Thank you everyone for joining our third quarter 2026 Financial Results Call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President and CFO, and Rémi Elouazane, President, Microcontroller, G2 Lycées and RF Product Group. His live webcast and presentation materials can be accessed on the ST Investor Relations website. A 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 STMOS to differ materially from management 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 also in STMOS' recent regulatory filing for a full description of this risk factor. To ensure that all participants have an opportunity to ask questions during the Q&A session, Please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST President and CEO.

Thank you, Jerome. Good morning, everyone, and thank you for joining ST for our Q3 2026 earnings conference call. I will start with an overview of the third quarter, including business dynamics. and I will hand over to Lorenzo for the detailed financial overview. I will then comment on the outlook and conclude before answering your question. So, starting with Q3. Our third quarter net revenues of $3.76 billion came in above the midpoint of our business outlook range. mainly due to higher revenue in communication equipment and computer peripherals driven by AI data center and low earth orbit satellite revenues, communication and personal electronics. Gross margin was 37.3% above the midpoint of our business outlook range. Non-US GAAP diluted earnings per share was $0.37. During the third quarter, inventory in our balance sheet increased slightly to support the expected increase in Q4 revenues. In distribution, inventory decreased and continued to track below our standard target. We generated positive free cash flow of $351 million. Let's now discuss our business dynamics during Q3. During the quarter, the ongoing recovery and secular growth across the hand markets we serve continued to gain momentum. Demand strengthened further in Q3, with bookings increasing sequentially and book-to-bill remaining well above 2 overall. Book-to-bill was well above one in whole-hand markets and significantly above two in communication equipment and computer peripherals and industrials. Visibility improved, inventory distribution continued to track below our standard target, and demand continued to outpace supply across multiple product categories. Automotive revenues were stable sequentially and increased 5% year-over-year. Our solid position in automotive continues to be driven by application-specific ICs and sensors for core applications, electrical powertrain and headass. We maintain our automotive design momentum with OEMs and Tier 1 suppliers across the portfolio of ST product families including microcontrollers and power and discrete. These wins covered hybrid, electric and internal combustion engine vehicles in areas including onboard charging, powertrain and active suspension as well as a first award for 48V electromechanical braking. We made progress with our automotive MEMS business, supported by the successful integration of NXP's MEMS sensors, achieving several key customer awards in telematics, cockpit control, and tire pressure monitoring. We had another important design win with our in-cabin monitoring solutions, and we introduced a new automotive image sensor for infrared in-cabin sensing. Design to extend driver and occupant monitoring across more vehicles models. Industrial revenues improved 12% sequentially and 40% year over year. This solid growth was mainly driven by our general purpose microcontrollers, analog and power conversion products. During Q3, the broad-based recovery in industrial continued. and inventory and distribution declined further, remaining below our standard target. We had design wins across industrial automation, robotics, power systems, building automation, power tools and home appliances. Our portfolio combines intelligent sensing, real-time control and efficient power management to support the transformation of factory automation, robotics and power energy infrastructures and the growing physical AI market. At the Embedded Worlds North America event, we had a demonstration together with NVIDIA illustrating our broad cooperation on robotics. We showed an integrated robotics development path from digital twin to diploid application based on our inertial sensors, microcontrollers and imaging solutions. We are continuing to strengthen these capabilities with new products. Our latest launch is a miniature 6-axis motion sensor with a machine learning core designed to improve accident alerts, robot teaching, drone stabilization, and structural monitoring. By bringing AI processing into the sensor, systems can reduce energy use and save resources. In embedded processing, we continue to expand our STM32 offering with a strong pipeline of new products and software innovations. You will hear more about these at our STM32 Summit on November 3, followed by a dedicated STM32 Analyst Call on November 18. For personal electronics, third quarter revenues came in better than expected, up 12% sequentially and down During the quarter, we had design wins with secure solutions, maps and imaging sensors, and microcontrollers across a variety of devices, including smartphones, gaming headsets, earbuds, and smartphones. For communication equipment and computer peripherals, Third quarter revenues were above expectations, increasing 14% sequentially and 64% year-over-year. This strong growth mainly reflected the contribution of our company-specific cost drivers in AI data centers and low Earth orbit satellite communications. For AI data centers, We continue to see strong demand driven mainly by our silicon photonic ICs, electronic ICs, and microcontrollers, as well as power solutions. This supports our revenue expectation for 2026 of about $1.3 billion and assuming the current dynamic continues and with the current engagements we have, Our revenue ambition of well above $2 billion in 2027 and further growth beyond. Now, over to Lorenzo who will present our key financial figures.

