Earnings Call
STMicroelectronics N.V. (STM)
Earnings Call Transcript - STM Q3 2021
Operator, Operator
Ladies and gentlemen, welcome to the STMicroelectronics Q3, 2021 earnings release conference call, and live webcast. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Celine Berthier, Group, Vice President investor relations. Please go ahead, madam.
Celine Berthier, Group Vice President, Investor Relations
Thank you, Moira. Good morning, everyone, and thank you for joining our Third Quarter 2021 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, President of Finance, Infrastructure and Services and Chief Financial Officer, and Marco Cassis, President of Sales, Marketing, Communication, and Strategy Development. These last webcast and presentation materials can be accessed on ST Investor Relations website. The 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'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 to do this in these 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 yourselves to one question and a brief follow-up. With this, I'd now like to turn the call over to Jean-Marc as Chief President in queue.
Jean Marc Chery, President and Chief Executive Officer
Good morning, everybody, and thank you for joining ST for Q3 2021 Earnings Conference Call. Let me begin with some opening comments, starting with Q3. Net revenues increased 6.9% on a sequential basis to $3.2 billion. Somewhat in line with the midpoint of our business outlook. The revenue performance was driven by strong global demand and by overall engaged customer programs in STMicroelectronics. This was partially offset by lower-than-expected revenues in automotive caused by mostly unanticipated reduced operation at the well-managed manufacturing facility due to the pandemic. Our gross margin at 41.6% came in 60 basis points over both the midpoint of our guidance. Looking at our year-over-year performance, net revenues increased 19.9%. Our gross margin is 41.6% and operating margin of 18.9%, improved from 36% and 12.3% respectively. Our net income nearly doubled to $474 million. On a year-to-date basis, net revenue increased 31.8% to $9.2 billion, driven by growth in all product groups except the radio frequency communications subgroup. Over the 9-month period, we reported a gross margin of 40.4%, operating margin of 16.7%, and net income of $1.25 billion. For Q4 2021, at the midpoint of our outlook, we expect net revenues in the first quarter to be about $3.4 billion, representing an increase of 6.3% sequentially. Gross margin is expected to be about 43% at the midpoint, representing a sequential increase of 140 basis points. For the full-year 2021, based on the midpoint of our Q4 21 guidance, we now expect full-year revenues of about $12.6 billion, representing a year-over-year increase of 23.3% at the end of the guidance we provided in July. This growth is expected to be driven by continuing strong dynamics in all the end markets we address and a well-engaged customer program. Our 2021 Capex investment plan of about $2.1 billion remained unchanged. Now, let's move to a detailed review of the third quarter. The revenue performance was driven by strong global demand and by our engaged customer programs in personal electronics, partially offset by the impact of the pandemic in Malaysia. Net revenues increased 19.9% year-over-year, with higher sales in our three product groups, three protocols, and also subgroups, except as expected, the radio frequency communications subgroup. Year-over-year offsets to OEMs increased 9.9% and 48.6% to distribution. On a sequential basis, net revenues increased 6.9%, in line with the midpoint of our outlook. This growth was mainly driven by IMS, up 25.2%, and to a lesser extent, MDG, up 2.6%. While ADG decreased by 6.7%, due to most unexpectedly reduced operations at our Malaysian manufacturing facility because of the pandemic. Specifically, the income available revenue impact in Q3, related to the automotive subgroup, was about $100 million above our initial assessment, mainly for the automotive subgroup. Gross profit was $1.33 billion, increasing 38.7% on a year-over-year basis. Both margins increased year-over-year to 41.6% from 36%, mainly driven by manufacturing efficiency and improved product mix, as well as more favorable pricing. These positive drivers were partially offset by negative joint effects. Our third quarter total gross margin was 60 basis points above the midpoint of our guidance, driven by policies. The third quarter operating margin was 18.9%, an improvement from 12.3% in Q3 '20, with improvements in all three product groups. Both net income and diluted earnings per share nearly doubled year-over-year, reaching $474 million and $0.51 from $242 million and $0.26 per share in Q3 '20. Looking at the year-over-year performance, all product groups recorded double-digit growth. Revenues increased by 18.1% in automotive and foreign industry, EMS revenue increased by 27.1% on IR analog MEMS and imaging product sales. MDG revenue increased by 12.9% on growth in microcontrollers, partially offset by a decline in audio frequency communication. By product group on a year-over-year basis, all product groups showed improvements