STMicroelectronics (NYSE:STM) reported second-quarter 2026 revenue above the midpoint of its outlook and said demand accelerated across all end markets, with management pointing to particularly strong momentum in AI data centers, optical connectivity and industrial applications.
President and Chief Executive Officer Jean-Marc Chery said second-quarter net revenue was $3.49 billion, supported by higher sales in communication equipment, computers and peripherals, and automotive. Gross margin was 34.8%, while non-U.S. GAAP gross margin was 35.2%, both in line with the midpoint of the company’s outlook. Non-U.S. GAAP diluted earnings per share were $0.31.
Revenue Growth Across End Markets
Automotive revenue rose 14% sequentially and 16% year over year, ahead of company expectations. Chery attributed the growth to ST’s position in application-specific ICs and sensors for conventional applications, electric powertrain and advanced driver-assistance systems. He said the company secured design wins in hybrid electric and conventional vehicles, including onboard chargers, powertrain and active suspension applications.
Industrial revenue increased 20% sequentially and 34% year over year. Chery said distributor inventory declined further and is now below ST’s standard target. Growth was driven by general-purpose microcontrollers, analog products, application-specific analog products and power conversion products. He also highlighted product introductions for industrial condition monitoring and edge AI, including industrial MEMS sensors with embedded AI and a compact 3D LiDAR module.
Personal electronics revenue increased 3% sequentially and 20% year over year. Chery said the growth reflected increased content per device in engaged customer programs and better-than-normal seasonality. During the quarter, ST introduced a secure chip combining post-quantum cryptography acceleration with NFC, secure element and eSIM functions, as well as a new generation of ultra-low-power global shutter image sensors.
Communication equipment, computers and peripherals revenue increased 13% sequentially and 50% year over year, coming in above expectations. Chery said growth was driven by engaged customer programs with custom-designed products and was boosted by microcontrollers for optical connectivity.
AI Data Center Outlook Raised
Management raised its revenue ambition for data centers, citing strong traction in optical connectivity and AI infrastructure. Chery said ST now expects data center revenue above $1 billion in 2026 and, assuming current dynamics continue with current customer engagements, “well above $2 billion” in 2027.
Rémy Wazzan, President of the Microcontrollers, Digital IC and RF Product Group, said ST is seeing acceleration in adoption of 800G and 1.6 terabit-per-second pluggable optics. He described three drivers: a large market share in microcontrollers for the control plane, growing share in electronic ICs based on ST’s BiCMOS technology and a growing contribution from silicon photonics beginning in 2027.
In response to an analyst question, Wazzan said ST is not currently constrained by capacity expansion in silicon photonics, citing scalability in the company’s Crolles facility. Chery added that demand is the primary driver of the increased data center outlook, with 2026 revenue fully covered by backlog and 2027 expectations supported by customer engagements.
Profitability and Cash Flow
President and Chief Financial Officer Lorenzo Grandi said gross profit rose 31.1% year over year to $1.22 billion. Gross margin increased 130 basis points from the prior year, mainly due to lower unused capacity charges and better product mix, and rose 100 basis points sequentially. He said second-quarter gross margin included about 60 basis points of negative impact from non-recurring costs tied to ST’s manufacturing reshaping program, a cost level expected to remain similar for the rest of the year.
Second-quarter operating income was $187 million, including $58 million for impairment, restructuring charges and other related phase-out costs, as well as a $24 million purchase price allocation effect related to ST’s acquisition of NXP’s MEMS Sensors business. Excluding those items, non-U.S. GAAP operating income was $269 million and non-U.S. GAAP operating margin was 7.7%.
Net income was $222 million, compared with a net loss of $97 million in the year-ago quarter. Diluted earnings per share were $0.24, compared with a loss of $0.11 a year earlier. Non-U.S. GAAP net income was $291 million.
Net cash from operating activities was $502 million, including a $44 million outflow related to restructuring. Free cash flow was positive at $75 million, compared with negative free cash flow of $152 million in the second quarter of 2025. Inventory ended the quarter at $3.19 billion, and days sales of inventory declined to 126 days from 140 days in the prior quarter and 166 days a year earlier.
Grandi said ST now expects 2026 net capital expenditures to be at the high end of its $2 billion to $2.2 billion range, reflecting accelerated investment in selected growth drivers, including cloud optical interconnect. The company ended the quarter with a net financial position of $2.01 billion, total liquidity of $6.03 billion and total financial debt of $4.02 billion.
Third-Quarter and Second-Half Outlook
For the third quarter, ST expects revenue of $3.7 billion, plus or minus 350 basis points. At the midpoint, that would represent sequential growth of 6.2% and year-over-year growth of 16.2%. The company expects gross margin of about 37%, plus or minus 200 basis points, including about 70 basis points of unused capacity charges.
Chery said personal electronics seasonality is expected to be different from prior years, with revenue growth in that end market below normal seasonality in the third quarter. He said that dynamic will moderate ST’s sequential growth in the period. For the fourth quarter, he said ST expects revenue above $4 billion, with sequential improvement better than normal seasonality, driven mainly by engaged customer programs in AI data centers and low Earth orbit satellite communication.
In the question-and-answer session, Grandi said gross margin should improve sequentially in the fourth quarter from the 37% midpoint expected for the third quarter. However, he said the improvement would be limited by headwinds, including underloading charges related to fab startups, manufacturing reshaping costs and the absence of a foreign exchange benefit seen in the third quarter.
Management also reiterated that its longer-term gross margin model depends not only on revenue levels but also on completion of the manufacturing reshaping program. Grandi said the company remains in the middle of transfers from 200-millimeter to 300-millimeter silicon production and from 150-millimeter to 200-millimeter silicon carbide production.
Other Growth Areas
ST also discussed opportunities in low Earth orbit satellite communications. Chery said ST expects its addressable market in that area to reach about $3 billion by 2030, around four times the 2025 level. He said the company expects to generate “well above $3 billion” in cumulative space revenue from 2026 through 2028, mainly with BiCMOS, FDSOI and panel-level packaging technologies.
Asked about silicon carbide, Marco Cassis, President of the Analog, Power & Discrete, MEMS and Sensors Group, said second-quarter silicon carbide revenue grew in the low teens year over year and in the mid-30% range sequentially. He said bookings were strong, with book-to-bill well above one, and said ST expects silicon carbide revenue to grow double digits in 2026 versus 2025 based on design wins and visible backlog.
Chery said ST remains confident in reaching its $18 billion revenue target in 2028, with AI data centers among the key growth drivers. He said the data center business is accretive to gross margin and supports the company’s longer-term model, assuming the manufacturing reshaping program is completed on time and foreign exchange conditions remain stable.
About STMicroelectronics (NYSE:STM)
STMicroelectronics is a global semiconductor company headquartered in Geneva, Switzerland, formed through the 1987 merger of SGS Microelettronica and Thomson Semiconducteurs. The company designs, develops and manufactures a broad range of semiconductor products and solutions that serve multiple end markets worldwide. ST’s offerings span from basic components to integrated systems, emphasizing energy-efficient and high-performance devices for modern electronics.
Product categories include microcontrollers (notably the widely used STM32 family), analog and mixed-signal ICs, power MOSFETs and power-management devices, MEMS and sensors, image sensors, and discrete semiconductors.
