STMicroelectronics N.V. Q4 FY2024 Earnings Call

Ladies and gentlemen, welcome to the STMicroelectronics Full-Year 2024 Earnings Release Conference Call and Live Webcast. I would like to remind you that all participants have been in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead, sir.

Thank you. Thank you, everyone, for joining our fourth quarter and full-year 2024 financial results call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President and CFO; and Marco Cassis, President, Analog, Power & Discrete, MEMS & Sensors Group and Head of ST Micro Electronics Strategy System Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST results to differ materially from management 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 our 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. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO.

So thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q4 and full-year 2024 earnings conference call. So today, I will start with an overview of the fourth quarter and the full-year 2024, including business dynamics, and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your questions. So starting with Q4. In a persisting challenging environment, we achieved Q4 2024 financial results, pretty much in line with the midpoint of our guidance. Our Q4 net revenues decreased 22.4% year-over-year and increased 2.2% sequentially to $3.32 billion. Our gross margin was 37.7%. Our operating margin was 11.1% and net income was $341 million. Our Q4 net revenues were in line with the midpoint of our business outlook range, driven by higher revenues in Personal Electronics, offset by lower revenues in Industrial, while Automotive and Communication Equipment and Computer Peripherals performed as expected. Q4 gross margin was broadly in line with the midpoint of our business outlook range. Looking at the full-year 2024, net revenues decreased 23.2% to $13.27 billion, mainly driven by a strong decrease in industrial and, to a lesser extent, in automotive. Gross margin was 39.3%, down from 47.9% in full-year 2023. Operating margin was 12.6% compared to 26.7% in full-year 2023, and net income decreased 63% to $1.56 billion. We invested $2.53 billion in net CapEx while generating free cash flow of $288 million. Let's now discuss our business dynamics during Q4 and a recap of our 2024 business highlights. In Automotive, during the fourth quarter, we continued to face a slowdown, particularly in Europe, and our book-to-bill ratio remained below one. For 2024, we continue to execute our strategy, supporting the transition of the automotive industry to car electrification and digitalization. In Electrification, we won business with our power discretes and modules, both silicon and silicon carbide, as well as smart power technologies and smart fuse solutions. With Silicon Carbide products, our revenue for the year was $1.1 billion. During the year, we had multiple high-value wins with both silicon carbide devices and modules for automotive customers, including a cooperation with Ampere, as well as broadly in industrial applications. In China, which is the fastest-growing market for electrical vehicles, we have a very strong momentum in terms of design-in activities. As of today, we have more silicon carbide engagement with top Chinese carmakers than any other suppliers. In June, we announced and signed a long-term silicon carbide supply agreement with Geely Auto. We also introduced our fourth generation of silicon carbide MOSFET technology, bringing new benchmarks in power efficiency, power density, and robustness. Our automotive microcontrollers portfolio supports both electrification and digitalization. During the year, we saw continued design win momentum across applications such as software-defined vehicle architectures and car electrification systems. Important trends here are the integration of multiple ECUs into a single more powerful unit and the zonal architecture approach. During Q4, we announced a statement offering for our advanced ARM-based Stellar microcontrollers as well as a brand new service in the STM32 family designed for actuation of car body, convenience, and onboard charging applications. In ADAS, we worked closely with our long-time customer and partner Mobileye with a focus on their latest market introduction, the EyeQ6 family. The family includes the EyeQ6L designed for performance, power, and cost efficiency for level 1 and 2 driver assistance, as well as EyeQ6H, which delivers premium ADAS and full surround view functionality. In Industrial, during Q4, we continued to face a delayed recovery and inventory correction, particularly in Europe, and our book-to-bill ratio remained below one. Looking at our 2024 highlights in Power and Energy management applications, we had a broad range of design wins including in data centers, EV charging stations, renewable energy systems, white goods, and factory automation. We introduced a wide range of new products, solutions, and reference designs, also including high-performance telecom applications and AI server power supply. Another important growth opportunity around AI for ST is on top of our focus on Edge AI. In embedded processing solutions, we further strengthened our STM32 microcontroller and microprocessor families