in operating margin. ADG operating margin increased to 10.8% from 5.8%. IMS operating margin increased to 24% from 17.5%, and MDG operating margin increased to 23.9% from 17.4%. Net cash from operating activities more than doubled to $895 million in Q3, compared to $385 million in the year-ago quarter. Capex in the third quarter was $437 million compared to $390 million in the year-ago quarter. Free cash flow improved to $420 million compared to a negative $25 million in Q3 '20. We exercised the call option on the early redemption of our 2024 Tranche B convertible bond issued in 2017. As a consequence, bondholders exercised their conversion rights on a total of $750 million, a cheaper amount of the bond. In the third quarter, we fully settled these bonds, delivering about 5.8 million treasury shares, and paying $1.26 billion in cash, which includes the $750 million principal amount. During the third quarter, we paid $55 million of cash dividends to shareholders, and we executed $87 million of share buyback in connection with our new share repurchase program initiated on July 1st of this year. Our net financial position was $798 million at October 31, 2021, making total liquidity of $3.46 billion and total financial debt of $2.66 billion. Let's now discuss the market and business dynamics. Similar to the second quarter, the backdrop of strong global demand continued, with supply chains remaining strained. In automotive, bookings remain at 40 to 3, and the backlog still covers about 18 months of demand. Demand continued to be well above our accruals and planned manufacturing capacity. One of the biggest challenges for the automotive industry has been the pandemic situation in Malaysia, a country accounting for 13% of the worldwide ship assembly testing production. This had an impact also on us. First of all, to our deepest regret, it impacted our employees and their families at our site in Milan. Then there was the operational impact. With the worsening situation in July and August, the impact of reduced operation in our facilities in Milan became more significant than anticipated when providing our Q3 2021 business outlook. Our site went through a period of partial or complete closure but returned to 100% production capacity during Q3. Moving now to advanced technology and digitalization. We added new projects to our list during the quarter. Overall, our engagement increased again, now with 85 ongoing programs and 70 customers equally split between industrial and automotive. I am pleased to announce that based on our strong pipeline of design wins and market dynamics, we now anticipate reaching our target of $1 billion in advanced technology revenue in 2024, one year earlier than intended. New design wins in Q3 include our Generation-3 silicon carbide MOSFET for electrical vehicle climate control compressors. There were also other electrical vehicle applications where we had success, showcasing our technology. These include sockets for high and low-voltage silicon MOSFET, and microcontrollers in battery management systems, traction inverters, MOSFET inverters, onboard chargers, and DC-to-DC converters in electrical vehicle battery packs. In digitalization during the quarter, we achieved several design wins with our 32-bit automotive microcontroller family in applications like body domain, smart gateways, and our chipsets in audio navigation systems. In our automotive sound cell business, we showcased automotive-grade initial asymmetry across multiple applications such as telematics and navigation. Moving now to industrial, we continue to see very strong demand, both in high-end consumer fields, and distribution as well as whole markets in line with our approach to a fragmented industry. Inventories of our products at distributors continue to be lean across all product families with high inventory turns. We address the industrial end-markets with management and secure processing solutions—power and energy management products, and our sensor portfolio. We are continuing to translate our leadership in the STM32 Family, offering a robust ecosystem. As I mentioned before, we are particularly focused on wireless connectivity, security, and artificial intelligence. We are seeing increasing success with the STM32 wireless product line, achieving design wins across a broad customer base. We strengthened support for wireless designs with additional software tools, as well as new modules that help developers move faster. We released tools that add new artificial intelligence methods to our STM32 Q year. In energy management, we achieved numerous wins with our power discrete portfolio. For example, with silicon carbide transistors and modules, high- and low-voltage silicon MOSFETs, IGBTs, and diodes. Applications include solar inverters, energy storage systems, power adapters, home appliances, air conditioning, lighting, welding, and industrial power supplies. We also won a 1,200 SIC based power module for an electrical vehicle charging station. In the third quarter, we also had many new designs with our industrial analog products for applications like motion control, smart grids, factory automation, and home appliances. We continue to win business in various