STMicroelectronics N.V. Q3 FY2022 Earnings Call

Ladies and gentlemen, welcome to the STMicroelectronics Q3 2022 Earnings Results Conference Call and Live Webcast. I am Moira, the Chorus Call operator. At this time, it’s my pleasure to hand over to Celine Berthier, Group Vice President, Head of Investor Relations. Please go ahead, madam.

Thank you, Moira. Good morning. Thank you everyone for joining our third quarter financial results conference call. Hosting the call today is Jean-Marc Chery, ST’s President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, our President of Finance, Purchasing, ARM and Resilience, and our Chief Financial Officer; and Marco Cassis, our President of Analog, MEMS and Sensor Group and also Head of STMicroelectronics Strategy, System Research, and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST’s Investor Relations website. A replay will be available shortly after the provision 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 session, please limit yourself to one question and a brief follow-up. I’d now like to turn the call over to Jean-Marc, ST’s President and CEO.

Thank you, Celine. Good morning, everyone, and thank you for joining ST for our Q3 2022 earnings conference call. So, let me begin with some opening comments. Starting with Q3, Q3 net revenues of $4.32 billion and gross margin of 47.6% came in above the midpoint of our business outlook range driven by continued strong demand for our product portfolio. Year-over-year, net revenues grew 35.2%. This revenue growth was accompanied by improved profitability, gross margin at 47.6%, up from 41.6%, operating margin at 29.4%, up from 18.9%, and net income more than doubling at $1.1 billion. On a sequential basis, net revenues increased 12.6%. For the 9-month period, net revenues increased 27.2% to $11.7 billion, driven by growth in whole product groups and subgroups. We reported a gross margin of 47.3%, operating margin of 26.9%, and net income of $2.71 billion. Our fourth quarter business outlook at the midpoint is for net revenues of $4.4 billion, increasing by 23.7% year-over-year and by 1.8% sequentially, with a gross margin of about 47.3%. For the full year 2022, both revenue and gross margin expectations are in line with the plan we shared in July. The midpoint of our Q4 guidance translates into a full year 2022 revenue growth of about 26.2% to $16.1 billion with a gross margin of 47.3%. We are on track with our 2022 CapEx plan of about $3.4 billion to $3.6 billion. Now let’s move to a detailed review of the third quarter. Net revenues increased 35.2% year-over-year with growth across all product groups and subgroups. Year-over-year sales to OEMs increased 34.1% and 37.4% to distribution. On a sequential basis, net revenues increased 12.6% and were 210 basis points above the midpoint of our outlook. Gross profit was $2.06 billion, increasing 54.7% on a year-over-year basis. Gross margin of 47.6% came in 60 basis points above the midpoint of our guidance, increasing 600 basis points year-over-year mainly driven by favorable pricing and improved product mix, partially offset by inflation of manufacturing input costs. Third quarter operating income more than doubled to $1.27 billion. Operating margin was 29.4%, increasing from 18.9% in Q3 2021, with all three product groups contributing to the growth and expansion in both operating income and margin. Both net income and diluted earnings per share more than doubled year-over-year with net income reaching $1.1 billion from $474 million and diluted earnings per share increasing to $1.16 from $0.51. Looking at the year-over-year sales performance by product groups, ADG revenues increased 55.5% with growth in both automotive and in Power Discrete. EMS revenues grew 9.7% with growth in analog, MEMS, and imaging. MDG revenues increased 47.7% with growth in both microcontrollers and RF communications. In terms of operating margin, all product groups demonstrated year-over-year expansion with ADG operating margin of 25.9%, up from 10.8%. EMS operating margin of 27.2% compared to 24.3% and MDG operating margin increasing to 36.7% from 23.5%. Net cash from operating activities increased to $1.65 billion in Q3 compared to $895 million in the year ago quarter. For the 9-month period, Net cash from operating activities increased 67.6% to $3.65 billion. Free cash flow was $676 million, up from $420 million in the year ago quarter. For the 9-month period, free cash flow increased 22.6% to $988 million. During the third quarter, ST paid $55 million of cash dividends to stockholders, and we executed an $86 million share buyback under our current share repurchase program. ST’s net financial position increased to $1.46 billion at October 1 compared to $924 million at July 1, 2022, reflecting total liquidity of $4.09 billion and total financial debt of $2.63 billion. Demand for ST products continued to be strong in Q3. Our backlog still covers six to eight quarters of our planned capacity depending on the product type. Book-to-bill