Chinesefears and Q1 24 results
In its Q1 24 results, the company provided lower-than-consensus Q2revenue guidance of $3.2bn ($3.8bn expected) and revised its FY 24 revenueguidance downwards by around 20% from $16-17bn to $14-15bn.
Simultaneously,news from the Chinese government about its goals for local carmakers to sourcea quarter of their semiconductor chips domestically by 2025 has raised concernsabout potential market share erosion in the world's largest electric vehicle (EV)market. Companies with significant exposure to power semiconductors andmicrocontrollers have faced increased pressure over the past few months due togrowing speculation about intensifying competition from domestic semiconductorvendors in China. Consequently, STMicroelectronics' share price has beentrending downwards due to these factors.
However, we do believe that the idea of market erosion inAutomotive chips may be overblown and recent news regarding STM’s long-termSilicon Carbide (SiC) supply agreement with Chinese automobile manufacturerGeely confirms our belief.Gradual recovery is set to come
STM is currently affected by a large inventory correction in theindustrial market and slowing demand in the automotive market. Out of the total$2bn revenue revision for FY 24, the company reported that a $1.3bn cut is fromthe Industrial market and a $0.6bn cut is from the automotive market. Thereduction in Industrial is mainly due to the longer time taken for inventorycorrection at the end customers while the reduction in Automotive is due to oneof its main customers' demand adjustment (we think Tesla) and also due to lowerelectrical car production estimated for this year as consumers focus on hybridsrather than pure EVs (at least outside China).