-world signals) to microcontrollers (microcontroller units, used for simple processing in a massive range of end uses) to power semiconductors (used to switch and regulate electric voltage) to sensors (micro-electromechanical systems and digital chips used to detect objects, rotation, and so on).

The majority of STMicroelectronics' revenue comes from segments that, in our opinion, would warrant a narrow moat rating in isolation—mainly analog, digital, and automotive chips. The firm's discrete power chip business might be moaty and is potentially developing design expertise in silicon-carbide based semis, but we think the moat case is less clear cut and we would rate this business as no-moat in isolation. STMicroelectronics is a leader in MEMS and digital chips and sensors, but we consider these remaining businesses to be non-moaty given their exposure to the smartphone industry where life cycles are brief and benefits from customer switching costs are far harder to obtain.

We believe that leading MCU and analog chipmakers benefit from favorable characteristics that lend themselves to economic moats. Moats for chipmakers with analog and MCU expertise tend to come from intangible assets associated with the strength of proprietary chip designs as well as switching costs that make it difficult to swap out analog chips for competing offerings once they are designed into a given electronic device. We believe analog engineering talent is difficult to come by, as greater emphasis is placed on digital chip improvements, and it often takes years to train up-and-coming analog engineers in the intricacies of chip designs. Thus, it is extremely difficult for startups to replicate the many years of analog expertise held by incumbents. Leading analog chipmakers also face stringent quality requirements in some end markets, such as the automotive industry, for example, where defects can only be tolerated as low as one part per million. Although the analog chip market is quite fragmented, it would be difficult for any startup to achieve this level of quality while still being to satisfy high-volume production. Furthermore, analog chips tend to make up only a small portion of a product's bill of materials, so purchasing decisions tend to be based on performance rather than price, helping STMicroelectronics and its peers retain pricing power. Automotive, industrial, and communications infrastructure customers, in particular, are unlikely to choose an inferior analog chip or MCU in order to save pennies on the cost of a piece of equipment worth tens of thousands of dollars. 

Similarly, engineers are loath to swap out an analog or MCU from an existing design (again, only to save a few pennies on cost) because of the onerous redesign and retesting costs associated with the switch. With MCUs in particular, customers also become accustomed to the software and development tools used to test and design a given product. Switching to a competing MCU may involve a bit of a learning curve in the design process. One can imagine the frustration and possible reputational damage to a product if a perfectly functioning electric toothbrush or thermostat were to fail because of an unforeseen change in how the MCU or analog chip interacts with the rest of the circuit board. Again, such damages would be amplified in far more expensive equipment like cars, planes, satellites, and so on 

STMicroelectronics and its chipmaking peers tend to profit from these high switching costs by having lower ongoing research and development and capital expenditure investments than digital chipmakers, which helps to contribute to healthy returns on capital for shareholders. In particular, buyers of analog semis typically don't demand smaller chips packed with more transistors, but rather, reliable products that deliver the desired accuracy and precision in power management or signal processing. Shrinking the chip might not necessarily enhance accuracy (and might even serve to reduce it), so analog chips tend to be made with lagging edge manufacturing techniques.

Some of STMicro's peers take this benefit one step further by concentrating on end markets where product lives are measured in decades, as opposed to the increasingly short life cycles associated with consumer devices like PCs or handsets. STMicroelectronics has a decent amount of exposure in consumer devices, which is part of the reason why the firm's gross margins hover in the high 30%-40% range, rather than the 60%-plus range seen by firms like Texas Instruments or Analog Devices. Similarly, we consider the firm's products sold primarily into these markets—MEMS and digital—to be nonmoaty, even though STMicroelectronics is a leader in this space. All else equal, we are less confident in outsize economic profits from chipmakers that serve the handset and PC industries, given the shorter product life cycles, intense competition, and customer concentration as a handful of tech titans exert tremendous buying power. Yet STMicroelectronics has enough exposure to more profitable industries, like automotive and industrial, to warrant a narrow moat rating.