remains well above parity, and our manufacturing capacity is fully saturated. From an end market standpoint, automotive and the B2B part of the industrial market, namely factory automation and industrial infrastructure remains strong driven by semiconductor pervasion and structural transformation. The consumer industrial and personal electronics markets are softening. The demand for ST products remains solid in the selected areas we target in those markets. The computer peripheral market is also softening. Let’s now go into more detail on automotive. We continue to see strong demand in Q3, reflecting the combined effects of the ongoing electrification and digitalization transformation of this industry, semiconductor pervasion in legacy automotive and replenishment of inventories across the automotive supply chain. Bookings remain strong across all customers and geographies. Backlog visibility remains above 18 months and well above our current and planned manufacturing capacity through 2023. We have accelerated the transformation of the automotive industry, which continues to drive our design wins during Q3. For car electrification, we again increased the number of ongoing silicon carbide programs awarded. Between the automotive and the industrial markets, we now have 110 projects spread over 79 customers. About 60% of these projects are for automotive customers. We will achieve about $700 million of silicon carbide revenue this year, well in line with our revenue target of about $1 billion of silicon carbide revenue in full year 2023. We had new design wins in automotive application in Q3 with both silicon and silicon carbide power discrete. This includes business for an epic drive power module based on 1,200-volt silicon carbide MOSFETs and Generation 4 silicon carbide MOSFET for traction inverters projects. We also won designs for multiple electrical vehicle makers with rectifiers and protection products and with ultrafast and silicon carbide diodes. With our broader automotive portfolio, we won several sockets in electrical vehicles with solutions for battery management systems, zone control units, and car headlight control. This includes a win with our innovative data bus solution in an old lighting application that supports simpler, most cost-effective implementation of next-generation car architectures. In car digitalization, we also secured a number of design wins. This includes a smart power chip for power supply in a zone architecture vehicle control unit and components for an automotive microcontroller for a battery management system and an advanced chipset for satellite radio receivers. In our automotive sensor business, we won several new designs for 6-axis sensors and our recently announced global shutter image sensors for driver monitoring systems. Moving now to Industrial, we continue to see strong demand through the quarter, especially in business-to-business industrial with some slowdown in consumer industrial that is bringing the level of demand closer to what we can effectively sell. Demand was strong with both distribution and OEM. During Q3, we saw normalization of inventories of our products and distributors with terms averaging around 4%, totally consistent with the end market dynamics. Across the industrial market, we see two main trends driving a structural transformation in the market and accelerating the increase in semiconductor content: digitalization of devices and systems, and energy management and power efficiency improvements. We address the industrial market focusing on three areas: business-to-business, the largest part, which includes automation, power energy, and transportation; consumer industrial, which includes home appliances, smart buildings, and power tools; and specialized industrial addressing, for example, health care. Across these three areas, we had key wins, thanks to our broad portfolio. In business-to-business, we have design wins for products such as motor driver, metering and power line communication solutions, industrial power discrete, and our STM32 model processing solution, including our industrial microcontrollers and microprocessors. Applications include electrical vehicle charging stations, next-generation smart water and electricity meters, industrial lighting remote wireless monitoring, and photovoltaic systems. In Consumer Industrial, we have design wins with power, analog sensor and embedded processing products in applications such as home appliances, e-bikes, power tools, vacuum cleaners, consumer power supplies, and air conditioners. One innovative win I would like to highlight here is our high-performance STM32 H7 to perform artificial intelligence predictive in a refrigerator from a major appliance manufacturer. And in specialized industrial, I would like to highlight a win in a medical-grade remote care wearable device with an STM32 solution, supporting Bluetooth and other short-range wireless technologies. Before closing on industrial, I want to say a few words on our continued investment in building