STMicroelectronics (STM) Citi’s 2026 Global TMT Conference summary

Near-term demand and market trends

• Strong bookings and book-to-bill ratios above 1x persist across all served markets, with healthy demand trends unchanged since Q2.

• AI infrastructure, automotive, and industrial sectors show robust demand, with industrial product lead times reaching up to 50 weeks.

• Inventory levels are lean, especially compared to last year’s excess, supporting current demand.

AI data center and silicon photonics outlook

• Data center revenue is projected above $1 billion in 2026 and over $2 billion in 2027, driven mainly by connectivity products like silicon photonics and microcontrollers.

• Most 2024–2025 revenue will come from connectivity, with power flow contributions expected to become meaningful after 2028.

• Long-term agreements with customers secure capacity, volumes, and pricing, reinforcing a leading market position in silicon photonics.

• Investments in 300 mm infrastructure are planned to flexibly expand capacity, with fungibility across product lines.

Margin improvement and manufacturing reshaping

• Gross margin is currently guided at 37%, impacted by unloading charges and duplication costs, but expected to rise to the mid-40s after closing older fabs.

• Major margin gains (400+ basis points) will occur as two 200 mm and two 150 mm fabs are closed, targeted for end-2027 to early 2028, pending customer qualification.

• Progressive margin improvement will occur as extra costs diminish and manufacturing efficiency improves, but the largest step-up is tied to fab closures.