Ladies and gentlemen, welcome to the STMicroelectronics Third Quarter 2025 Earnings Release Conference Call and Live Webcast. I am Myra, the Chorus Call operator. The conference is being recorded. 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.

Thank you, Myra. Thank you, everyone, for joining our third quarter 2025 financial result 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, Creditor and CFO; and Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensor Group and Head of STMicroelectronics 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 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 1 question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST's President and CEO.

Thank you, Jerome. Good morning, everyone. And thank you for joining ST for our Q3 2025 earnings conference call. I will start with an overview of the third quarter including business dynamics. I will then hand over to Lorenzo for the detailed financial overview, and we'll then comment on the outlook and conclude before answering your questions. So starting with Q3. We delivered revenues of $3.19 billion, $17 million above the midpoint of our business outlook range with higher revenues in Personal Electronics while Automotive and Industrial performed as anticipated, and CCP was broadly in line with expectations. All end markets, but Automotive are now back to year-on-year growth. Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within Automotive and within Industrial. Excluding impairments, gross recurring charges, and other related phase-out costs, diluted earnings per share was $0.29. During the quarter, we managed to work down inventories, both in our balance sheet and in distribution, and we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3. In Automotive, during the quarter, we grew revenues about 10% sequentially, in line with expectations, driven by all regions, except America. Our book-to-bill came above 1. We expect to grow mid-single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of growth. During the quarter, we continued to execute our strategy for car electrification. We had wins with both silicon and silicon carbide devices for electrical vehicle applications, such as traction inverter and onboard charger designs. A new application where we see silicon carbide being used is for full active suspension. Here, we have a design win with a module solution for a key Chinese electrical vehicle maker. Another key event is the switch to electronic fuses to support the land and domain architectures, both in 12 volts and 48 volts. Here, we added to our pipeline of designs for our IFUs controller with leading electrical vehicle makers and qualified our products for volume ramp-up. Other wins in the quarter included microcontrollers for DC/DC management in electrical vehicle powertrain, body control modules, and HVAC systems across multiple vehicle models. In car digitalization, we are executing our microcontroller product roadmap with a strong lineup of new solutions across both our Airbus Stellar and STM32 product families. Design-in activity continues globally with engagement from both large-scale automotive OEMs and Tier 1 suppliers. In legacy applications, we have several significant wins based on our smart power technologies in areas where we lead such as airbags, steering, and braking solutions. With our automotive brake sensors, we continue to see strong design-in momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise cancellation and door control, and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered into a definitive transaction agreement for the acquisition of NXP's MEMS sensor business for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions, including regulatory approvals, and is on track to close in H1 2026. In Industrial, revenues were in line with expectations, showing an increase of 8% sequentially and 13% year-over-year, marking a return to year-on-year growth for the first time since the third quarter of 2023. Importantly, inventories in distribution further decreased. In Q4, we expect to grow low single digits sequentially, as we continue to decrease inventories in distribution. During the quarter, we saw strong design-in activity for our Power and Analog portfolio across a range of applications. These included factory automation, medical equipment, motor control, white goods, solar inverters, and metering. We also continue to expand the use of our industrial sensors in robotics, including robots and cobots, where we see significant demand for various sensors. We also had wins in medical devices like insulin pumps and fault detectors. In Embedded Processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications with products from all parts of the portfolio from high end to wireless to specialized functions. This included power supply and optical modules for AI servers, industry automation and robotics, energy storage, metering, and goods. We have a full pipeline of new products and software coming to market in the next quarters, and you will hear more about this during our STM32 summit in November. For general-purpose microcontrollers, we grew revenues both sequentially and year-on-year, and we are on the right trajectory to return to our historical market share of about 20% to 23%. For Personal Electronics, third quarter revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, as well as increased silicon campaigns, which also translated into year-over-year growth. The further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions was marked by a new license agreement with a new partner. This new agreement broadens our capability to produce advanced meters leveraging ST's 300-millimeter semiconductor and optics manufacturing capabilities. This opened up new opportunities for smartphone applications like biometrics, LiDAR, camera access, robotic gesture recognition, and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up 4% sequentially. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high-power solutions. Although last quarter, we announced that we are working closely with NVIDIA on a new architecture for 800-volt DC AI data centers, leveraging our power solutions. By combining silicon carbide, gallium nitride, and silicon-based technologies with advanced custom design at both chip and package level, I am pleased to underline that we recently completed the full power testing on a prototype successfully demonstrating over 98% efficiency. Silicon photonics is another key technology for future data centers and AI factories. ST now has collaborative R&D programs across the full value chain with key suppliers and customers to develop high-speed optical solutions for data centers, AI, telecommunication, and automotive, from the substrate to the final product. During Q3, we have seen increased demand for photonic IC prototypes to be launched in the next quarter and beyond in our 300-millimeter wafer fab. This confirms that photonic ICs will be a revenue growth driver for ST in the future. In low earth orbit satellites, we have further strengthened our leadership position in the rapidly growing low broadband market by beginning shipments to a second global customer, leveraging our combination of bio-similar technology for front-end modules and paddle-level packaging for user terminals. Our business in this segment is well-positioned for steady growth delivered by several satellite constellations. Now over to Lorenzo, who will present our key financial figures.