Thank you, Jean-Marc. Good morning, everyone. Let's start with a detailed review of the third quarter, starting with revenues on a year-over-year basis. By reportable segment. Analog product, MEMS and sensor glue, 8.8%, mainly due to MEMS and, to a lesser extent, analog and imaging. Powering discrete products increased 11.3%. Embedded processing revenues were up 24.1%, mainly due to general-purpose microcontroller. and RF Optical Communication grew 46.2%. By end of the market, communication equipment and computer peripherals grew 64%, industrial 40% and automotive 5%, while personal electronics decreased 4%. Year over year, sales to OEMs and distribution increased 10.2% and 38.8% respectively. On a sequential basis, by reportable segment, analog product MEMS and sensor increased by 9.4%, power and discrete by 2.8%, embedded processing by 5.7%, and RF optical communication by 13.4%. By end market on a sequential basis, communication equipment and computer and peripheral grew 14%, industrial 12%, personal electronics 12% while automotive was flat. Turning now to profitability. Gross profit in the third quarter was $1.40 billion. Increasing 32.2% on a year-over-year basis. Gross margin was 37.3%, increasing 410 basis points year-over-year, mainly due to lower unused capacity charges and better product mix. On a sequential basis, gross margin increased by 250 basis points. Q3 gross margin included about 60 basis points of unused capacity charges and about 40 basis points of negative impact resulting from non-recurring costs related to our manufacturing reshaping product. Looking beyond these near-term effects, improving our gross margin remains a key priority. We remain committed to achieving the 44% to the 46% gross margin of our intermediate financial model once our manufacturing reshipping plan is completed. Starting from the approximately 39% gross margin expected for Q4 26, we see a clear path to margin expansion. Q4-26 temporary add-ins, including approximately 40 basis points from unused capacity charges and approximately 30 basis points from non-recurring costs associated with our manufacturing reshaping program, are expected to largely disappear during the second half of 2027. We continue to expect more than 400 basis points of structural gross margin improvement from the reshaping of our manufacturing footprint. This benefit is expected to materialize as a step function either toward the end of 2027 or in early 2028, subject to the shutdown of legacy FAPs and customers' qualification timing. Finally, we expect better mix and price to contribute to margin expansion over time, while input cost increase is expected to be a headwind. The timing and the magnitude of these effects remain more difficult to assess. Moving now to total net operating expenses. In the third quarter, this amounted to $979 million, excluding restructuring. Non-US GAAP OPEX stood at $972 million, better than the indication we gave in July, reflecting continuing cost discipline. For the fourth quarter of 2026, we expect non-US GAAP net OPEX to stand at about $1035 billion. The sequential increase is mainly due to the calendar days affected net of vacation. This would lead the full year 2026 non-US GAAP net of PECs slightly above 3.8 billion dollars, in line with our expectation. In the third quarter, we reported operating income of 367 million dollars, which included $55 million for impairment restructuring charges and other related phase-out costs. These charges are related to the execution of our company-wide program to reshape our manufacturing footprint and to resize our global cost base. Q3 operating income also included $7 million in purchase price allocation effects from our acquisition of NXP's MEMS sensor business. Excluding these items, Q3 non-US GAAP operating income stood at $429 million, and non-US GAAP operating margin was 11.4%, with analog products MEMS and sensor at 14.1%, Power and discrete are negative 17.1%, embedded processing at 23.1%, and RF optical communications at 26.2%. Third quarter 2026 net income was $291 million compared to $237 million in the year-ago quarter. Diluted earnings per share were $0.31 compared to $0.26. Non-U.S. GAAP net income stood at $344 million and non-U.S. GAAP diluted earnings per share stood at $0.37. Net cash from operating activities totaled $1.02 billion in the third quarter. compared to the $549 million in the year-ago quarter. Net capex was $643 million in the third quarter compared to the $401 million in the year-ago quarter. Precash flow was positive at $351 million in the third quarter compared to the positive $130 million in Q3 2025. The inventory at the end of the quarter was $3.25 billion compared to $3.19 billion in Q2 2026 and $3.17 billion in Q3 2025. Day sales of inventory at quarter end were 126 days, better than our expectation, unchanged from the previous quarter and compared to the 135 days in the year-ago quarter. Cash dividends paid to stockholders in the third quarter of 2026 totaled $83 million. In addition, Estee executed a share buyback of $91 million. Estee maintained its financial strength with a net financial position that remains solid at $2.11 billion as of September 26, 2026, reflecting total liquidity of $5.31 billion and total financial debt of $3.21 billion. Following the exercise of the corruption for the early redemption of Estee's convertible debt due in 2027, bondholders exercised their conversion rights on the total $750 million convertible bonds. Estee settled the bonds on a net share basis, delivering $750 million in cash and about a $4.2 million share from treasury stocks. Finally, while we are not providing quarterly indication for 2027, for modeling purposes, please note that 2027 will have 86 calendar days in Q1, 91 in Q2, 91 in Q3, and 97 in Q4. Now back to Jean-Marc who will comment on our outlook.