industrial applications such as power tools and specialized devices like inclinometers. Moving now to the electronics market. In Q3, we continued to see strong demand for smartphones and other connected devices, including wearables, tablets, earbuds, wireless stable headsets, and game consoles. Our first strategic objective in personal electronics is to lead in selected high-volume smartphone applications with differentiated products and custom solutions. During the quarter, we worked on a number of devices with motion control, ambient light sensors, time-of-flight ranging sensors, wireless charging products, touch display controllers, and secure solutions. Our second objective is to leverage our broad portfolio to address high-volume applications. Here, we had wins with a broad range of light, motion, and environmental sensors, as well as with analog power and microcontrollers in applications such as smartwatches, wearables, and smart tools. We're busy engaging with several leading players for our laser beam scanning solutions for Augmented Reality. In communication equipment and computer peripherals, we continue to see adoption of 5G-related products, mainly for enterprise notebooks, following the recent satellite launches. I can confirm that our programs are on schedule. We have three strategic objectives in our approach to this end market. The first is to address structured applications in cellular and satellite communication infrastructure, with our new circuits in radio frequency designs for satellites. We also target selected high-volume applications with differentiated products and custom solutions while leveraging our broad portfolio. Our wins here include time-of-flight sensors for laptops and general-purpose microcontroller designs for smart charging control in ultra-slim power adapters. Now, let's discuss the Fourth Quarter outlook. For the Fourth Quarter, we expect net revenue to be about $3.4 billion at the midpoint, with growth of 5.1% year-over-year and 6.3% sequentially. Gross margin is expected to be about 43% at the midpoint, with year-over-year and sequential increases of 420 and 140 basis points respectively. Based on our research and Q4 midpoint, we do expect 2021 net revenues of about $12.6 billion at the high end of the guidance we provided in July. These plans will translate into year-over-year growth of 23.3% at the midpoint. Drivers of this expected growth include the continuing strong dynamics in all end markets we address and our engaged customer programs. To conclude, our research cluster and IO sales plan for the full year reflects strong year-over-year revenue growth, higher operating profitability, net income, and free cash flow. Revenue growth stems from the expected continuation of strong dynamics in all end markets we address and our engaged customer programs. Our focus remains on our customers. We continue to adapt our supply chain to support their strong demand. We also continue to provide leading-edge technology and product innovation to enable smarter mobility, more efficient power and energy management, with wide-scale deployment of IoT and 5G, and a more sustainable world. Thank you, and we are ready to answer your questions.
Operator, Operator
We will now begin the question-and-answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question. Anyone who has a question or comment may press star and one at this time. First question is from Stephane Houri from OODO, please go ahead.
Stephane Houri, Analyst
Yes, good morning everyone. Actually, I have two questions. The first one is an update because last quarter you basically said that demand is more than 30% above the current supply. Can you please update this statement and comment on your visibility for 2022 revenue growth? And the second question is about the Gross Margin guidance in Q4, 43% is at a level that honestly I haven't seen for many years, if ever. So, can you comment a little bit on the elements of this Gross Margin evolution and if this level can be seen as a sustainable level going forward? Thank you very much.
Marco Cassis, President of Sales, Marketing, Communication, and Strategy Development
Thank you for the question. I will take the one related to Q3, and Lorenzo will take the one about the gross margin. I can confirm that, for 2021, we are seeing an unconfirmed demand that is really well above manufacturing capacity and sales plans mentioned. Things will improve next year, definitely, but the gap will be quite material. About 2022 what I can say is that the market we serve will be expected to increase by 8%. Looking at the backlog coverage, it's above the manufacturing capacity we are planning based on the investment we are currently doing, and we will contribute for the first quarter next year. The investment we are planning for the first half of next year will contribute in the second half, and I can say that we are very confident that ST will perform materially better than the market we sell on next year. Again, we will communicate in January the Capex we intend to do for 2022 and provide the detailed number for year indication in our freedom, but I can confirm that we are very confident to perform much better than the market we sell.
Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer
Yes, maybe, I take the second question about the gross margin, the dynamic about the gross margin. Good morning everyone. A gross margin of 43% is our guidance for the current quarter, and we will see an improvement compared to the 41.6% that we achieved in Q3. This is mainly driven by two elements: on one side, we have a positive price environment that is helping our gross margin, and we also have improved efficiency, especially in both front end and especially in our back end. All our plants, including of course the plant in Malaysia, are running at full capacity and fully efficiently. Looking at the midpoint of our Q4 guidance for the gross margin for the total year, it will come in the range of 41%. Moving forward, our gross margin has some seasonality quarter over quarter. However, considering the price environment moving into 2022, given the existing dynamics of the business, I would say that they remain positive, and we still have room for manufacturing productivity gains and also for a better product mix moving into the next year. We have also considered that there is an increase in our cost inflationary pressures that are not yet fully reflected in our gross margin at the moment in Q4. This will progressively materialize in the next quarter. Additionally, you have to consider that we are investing, and these investments will increase our depreciation. Of course, with increased production there's a lack of time between when you can increase your production and have full efficiency of your investments. Anyway, when I look at these ingredients together, I think that we have an opportunity to improve our yearly gross margin in respect to 41 as we move into 2022.
Stephane Houri, Analyst
Okay. Thank you very much.
Celine Berthier, Group Vice President, Investor Relations
Next question, please.
Operator, Operator
Next question is from Matt Ramsay from Cowen, please go ahead.
Matt Ramsay, Analyst
Yes. Good morning, everyone. Thank you very much. Just following on the margin question a little bit, and congratulations guys, 43 is a heck of a level. I guess, Lorenzo, could you walk us through a little bit more specifically, what kind of driver or I guess how material is the pricing increases in your gross margin that you're seeing? And maybe what you plan for the next couple of quarters. I guess the reason for the question I get asked a lot is how much of this pricing increase that you guys are seeing right now in this environment where demand is materially better than the supply. How much of that price increase do you guys think is sustainable through the cycle versus transitory? And I guess my second question is just on the ATG business. Obviously, some headwinds in Malaysia. Jean-Marc, if you could talk about how you see that business recovering and potentially how quickly in the first half of the year and maybe even in the fourth quarter. Thanks.
Jean Marc Chery, President and Chief Executive Officer
I think when we look at the gross margin, let's say for sure, the ingredients that are relevant, as I was saying before, is related to the price environment and productivity. When I look at our progression of the gross margin, both looking sequentially, there are many components at play. I would say the two main drivers are the price environment on one side and on the other side, product mix and manufacturing efficiency. This accounts for about 50% each. How much of this is sustainable pricing? I think that in the short to medium term, this situation will continue because we are in an inflationary environment both from our side to our customers but also in terms of costs. Looking at the level of profitability in terms of gross margin this year, I believe that combining the pricing environment, manufacturing efficiency while also taking into account any headwinds that may be related to the price increase from our supply, I think there is room for progress as we move into 2022. Our gross margin compared to 2021 will see some kind of seasonality, where gross margin in the first half is generally a little lower than the second half. Regarding the second question, I can confirm that this group will be a key contributor to growth in Q4 for ST. Just as a matter of transparency, I mentioned during my prepared remarks that we already embedded in our guidance the impact of about $100 million, mainly impacting the automotive product group but what we already embedded in our guidance was $770 million. So you see a total impact of $170 million, mainly on the automotive product and to a lesser extent on microcontrollers. Now we have our operation completely resumed during September. All the people are vaccinated, and we have a full agreement with the Malaysian authorities and protocols to avoid any further lockdowns or closure of the work plant. I am very confident that the IDG will be a key contributor to growth in Q4 and next year.