Thank you, Jean-Marc, and good morning, everyone. Let's start with a detailed review of the third quarter, starting with the revenues on a year-over-year basis. By reportable segment, Analog Products, MEMS, and Sensors was up 7.0%, mainly due to imaging. Power & Discrete products decreased 34.3%. Embedded Processing revenues grew 8.7%, mainly due to general processing. RF and optical communication declined 3.4%. By end market, Industrial increased by about 13%; Personal Electronics by about 11%; Communication Equipment and Computer Peripheral by about 7%. Automotive was still decreasing by about 70% but showing some improvement compared to the 24% decline recorded in the second quarter. Year-over-year sales to OEMs decreased 5.1% while revenues from distribution increased 7.6%, marking a return to year-over-year growth for the first time since the third quarter of 2023. On a sequential basis, Power & Discrete was the only segment to decrease by 4.3%. All other segments grew, led by analog products, MEMS, and sensors up 26.6%, with Embedded Processing up 15.3%, and RF and Optical Communication up 2.4%. All our end markets grew, led by Personal Electronics, up by about 40%, followed by Automotive, up around 10%. With Industrial and Communication Equipment and Computer and Peripheral up, respectively, by about 8% and 4%. Turning now to profitability, gross profit in the third quarter was $1.06 billion, a decrease of 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points year-over-year, mainly due to lower manufacturing efficiencies, negative currency effects, lower levels of capacity reservation fees, and to a lesser extent, the combination of sales price and product mix. Total net operating expenses, excluding restructuring, amounted to $842 million in the third quarter, broadly stable on a year-over-year comparison. They were better than expected, driven by our continued cost discipline and the benefits of resizing our global cost base. For the fourth quarter of 2025, we expect to stand at about $950 million, increasing quarter-on-quarter due notably to calendar effects. This will lead the net OpEx for the full year 2025 to decline by 2.5% compared to 2024 despite unfavorable currency effects. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the third quarter, we reported $180 million operating income, which included $37 million for impairment restructuring charges and other related phase-out costs. This reflects the impairment of assets and the restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Excluding these non-recurring items, which are partially non-cash, Q3 non-U.S. GAAP operating margin was 6.8%, with Analog Products, MEMS and Sensor at 15.4%, Power & Discrete at minus 15.6%, Embedded Processing at 16.5%, and RF Optical Communication at 16.6%. This quarter, the net income for 2025 was $237 million compared to $351 million in the year-ago quarter. Diluted earnings per share were $0.26 compared to $0.37. Excluding the previously mentioned nonrecurring items, non-U.S. GAAP net income and diluted earnings per share was respectively $267 million and $0.29. Net cash from operating activity decreased 24.1% year-over-year in the third quarter to $549 million. Third-quarter net CapEx was $401 million compared to $565 million in Q3 2024. Free cash flow was a positive $130 million in the third quarter compared to the $136 million in the year-ago quarter. Inventory, at the end of the third quarter, was $3.17 billion, a reduction of about $100 million compared to the end of the second quarter. The sales of inventory at the quarter-end were 135 days, slightly better than our expectations and compared to 166 days for the previous quarter and 130 days in the year-ago quarter. Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintained its financial strength with a net financial position that remained solid at $2.61 billion as of the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth mentioning that in the course of the third quarter, we repaid in cash $750 million for the first tranche of our 2020 convertible bond. Now back to Jean-Marc, who will comment on our outlook.

Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. So we are expecting revenues of $3.28 billion, an increase of 2.9% sequentially, plus or minus 350 basis points. We expect our gross margin to be about 35%, plus or minus 200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. The midpoint of this outlook translates to full-year 2025 revenues of about $11.75 billion. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%. Finally, to optimize our investments in the current market conditions, we have reduced our net CapEx plan, now slightly below $2 billion for full-year 2025 compared to a previous range of $2 billion to $2.3 billion. To conclude, in the fourth quarter, we expect to report further sequential revenue improvement. With revenues now broadly stabilized on a year-over-year basis as well as an increased gross margin while continuing to decrease inventories in distribution. We are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint, and definitely our product mix improvement. In a context marked by signs of market recovery, our strategic priorities remain clear: accelerating innovation, executing our program to reshape our manufacturing footprint, resize our global cost base, which remains on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you, and we are now ready to answer your questions.

The first question comes from Francois Bouvignies from UBS.

My first question is on the top line. I mean, you guided plus 3% quarter-on-quarter, 2.9% to be precise. It seems to be below your seasonal at plus 7% quarter-on-quarter, if I'm not wrong. I mean you can remind us maybe the seasonality. Can you explain to us as to why you are a bit below seasonal in Q4 for the top line and the drivers? And then secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-on-quarter, how sustainable is this gross margin? I mean, if you have any seasonality, product mix, should we extrapolate this dynamic of 35% into the first half of '26? Just trying to understand the work you have done on gross margin, how sustainable it is at least in the first half of '26 would be great.

So we'll take the revenue seasonality and Lorenzo will address gross margin. On the revenue seasonality of Q4, basically, there are two effects. The first effect is on automotive. Because in automotive, even if we will grow on a quarter-over-quarter basis, year-on-year it is still down by 12%. And why is that? Because 80% of this performance gap is explained by two reasons: a decrease in our capacity reservation fees compared to last year, and overall volume from one important customer of ST in the field of electrical vehicles. So this is what is explaining why in Q4, we are below the seasonality. The second explanation for being below the seasonality in Q4 is because in Industrial, we continue to decrease inventory in distribution. So our point of purchase revenue recognition is significantly below the point of sales. However, in other verticals like Personal Electronics, Communication Equipment, Computer Peripheral, and other legacy segments in Automotive or Industrial in the field of power and energy, we are at the seasonality we expect.

About gross margin. In Q4, the gross margin, the main positive driver for our sequential increase of gross margin moving from the results of Q3 to the expectation of Q4 is clearly improved manufacturing efficiency. If you remember, in the first half and also in Q3, we were impacted by a significant negative impact on manufacturing efficiencies that was due to the very low level of production we had, especially in the first half of the year. There is also some improvement in terms of new charges. When we look to how we will move forward into the first half of next year, we have to remind that clearly, there are negative effects that will impact us moving forward. One effect is related to the fact that there will be a reduction of capacity reservation fees entering 2026. And definitely, you know that in the first half of the year, there is seasonality in terms of our revenues in respect to the second half of the year. And don't forget that there is also the negotiation of the pricing that will impact, even if we see a significant drop. We think that it will be something in the range of low single-digit to mid-single-digit decline. On the positive side, we will still have continued positive impacts on manufacturing and continue to reduce the level of saturation. At this stage, it's a little bit difficult to size the level of gross margin because it will depend also on the level of the revenues. But this is directionally the trend we will have moving into the next year.

The next question comes from the line of Joshua Buchalter from TD Cowen.