Thank you Lorenzo. Now let's move to our business outlook for Q4 2026. We are expecting Q4 revenues for 4.15 billion dollars plus minus 350 basis points at the midpoint. Our Q4 26 net revenues will increase 10.5% sequentially and 24.7% year-over-year. We expect our gross margin to be at about 39% plus minus 200 basis points, including about 40 basis points of unused capacity charges. This business outlook does not include any impact of potential further changes to global trade tariffs compared to the current situation. For 2026, the midpoint of this outlook translates into full-year 2026 revenues of about $14.5 billion, representing a 22.8% year-over-year increase. Beyond the cyclical recovery across our hand markets, the year-over-year growth is supported by ST's company-specific growth drivers, including AI data centers and low Earth orbit satellite communications. Growth margin is expected to be about 36.4%. Non-US GAAP growth margin is expected to be about 36.6%. representing an improvement of 270 basis points versus the fiscal year 2025. To conclude, we continue to see a very strong demand for our AI data centers and low Earth orbit satellite communications products and technologies alongside an ongoing cyclical recovery in automotive and industrial. With demand across many of the markets we serve exceeding available supply, we are expanding capacity in line with ST's strategic roadmap and growth opportunities. At the same time, improving profitability remains a key priority as we progress toward our intermediate financial model. As mentioned earlier by Lorenzo, This is supported by our company-specific growth drivers combined with the execution of our company-wide program to reshape our manufacturing footprint and resize our global cost base. Before handing over to Jerome, I would like to mention a few corporate developments. Earlier this month, the supervisory board asked me to be reappointed in my current role for an additional year. I was honored and pleased to accept the proposal. My reappointment as chairman of the managing board and ST's president and CEO will be proposed for shareholder approval at ST's 2027 Annual General Meeting of Shareholders. Finally, Earlier today, we announced updates to ST organizations aimed at better aligning our vision and business objectives with evolving market dynamics. This will strengthen the coordination between our strategy, technology and product roadmaps, accelerate innovation and time to market, ultimately supporting our long-term growth opportunities. Rémy Elouazan, is confirmed as President, Member of the Executive Committee and Head of Microcontrollers, Digital ICs, RF and Optical Communication Products. He will also take on leadership on the Imaging Sensor Group and be appointed ST Chief Technology Officer. Marco Cassis is confirmed as President, Member of the Executive Committee and Head of Analog, Power and Discrete and MEMS Products. He will also take on leadership of R&D for analog, power and discrete and MEMS technologies and be appointed as Chief Strategic Officer. The new organization and the related adjustment to our reportable segments will take effect on January 1, 2027 with implementation of the changes to be completed by the end of March 2027. Thank you and we are now ready to answer your questions.