the best ecosystem around our general purpose offerings. In the quarter, we released a new version of our TouchGFX traffic interface creation tool, and we launched an update to our artificial intelligence development tools to bring support for deep learning neural networks, enabling more accurate machine learning on existing microcontrollers. Moving now to personal electronics, demand for our products in the selected areas we target in the smartphone market was again above expectations. We have a selective focus in this market on high-volume smartphone applications and personal devices. We address them with differentiated custom products while leveraging our broad portfolio. During the quarter, we won sockets in flagship smartphones and wearable devices with wireless charging solutions, motion and other motor sensors, time-of-flight ranging sensors, display controllers, and secure solutions. We also had design wins with high-performance STM32 MCUs in gaming accessories for leading console makers. In communication equipment and computer peripherals, we continue to see deployment of both 5G infrastructure products and of lower satellite programs and services around the globe. In parallel, we saw the cost peripheral market softening. The cloud market remains strong. In this end market, we target selected high-volume applications, again, with differentiated products or custom solutions while leveraging our broad portfolio. New wins here include secure solutions, time-of-flight sensors and general-purpose microcontrollers for notebook PCs and tablets. We received significant engagement based on our proprietary technologies for optical and wireless infrastructure ICs, with leading-edge mixed single processes, as well as for a CPU for space applications based on 28 FDSOI technology. I confirm our continued progress with key customer engagements in our focused applications in cellular and satellite communication infrastructure. Now let’s move to our 2022 fourth quarter outlook. For the fourth quarter at the midpoint, we expect net revenues to be about $4.4 billion representing year-over-year and sequential growth of 23.7% and 1.8%, respectively. Gross margin is expected to be about 47.3% at the midpoint. Turning to the full year, our Q4 guidance at the midpoint translates into 2022 net revenues of about $16.1 billion representing growth of about 26.2% year-over-year, with a gross margin of about 47.3%, both in line with the plan we shared in July. We confirm our 2022 CapEx reinvestment range of about $3.4 billion to $3.6 billion. Before concluding, let me briefly summarize some recent key developments related to our integrated device manufacturer model and strategy. As we outlined at our Capital Markets Day in May, we are transforming our global manufacturing operations with additional capacity in 300-millimeter manufacturing and a strong focus on silicon carbide. We have a unique position in our 300-millimeter wafer fab in Catania strengthened by the new project with GLOBALFOUNDRIES that we announced in July. We continue to invest in our new 300-millimeter wafer fab in Agrate, Italy. Here, our activities are progressing according to plan with first volume ramping in H1 2023. I am also pleased to share with you that the first production lot has been successfully released recently from our facility. 'Successfully' refers to achieving the best yield. On October 5, we announced that we will build an integrated silicon carbide substrate manufacturing facility in Catania, Italy to support the increasing demand from customers for silicon carbide devices across automotive and industrial applications. This initiative will be an important step in our silicon carbide vertical integration strategy. Production is expected to start in the second half of 2023. The investment in Catania of €730 million over 5 years will be partially supported financially by the state of Italy in the framework of the national recovery and resilience plan, and it will create around 700 direct additional jobs at full build-out. All these initiatives will contribute to our sustainability strategy and commitments. These new facilities will provide our customers with the products and solutions they need to increase energy efficiency and reduce CO2 emissions. Moreover, our new facilities will contribute to our sustainable manufacturing commitment in terms of energy consumption and greenhouse gas emissions, air and water quality. To conclude, based upon our year-to-date financial results and fourth quarter outlook, 2022 will be another year of progress for ST in line with our focus on smart mobility, power energy management, and IoT and connectivity within our core business and targeted high-growth areas. Our commitment to our integrated manufacturing model with strategic technology and manufacturing investments supports our customers’ current and future needs. Our $20 billion-plus revenue mission that we outlined at our Capital Markets Day is also on track. Thank you, and we are now ready to answer your questions.