and ecosystem, introducing many new products and tools. A particular focus was on Edge AI enablement for our customers. In June, the ST Edge AI Suite came online bringing together tools, software, and knowledge to simplify and accelerate edge AI application development. In December, we made our most powerful MCU series, the STM32N6, available for broad market adoption. The series is the first to feature our proprietary neural-ART Accelerator NPU, making it possible to run computer vision, audio processing, sound analysis, and more consumer and industrial applications at the edge on a microcontroller. We also introduced an innovative smart sensor with edge AI processing for motion tracking in industrial and robotics applications. The combination of software and tools ecosystem continues to lower the barrier to entry for developers to take advantage of AI-accelerated performance for real-time operating systems. In October, we announced a new strategic collaboration with Qualcomm Technologies for the new generation of industrial and consumer IoT solutions. Together, we are integrating Qualcomm's leading wireless connectivity technologies with our STM32 microcontroller ecosystem. We also introduced the industry's first embedded SIM meeting the GSMA standard for eSIM IoT deployment to support the proliferation of secure cloud-connected autonomous things. In Personal Electronics, Q4 was slightly better than expected, while in Communication Equipment and Computer Peripheral was in line with our expectations. In Personal Electronics, during 2024, we continue to be successful with our focused approach through solid execution of engaged customer programs, securing sockets in flagship devices with differentiated products and leveraging our broad portfolio to address high volume applications. In Communications Equipment, our RF communication business delivered solid results. We continue to progress well with engaged customer programs in satellite and cellular communication infrastructure and receive orders from a new player in the LEO satellite market. Let me now share a summary of our main 2024 manufacturing initiative. In May, we announced the construction of a new high-volume 200-millimeter silicon carbide manufacturing facility in Catania, Italy, to manufacture power devices and modules, including testing and packaging, along with the silicon carbide substrate manufacturing facility on the same site. These facilities will form ST's Silicon Carbide Campus, a fully vertically integrated manufacturing hub for silicon carbide devices. In sustainability, all our strategic manufacturing initiatives are aligned with our sustainability strategy and our commitment to sustainable manufacturing in terms of energy consumption, greenhouse gas emissions, air, and water quality. We are on track to be carbon-neutral by 2027 in all direct and indirect emissions from Scope 1 and 2 and focusing on product transportation, business travel, and employee commuting emissions for Scope 3. And we are on track for our 100% renewable energy goal by 2027 as well as for other key sustainability commitments. Power purchase agreements will play a major role in our transition. Following the first ERG announcement in Q4 2023, we added two more in 2024, one in Italy with Centrica and one in Malaysia with ENGIE. You will also have noticed; we just announced another one in France with Total for 15 years. We also continue to work closely with external bodies to maintain our strong presence in the major sustainability indices. Let me close this section with a recap of our 2024 corporate development activities. ST has made a number of significant changes in the way our company is structured and operates during 2024. In January, we have done a reorganization of our product groups into two groups, split into four reportable segments, as well as the creation of a new application marketing organization by end market implemented across all regions with the existing marketing organization. In May, I was pleased to be reappointed as a member and Chairman of the Managing Board for a three-year term to expire at the end of the 2027 Annual General Meeting of Shareholders. Lorenzo was appointed as a member of the Managing Board for the same three-year term. In October, Lorenzo, President and CFO, added responsibilities to cover supply chain, corporate development, and integrated external communication in addition to finance, global procurement, digital transformation, information technology, enterprise risk management, and resilience. In October, we also announced the launch of a new company-wide program to reshape our manufacturing footprint, accelerating our wafer fab capacity to 300-mm silicon in Agrate and Crolles and 200mm silicon carbide in Catania and resizing our global cost base. This program should result in strengthening our capability to grow our revenues with an improved operating efficiency, resulting in annual cost savings in the high triple-digit million dollar range exiting 2027. Specifically, in terms of operating expenses, SG&A, and R&D, the program is now going to start and we expect annual cost savings totaling $300 million to $360 million, exiting 2027 compared to the cost base of 2024. Now over to Lorenzo, who will present our key financial figures.

Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the fourth quarter, starting with revenues on a year-over-year basis by reportable segment. Analog products, MEMS, and Sensor was down 15.5%, mainly due to decreases in analog and imaging. Power & Discrete products decreased 22.1% with a decline in both Power & Discrete. Microcontrollers revenue declined 30.2%, mainly due to general-purpose microcontroller. Digital ICs and RF products declined 22.8%, mainly due to ADAS and infotainment. By end market, Industrial declined by about 41%, Automotive by about 20%, Personal Electronics by about 17%, and Communication Equipment and Computer Peripherals increased by about 2%. Year-over-year sales decreased 19.8% to OEMs and 28.7% to distribution. On a sequential basis, revenue increased 1.1% in analog MEMS and sensors, 7.0% in microcontrollers, and 13% in digital ICs and RF, while it decreased 6.8% in Power & Discrete. By end market, Industrial grew by about 12%, Communication Equipment, Computer Peripheral by about 13%, and Automotive by about 1%, while Personal Electronics decreased by about 8%. Turning now to profitability, gross profit in the fourth quarter was $1.25 billion, decreasing 35.7% on a year-over-year basis. Gross margin was 37.7%, decreasing 780 basis points year-over-year, mainly due to an unfavorable product mix and, to a lesser extent, lower sales price and higher unused capacity charges. Total net operating expenses amounted to $884 million in the fourth quarter. This was better than anticipated, reflecting a higher level of R&D grants, a stronger dollar, as well as the continued strict monitoring of our expenses in the current market environment. Talking about net OpEx, let me give you an indication for the first quarter of 2025. In the first quarter of 2025, we expect them to stand at about $850 million. As a reminder, these amounts are net of the other income and expenses. Coming back to the fourth quarter, as a result of the fourth quarter operating income decreased 64% to $369 million. Q4 operating margin was 11.1%, down from 23.9% in the year-ago period, with analog MEMS and sensor at 14.7%, Power & Discrete at 11.9%, microcontroller at 14.3%, and digital ICs and RF at 31%. Q4 '24 net income was $341 million compared to $1.08 billion in the year-ago quarter. Earnings per diluted share were $0.37 compared to $1.14 one year ago. As a reminder, the fourth quarter of 2023 net income included a one-time noncash income tax benefit of $191 million. Looking now at our full-year 2024 financial performance, net revenue decreased 23.2% to $13.27 million by end market. On a year-over-year basis, Industrial revenues decreased 49%. Automotive was down 14%, Personal electronics declined 11%, and communication equipment and computer peripherals were down 2%. Automotive represented about 46% of our total '24 revenues, Personal Electronics about 21%, Industrial 20%; and Communication equipment, computer peripherals about 13%. By customer channel, sales to OEMs and distribution represented 73% and 27%, respectively, of the total revenues in 2024. A lower share of distribution compared to 2023 reflected the inventory correction in the industrial end market, which is mainly addressed through distributors. By region of customer origin, 40% of our 2024 revenues were from the Americas, 30% from Asia-Pacific, and 30% from EMEA. Looking at the sales performance by reportable segment, Analog MEMS and Sensor was down 13%, with all subgroups declining. Power & Discrete decreased 18.8% with a decline in both Power & Discrete. Microcontroller revenues declined 38.8%, mainly due to general-purpose microcontrollers. Digital ICs and RF products declined 16.5%, mainly due to ADAS and infotainment. In 2024, gross margin decreased to 39.3% compared to 47.9% for 2023, mainly due to product mix and, to a lesser extent, to sales price and higher unused capacity charges. In 2024, operating margin decreased to 12.6% compared to 26.7% in 2023. By reportable segment, analog products, MEMS, and sensor operating margin decreased to 14.3% from 21.7%; Power & Discrete operating margin decreased to 14.7% from 26.1%; Microcontroller operating margin decreased to 14.4% from 35.6%, and Digital ICs and RF operating margin decreased to 29.7% from the 35.6% of the previous year. Net income was $1.56 billion and earnings per share was $1.66. Net cash from operating activities decreased 50.5% in 2024, totaling $2.97 billion. Net CapEx stood at $2.53 billion in 2024, in line with our expectations compared to $4.11 billion in 2023. Free cash flow was $288 million in 2024 compared to $1.77 billion the previous year. Inventory at the end of the year 2024 was $2.79 billion compared to $2.7 billion in 2023. Day sales of inventory at year-end was 122 days, substantially in line with our expectations compared to 130 days at the end of Q3 '24, and 104 days at the end of the previous year. Cash dividends paid to stockholders in 2024 totaled $288 million. In addition, during 2024, ST executed share buybacks totaling $359 million. ST's net financial position of $3.23 billion at December 31, 2024, reflected total liquidity of $6.18 billion and total financial net debt of $2.95 billion. Now back to Jean-Marc, who will comment on our outlook.