In silicon-based discrete power semiconductors, STMicroelectronics competes in a fragmented market where moaty firms are able to carve out a cost advantage. We view these types of chips as relatively commoditized in nature; certainly, some firms have design expertise and reputational advantages over others, but we're not convinced that any firm has sufficient intangible assets in the form of design expertise to guarantee excess returns on capital for a decade or more. However, STMicro's rivals like Infineon and Onsemi, both of which have greater overall market share than STMicro, have sufficient economies of scale advantage to warrant narrow moat ratings in power semis based on cost advantage. Given the low teens operating margins earned by STMicro's auto and discrete segment (at best), and our estimates that automotive operating margins exceed discrete power operating margins, we don't have clear-cut evidence or sufficient confidence that STMicroelectronics benefits from a cost advantage or unique design expertise in its power products today.

That said, we see signs that STMicroelectronics might be starting to benefit from moaty characteristics in certain power semis today, namely silicon carbide-based power semis. STMicroelectronics is an early leader in SiC expertise as these chips were used in niche applications. We expect the SiC market to rise exponentially in the next decade or more, given the potential for SiC semis to displace silicon-based semis in electric vehicles and industrial applications as SiC can handle higher voltages and temperatures. We believe the firm is relatively higher up the learning curve than many (but not all) of its SiC peers, and the company has a marquee design win today, selling SiC products into inverters inside of Tesla's Model 3 EVs. STMicroelectronics also captured SiC wafer manufacturing expertise via its acquisition of Norstel. Although some of STMicroelectronics' rivals are focused on SiC products as well, we think STMicroelectronics has some SiC design expertise that will be hard for upstarts to replicate. Between these intangible assets and the potential for STMicroelectronics to carve out a cost advantage as it gains scale in SiC semis, we wouldn't rule out STMicroelectronics' power semi business, as a whole, carving out a moat someday.

STMicro's returns on invested capital in prior years have been below the company's weighted average cost of capital, mainly because the firm still competed in less profitable (if not money losing) wireless baseband and digital chip business like set-top box processors that were both costly to manufacture and faced cutthroat competition. Going forward, we like STMicroelectronics' greater focus on automotive, analog, and MCU chips in particular, while power semis, especially SiC, might be less commoditylike in nature than the firm's legacy product portfolio.

Narrow

Economic Moat

STMicroelectronics NV ADR RegS

ST Ericsson was a multinational manufacturer of wireless products and semiconductors, supplying to mobile device manufacturers. ST-Ericsson was a 50/50 joint venture of Ericsson and STMicroelectronics established on 3 February 2009 and dissolved 2 August 2013. Headquartered in Geneva, Switzerland, it was a fabless company, outsourcing semiconductor manufacturing to foundry companies.

ST Ericsson

STMicroelectronics NV engages in the design, development, manufacture, and marketing of components, application-specific integrated circuits, full custom devices and semi-custom devices for analog, digital and mixed-signal applications. It operates through the following segments: Automotive and Discrete Group, Analog, MEMS and Sensors Group, and Microcontrollers and Digital ICs Group. The Automotive and Discrete Group segment is composed of all dedicated automotive ICs, and discrete and power transistor products. The Analog, MEMS and Sensors Group segment includes low-power high-end analog ICs, smart power products for industrial, computer and consumer markets, touch screen controllers, low power connectivity solutions and metering solutions for smart grid and all MEMS products. The Microcontrollers and Digital ICs Group segment deals with general purpose and secure microcontrollers, EEPROM memories, and digital ASICs. The company was founded in June 1987 and is headquartered in Plan-Les-Ouates, Switzerland.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

STMicroelectronics accelerates Edge AI adoption to help companies transform their products Announcing the ST Edge AI Suite, a comprehensive, integrated set of software and tools offering a simpler, more cost-effective way for developers and companies to embed AI-enabled ST products into industrial, automotive/mobility, consumer, communication applications ST offering developers and companies a comprehensive ecosystem with a broad range of hardware with free software and tools, supported by partnerships with cloud services and AI toolchain providers Companies of any size to benefit from unconstrained edge AI deployment, accelerating its adoption globally Geneva, Switzerland, December 6, 2023 -- STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, is introducing its comprehensive ecosystem offer for companies to transform their products with edge AI. The announcement of the ST Edge AI Suite, an integrated set of software tools free-to-use with ST hardware, takes the offer to customers one step further, enabling them to jumpstart the design and deployment of billions of connected, autonomous things embedding artificial intelligence locally.