Maybe to follow up on that last one. Could you maybe spend a couple of minutes talking about how you're thinking about managing utilization rates right now? It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and/or on your balance sheet given the comments? You mentioned you're going into some negative seasonality into Q1, but it sounds like utilization rates are going to be up in the fourth quarter and the first quarter. Could you maybe just spend a couple of minutes talking about what you're seeing there?

Now for the inventory, clearly, as you have seen, we try to keep control of the level of inventory this quarter, and we think we will stay substantially stable in number of days. This is our expectation in respect to Q3. But the positive point is that entering next year, clearly, as I said, there is our seasonality, the normal seasonality that means that, generally speaking, inventory in the first half of the year is a little bit higher also in terms of number of days compared to the second half of the year. Then you have to consider that entering next year, we will start to have some decrease in terms of overall capacity, linked to the fact that we started to have some benefits coming from our reshaping of the manufacturing infrastructure. This will somehow mitigate the level of unused capacity moving into 2026. This is one of the drivers that we see in terms of progressively improving utilization rates, along with some expected growth.

I was hoping to ask about the Industrial segment. So it looks like book-to-bill went back to parity. Anything major going on there? Any geographies that are better or worse? And maybe how would you categorize the health of the general-purpose microcontroller business underneath there? Basically, should we assume sort of shipping back to normal now?

No. In Industrial, we see a different dynamic when we grow in some segments. We see growth and dynamic more pronounced for power and energy, and basically all subsegments of this one are growing. It is growing more definitively than smart industrial, which means factory automation, which is really, really soft. More than all of the industrial segments that are volume-driven, means consumer-driven, the hub cycle is pretty soft. So the takeaway we can have on the Industrial segment is that what is related to power and energy infrastructure and robotics is now in a solid upcycle. What is related to volume and consumer is a very soft upcycle. It looks like inventory is digested, but the visibility is pretty short, implying that customers are still placing orders on a short-term basis. However, our decision is to continue to manage distribution very closely and continue to adjust our point of purchase below their point of sales forecast to continue to decrease inventory. Inventory and general-purpose microcontroller came back to what we classify as normal, meaning a level of months of inventory that enable short-term business. Well, we still have some pockets of excess inventory on some specific products like Power & Discrete or sometimes general-purpose microcontrollers, but we are going in the right direction. This is the dynamic we are seeing in the industrial market.

The next question comes from Tristan Gerra from Baird.

I wanted to see how linear is the reduction in capacity reservation fees that you expect in '26 from the $150 million to $200 million reduction that you're looking at for this year. Is there a big drop in Q1? Or is it going to be pretty linear throughout all of next year?

In terms of capacity reservation fees, it works this way: substantially, the capacity reservation fees that are ruled by contract with the carmakers are quite constant over the year in terms of million dollars. But yes, you can have a little bit higher or lower during the various quarters of the year, but they are not linearly going down. They are substantially quite flat, I would say, quarter after quarter. Clearly, when the contracts expire, that is, for instance, at the end of 2025, many of these contracts will be expiring. But the reduction we will see in Q1 will remain substantially similar in the other quarters. So this is how it works.

Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of when you think point of purchase can get back in line with point of sales in Industrial next year?

Globally, our point of purchase will align with the point of sales each time our product line reaches the target of inventory we didn't want to exceed. This is a lesson we learned from the past, and now we are really disciplined on this point. So you cannot see the POP overall. We have to look at the POP in detail by product line. I repeat that our microcontroller is pretty well aligned. Our POP is driven by end demand POS and by region. I have to say that while China, APAC, and America are performing well, Europe still remains soft. For the other product lines, we are still in a mode where the POP is below the POS; however, we expect to normalize in H1 2026, most likely Q2.

Next question comes from Stephane Houri from ODDO BHF.

Yes. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and so an expectation for 2026. But what are you reducing at the moment? And how do you look at 2026 in terms of CapEx at the moment where you're transforming your tool from 200-millimeter to 300-millimeter?