First question is from Jerome Ramel from BNP Paribas Exane. Please go ahead.

Yes. Thank you for taking my question. Good morning. Maybe could you give us a little bit of color on the dynamic division for Q4 in terms of revenues and also an update on volumes versus pricing? That would be helpful. Thank you.

Okay, so I will give some color about the revenue growth of Q4. Clearly, in Q4, we will have automotive contributing to the growth, clearly, including power discrete. In analog, MEMS, and sensors, they are clearly impacted by the softening of the market in the computer peripheral, so they will not contribute to the growth. And MEMS are impacted by the softening of the market in personal electronics smartphone, which is Android. Imaging will grow, and on the MDG, MDG will be, let’s say, more flat because there is some growth but offset by some specific product and customer mix.

Good morning to everybody. Looking at the price dynamic in Q4, we do not expect that to have a material change in terms of pricing, I mean in both directions, both increasing or decreasing in respect to what is the pricing level that we see today in the market, and we have experienced in Q3. So I would say that in terms of dynamic, both in terms of revenues and gross margin, there is no major impact in terms of pricing. Pricing, we see quite stable, overall. In terms of dynamic of the revenues and reflecting in terms of the dynamic of the gross margin, maybe there is some impact in the mix. The mix was quite favorable in the previous quarter in Q3, and it is one of the reasons why we beat both the revenues and our midpoint in terms of gross margin. Moving from Q3 to Q4, the mix is slightly less favorable, which explains a little bit the decline in terms of gross margin.

Thank you.

Thank you very much, Jerome. Next question please, Moira.

The next question is from Matt Ramsay from Cowen & Co. Please go ahead.

Yes. Thank you very much, everybody. Good morning. Jean-Marc, I wanted to ask a couple of questions about your silicon carbide business. You were one of your key suppliers last evening in the States, Wolfspeed, had some challenges in some of the materials business that affected their own devices business volumes. But I think an important distinction is that at least in our models after talking to their management team last night, the estimates that we have in our model for their materials business that they sell to external customers, such as yourselves, those estimates actually went up. So I guess the question is just the visibility near-term on supply of silicon carbide from your key partners? And then the second part of the question is just your confidence in starting to ramp your internal supply. It sounds like you will be starting to ramp in the second half of 2023. If you could just give any color around that internal silicon carbide ramp, that would be really helpful. Thank you.

No. I can mention that, first of all, when there is a yield issue in silicon carbide, the team at ST is immediately alerted. When the root cause is amplified, the team at ST is calling the COGT. We have many exchanges with Wolfspeed during the quarter. Yes, we faced some issues but which have not acted as a limiting factor for our capability to grow our silicon carbide business in 2022, especially in H2. Again, we will deliver our target of about $700 million. More importantly, I take the opportunity to note that one-fourth of this business is not related to our major customers but is from our internal facilities. Again, this vertical integration strategy decision is still totally valid. We want to recover about 40% of our internal need. We will continue to cooperate strategically with Wolfspeed. It’s an important partner for us and another source as well. Now we are simply executing our strategy to convert the silicon carbide in high demand as soon as we can to implement innovation for optimizing usage. We are effectively executing our strategy, but it will not change our relationship with Wolfspeed.

Thank you. Jean-Marc, I really appreciate you addressing that. We got a ton of questions over the last 12 hours on that just given the nature of the space. So I really appreciate the detail there. Just as a quick follow-up, Lorenzo, I heard your comments just now on gross margin for the fourth quarter, and I get those dynamics. I guess the question I get fairly often is gross margin trends into 2023. If you could maybe talk us through some of the puts and takes there, and how you’re thinking about margins, maybe a little tiny bit of headwinds in the near-term but off of a really, really high base on a relative basis. So just how you’re thinking about margins, puts and takes into next year would be helpful. Thank you very much. Appreciate it.

For Q4, our gross margin, as we said, is planned to be in the range of 47.3%. The dynamic looking at the evolution from the previous quarter is that there are two components that go in the direction detrimental to our gross margin; one is the mix, which is a little bit less favorable than what it has been in the previous quarter in Q3. On the other side, we are progressively impacted by inflationary costs in our COGS. These are the negative components. On the other side, there is a positive one: the exchange rate is going in a positive direction. When we look at next year, there are various components. On one side, there are some positive ones that may remain. The FX is difficult to predict, but at this stage, if we stay at this level, it will play in a positive way. There is also the positive aspect that our product mix is expected to improve next year. On the other hand, we will also experience some headwinds because the inflationary cost will not disappear. Although it probably won’t increase significantly compared to this year, it will still negatively impact our gross margin. Indeed, next year, we will have the ramp-up of two 300-millimeter fabs that may not operate at their best efficiency initially. So at the end, we will have some components going in the right direction and some in the negative direction. Overall, we are currently working on our sales and operating plan for next year, so it’s a little bit early to provide a firm indication of the evolution of our gross margin. We will discuss this further entering next year when we disclose the CapEx to support it, revenue, and gross margin projections.

Thank you both for the color. Appreciate it.

Thank you, Matt. Next question please, Moira.

The next question is from Stephane Houri from ODDO BHF. Please go ahead.