So thank you, Lorenzo. Now let's move to our business outlook for Q1 2025. Our business environment remains challenging as we continue to face a delayed recovery and inventory correction in industrial and a slowdown in automotive, both particularly in Europe. As a result, we ended 2024 with a book-to-bill still below parity. As we indicated during our Q3 2024 results, we were expecting our Q1 2025 revenues, quarterly decline compared to Q4 2024, to be well above our normal seasonality, partly due to a lower number of calendar days as Q1 2025 has six fewer days than Q4 2024. We are confirming this trend. We expect Q1 2025 revenues at $2.51 billion, plus/minus 350 basis points at the midpoint. Our Q1 2025 net revenues will decrease by 27.6% year-over-year and 24.4% sequentially. We expect our gross margin to be about 33.8%, plus/minus 200 basis points. In terms of CapEx, in 2025, we plan to invest about $2 billion to $2.3 billion in net CapEx. So to conclude, 2024 turned out to be one of the worst years in many decades for the industries we sell, particularly in industrial and automotive. It was characterized by unexpectedly weaker head demand and higher levels of inventories, which significantly impacted ST. Coping with this reality, we had to postpone our $20 billion plus revenue ambition plan to 2030 during our Capital Market Day last November, and we set a new intermediate financial model for '27, '28. We are already engaged and determined to execute our manufacturing reshaping and cost-saving program to restore profitability compatible with our model and investing in innovation to capture the revenue growth from the secular trends we are addressing. Thank you, and we are now ready to answer your questions.

We will now begin the question-and-answer session. First question comes from Francois Bouvignies from UBS. Please go ahead.

Thanks a lot. So my question would be, I mean, given the outlook that you see in Q1 and the book-to-bill, that doesn't bring a lot of confidence at this stage, especially in terms of visibility, what should we think about the rest of the year? I mean, Jean-Marc, you said at the Capital Markets Day, you were comfortable about the consensus numbers, which has minus 3% at the time following these results. How should we think about the rest of the year and given the book-to-bill? How should we see the trend? Thank you very much.

Following the business dynamic of Q4 and specifically on automotive, we believe it's really too early to communicate our new plan for the full-year 2025. Considering again, the visibility we have in industrial and automotive. Beyond Q1, the visibility remains extremely low, except for the main engaged customer program in which we should grow beyond seasonality in H2 versus H1, but driven by content increase. For normal seasonality between Q2 and Q1 is generally speaking, flattish revenues. At this stage, we do not see any specific reason why it should be much different than the positive calendar effect means plus 3% Q2 versus Q1. However, we think it's fair to expect Q1 at the low point of 2025.

That's great. Thank you very much.

Thank you, Francois. Do you have any follow-up?

Yes. Been weakening and the channel has been fairly high. How do you see the level? I mean, do you see any evidence of strong destocking? If you can maybe disclose in the channel where you are versus a normal or if you see any light in the destocking part this quarter in Q1, and of course, Q4 as well.

I will pass the question to Lorenzo.

In terms of inventory in distribution in the quarter, we have not seen a significant destocking. Let's say, still a situation, I would say there is some excess of inventory. This excess of inventory stays in the range of one or two months, depending on the product, higher in respect of what we consider a normal situation in distribution. So at the end, still, we see excess inventory in distribution.

The only positive point is that our distributors' POS, so their wholesale increased slightly versus Q3. By geography, it has been driven mainly in Asia, while Europe and America didn't improve. However, according to the input and the visibility we have, the POS will decrease in Q1 versus Q4. So that's the reason why inventory correction is still in front of us.