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 the 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 use only handsets while asking a question. In the interest of time, please limit yourself to one question only. Anyone with a question may press star and one at this time. Our first question comes from Joshua Buchhalter from TD Cowen. Please go ahead.

Hey guys, thank you for taking my question and congrats on the results. I guess to start, I wanted to ask about some of the comments you made on gross margins. So I believe you said after the manufacturing transition headwinds abate, there'd be a step function increase of 400 basis points to gross margin. Is that sort of going to hit all at once? Because I think you've previously said We shouldn't expect gross margins to get to 40% until sort of second half 27 or first half 28. So I guess it's the expectation that it very quickly goes from 40 to 44. Thank you.

Maybe I take this question. Clearly, in terms of gross margin, what we said is that the impact Our reshaping plan in manufacturing will factor in our gross margin once we will close our FAPs. You know that there are four FAPs, the legacy FAPs that we intend to close. and these let's say clearly the impact the positive impact will be visible when we will let's say be able to close this will happen in the second part of next year let's say so means that it will happen toward the end of 2027 and let's say at the beginning of 2028 clearly here it depends on the acceptance of the customer for In this respect, I would say that in any case, we will continue to see improvement of our gross margin moving forward along the various quarters, also due to the fact that we have a positive impact. Manu Fetchering Variants. As I was saying, progressively reducing of our unloading charges and reducing also the temporary impact of negative cost due to the activity to transfer product from the legacy FEB to the new FEB 300 mm or in case of silicon carbide to the 200 mm.

Okay, thank you for all the color there, Lorenzo. For a follow-up, any help you can give us with either context or any sort of tighter range on the data center contribution for next year of well greater than $2 billion, and any help you can give us on how much you expect to be MCUs versus electronic ICUs and PICs and power? Thank you.

Josh, your question was on revenues?

Yes, thank you. A revenue contribution from Data Center.

Okay, so I will give the overall picture and Rémi will comment on the detail. As I said during my speech, This year, we will generate about $1.3 billion revenue for data center. More 85% coming from AMD RF, so mainly microcontroller, silicon photonics, and electronic ICs on ByteDemos. Next year, I will not give in detail. Okay, we will... be well above doubling this number. And we will communicate in January, of course, okay, a number for 27 and an indication for 28. Or maybe, okay, maybe you can comment some more detail.

Sure. Microcontrollers in data centers will see a steep growth year on year. To grow 2x in revenue size, I won't give you the exact number. The contribution of... Silico Infotonics. Next year will start to go and become very relevant. I would say that actually it will be tens of percent of the complete revenue consideration. We will not share the exact details. As to BISIMOS, I think the bulk of the effect we will see is a from 28 onwards, because we've won a lot of sockets over the past quarter, and I think that you'll see the effects mainly in 28, even though actually it would be non-negligible in 27, but I guess from a contribution standpoint, it would be very, very visible in 28.

Thank you, Rémi. About 1.3 billion this year, well above doubling next year, and we continue to grow 28, and we will communicate more detail in January.

Thank you all, I appreciate it. Thank you, Georges. Next question, please.

The next question comes from Francois Bovigny from UBS. Please go ahead.

Thank you very much. I had just a question on the gross margin as well. I mean, a bit more short-term here about the Q1. Thank you very much.

We see gross margin. Clearly, we don't give indication of the gross margin of the following quarter. But what I can say is that we see gross margin at least at the current consensus for Q1. More than that, I would not say more at this stage.

Okay, thank you, Lorenzo. And maybe one on the satellites. Could you maybe update on, you mentioned data center, but what about LEO into next year? How is it shaping? I mean, you kept your guidance for a long time. It's a broad guidance of above 3 billion, but I was wondering if you could give more color on this year and next year as you get more visibility, please.

