STMicroelectronics’ Growth Target Review Triggers Stock Slump

STMicroelectronics (ST) stocks dipped on Wednesday, November 20, 2024. The stocks dropped following a review of STMicroelectronics growth target downwards. According to Reuters, STMicroelectronics extended its goal of realizing $20 billion in revenue targets and a 50% gross margin from 2025-2027 to 2030.

Interim Milestones

STMicroelectronics is among the largest semiconductor manufacturers in Europe. As it extended its ambitious revenue goals, the company introduced new milestones for 2027 to 2028. With the new STMicroelectronics revenue target, the company now expects to achieve an estimated revenue of $18 billion and 22% to 24% in gross operating margin by the end of 2028.

“ST expects to exit 2027 with high triple-digit million-dollar savings compared to the current cost base,” the company said in a statement.

This move shows that the company is embracing a more cautious outlook considering the current industry challenges. The revenue target adjustment by STMicroelectronics also underscores the challenges that the company is experiencing, especially in the demand of semiconductors such as silicon carbide.

STMicroelectronics is known for production of automotive chips. Analysts at Morgan Stanley have cited delays in adoption of these semiconductors this year due to a slump in automotive and industrial chips .

Aligning with the New Targets

For a company that had been affected significantly by the slowing industrial market, some analysts say the new revenue target adjustment is a welcome move. This year alone, ST’’ stocks have declined by 49%.

“The reiteration of ST’s financial targets today confirms our view that the current weakness the company is going through is cyclical, not structural. We believe that the targets presented today should help to improve sentiment,” brokerage Stifel said.

The company management says the automotive industry has been at the heart of STM’s semiconductor strategy. The key drivers of this industry included the shift to electric vehicles and emergence of advanced driver-assistance systems. Production of wafer and new materials like gallium nitride and silicon carbide are also critical to its revenue growth strategy.

SMT’s Cost Reduction Measures

STMicroelectronics said it will be reducing operations in some of its factories and focus more on overseas sites. The company will also be concentrating its resources in the most strategic areas as it seeks to align itself with the new growth targets. In addition to reviewing its revenue target, analysts expect the company to provide more details on how it will achieve cost reduction.
“We also expect the company to not just reiterate the time-line of the cost reduction program but to even outline which manufacturing facilities may be scaled back and where capex can be focussed,” Morgan Stanley Analysts said.

The new STM financial growth targets are a stark contrast to the 2022 revenue targets the company hoped to generate through IoT, car electrification, and foundry services. At the time, the company expected to generate 10% of its revenue from wide bandgap semiconductors, 20% from its foundry unit, and 32% from wafer production. The $20 billion estimates also included a 25% free cash flow margin from higher pricing and a strong product mix.