We reduced the CapEx. In fact, there are two dynamics. There is a dynamic driven by where we know we want to close the 200-millimeter capacity. Of course, we need to invest the CapEx to increase the capacity at the right level in 300 and in the coal 200. But here, we have not limited the dynamic because the demand is pretty solid. The other main action is the CapEx for the 200-millimeter conversion on silicon carbide because we will close the 150-millimeter line. Here, we have limited the CapEx due to demand being below what we expected a year ago. The main impact of the capacity limitation is on silicon carbide, but it's also more spread across test assembly, where we adjust the capacity based on what we need and no more. Generally speaking, this is more adaptation to mix rather than volume increase.

Just to ask you, with the Nexperia situation, do you receive phone calls or kind of rush orders from your customer? Or do you see nothing for the moment?

No, I mean, we are sure that the carmakers and the Tier 1 of the automotive industry have clearly taken the lesson of the previous shorter period, and they have enabled many sources to prevent such issues. And of course, as other semiconductor players, STMicro is part of this process. More than that, I have no comment.

Next question comes from Didier Scemama from Bank of America.

I have a first question maybe on your inventory and related to that, what you're thinking about in terms of factory loadings for the first half. I think one of your U.S. peers already announced last week or earlier this week that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery? So I think it looks like your inventory is tracking about 30, 40, 50 days above where they used to be. So are you thinking about taking down further factory utilization in the first half, I guess.

In terms of inventory, I would say that, yes, you're right, it's a little bit higher compared to what was our historical ending of the year, that is a little bit higher. But at the end, when we look next year, I think the dynamic will continue to be controlled. The dynamic of inventory will, as usual, a little bit increase during the first half of the year before decreasing in the second part of the year. In terms of unloading factory utilization, I think that moving into 2026, there will be an improvement. However, we will continue to keep control of our inventory. This improvement is due to the expected increase in revenues as we are looking at the evolution of the market. The other element is that we start to reduce capacity in some of our fabs, specifically those we aim to progressively close by the end of 2027. So we will start to move out some equipment, which will reduce capacity and thereby mitigate the level of unused capacity.

Got it. And then I think last quarter, you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of FX headwinds and 70 basis points of related basically the manufacturing transitions from 6 to 8 and 8 to 12. Is there any of that in Q4?

No, no. Moving from Q2 to Q3, the FX was overall an impact of 140 basis points. For Q2 to Q3, around 120 basis points was the FX and approximately 20 basis points were the impact of these extra costs related to our programs. In Q4, the FX is a minor impact. It is quite stable and has a little bit of a negative because we moved from 114 to 115, which represents a range of a 20 basis point negative impact. It's not so material, while these extra costs related to the activity to reduce capacity and start moving products from one side to another is impacting our gross margin in Q4 between 30 to 40 basis points. So the total impact on gross margin is influenced by something ranging between 30 to 40 basis points of extra costs.

Understood. And just a clarification because it wasn't clear, your OpEx guide for Q4 is 915, right? It's not 950?

No, no. It's 915. This is driven by a negative calendar days impact for two reasons. The calendar is longer, and the vacation in Europe is less than what we benefit from in the previous quarter. On the other side, we will continue with our program to reduce operating expenses, which will bring us some benefits.

The next question comes from Sandeep Deshpande from JPMorgan.

My question is regarding the trends into the first quarter. I mean, you normally have a weaker first quarter, and thus would you expect the utilization rate to go down? And given all the other factors you've talked about in the earlier factors, which are there, there is a downtick associated with the capacity reservation fees. Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment? And I have a quick follow-up after that.

Yes. In terms of gross margin, it's true that in the first half, the seasonality is not favorable. Yes, there are lower capacity reservation fees. On the other side, our expectation is that the level of new budget will decrease. The decrease is not due to the aim to increase our inventory; there is some seasonality in our inventory. But the decrease is mainly driven by the fact that we start to reduce capacity. It means that we will start some transfer of equipment, which will impact our capacity and, to some extent, our unused capacity.

A follow-up to that would be whether the number of days in Q1 is shorter. Will you have any new engaged programs with your customers that could significantly improve revenue either in the first half or into the second half?