STMicroelectronics accelerates Edge AI adoption to help companies transform their products

The latest trading day saw STMicroelectronics (STM) settling at $47.84, representing a +0.84% change from its previous close.

STMicroelectronics (STM) Rises Higher Than Market: Key Facts

STMicroelectronics collaborates with indie Semiconductor to enhance in-car wireless charging privacy and security

STMicroelectronics Announces Status of Common Share Repurchase Program Disclosure of Transactions in Own Shares – Period from Nov 20, 2023 to Nov 24, 2023 AMSTERDAM – November 27, 2023 -- STMicroelectronics N.V. (the “Company” or “STMicroelectronics”), a global semiconductor leader serving customers across the spectrum of electronics applications, announces full details of its common share repurchase program (the “Program”) disclosed via a press release dated July 1, 2021.

Correction: STMicroelectronics Announces Status of Common Share Repurchase Program

STMicroelectronics Announces Status of Common Share Repurchase Program

STMicroelectronics and ERG sign long-term agreement for the supply of electricity produced from renewable sources in Italy

STMicroelectronics:

STMicroelectronics releases long-range wireless microcontrollers for energy-efficient connectivity in smart metering, smart building, and industrial monitoring

CommScope Hld

CLAREMONT, N.C. & GENEVA--(BUSINESS WIRE)-- #IoTSecurity--CommScope and STMicroelectronics, announce the integration of PKIWorks™ IoT security platform with ST's popular STM32WB microcontroller unit.

CommScope and STMicroelectronics Make Matter Provisioning for IoT Devices Secure and Easy

CommScope and STMicroelectronics make Matter provisioning for IoT devices secure and easy Integrated solution of PKIWorks platform with STM32WB wireless microcontroller enables IoT security for Matter device development Claremont, N.C., Geneva, Switzerland – November 6, 2023 – CommScope (NASDAQ: COMM), a global leader in network connectivity,   and STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, announced today the integration of CommScope's PKIWorks™ IoT security platform with ST's popular STM32WB microcontroller unit (MCU).

CommScope and STMicroelectronics make Matter provisioning for IoT devices secure and easy

DuPont de Nemours

DuPont™ Liveo™ Healthcare and ST combine to create a new concept in wearable biosignal-monitoring devices that merges patient comfort with high performance. WILMINGTON, Del.

DuPont Collaborates with STMicroelectronics (ST) to Develop New Smart Wearable Device Concept for Monitoring Biosignals

STMicroelectronics performances were driven by the auto division, and we believe there is further upside to growth. Solid balance sheet, higher DPS expected with an ongoing buyback. The company is planning new CAPEX with diversification by product and by region. New JV signed with Sanan Optoelectronics. This company has a solid EPS growth trajectory that is too much discounted. Our buy rating is then confirmed.

STMicroelectronics: Let's Take Advantage Of A 20% Decline

STMicroelectronics N.V. (NYSE:STM ) Q3 2023 Results Conference Call October 26, 2023 3:30 AM ET Company Participants Celine Berthier - Head of Investor Relations Jean-Marc Chery - President and Chief Executive Officer Lorenzo Grandi - Chief Financial Officer Marco Cassis - President of Analog, MEMS and Sensors Group and Head of STMicroelectronics' Strategy, System Research and Applications, Innovation Office Conference Call Participants Didier Scemama - Bank of America Andrew Gardiner - Citi Joshua Buchalter - TD Cowen Sandeep Deshpande - JP Morgan Aleksander Peterc - Societe Generale Francois Bouvignies - UBS Stephane Houri - ODDO BHF Jerome Ramel - BNP Paribas Exane Simon Coles - Barclays Operator Ladies and gentlemen, welcome to the STMicroelectronics Q3 2023 Earnings Results Conference Call and Live Webcast.