Yes, good morning. Thank you for the question. Actually, I would love to talk about 2023, even though I know you are not going to give guidance for next year. But could you share with us your views, your initial views on 2023 with the order book that you have, but at the same time, the environment, which is getting more nervous? So as a CEO, how do you prepare for 2023? And how do you prepare the company for next year? The second question is about the main client. Your main client, there has been a lot of conflicting news flow during the quarter. So can you share with us what’s your vision of what’s happening there? Thank you very much.

Okay. So the situation for 2023, again, I would like to repeat what we have both in terms of data points and direct input from our customers as our relations are getting closer. On automotive, I confirm that there are basic trends. Overall, the production of light vehicles will be around 85 million this year and should grow next year. But more importantly, the electrical battery-based vehicles this year should be around 7 million and should grow to about 10 million next year. As you know, there is a factor of 4 to 5 increase in semiconductor content. So clearly, we confirm that both from a data point visibility we have in our backlog and discussions with our customers, the demand for electrical vehicles and the transformation toward electrification is calling for strong semiconductor demand. Yes, on thermal combustion engines, it is not secret that there may be some softening in the market, but the semiconductor content is still increasing, mitigating the effect. Overall, we confirm that from our perspective, the semiconductor automotive verticals will grow next year. About industrial, it follows quite a similar path because, in discussions with our customers, we see that the demand for automation, robotics, and infrastructure is very strong, driven by lessons learned from COVID and shortages of workers. The semiconductor demand in these areas is very significant, and our backlog confirms this strong dynamic. On consumer industrial, there is indeed a softening of demand as I mentioned earlier in building power tools and home appliances. However, the professional power tools market remains strong because it enhances worker productivity. If you take all these factors into account, it is clear that the overall semiconductor market is projected to grow well above the average for both 2022 and 2023. Lastly, the revenue we extracted and the value we extracted through our partnership with our main customer has been exceptional this year, keeping us precisely aligned with our goals for the year.

Any more questions?

This is what already.

Thank you very much, Jean-Marc.

Thank you very much, Stephane. Next question, Moira.

The next question is from Johannes Schaller from Deutsche Bank. Please go ahead.

Yes. Thanks for taking my question. Good morning. There are obviously a lot of questions already on the outlook from here. One of the things you haven’t really discussed too much is the pricing dynamics you’re seeing. I think in Q4, you’re not expecting a big benefit. But how do you conceptually think about pricing in your three divisions as we go into next year? Particularly on MDG, I think microcontrollers have obviously seen a very benign pricing environment and also very strong margin expansion on the back of that. How do you think about pricing here? Can you maybe help us understand a little bit better the margin expansion over the last two years in MDG, how much of that you think was pricing driven? And is there any risk of pricing actually coming down as we go into next year in some of your divisions? Thank you.

Lorenzo will take the answer, of course, but I would like to repeat what I said a few minutes ago. The pricing must be conserved versus the market. When you have automotive transformation, electrification, digitalization, and B2B industrial, demand is very strong. Microcontrollers are key components calling for more processing power, connectivity, and artificial intelligence. Pricing must be considered at the right level of granularity. In some markets, there may be pressure on pricing, but addressing microcontrollers for automotive or industrial OEMs is a different story. The pricing environment is not uniform.

Yes. Overall, in Q4, we don’t see a significant evolution in pricing when we look at the product lines, particularly microcontrollers. There may be some small pressure on low-end products, but overall, pricing appears quite stable. In 2023, we aren’t modeling a significant change in pricing. We are expecting relatively stable pricing with potential for small declines in some areas where demand is not as strong. Regarding profitability, pricing is a contributing factor but should not be undervalued alongside product mix, as the value we provide in products is continually increasing, reflecting positively in profitability.

That’s very clear. Thank you Jean-Marc. Thank you Lorenzo.

Thank you. Next question please, Moira.

The next question is from Janardan Menon from Jefferies. Please go ahead.

Hi. Good morning. Thanks for taking the questions. I was just wondering about the distribution channel right now, both in China and elsewhere. In the past, you have always talked about what you are seeing at the POS level and in channel in general. Can you give us a little bit of how that dynamic is evolving into Q4? When you talk about pockets of weakness, could that be in microcontrollers and limited areas? Would you assume that this would be coming predominantly from the channel? Have you seen any evidence of that happening so far? A small follow-up is just on your Q4 guidance; can you give us what exactly would be the impact from currency, the positive impact on currency on your Q4 gross margin? That would be very helpful.