Thanks.

Thank you, Francois. Sandra, next question, please.

The next question comes from Andrew Gardiner from Citi. Please go ahead.

Good morning gentlemen. Thanks for taking the question. Jean-Marc, given what you have just described in terms of despite the lack of visibility, but also your current expectation about, let's say, steady Q2. How are you planning for fab loadings and the underutilization charges? And then also, if you've got any steer on the net OpEx as we move beyond the first quarter, starting the year at 850, effectively implying zero adjusted operating profit, it would be helpful to understand what your plans are for the next couple of quarters in terms of the net OpEx as well? Thank you.

Lorenzo will take the question. What I can say also share with you immediately that in Q1, we have already taken significant closure of production days across our fabs and assembly and test plans. Then after there are a number related to unload charges and OpEx. Lorenzo will comment.

The loading this quarter reflects an impact from unloading charges exceeding 500 basis points, which is quite substantial. We also have a plan for temporarily closing several of our fabs this quarter. We expect that in Q2, unloading will continue to be significant, with a possible slight improvement over Q1, but it will still have a noticeable effect on our gross margin. As for operating expenses, we anticipate a net OpEx of around $850 million this quarter. We have initiated a program to resize our OpEx, and we expect to see initial benefits from this cost-saving program in 2025. Overall, we believe the savings program will target reductions of $300 million to $360 million over three years compared to the 2024 cost base. For 2025, we estimate a reduction in expenses between $100 million and $120 million compared to the base cost in 2024. However, it's important to consider the impact of inflation, such as salary increases. Overall, we expect net OpEx to decrease by low single digits in 2025 compared to 2024, despite anticipated lower R&D grants in 2025 than in 2024.

Do you have any follow-up?

Thank you very much. It's just slightly a separate one. It was just interested, Jean-Marc, on the comment you made regarding the visibility. I mean on the industrial side, I think that's pretty clear given the weakness you saw in the fourth quarter and what you're seeing in terms of the channel. But in 4Q automotive was, let's say, okay, was in line with your expectations. But you're also pointing out that the visibility there, looking into this year is particularly weak. What has perhaps changed for the worst? Or is it just the customers are so uncertain, they're not giving you visibility on a normal lead time? Just a bit of color around what's happening in automotive would be helpful.

No, we are fully engaged with the collaboration between car manufacturers and Tier 1 suppliers. Orders are now coming in with a visibility of two to three weeks. This is the first point. It's also evident that given the current state of the automotive industry, there are changes happening with thermal combustion engines, and a shift towards both high-end and mid-range electric vehicles, whether battery-operated or hybrid. In the first quarter, we observed a trend of inventory adjustment. This is why we indicated to the market that Q1 would be significantly lower than the typical seasonality, which is generally influenced by consumer electronics and the Chinese market due to the Lunar New Year. However, this year, it has been exacerbated by an inventory correction in the automotive sector. Looking beyond Q1, some Tier 1 suppliers have already revised their delivery forecasts, but these are still just forecasts. The visibility for pulling from consignment inventory is very short-term, and we are not insulated from potential fluctuations, which is why we are revisiting this situation.

Understood. Thanks, Jean-Marc.

Thank you, Andrew. Sandra, next question, please.

The next question comes from Didier Scemama from Bank of America. Please go ahead.

Yes, good morning. Thank you for taking my question. Jean-Marc, if you could give us an update also on the manufacturing footprint. Obviously, the company was structured for a substantially higher level of revenue. Obviously, you communicated your OpEx cuts over the next three years. Can you help us understand a little bit the rest of the OpEx or COGS, I should say, a reduction and where the manufacturing footprint will be reduced and that would be helpful. Thank you.

So Lorenzo will comment on it.