STMicroelectronics N.V. (STM) Q3 2023 Earnings Call Transcript

PR No: C3210C STMicroelectronics Reports 2023 Third Quarter Financial Results Q3 net revenues $4.43 billion; gross margin 47.6%; operating margin 28.0%; net income $1.09 billion YTD net revenues $13.00 billion; gross margin 48.7%; operating margin 27.6%; net income $3.14 billion Business outlook at mid-point: Q4 net revenues of $4.30 billion and gross margin of 46% Geneva, October 26, 2023 – STMicroelectronics N.V. (“ST”) (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, reported U.S. GAAP financial results for the third quarter ended September 30, 2023.

STMicroelectronics Reports 2023 Third Quarter Financial Results

STMicroelectronics' (STM) third-quarter results are likely to reflect product portfolio strength and end-market momentum despite macroeconomic challenges.

What's in Store for STMicroelectronics (STM) in Q3 Earnings?

Analog Devices

Texas Instruments

Advanced Micro Devices

Arrow Electronics

Avnet

Intel

Microchip Technology

Micron Technology

NXP Semiconductors

Texas Instruments just sent a grim warning about the state of the semiconductor industry, and stocks across the sector are feeling the impact.

Chip stocks just got sent a big warning

STMicroelectronics protects and powers Ellipse's industry-leading battery-free dynamic card-verification micromodules for payment cards

Investors interested in stocks from the Semiconductor - General sector have probably already heard of STMicroelectronics (STM) and Texas Instruments (TXN). But which of these two stocks presents investors with the better value opportunity right now?

STM or TXN: Which Is the Better Value Stock Right Now?

STMicroelectronics (STM) is well positioned to outperform the market, as it exhibits above-average growth in financials.

3 Reasons Why Growth Investors Shouldn't Overlook STMicroelectronics (STM)

STMicroelectronics (STM) concluded the recent trading session at $43.52, signifying a +1.47% move from its prior day's close.

STMicroelectronics (STM) Surpasses Market Returns: Some Facts Worth Knowing

STMicroelectronics (STM) reachead $44.98 at the closing of the latest trading day, reflecting a +1.56% change compared to its last close.

STMicroelectronics (STM) Outperforms Broader Market: What You Need to Know

The average of price targets set by Wall Street analysts indicates a potential upside of 37.2% in STMicroelectronics (STM). While the effectiveness of this highly sought-after metric is questionable, the positive trend in earnings estimate revisions might translate into an upside in the stock.

Wall Street Analysts Think STMicroelectronics (STM) Could Surge 37.18%: Read This Before Placing a Bet

STMicroelectronics Announces Timing for Third Quarter 2023 Earnings Release and Conference Call Geneva, October 5, 2023 – STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, announced that it will release third quarter 2023 earnings before the opening of trading on the European Stock Exchanges on October 26, 2023. The press release will be available immediately after the release on the Company's website at www.st.com.

STMicroelectronics Announces Timing for Third Quarter 2023 Earnings Release and Conference Call

Investors looking for stocks in the Semiconductor - General sector might want to consider either STMicroelectronics (STM) or Texas Instruments (TXN). But which of these two companies is the best option for those looking for undervalued stocks?

STM vs. TXN: Which Stock Should Value Investors Buy Now?

Is STMicroelectronics (STM) a Solid Growth Stock? 3 Reasons to Think "Yes"

SAN JOSE, Calif.--(BUSINESS WIRE)-- #connectedsensors--InnoPhase IoT's Talaria TWO ultra low-power Wi-Fi connectivity with STMicroelectronics STM32U5 offers long battery life for sensor IoT devices.

News for STMicroelectronics NV ADR RegS Stock (STM)