STMicroelectronics (STM) Q3 2026 earnings review
STMicroelectronics lifts its fourth-quarter outlook, while power chip losses widen
STMicroelectronics, the European chipmaker for cars, factories and electronics, is riding a surge in data-center and microcontroller demand while its power chip division still loses money. Third-quarter revenue rose 18% from a year ago to $3.76 billion, and gross margin climbed 4 percentage points as fuller factories cut idle charges. Chief executive Jean-Marc Chery set the fourth-quarter revenue plan at $4.15 billion, above the company's prior $4 billion floor.
| Revenue | $3.76B +17.9% from a year ago |
|---|---|
| Gross margin | 37.3% +4.1 percentage points from a year ago |
| Profit per share, excluding one-offs | $0.37 +27.6% from a year ago |
| Q4 revenue outlook | $4.15B raised from >$4.0B (+24.7% from a year ago) |
⚖️ Verdict: 🟢 Bullish
The story got better because the fourth-quarter outlook brings full-year revenue growth to 23% and lifts gross margin to 39%. High-margin optical and microcontroller chips are growing fast enough to pull total profitability up even before factory restructuring finishes in late 2027. One caution: the Power and Discrete division lost $81 million despite double-digit sales growth, showing that volume alone has not fixed power chip margins.
The question now is whether orders running ahead of supply reflect lasting data-center and industrial demand or customers double-ordering as distributors restock. If end-market demand is driving it, growth will hold in 2027; if middlemen are stockpiling, orders will drop once supply catches up. The book-to-bill ratio on the conference call and fourth-quarter distributor inventory will tell.
🐂 Bull Case
Optical and Microcontroller Sales Carry the Recovery
STMicroelectronics wants its newer lines to lead its recovery. Chief executive Jean-Marc Chery credited the third-quarter beat to Communications Equipment and Computer Peripherals (CECP, which includes hardware for data centers and satellites) and Personal Electronics. He also said the full-year outlook rests on "company specific growth drivers, including AI datacenters and LEO satellite communication" (low-Earth-orbit satellites).
- RF and Optical Communications (RFOC, radio and optical chips): sales up 46.2% to $504 million; operating margin 26.2%, up from 16.6%
- Embedded Processing (EMP, microcontrollers): sales up 24.1% to $1,212 million; operating margin 23.1%, up from 16.5%
- Fourth-quarter revenue plan: $4.15 billion at the middle of the range, up 24.7% from a year ago
These two divisions make up less than half of total revenue, but they generated $412 million in operating profit, which is more than the entire company earned after unallocated costs. Because both segments carry operating margins above 23%, their growth lifts total profit faster than sales.
What to watch: full-year AI data-center revenue on the fourth-quarter call. A figure above the $1 billion target would show that data-center orders are turning into shipments on schedule.
Fuller Factories Lift the Gross Margin
When STMicroelectronics runs its chip factories below capacity, it records the idle cost as unused capacity charges inside cost of sales. As orders recover and factories fill up, those charges shrink and gross margin rises.
Gross margin rose 4.1 percentage points from a year ago to 37.3%, because cost of sales — the cost of making the chips — fell from 66.8% of revenue to 62.7% by our math. Unused capacity charges dropped from $102 million a year ago to $23 million, which explained 2.6 percentage points of the improvement, and better product mix added the rest. Operating margin excluding one-offs rose 4.6 percentage points to 11.4%, helped as research and development fell 1.3 points of revenue and selling and administrative costs fell 0.5 points.
What to watch: fourth-quarter gross margin against the 39.0% plan, which includes only 0.4 percentage points ($17 million by our math) of idle factory charges. With idle charges nearly gone, further gains must come from product mix and factory restructuring.
Distributor Restocking Enters Its Third Quarter
STMicroelectronics sells chips directly to original equipment manufacturers (OEMs, the companies that build finished products) and through third-party distributors. After two years of working down extra stock, distributors are buying again.
Sales to distributors rose 38.8% from a year ago and reached 32% of total revenue, up from 27% a year ago, while direct sales to equipment makers grew 10.2%. At the same time, the chipmaker's own inventory fell to 126 days of sales from 135 days a year ago. Because distributor stock is still below normal levels, according to Chery, restocking can keep supporting orders into year-end.
What to watch: the distributor share of revenue in the fourth quarter. A further rise while direct OEM sales lag would mean middlemen, rather than end customers, are doing most of the buying.
🐻 Bear Case
Power and Discrete Losses Widen
"Together, these indicators confirm the continued ongoing recovery and secular growth across the markets we serve," Chery said. Yet the recovery is bypassing the company's traditional industrial and automotive power chips.
In the Power and Discrete (P&D) segment, which makes power management and silicon carbide chips, revenue grew 11.3% from a year ago to $477 million, but the operating loss widened from $67 million to $81 million (-17.1% operating margin). In Analog, MEMS and Sensors (AM&S, which includes the sensor business acquired from NXP in February), revenue rose 8.8% to $1,560 million, yet operating profit slipped 0.6% to $219 million as margin fell 1.3 percentage points to 14.1%.