Matt Ramsay, Analyst
Thank you very much, guys. Appreciate it.
Celine Berthier, Group Vice President, Investor Relations
Thank you, Matt. Thank you. Next question, please, Moira.
Operator, Operator
The next question is from Johannes Schaller from Deutsche Bank, please go ahead.
Johannes Schaller, Analyst
Thanks for taking my questions. Firstly, we have seen a few semiconductor companies talking about the stocking of components, even in this very strong demand environment, but I think it's mostly PC and smartphone. And it relates to components that are not in tight supply, but then there was restocking, but the final product, the PC or this smartphone couldn't be built. Can you maybe give us a bit of an overview on your product portfolio? If you are seeing any such dynamics in your businesses for marketing? You already mentioned on the distributor channel, you see very lean inventories, but maybe there are some product groups we should consider here where inventories have recovered already. And then secondly, also, Jean-Marc, I think you may have scared the market a little bit when you talked about flat imaging sales about a year ago in 2022. Can you now just maybe give us a quick update to better understand the dynamics in imaging and maybe also give us an idea of how that business is growing in the second half of this year compared to the second half of last year? Thank you.
Jean Marc Chery, President and Chief Executive Officer
Thank you for your question. First of all, about personal electronics and computer. As you know, our strategy is to address selectively this market with basically custom design solutions. There is no inventory with custom design solutions as the principle because we have a perfect connection with our customers and work with real-time sales forecasts. We have not seen any inventory change because we have no inventory. We have seen significant fluctuating demand in the smartphone market, but we have not seen it in our sector. I would imagine that in H2 this year compared to last year, revenue profiles from Q3 and Q4 differ significantly. Last year was exceptional, particularly due to delays from significant customers in traditional phone programs. This year is coming back to normal. We had strong Q3 results, and that's why our IMS group contributed significantly to revenue growth both sequentially and on a year-over-year basis. However, in Q4, this year has a different profile compared to Q4 last year. Furthermore, the number of working days in the quarter is materially lower; we have six fewer days in Q4 2021 compared to Q4 2020. Finally, as I have previously indicated, the imaging product group will contribute this year to the company's growth. We have completed our operating plans for next year and are targeting significantly better growth than the market we serve. Imaging will materially contribute to this growth, and I am very confident about it.
Johannes Schaller, Analyst
That's very clear, Jean-Marc. Thank you. Just maybe one quick follow-up on the inventory question. Is there anything in automotive, even some smaller components that may be less supply constrained where you see any inventories slide around right now? Is there really nothing in your view within the supply chain and at your customers?
Jean Marc Chery, President and Chief Executive Officer
To the day-to-day life with our customers, tier one and car makers, the list of components answering the needs of the automotive industry is quite expansive. The car makers and the tier one manage supply chains, but we do not have visibility into how they are addressing the shortages of several components currently. Consequently, we do not have over-inventories in our own supply chain; any slight increase in ST's inventory is merely due to Q3 closures. We decided to keep supplying because we believe that we would recover from these issues in the months to come, and all this inventory will be absorbed thanks to strong demand from the automotive industry.
Johannes Schaller, Analyst
That's very helpful. Thank you, Jean-Marc.
Celine Berthier, Group Vice President, Investor Relations
Thank you very much, Johannes. Next question please.
Operator, Operator
The next question is from Didier Scemama from Bank of America. Please go ahead.
Didier Scemama, Analyst
Good morning and thanks for taking my question. I just wanted to come back to your gross margin percentage. I think it was quite useful. I just want to understand one thing regarding calendar 2022. You're talking about inflationary pressures which I fully understand coming from your subcontractors, materials, etc. But so far, these costs have already started to come through? And yet you are guiding for the highest gross margins in Q3, 2020; I think you did 47% there, I recall, it’s the second or third quarter I covered. My question to you is when you look at 2022, is pricing starting to move up for you guys? Are long-term contracts starting to get repriced as well? This was not the case, I suspect, in 2021. In other words, for your gross margins to not be above 43% but at least well above 41%, you would have to presume that either your depreciation is going to go up significantly into 2022 or you cannot, if you want to, pass on or at least pass on the inflationary pressures you get from your subcontractors and materials. I'm just trying to understand what I'm missing.