I pass the question directly to Rémy. Yeah.

We see a lot of momentum across the board, not only in SpaceX, but other programs that are going to be ramping. I would expect actually next year to be as good, if not better than this year in terms of revenue contribution. As a matter of fact, I do believe that we are right now working hard to go and Thank you.

Thank you Francois-Xavier. Next question please.

The next question comes from Sébastien Sabovit from Kepler-Chevreux. Please go ahead.

Hi everyone and thanks for taking my question. On a global basis, what kind of visibility you have for the coming quarters and where the backlog is standing at the end of Q3? And attached to that, on the revenue side, how do you see the seasonality Building up for 27, should we expect a better than usual seasonality?

Thank you. Sébastien, your line was breaking up. Can you rephrase the question, what is the seasonality for Q1, you were asking?

No, seasonality for 27, do you expect better than usual or normal seasonality, being it 27?

Okay, the seasonality will be different. Why? Because as I explained a few minutes ago, we are on a dynamic where we are basically rebalancing the spread of ST across the various verticals. As an example, at the midpoint of the guidance we provide, the automotive verticals weight of total revenue ST will be about 35%. And then industrial will be, let's say, between 22% and 24%. CCP, so means digital infrastructure, so data center, low earth satellite and some legacy will be slightly above 20% and personal electronics 22%. For 2027, we expect to see CCP continuing to grow. So you see the balance between the verticals will be significantly different. Of course, it will impact the seasonality. This is some indication we will give clearly in January.

The first question was on the backlog level today. What kind of visibility do you have for the coming quarters based on your backlog right now?

You see, okay, with a book to build that was well above two, okay, and the revenue of $3.75 billion, now our backlog is well above $20 billion. So it's representing, compare Q4 midpoint of the guidance, now about five quarters of revenue. which start to be appropriate visibility to drive our operation. But we are still far the peak of 2023 and 2022.

Thank you, Sébastien. Thank you. Next question, please.

The next question comes from Menon Yonardan from Jefferies. Please go ahead.

Hi, thanks for taking my question. I'll just start with a sort of clarification, then I have a question after that, but both on gross margin. You had said that you don't expect Q1 gross margin to be at least in line with current consensus. I'm just looking at it both Visible Alpha and Bloomberg. It's about 38%. So are you suggesting that gross margin could decline slightly quarter on quarter, given that You are guiding at 39% in Q4. And then the question also is on gross margin. So your target model, medium term target model is 44 to 46. If you take more than 400 basis points from the FAB conversion, that means you're sort of saying before that comes through, it's about 41%-ish. So it should be assumed that between Q4 this year at 39% and Let's say Q3 2027, your gross margin will essentially go up by give or take around 200 basis points. And then as you go beyond that, you will get the full effect of 400, 450 basis points. And when you gave that target model, you did not have so much of visibility on the AI side where you said that your margin is above the target model on areas like silicon photonics. Given that that is so strong, is there a chance that your gross margin in this cycle, with the help of that as well as pricing, could actually end up above that target model? Thanks.

So, basically, Jardin, you want to know the gross margin in Q1 and for 2027, right? I will let you answer, but you know, I'm not a guy for the gross margin going forward, but Lorenzo.

No, at the end, clearly the path, as we said also before, clearly one of our focuses is to increase our profitability, increase the gross margin. One of the key elements on the gross margin definitely will be our reshaping plan. As we said, our reshaping plan, let's say, will factor in in our gross margin toward the end of next year This is one of the important elements. The other important element is that the growth that we are in AI and the growth in the AI infrastructure and the growth that we have let's say now in the industrial that is very significant as you have seen is a are creative for our gross margin, and this we do expect continuing, let's say, progressively post-2027, so bringing a positive impact on the gross margin. As I said about the gross margin over the Q1 quarter, at this stage, for me, I don't want to guide, but what I said is that it will be at least at the level of the current consensus, And what's to say more than that? Clearly, let's say there are other elements that we need to consider. And one of the elements that you have to keep in mind is that we are also in an inflationary, let's say, environment for which there is cost increase in our input cost. These will, let's say, have some impact, but on the other side, there are other positives that are, as I said, the impact of the improvement manufacturing efficiency, the mix that will enter, and also some continued price increase on our top line.