The silicon maker is spending heavily to move its power factories to larger 200-millimeter silicon carbide wafers and 300-millimeter silicon wafers, and higher sales volume alone has not stopped the losses in power chips.
What to watch: Power and Discrete operating loss in the fourth quarter. If losses do not narrow when company revenue crosses $4.15 billion, price pressure in power chips is offsetting the volume recovery.
Tight Supply Risks Double Ordering
"During the quarter, demand increased further supported by strong bookings and improving visibility, while inventory in distribution continued to track below our standard target," Chery said. He added that "demand remains well above supply" and that the group is expanding capacity. Bulls view the order backlog and tight supply as proof of multi-year growth.
However, when chip supply is tight and distributor shelves are light, customers often place extra orders to secure allocation. Distributor revenue jumped 38.8% from a year ago against 10.2% growth at direct equipment makers, and the press release did not give the exact book-to-bill ratio (the ratio of new orders to shipments, which stood near 2 last quarter).
What to watch: the book-to-bill ratio and cancellation terms on the conference call. An order ratio staying near twice shipments while direct OEM sales grow 10% would point to distributor stockpiling.
Risks This Quarter Didn't Answer
Four standing concerns from prior quarters remain open or received no new numbers in the release.
- Factory reshaping drag: ST booked $55 million in restructuring charges for the "execution of our company-wide program to reshape our manufacturing footprint and resize our global cost base", and its 39.0% fourth-quarter gross margin plan shows it still cannot reach 40% margin on $4 billion of sales before the program ends in late 2027.
- Customer concentration and warrants: the release did not state how much revenue was deducted for Amazon Web Services share warrants or how reliant fourth-quarter growth is on top customers; the quarterly filing will show the warrant charge.
- Currency headwind: the fourth-quarter outlook assumes $1.14 per euro, down from $1.15 in the third quarter but still worse than the $1.09 rate in the company's long-term model.
- Share dilution and litigation: diluted shares rose 1.4% from a year ago to 931.7 million despite $91 million in resumed buybacks and settling the $750 million 2027 convertible bond with cash and 4.2 million treasury shares; the New York securities class action was not mentioned.
💲 Other KPIs
Free cash flow rose from $130 million a year ago and $75 million last quarter as operating cash flow nearly doubled to $1.02 billion. That cash generation funded a jump in net capital spending — factory investments after government grants — to $643 million (17.1% of revenue, up from $401 million a year ago).
Uncollected customer bills rose 35.2% from a year ago by our math and 6.0% from last quarter, growing nearly twice as fast as the 17.9% rise in third-quarter revenue. The increase tracks the rapid shift in sales toward third-party distributors during the second half of the year.
Cash minus total debt rose by $99 million from last quarter, but remains down from $2,610 million a year ago after the NXP sensor acquisition in the first quarter. During the third quarter, the group paid $750 million in cash and 4.2 million treasury shares to settle its 2027 convertible bond and resumed share buybacks at $91 million.
🔮 Guidance
Raised. The middle of the new range is $4.15 billion, up 10.5% from the third quarter and 24.7% from a year ago, which is well above the prior floor of $4.0 billion. STMicroelectronics has beaten its quarterly revenue midpoint four straight times by an average of 1.5%; if the pattern holds, fourth-quarter revenue would reach $4.21 billion by our math.
Raised. The fourth-quarter plan brings full-year expected revenue to about $14.5 billion, or 22.8% growth from 2025. By our math, that means second-half revenue will grow 20.1% over the first half, beating the company's earlier plan for growth above its normal 15% seasonal step-up.
New. The plan calls for gross margin to rise 1.7 percentage points from the third quarter and 3.8 points from a year ago, including 0.4 percentage points of unused capacity charges. That translates into a full-year gross margin of about 36.4% (36.6% excluding one-offs, up 2.7 percentage points from 2025).
❓ Key Questions
How fast did data-center and industrial sales grow?
Management previously planned for Communications Equipment and Computer Peripherals sales to grow near 60% in the third quarter and 90% in the fourth, with Industrial reaching 40% in the fourth. The release omitted end-market growth rates, which are needed to test those targets.
Where did the book-to-bill ratio land in Q3?
The release noted strong bookings and demand well above supply, but did not give a number for the book-to-bill ratio after it reached roughly 2 last quarter. Investors need the ratio and the share of non-cancellable orders to gauge double-ordering risk.
When will Power and Discrete stop losing money?
Power and Discrete lost $81 million (-17.1% margin) even though segment sales rose 11.3% from a year ago. Management has not given a break-even revenue level or said whether the Sanan joint venture in Chongqing is still on track to start loading at year-end.
How much did AWS warrants reduce Q3 revenue?
STMicroelectronics deducts the vesting cost of Amazon Web Services share warrants from its reported revenue ($6 million in the first half). Because data-center optical sales rose 46.2% in the third quarter, the warrant deduction should be growing alongside them.