Marco Cassis, President of Sales, Marketing, Communication, and Strategy Development
I think your question is quite valid. Of course, when I consider the dynamic of our gross margin, there are different elements at play. On one side, for sure, the inflationary costs we see are not fully reflected in our expectation of the gross margin. Even if during this year, they progressively entered our gross margin due to some long-term agreements, these progressively expire and will influence 2022. It's true that we do see a positive impact on our gross margin moving into 2022 coming from product mix and improved efficiency. Therefore, there are both positive and negative factors in play. We anticipate our gross margin in average for the year will improve relative to the average we have in 2021. We still see opportunities in our gross margin as we move into next year.
Didier Scemama, Analyst
You're very well, thank you for the details on that. I wanted to ask also a little bit about the macro environment. We've seen some reports of power cuts in China. I just wondered if you could give us a little sense of the situation on the ground over there. You said your distribution inventories were lean. Have you seen any sort of negative activity or negative impact from those power cuts or any slowdown in the China economy with regards to your distribution business or direct business with OEMs in that region?
Jean Marc Chery, President and Chief Executive Officer
Absolutely not. Compared to the situation in Malaysia, we have not seen any negative repercussions in China.
Didier Scemama, Analyst
Okay, brilliant, and then one tiny one, since this one is short. You said that Q4 is short by six days. Is there any sort of number you can give us for a normal concept of Q1?
Marco Cassis, President of Sales, Marketing, Communication, and Strategy Development
I would say Q4 qualifies as a normal quarter because it's 90 days. What's not really normal was that Q4 last year was a longer calendar. This quarter will be similar—I think it has 92 days.
Didier Scemama, Analyst
Thank you very much.
Operator, Operator
The next question is from Jerome Ramel. Please go ahead.
Jerome Ramel, Analyst
Good morning. Could you update us on the capacity coming from foundries and also the ramp-up of your own capacity, specifically for your plan? When are we going to see this program become material for you? Thank you.
Jean Marc Chery, President and Chief Executive Officer
As I said, the support we receive from the foundry in H2 versus H1, in terms of volume, falls short of our expectations. I already explained why: some decisions were made last month about allocation to support the automotive industry and the industrial market. I won't elaborate on that. One good news is our internal manufacturing capacity is part of our overall sales and operating plan. I can assure you that next year they will increase their support, especially for growing microcontroller applications. Silicon carbide capacity continues to increase quarter-over-quarter for both application-specific modules and packages. We are steadily increasing our capacity in Catania, and now we have a double source in Singapore. We are working closely with our suppliers to ensure that capacity is steadily increasing to meet our customers' strong demand. We are acting to maximize our market position by leveraging TSMC as our foundry. Revenue from these efforts will start to grow next year, and our 2021 and 2022 CapEx plans will increase our capacity, but significant revenue contributions will not materialize until 2023, 2024, and beyond.
Jerome Ramel, Analyst
Thank you. Can you provide guidance on OpEx? How should we model OpEx for Q4? Thank you.
Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer
In terms of OpEx, in Q4 we will see an increase compared to Q3. Of course, there is seasonality; in Q3, we benefitted from several factors. Anyway, when you model the expenses, I confirm what I was saying in July. When you take the full year expenses for 2021 and split them by four to estimate average quarterly OpEx, our net OpEx will remain in the range of $735 million to $740 million per quarter.
Jerome Ramel, Analyst
Thank you.
Celine Berthier, Group Vice President, Investor Relations
Thank you very much, Jerome. Next question, please, Moira.
Operator, Operator
The next question is from Francois Bouvignies from UBS. Please go ahead.