Understood. Just on the first answer, so you are suggesting, I understand that because of the strong AI growth, You could end up above the target model. Is that the way I should understand your answer?

The question is if we can end up above our target model. The point is that for the time being we target to be at our target model. Of course, as I said, there are many components. One could be the mix. We will update you moving forward in January and during the next year.

Understood. Thank you.

Thank you, Jonathan. Next question, please.

The next question comes from Gianmarco Bonaccina from Banca Acros. Please, go ahead.

Yes, good morning. Just a follow-up on your book to build, if you can provide a little bit more color for the different verticals. And also, you talked about seasonality for the year. If you can give also some indication, given that you indicate you have good visibility also in terms of the Q1, also with the comment you made on the calendar days, we know that normally Q1 is... Down about 10% sequentially. So if you can indicate directionally this time, given seasonality and visibility, maybe the performance will be different. Thank you.

So about the book to build, that is significantly above two for ST overall. It's above one for each of our end markets, product group and region. and specifically it is well above two for communication equipment and computer peripheral and industrial. When I say well above two, I have to say well above three. About the seasonality, again, We can say similarly Lorenzo commented that we feel comfortable to deliver the gross margin at least at the consensus for Q1. We feel comfortable to deliver at least the revenue consensus for Q1 on the calendar we have indicated.

Thank you. Despite having only 86 days in Q1. Thank you. Thank you. Next question, please.

The next question comes from Didier Chemama from Bank of America. Please, go ahead.

Yeah, thank you. Good morning, gentlemen. Two questions. One, can you give us a sense of the early indications of your pricing negotiations with your tier one customers? If that, you want to share anything about that? and I've got a follow-up, thank you.

Let's say that what we can say is that in terms of pricing, we confirm that in this context, that these higher input costs and increasing lead time, we are increasing pricing on some selected products. This, of course, is an ongoing process. When we look, let's say, about pricing, assuming that this gap between supply and demand remains, and this is what we see today when we look at the evolution of our backlog and when we look at the building, let's say, the fact that next year we may have, in terms of pricing, stability or slightly increase, But this is not out of reach. We think that is something that we may see. Anyway, at this stage it's a little bit early to comment more in general because, as you can understand, the discussion for next year, let's say, has not yet been completed. So we are in discussion with our customers.

Yeah, no, very clear. Sorry, I just want to understand better what you're trying to say for Q1, because you just said a number of things which are, in my understanding, contradictory to what you said before, so just wanted to make clear. The number of calendar days in Q1 implies a decline of about 10.6% sequentially, and then you've got normal seasonality of down 10. So let's say call it minus 21. Consensus is like minus 5, minus 6, and you just said you think you'll be in line with consensus on revenues adjusted for the calendar number of days. So, sorry, I'm not sure what to understand from all of that. If you could help me, that would be great. And related to this, the season 18 Q1 normally is strongly influenced by your personal electronic business and by the price cuts that you give to your Q1. So you've answered the second part. On the personal electronic side, it looks like your Q3 was a lot better than expected. Is there a risk of a pull-in or is it genuine and demand and therefore no risk that Q1 is worse than seasonal, let's say?

We try to be much more clear. With the visibility we have, with a quarter of 86 days, we are comfortable to deliver the consensus of Q1.

Very clear. Thank you. And on the personal electronics, I mean, Q3 strength, was that a pull-in or do you think that was just end demand being better than expected? I mean, you guided very cautiously for Q3 internists.

No, no, no. There is no specific pull-in. We just deliver the demand of the customer. And no, we don't see a specific pull-in.