Yes, maybe I'll take this question. As you remember, at our Capital Market Day, we were indicating that we wanted to accelerate our transformation of the manufacturing footprint, accelerating our 300-millimeter. So moving from 200-millimeter for silicon to 300-millimeter and for silicon carbide from the 150-millimeter to the 200-millimeter. So this plan, of course, cannot yield a significant benefit already this year because we definitely need to move our production from existing 200-millimeter fab to the 300-millimeter fab. As we said, overall, the program is yielding, including expenses, high triple-digit, let's say, savings, what we have given to you, let's say, the sizing over the next three years in terms of expenses. And as you have seen, substantially, we think that this will come in our P&L quite evenly in the next three years. For what concern the COGS, it will mainly impact in 2026, but the significant impact will be in 2027. So the program is a program that will yield some benefits in 2026. This is working mainly, let's say, thanks to the accelerated move of the silicon carbide from 150-millimeter to 200-millimeter and will yield most of our savings in 2027.

Okay. Thank you. For my follow-up, I just wondered if you could give us an update on where you are in terms of general-purpose microcontroller market share. I think Jean-Marc, you mentioned last quarter, if I remember correctly, that about a quarter of the revenue contraction came from market share loss in China, I think in consumer. Do you have any sort of fresh thoughts on this? And I guess the question from here on is the magnitude of the decline is such that people are starting to wonder whether it's much more than a cyclical downturn. And how much market share you've actually lost in China and elsewhere. So just give us a sense of comfort level that this is cyclical and not structural.

We confirm that the main reasons for the revenue decline in 2024 compared to 2023 are primarily due to inventory correction at 60%, a lower market contributing 30%, and market share loss, particularly in the mainstream microcontroller segment in Asia, specifically China, due to increased competition affecting our EBIT. We do not anticipate changes to this situation. However, we believe we have begun to regain market share in Q4. To support this, our strategy for growth remains consistent. ST has the industry's most comprehensive hardware and software stack and an extensive ecosystem with over 1.2 million developers. Our technology roadmap is advanced, particularly at 40 nanometers, allowing us to deliver higher performance with ultra-low-power microcontrollers. We are introducing competitive solutions that stand against offerings from foundries or integrated manufacturers. We have the manufacturing capability with our 300-millimeter fab and are enhancing our microcontrollers with hardware accelerators. Our AI and connectivity solutions are also robust. We observe that developers within our ecosystem continuously optimize our portfolio. While competition in China remains intense due to new players, we are implementing a China-for-China strategy. This strategy extends beyond manufacturing to include product development, support, and business development. We are fully adapting to the microcontroller landscape in China to continue growing our market share. It's important to note that we lost 10% of market share since we prioritized mainstream 32-bit microcontrollers over low-end 8-bit models during the shortage period. We believe we will partially recover by offering competitive microcontrollers with embedded features moving forward.

Thank you. Very helpful.

Thank you, Didier. Sandra, next question.

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

Hi, good morning. Thank you for the question. I was trying to understand the potential changes in gross margin throughout this year. Lorenzo mentioned that the impact of the COGS reduction won't affect us much in 2025, and there's a 500 basis point utilization charge currently affecting us in Q1. Assuming that underutilization gets better over the year, could we be looking at a situation where by Q4 we might still be 100 to 200 basis points below the 40% level due to no other influencing factors? Or are there other elements, such as product mix or cost reductions, that could positively affect our gross margin by the end of the year?

Thank you for your question. Clearly, at this stage, it's a little bit difficult to give an indication for the gross margin, and this is also related to the fact that at this stage, our visibility on the evolution of the revenues is not yet there. But I think regarding unused capacity charges, for sure, we will have a significant level of unloading in H1. But we think it should improve in H2 benefiting from the additional content in personal electronics, which is supporting fab loading, especially loading on our 300-millimeter fabs, which are the ones that are impacting more the unloading charges as you can imagine. Clearly, the level of unloading will also depend on the magnitude of the recovery in industrial, which is another important factor. Then you have to consider that when we look, let's say, at the year now, we will have some tailwinds helping; definitely, one is the price dynamic in COGS. We have a positive impact due to the cost of energy, lower costs for our foundry. There is a stronger U.S. dollar that will gradually materialize during, let's say, the year; you know that we have not the full benefit due to our hedging policy. But assuming that the dollar stays at this level, we will see a positive impact materializing during the year. But NA will be also the mix. The mix has been one of the main detractors in 2024. Clearly, depending on the recovery in industrial, the mix will play a positive impact over the gross margin moving forward. But then we have some headwinds. One of these is the capacity reservation fees. If you remember, the capacity reservation fees will decline this year. This year will be declining by more than $200 million compared to 2024. And then we will expect price erosion. Price erosion is expected in the range of mid-single-digit. I would say these are the dynamics to quantify at this stage is a little bit complex to say.

