STMicroelectronics (STM) Q4 2025: Automotive Down 15% as Cycle Correction Nears End
Automotive weakness defined STMicroelectronics’ 2025, but normalization in industrial and personal electronics signals a cyclical bottom is near. Despite margin compression and manufacturing headwinds, STM’s segment mix is shifting, and management is betting on new product cycles and acquisition-driven growth for 2026. Investors will need to watch how quickly margin improvement and secular drivers materialize against a still-uncertain macro backdrop.
Summary
- Automotive Drag Persists: Segment contraction weighed on results, but inventory correction is largely complete.
- Industrial and Electronics Stabilize: Sequential growth and normalizing channel inventory suggest cyclical recovery is underway.
- Margin Recovery Hinges on Execution: Cost actions and mix shift must deliver in 2026 for earnings to rebound.
Performance Analysis
STM’s full-year revenue fell 11.1%, closing at $11.8 billion, as automotive sales—39% of revenue—dropped 15% year-over-year. This segment’s underperformance was only partially offset by sequential growth in personal electronics and communication equipment, each up about 17% in Q4, and a 5% gain in industrial. Notably, the company returned to year-over-year growth in Q4, with revenue of $3.33 billion—above guidance midpoint—driven by strength in personal electronics and communication infrastructure.
Gross margin compressed to 33.9% for the year (down from 39.3% in 2024), reflecting lower manufacturing efficiency, underutilized capacity, and price/mix pressure. Operating income fell sharply to $175 million, with non-GAAP operating margin at 4.7% after adjusting for $376 million in restructuring and impairment charges. Free cash flow remained positive at $265 million, supported by disciplined capex ($1.79 billion) and inventory management, with days sales of inventory ending at 130 days.
- Segment Divergence: Analog, MEMS and sensor grew 7.5%, while power and discrete plunged 31.6%, highlighting uneven demand recovery.
- Inventory Normalization: Distribution inventory is now at normalized levels, and channel correction in industrial is largely complete.
- Capex Discipline: Net capex was trimmed 29%, with 2026 plans focused on targeted growth areas like cloud optical interconnect.
STM exited 2025 with a solid net cash position of $2.79 billion and continued shareholder returns via $321 million in dividends and $367 million in buybacks. Sequential improvement in several end markets and a strong rebound in certain product lines set the stage for a potential inflection in 2026.
Executive Commentary
"We are entering 26 with a better visibility than entering 25 with the inventory correction in distribution progressively improving. Beyond the evidence of a cycle recovery, ST will benefit from the following company-specific growth drivers."
Jean-Marc Chéry, President and Chief Executive Officer
"Gross margin today that we see in Q1, we believe is clearly the lowest point in the year... We expect some mild increase for the second quarter and then a more significant increase also driven by the seasonality of the revenues in the second half of the year."
Lorenzo Grandi, President and Chief Financial Officer
Strategic Positioning
1. Automotive: Navigating a Shifting Landscape
Automotive remains STM’s largest but most challenged segment, accounting for 39% of 2025 revenue. The company is moving through the tail end of inventory correction, with legacy applications still soft but new design wins in onboard chargers, powertrain, and vehicle control electronics. Silicon carbide (SiC) power devices, used in EVs and high-efficiency systems, are expected to return to growth in 2026 after a tough year. Management is betting on the NXP MEMS sensor acquisition and a shift toward software-defined architectures to re-accelerate growth.
2. Industrial and Channel Health
Industrial segment performance improved, with 5% sequential and year-over-year growth in Q4 as channel inventory normalized. Book-to-bill ratios are now well above parity, and new product launches in microcontrollers (MCUs) and sensing technologies are positioned to support secular trends in automation, robotics, and edge AI. Management expects to regain historical MCU market share by 2027, with 2026 as a key transition year.
3. Personal Electronics and Communication Infrastructure
Personal electronics (25% of 2025 revenue) outperformed expectations in Q4, buoyed by high-end customer programs and increased silicon content per device. Communication equipment and computer peripherals (15% of revenue) saw a 23% sequential surge, driven by demand for data center and AI infrastructure, particularly in optical interconnect and silicon photonics. Management sees a path to $1 billion in data center revenue before 2030, with $500 million targeted for 2026.
