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AI data-center revenue is expected to exceed $1 billion in 2026 and rise well above $2 billion in 2027, with connectivity products—including silicon photonics, microcontrollers and BiCMOS chips—accounting for about 80% of next year's billings.
STMicroelectronics expects more than 400 basis points of gross-margin improvement from closing two older 200-millimeter factories and two 150-millimeter silicon-carbide fabs, with the main benefit arriving in late 2027 or early 2028.
Strong bookings, lean inventories and demand exceeding available capacity are supporting pricing, while automotive and silicon-carbide demand remain robust; silicon-carbide revenue is expected to grow double digits this year and return to roughly $1.01 billion next year.
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STMicroelectronics (NYSE:STM) CFO Lorenzo Grandi said the chipmaker continues to see strong bookings, lean inventory and improving demand visibility across its end markets, with particular strength in artificial intelligence infrastructure, automotive and industrial applications.
Speaking at a Citi technology event, Grandi said conditions have remained broadly unchanged since the company's second-quarter earnings report. "The booking is still very strong," he said, adding that the company's book-to-bill ratio remains "well above 1x" across the markets it serves.
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Demand for AI infrastructure has become a particularly visible trend, while automotive and industrial demand also remains robust, according to Grandi. He said lead times for some industrial products have risen to as much as 50 weeks, compared with a substantially different environment last year, when the industry was still dealing with elevated distribution inventories. Inventory at distributors is now "super lean," especially for those products, he said.
Grandi said STMicroelectronics expects data-center revenue to exceed $1 billion this year and rise to well above $2 billion next year, reflecting demand across thermal, power and connectivity applications. The largest contribution is expected to come from connectivity products, including silicon photonics, microcontrollers and BiCMOS electronic integrated circuits used in optical transceivers.
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He said the connectivity segment is expected to account for roughly 80% of the company's data-center billings next year, with the remaining 20% coming from applications serving thermal and power flows.
The company's power opportunity in AI infrastructure is more long-term. STMicroelectronics is building a portfolio for new 800-volt power architectures and expects power-related revenue to become meaningful after 2028. In the near term, Grandi said, data-center growth will be driven primarily by connectivity.
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Customers are seeking long-term agreements that lock in capacity, volumes and pricing, with some agreements including cash advances, Grandi said. He did not provide a specific silicon-photonics market-share figure but said STMicroelectronics believes it has a leading position through its technology, including its PIC100 platform.
The company plans to invest to meet demand, using its 300-millimeter manufacturing infrastructure to increase capacity. Grandi noted that investments supporting silicon photonics can also be used for other technologies, such as microcontrollers, giving the company flexibility if product demand changes.
On profitability, Grandi said STMicroelectronics' guided 37% gross margin for the current quarter includes roughly 70 basis points of underloading charges and about 50 basis points of additional costs related to its manufacturing reshaping program.
The most significant margin improvement is expected to come from closing two older 200-millimeter factories and two 150-millimeter silicon-carbide fabs. Grandi said those closures should provide more than 400 basis points of positive gross-margin impact.
However, he characterized the benefit as a "step function," because the larger cost reduction will occur only when facilities can be shut down. The company has completed the work within its control, including building capacity, transferring processes and duplicating products at newer fabs, he said. It is now sampling customers and awaiting product qualifications.
STMicroelectronics expects the major margin benefit from the closures to arrive at the end of 2027 or in early 2028, depending on customer qualification timelines. Before then, the company expects incremental improvements as underloading charges and duplication costs decline, manufacturing efficiency improves and product mix shifts toward higher-margin offerings such as silicon photonics.
Grandi said demand and backlog currently exceed STMicroelectronics' available capacity, creating an environment for price increases. The company is seeking price increases that at least offset higher input costs and provide some additional benefit, though he said the approach is not intended to be overly opportunistic.
He expects overall pricing to be broadly flat to slightly higher, rather than declining as is typical in the semiconductor sector. Price increases can be implemented more readily in some distribution and smaller-customer product categories, including STM32 microcontrollers and certain analog products, while pricing for larger customer programs is often governed by contracts.
In automotive, Grandi said customer forecasts have increased throughout the year, rather than declining from initial annual expectations. The company sees strong demand across multiple quarters, recovery in silicon carbide and no evidence of channel inventory buildup. He said customers quickly escalated supply issues stemming from a second-quarter disruption at STMicroelectronics' Singapore fab, underscoring the limited inventory available in the supply chain.
Distribution inventory is broadly back to normal overall, but remains below normal levels for microcontrollers, Grandi said. He described a typical inventory level as 12 to 13 weeks, while current inventory for certain products is materially below that range.
Silicon-carbide revenue is expected to grow at a double-digit rate this year, and Grandi said visibility for next year points to revenue returning to approximately $1.01 billion. The company is transitioning silicon-carbide production from 150-millimeter to 200-millimeter wafers, a move expected to improve profitability over time.
Grandi said the company expects its Power & Discrete business to return to profitability around the end of next year or in early 2028, aided by 200-millimeter production in Catania and Chongqing, though customer qualification requirements mean the transition will take time.
He added that the company's satellite business is approaching $1 billion in revenue and is expected to continue growing over the next three years. While STMicroelectronics may lose some share with existing customers as additional suppliers enter the market, Grandi said the company is already shipping to new customers and expects cumulative satellite revenue over the next three years to remain well above $3 billion.
STMicroelectronics N.V. (NYSE: STM) is a global semiconductor company that designs, develops, manufactures and markets a broad range of integrated circuits and electronic components. Its products are used in automotive systems, industrial equipment, personal electronics, communications infrastructure and other embedded applications.
The company's portfolio includes microcontrollers and microprocessors, analog and mixed-signal devices, power semiconductors, sensors, MEMS devices, connectivity products and automotive semiconductors.
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The article "STMicroelectronics Sees AI Data-Center Revenue Surging Past $2 Billion in 2027" was originally published by MarketBeat.
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