Lorenzo will answer the last question. No, distribution in China – first of all, overall distribution is in a similar situation in terms of backlog coverage compared to the company. The backlog we have from distribution represents between six to eight quarters of Q4 revenue on it. Distribution mirrors the market dynamics. When we have distributors fully generalist addressing both automotive and industrial markets, we can see growth in POS. However, for those addressing pure consumer electronics, we currently observe stabilization, and we monitor inventory levels very closely. Regarding MDG, we have approximately 100,000 customers—many of whom are small and medium-sized businesses. In 2022, we established programs for medium-sized OEMs to support them because of the shortage we faced due to high demand from automotive and industrial B2B OEMs. I can confirm that this segment grew well above our company average in 2022, and they are expected to continue growing in 2023. Of course, small customers focusing on personal electronics may have seen some loss in market share against local providers, but this is not the primary concern for ST. The main part of the microcontroller business is thriving, especially in industrial OEMs.

At the end of the quarter, POS was growing both sequentially and year-over-year.

The effective exchange rate in Q3 was around 1.08, including hedging, while in Q4, it will be around 1.03. The positive impact we estimate on our gross margin moving from Q3 to Q4 is approximately 30 basis points. Of course, this is offset by less favorable mix and the continued increase in operational costs.

Understood. Thank you very much.

Thank you. Next question please.

The next question is from Metuku Adithya from Credit Suisse. Please go ahead.

Good morning, guys. Thank you for taking my question. So firstly, I just had a quick clarification on MDG. You said something a lot about demand softening driven by a specific customer. I didn’t quite catch that. I just wondered if you could give us a bit more clarity there? And then secondly, a question for Lorenzo just on OpEx. Firstly, I wanted to understand how do you expect all this CHIPS Act to impact your OpEx and the R&D grants you receive? And secondly, can you give us some color on the gross OpEx and the R&D grants that we should model in Q4 and into 2023, if possible? Thank you.

In terms of OpEx for the current quarter, we see an increase compared to the previous quarter. You have to keep in mind that in Q3, we were impacted by favorable seasonality in Europe due to vacations affecting our OpEx accounting. For Q4, we anticipate a quarterly expense level of around $830 million to $840 million. The overall other income and expenses should be in the range of $140 million for the year. We do not expect significant changes moving forward. There can be some volatility quarter-to-quarter due to administrative procedures in renewing grants.

Regarding microcontrollers, the demand is still very strong. We have a backlog of six to eight quarters, ensuring that our allocation is managed correctly. The customer dynamics I referenced earlier relate primarily to our consumer electronics customers through distribution, where we are carefully monitoring inventory.

We have time for one last question.

Today’s last question is from Andrew Gardiner from Citi. Please go ahead.

Hi. Good morning. Thanks for squeezing me in. Just two clarifications really. One on the OpEx comment that you just answered, Lorenzo. If I go back to what you said at Q2, then you were quite clearly guiding to between $810 million and $850 million per quarter on average for the year. Now, you are well below that. How would you characterize that shift? And sort of, where are you finding some of these savings, particularly given the inflationary environment you have already acknowledged? And then also on capacity, with the Q2 results, you also gave us a sense as to your internal capacity growth relative to foundry wafer supply. How is that at the moment in terms of how your – the kind of growth that you are seeing in terms of fourth quarter, your ability to get increased wafer supply from the foundry partners? Just an update on that would be helpful? Thank you.

I think my earlier indication on OpEx was something in the range of $810 million to $820 million in average. The visibility is slightly lower; it is not driven by any significant changes in our programs or objectives. In Q3, we were benefiting from some favorable effects in other income and expenses and favorable seasonality. So, this brings us lower than expected, partly due to our ability to forecast precisely. However, in Q4, we are back to normal.

Regarding capacity, we are increasing our capacity according to our plan. We confirmed our CapEx range of about $3.4 billion to $3.6 billion, and we increased our production value by 12.5% in Q3 compared to Q2, aligning well with revenue increase. There are challenges with equipment delivery, so there’s a balancing act as we manage current capacity and demand.

Thank you very much, guys.

Thank you. Bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.