All right. Very clear. Thank you so much. Thank you, Didier. Next question, please.

The next question comes from Jacob Bluestone from BNP Paribas. Please go ahead.

Hi, thanks for taking the question. I just had a question on your silicon photonics ramp. Just wondering if you can give a little bit of an update on how that is progressing in terms of yields and maybe if you can also update us a little bit on your expansion of your production capacity there.

Thank you. I pass the question to Rémy.

Hi, Jacob. Going past the plan, the electro-optical yield our customers are getting at this stage are setting a new bar for the industry. I keep in mind that we are truly the only at scale 12-inch I4 player shipping right now and I think it speaks volumes for the value of 12-inch in critical dimension and yield entitlement. So I can say with high confidence that our customers are very, very, very happy with the yield that our technology platform is providing. Clearly, this year, the contribution is not marginal, but it's not at all to the tune of what it will be next year. There will be, we expect, a steep growth, which itself is backed up by the fact that we've communicated that we'll increase capacity by 4x year on year. Actually, it will be a little bit more than 4x when you look specifically at the number. So I think silicon photonics in ST is going to be a long, gross story, for which we happen to have actually long-term visibility.

Do you have a follow-up, Jacob?

A quick one, maybe, I don't know if you can comment at this point, but just in terms of the, you obviously had lower OPEX this quarter, obviously flagging a little bit of a step up for Q4. Just sort of, if you can maybe just give us an update on the outlook for your OPEX beyond here. Do you think it could be sort of flattish next year, or given some of the cost inflationary pressures you flagged, could it be up next year?

On the OPEX of next year, directionally, I would say that they will go up. At this stage, it's a little bit too early to comment, but keep in mind that during 2027, we will keep on continuing our cost savings programs, which should bring, let's say, something in the range of 100, 120 million dollars benefit. We should have also, especially in the second part of the year, some decline in our startup costs. This means that are impacting our other income and expenses in a negative way. Conversely, on the other side, we are accelerating some of our investment in new business opportunities that you can imagine. On the other side, there will be also, let's say, some impact related to the normal wage, salary inflation, these kind of things. So there will be some increase next year, well below, let's say, with any way an improvement in our expense-to-sales ratio. Very clear. Thank you.

Thanks, Jacob.

Next question, please.

The next question comes from Stéphane Oury from OdoBHF. Please go ahead.

Yes, hello. Thank you very much. First question is a clarification on what has been said about the satellite opportunity for next year. Because basically you're saying you're not sure you will grow, but you're working hard to to do so. Can you maybe elaborate and separate a little bit what is the hand demand at the moment and how many customers you have beside your main customer and what is also linked to the capacity ramp issues? Thank you.

I'll repeat what I said, Stéphane. I said that actually I expect next year revenue to be same or better than this year revenue. That's the first thing I've said. This year revenue was a record year for that business due to the fast growth of major customers. Next year, that growth continues unabated and comes with additional customers piling on top. and we are actually working hard to release pockets of capacity to be able to capture the entire demand they have. Because I can say with confidence that at this stage, when we look at front-end module technology and of BISIMOS technology, there is nothing coming close to it. And keep in mind that actually technology matters in that case because the noise figures that you can actually get out of the technology will translate into the efficiency of the spectrum, which itself translates into the efficiency of the deployment. So we truly have a first-row seat position in those accounts. And right now, I would state that next year, we are most likely going to be capacity-gated and demand-gated. And we are working to go and, as usual, to find ways to go and release more and more capacity over time. That's the summary of what I said.

Okay, thank you very much for repeating that then. And the second question, the follow-up is about automotive. We didn't speak a lot about automotive today and there is a sense that the book to build seems to be above one, so improving at the same time the situation among the automotive customers doesn't seem to improve. So what is your view on what's going to happen in 2027 and if you can Maybe elaborate a bit about the electromobility opportunity and the software-defined vehicle opportunity at the same time. Thank you.