No, I confirm, Sandeep, that in Q1, Q1 will be shorter in terms of number of days than Q4. Q4 is longer in terms of days than normal 91. The calendar next year in Q1 will be shorter than the normal 91. It's a little bit the same trend that we have seen this year, let's say, in terms of calendar. So yes, I confirm that there is a shorter calendar in Q1.

Regarding Q1 of 2026, based on the current visibility of our backlog from Q3 and observations today, we don't anticipate any issues with achieving the usual revenue seasonality of Q1 compared to Q4. This typically results in being slightly above a 10% decrease. Moving forward, it will depend on market dynamics, but I would like to highlight that in the second half of 2026, we expect inventory levels to normalize. By that time, we expect no significant inventory remaining. Additionally, compared to 2025, we expect silicon carbide to grow because 2025 was a transitional year, facing specific challenges with one customer and some programs lagging in Europe, coupled with our limited presence in China. Next year, however, should bring growth across several segments with higher exposure. We are already seeing signs of growth in areas like ADAS with our major customers, which indicates potential upside, as well as in MEMS. Overall, in Q1, we do not foresee any external factors impacting seasonality. In the second half, we will experience the usual growth seasonality from H2 compared to H1. We aim to exceed this growth, noting that this year we recorded a 23% increase, against the typical 15% average for H2 versus H1. Nonetheless, we will need more bookings in Q1 and Q2 to validate these expectations. In summary, we expect several growth drivers alongside the cyclical market growth we are currently witnessing, even as the automotive and industrial sectors remain categorized as soft, with some very dynamic subsegments like infrastructure.

The next question comes from Janardan Menon from Jefferies.

I wanted to revisit the Power & Discrete business, where margins are still quite low at minus 15% in the third quarter. What could be the factors to enhance that? You mentioned that silicon carbide is expected to improve in 2026. Will most of that revenue primarily come from your Sanan JV for Chinese customers? Will this boost your overall profitability considering the low utilizations in Europe? Do you need to take additional steps to enhance profitability in Power & Discrete, given the competitive landscape in that sector? Additionally, I have a clarification regarding a previous statement. Your mention of 30 to 40 basis points of manufacturing inefficiency due to conversion and shutdowns—will that persist until you complete the transition from 200-millimeter to 300-millimeter, or will it decrease before reaching the end of that process?

So Lorenzo will comment about the improvement driver on Power & Discrete profitability. While Marco will comment on the dynamic of Power & Discrete revenue. As I have already anticipated in my last answer, clearly, silicon carbide for us in '25 is a transition period. Lorenzo?

Yes, I can take it. Clearly, well, I will let Marco explain what the drivers are. But indeed, next year, we do expect a recovery in terms of the top line due to the significant inefficiencies we have faced in our manufacturing environment for Power & Discrete in general and for silicon carbide in particular. This has resulted in working at a very low saturation level for these steps. There are several key improvement drivers we expect to positively impact profitability: having a higher level of revenues will clearly help to better load our infrastructure. And don't forget that as we move into the next generation of silicon carbide, we will also see gains in terms of profitability. Moving up in revenues will improve significantly our expense-to-sales ratio that today has clearly been impacted by low revenue levels. So these are the main drivers we see together with the fact that we are enhancing our approach to silicon carbide and its performance.

Okay. So we take on the dynamics. We will have basically two dynamics in 2026 that will start to help us grow. First of all, as Jean-Marc said, during the first half of 2026, we will continue to reduce and clean our inventory in Power & Discrete, speaking mainly about the silicon carbide portion. This will allow market dynamics next year to reset, having year-over-year growth. Specifically, regarding silicon carbide, as Jean-Marc has already anticipated, 2025 is a transition year. The revenue is impacted by lower volumes and inventory collection from our main customers. However, we are maintaining stable our commercial contractual level of market share. This is happening since the beginning of 2025. During 2025, this dynamic is not yet offset by growth in Europe and China. However, during next year, we will start seeing growth in these two regions that will subsequently help the overall growth of silicon carbide compared to 2025. I hope that this answers your question.

Thank you, everyone. This is ending our call for this quarter. Thank you for being us today, and we remain here at your disposal should you need any follow-up questions. Sorry for those of you who didn't have time to ask a question. Thank you very much.

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