And just on that, please continue.

If you want, I can add that we think anyway that Q1 for gross margin will be the bottom. It's fair to say that we expect that Q1 will be the bottom. So we will see progressively recovery in terms of gross margins.

And just on the last two points, the capacity reservation fee and the price erosion. The capacity reservation fee, is that a linear steady effect through the four quarters? Or is there some kind of a linearity where it improves or reduces into the second half of the year? Can you give us the same issue on price pressure? Is price pressure higher now? Is there any expectation that it could reduce in the second half if demand recovers or something like that?

In terms of capacity reservation fees, they are substantially linear over the various quarters. You may have a plus or minus, but not significant changes in the quarter. In terms of pricing, yes, Q1 is impacted on a sequential basis mainly for the renegotiation of the contract in Automotive. So it will be a step down that is not repeatable over the other quarters. So at the end, in the year, we will see price down; we expect in the mid-single-digit, which a significant portion has already been factored in already in Q1.

Okay. Can you remind us about your sensitivity to currency? What is your current formula to provide an update?

In terms of the effects, roughly we can say that it is impacting in the range of $10 million to $12 million operating income per quarter for any one percentage change in the euro-dollar impact. This is more or less impacted than you may change a little bit because there is a portion of the revenues that are in Euro, which is no hedging. But if you want roughly, this is the rule that you may consider.

Thank you very much.

Thank you, Janardan. Sandra, we have time for the last question. Thank you.

The last question comes from Stephane Houri from ODDO BHF. Please go ahead.

Thank you very much. Actually, I have a question on automotive and on the silicon carbide scenario. You made a few comments about the fact that you had some wins, notably in China. So I'd like to understand if you think you can grow this year in silicon carbide? And what would be the mix between new customers and the main customers that have been using your product? Thank you.

I won't comment on the full-year 2025 outlook for silicon carbide as we currently lack sufficient visibility. Instead, I'll let Marco discuss some specific points. Regarding silicon carbide, a key focus for us is converting our manufacturing to 8-inch as quickly as possible, which we are working on in Catania. I want to emphasize that we expect to begin production in 8-inch at Catania by the second half of 2025, partially integrated with raw materials to primarily serve the Western market. In China, we aim to start production in the first half of 2026, targeting the mini-meter, and we will be fully integrated in China with our Shenzhen facility. Similar to our approach with microcontrollers, we will implement a strategy that focuses on China for China regarding manufacturing, product development, and business support. While 2025 will be a transition year, it's premature to elaborate further. We anticipate accelerating growth in 2026, 2027, and beyond. Marco can provide additional details.

Yes, thank you, Jean-Marc. As we discussed during the Capital Market Day, our current positioning with Chinese manufacturers in the socket market is strong. Compared to our peers, we hold a solid position in this area. While it's too early to predict how this will affect our top line in 2025, especially considering the slowdown in battery electric vehicles, I want to emphasize our long-term goal of maintaining a 30% market share. Four key factors will drive this: our strong technology roadmap, including the recent introduction of Generation 4, and our manufacturing capabilities in Sanan, China, and Catania, which enable us to effectively serve both Asia and Western markets. We anticipate a recovery and growth in the EV sector beyond the transition in 2025. Additionally, we aim to expand our presence in the automotive market, as well as in industrial applications and AI data centers. I want to reiterate that our presence in the socket market within China is currently very robust.

Thank you, Stephane. Unfortunately, we don't have time for follow-up questions. So thank you, everyone. I think this is ending our call for this quarter. Thank you for attending, and we are at your disposal, should you need any follow-up questions. Sorry for the ones that didn't have time to ask the question. Thank you very much.

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