Francois Bouvignies, Analyst
Hi, everyone. I have two small questions. The first one is coming back on the silicon carbide. So, you talk about your capacity, which is helpful. But you also said today that you expect $1 billion in revenue in 2024 versus 2025. I wanted to get a sense of what is driving this kind of accelerated roadmap. Is it one specific customer? Is it more automotive versus industrial? Anything you can give around the drivers of this accelerated path would be helpful. The second question is the inventory. Coming back to that slightly, sorry about that. You talked about the inventory situation now, but I wanted to have your view with your experience. How do you see the inventories in the next quarters? Should we expect inventories to be different by product or to increase slightly from here? Just to have your sense of how we should think about that going forward. That would be helpful. Thank you.
Jean Marc Chery, President and Chief Executive Officer
First of all, regarding silicon carbide, we have been analyzing market dynamics recently, and we now see a significant increase in the compound annual growth rate of electric vehicles over the next three years compared to previous expectations. Our confidence regarding the market for electric vehicles has significantly improved. Moreover, we have established strong programs that I can confidently speak of with one prominent customer. This important customer is performing exceptionally well, and I believe the results will reflect that in forthcoming publications. Other opportunities will also start to ramp up in the near term, making this the primary driver for our anticipated $1 billion in silicon carbide revenue in 2024. Of course, the industrial market, while more fragmented, presents strong expectations particularly related to charging stations. We expect a substantial increase in the deployment of charging stations worldwide to support the growth of electric vehicles. Regarding inventories, I can speak from experience. The current lean inventory situation throughout many supply chains is not sustainable. In a complex supply chain comprising OEM customers, Tier 1s, Tier 2s, and distributors, smooth operations cannot occur without some level of inventory. Additionally, significant logistical constraints are hampering global supply chains. Major ports are congested; consequently, logistics operations are becoming increasingly strained, pushing manufacturers towards increased safety inventories. Thus, we see sustained demand for semiconductors driven by major trends—smart mobility, power energy efficiency, connectivity, 5G, IoT—overlaid with logistics challenges and currently lean inventories. All these factors combined suggest that lean inventory conditions will persist for a long time.
Celine Berthier, Group Vice President, Investor Relations
Does that answer your question, Francois?
Francois Bouvignies, Analyst
Yes. Thank you very much.
Celine Berthier, Group Vice President, Investor Relations
Thank you very much. We have time for one last question, Moira.
Operator, Operator
The last question is from Sandeep Deshpande from JPMorgan. Please go ahead.
Sandeep Deshpande, Analyst
Hi, thanks for letting me on. My question is actually regarding your view into the supply constraints this year, Malaysia issues, etc. What's your view into looking into '22 based on your backlog, not only on your revenue front, but also in terms of being able to continue to supply? Will you continue to be supply-constrained in '22? Then the follow-up is on costs, and the cost follow-up is related to what is your depreciation in '21? What will it be in '22? Thank you.
Jean Marc Chery, President and Chief Executive Officer
In terms of supply constraints, I can confirm that we have ongoing sales and operating plans. Our perspective, based on current feedback, indicates constraints first in equipment delivery. When demand is high, waiting times for process equipment can extend for over a year. Assembly and test equipment experiences similar delays, exacerbated by semiconductor supply issues. I imagine that if one wishes to wait for a semiconducting tool, the wait would extend into Christmas 2022. Additionally, we need to be vigilant in coordinating our full supply chain seeing as the entire system is under strain. This condition will not stabilize until 2023. From a costs perspective, Lorenzo will provide insight on depreciation figures.
Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer
In 2021, our depreciation and amortization, primarily depreciation, is slightly above $1 billion, around $1.05 billion. I expect a similar increase in 2022 as we continue with our planned investments. In 2021, we had approximately $900 million of depreciation, and I anticipate a similar upward trend for 2022.
Sandeep Deshpande, Analyst
Understood. Thank you so much.
Celine Berthier, Group Vice President, Investor Relations
Thank you very much. I think this was the last question, and that will conclude our call for today.
Jean Marc Chery, President and Chief Executive Officer
Thank you.
Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer
Thank you.
Celine Berthier, Group Vice President, Investor Relations
Thank you very much.
Jean Marc Chery, President and Chief Executive Officer
Bye-bye.