First of all, the visibility we have from our European Tier 1 is really stable since more than six months now, which is really positive compared to the previous year. In 26, we expect to grow for the full year 26 on automotive, let's say slightly above 10% for us. That is basically consistent with the market. It is pretty well spread with our main product group, except of course radio frequency and Optical cable, we are not yet putting optical cable in cars but between IMS and power discrete and let's say the digital ambient processing solution the growth will be pretty similar but then yes we are seeing an acceleration of our power discrete in Q4 and the year-over-year growth of PowerDiscrete overall in Q4 will be well above 20%, 25%. So this is driven by the European market of electromobility. So we expect next year the automotive verticals to contribute to the growth of the company. Most likely, Pretty well the average, because I repeat, next year, the growth driver of the company will remain the AI data center, will remain the infrastructure in industrial, will remain the B2B industrial business, so for factory automation, robotics, this kind of stuff. Consumer overall, we believe, will remain soft or weak. Good confidence level to continue to grow in automotive, driven by European electromobility and also the many socket widths we have in thermal combustion engine cars and hybrid.

And just a view on silicon carbide for 2027?

Silicon Carbide, first of all this year we will grow about 20% which is positive news. So clearly the main growth driver is European electrical car and this will continue next year. Importantly, okay, for us on silicon carbide, okay, and also part of our, let's say, turnaround of the profitability of this group is diversification. We have engaged, first of all, for the power supply of data center, but also for power application, requesting high power conversion in the industrial market. So next year will be another year of growth, of significant growth for our silicon carbide. And we expect to have the benefits of the wafer size conversion to 8-inch, both from Catania and Chongqing.

Thank you. We have time for one more question.

The last question comes from Sandeep Deshpande from JP Morgan. Please, go ahead.

Yeah, hi. Thanks for letting me on. Just quickly coming back to the gross margin question, you've got this 400 bps of gross margin improvement once the reshaping program is over. How much of that is coming from, you know, today you're running both the 200 and 300 millimeter fabs, and so what percentage of your gross margin uplift is from that versus how much of it, could you remind us, is coming from because you're going to have lower costs on the wafer, etc., associated with the shift to 300 millimeters? and my second question is that despite your revenue growth, which was quite considerable in both the analog MEMS and census business and in your power industry business, your margin actually declined year on year in both those business units. Why was that?

Okay. In term of, let's say, clearly improvement of Above 400 basis points is a combination of different elements. Clearly, the size of the wave, the fact that we move from FAPs that are poorly automatized, so with a significant cost of labor, on, let's say, FAPs that are much more automatized. Now, to split, let's say, the various contributors is a little bit complex to be done. When we look, let's say, the profitability of AMS, let's say, overall going down on a year-over-year basis, clearly here is the group where is mainly major impact, where there is the major impact of the legacy fab that we are Thank you very much. and the agency of this FEB on which we are transferring the cost. So here, when we look at this segment, clearly here is now suffering about this transition phase. It's also true that there will be one of the groups that will, let's say, enjoy more when we will finally move to the new FABET, to the most advanced FABET here, especially for the 300 millimeter. And at the same time, the power and discrete, where power and discrete will enjoy the move from the 150 to the 200 millimeter.

Just a quick question on this. When you talk about the guidance of 39% gross margin in the fourth quarter, you've highlighted how much of that is under, how much underloading is involved. But how much of this 39% gross margin has negative impact from this double counting of cost, etc.?

So for what concern, let's say the underloading, yes, is 40 basis points. The extra cost, let's say, related to the UMASC transfer of the process, trials and so on, we estimate that in the range of 30 basis points. It's more difficult to say, let's say, the overall inefficiency created by this activity in the Fed. You know, it's something that we don't quote because it's a little bit more difficult to really say what is this impact. But this is an impact that, of course, will disappear when we will move, let's say, to the new Fed. Anyway, it's 40 basis points, let's say, the unused, and 30 basis points, the extra cost. This is what we report usually each quarter.

Thank you Sandeep and thank you everyone. I think that concludes our call. So thank you everyone for joining us and feel free to reach out if you have further questions on the IR team.