4. Manufacturing Footprint and Cost Actions
STM’s manufacturing reshaping program is progressing, with capacity reductions in legacy fabs and a shift toward 300mm and advanced SiC lines. This is expected to drive down unused capacity charges through 2026, though the full efficiency impact will not be realized until 2027-2028. Cost discipline is evident in OPEX trends, and restructuring charges are expected to taper as the transition completes.
5. Sustainability and Differentiation
Sustainability remains a core pillar, with progress toward 2027 carbon neutrality goals and recognition in global indices. The launch of Singapore’s largest industrial district cooling system highlights operational commitment, while the company’s product portfolio is positioned to serve emerging applications in humanoid robotics and low-Earth orbit satellites.
Key Considerations
STM’s 2025 results reflect a business in transition, cycling through automotive and industrial inventory corrections while investing in new technologies and manufacturing capabilities. The company’s ability to execute on margin recovery and deliver on secular growth drivers will define its 2026 trajectory.
Key Considerations:
- Automotive Segment Inflection: Watch for stabilization in legacy applications and ramp of new EV and software-defined vehicle content.
- Industrial Recovery Pace: Channel normalization is largely complete, but end-market demand must accelerate for sustained growth.
- Margin Leverage: Cost actions and manufacturing reshaping must deliver, with gross margin recovery critical for earnings upside.
- Execution on Acquisitions: Integration of NXP MEMS sensor business is a key test for STM’s ability to expand its automotive and industrial footprint.
- Secular Tailwinds in Data Center: Optical interconnect and silicon photonics represent long-term growth, but near-term execution risk remains.
Risks
STM faces continued risks from automotive demand volatility, especially in China, and the pace of EV adoption and competition. Gross margin is vulnerable to underutilization and delayed efficiency gains, while restructuring charges may linger longer than planned. Macro uncertainty, customer concentration, and potential tariff changes add further external risk factors for 2026.
Forward Outlook
For Q1 2026, STM guided to:
- Revenue of $3.04 billion, down 8.7% sequentially (plus or minus 350 bps)
- Gross margin of 33.7% (plus or minus 200 bps), including 220 bps of unused capacity charges
For full-year 2026, management did not provide formal guidance but emphasized:
- Organic growth expected in 2026, with improved visibility versus 2025
- Gross margin seen as bottoming in Q1, with improvement through the year as cost actions and mix shift take hold
Management highlighted several factors that will drive the year:
- Automotive and industrial inventory correction largely complete by end-Q2
- Data center, personal electronics, and new product cycles as key secular growth drivers
Takeaways
STM’s inflection point is visible, but execution on margin recovery and new product ramps is critical for 2026 upside.
- Automotive and Industrial Normalization: Inventory correction is nearly complete, but sustained demand recovery is needed to drive top-line growth.
- Margin and Cost Base Under Scrutiny: Investors should monitor the pace of gross margin recovery and the impact of manufacturing reshaping on OPEX and efficiency.
- Secular Bets Must Deliver: Progress in data center, sensors, and advanced manufacturing will determine STM’s ability to outgrow the cycle in 2026 and beyond.
Conclusion
STM’s 2025 was defined by automotive headwinds and margin pressure, but operational discipline and a strengthening product pipeline position the company for a cyclical and secular rebound. Investors should watch for margin inflection and execution on growth drivers as the year unfolds.
Industry Read-Through
STM’s results highlight the broader semiconductor industry’s transition through inventory correction and into a new demand cycle. Automotive semiconductor players face uneven recovery, with legacy softness offset by EV and software-defined vehicle content, especially in China. Data center and AI infrastructure demand is increasingly driving growth in analog, power, and optical segments, a theme likely to benefit suppliers with silicon photonics and high-performance MCU portfolios. Manufacturing efficiency and cost discipline are critical levers across the sector, as underutilization and restructuring charges remain a near-term headwind. Investors should monitor inventory normalization and secular growth bets as signals for the next upcycle.