IN Brief:
- Third-quarter revenue rose 17.9% year on year to $3.76 billion, with a 37.3% gross margin.
- Embedded processing and RF optical communications contributed to the growth in semiconductor product revenue.
- ST targets approximately $4.15 billion in fourth-quarter revenue and about $14.5 billion for the full year.
STMicroelectronics recorded third-quarter net revenue of $3.76 billion, an increase of 17.9% year on year, as demand strengthened across several semiconductor businesses. Revenue rose from $3.49 billion in the second quarter and $3.19 billion in the equivalent 2025 period. Gross margin reached 37.3%, compared with 34.8% in the preceding quarter and 33.2% a year earlier. The company expects further sequential sales growth in the final quarter, supported by stronger bookings and a changing mix of products.
Operating income reached $367 million, up from $187 million in the second quarter and $180 million a year earlier. The operating margin improved to 9.8%, while net income was $291 million, equivalent to diluted earnings per share of $0.31. ST also reported non-US GAAP operating income of $429 million and non-US GAAP net income of $344 million. Those adjusted figures exclude specified items and must be read separately from the company’s statutory results.
Analogue products, MEMS and sensors generated $1.56 billion in quarterly revenue, up from $1.43 billion in the second quarter. Power and discrete products contributed another $477 million, against $464 million sequentially, but recorded an operating loss of $81 million. Together those segments form ST’s Analog, Power & Discrete, MEMS and Sensors product group, which recorded approximately $2.04 billion in revenue. The negative result in power and discrete products contrasts with the wider improvement in the group’s sales.
Embedded processing contributed $1.21 billion, up from $1.15 billion in the second quarter and $976 million in the year-earlier period. The segment encompasses processing technologies used across connected and industrial systems, where chip selection can shape computing capability, peripheral integration and software development requirements. RF optical communications added $504 million in revenue, up from $445 million sequentially and $345 million a year earlier. These two segments sit within the company’s Microcontrollers, Digital ICs and RF products group.
ST linked part of its revenue growth to AI data centres and low Earth orbit satellite communications, two areas requiring different combinations of power devices, signal processing, control and high-speed connections. Its RF optical communications segment is exposed to demand for optical data links, while embedded processing covers processing components used across industrial and connected systems. The company’s segment reporting measures sales by product family; it does not establish that every device within a segment experienced the same rate of growth.
Gross margin improved as revenue increased, with manufacturing utilisation and product mix contributing to the change. Semiconductor factories carry substantial fixed costs, so output volumes influence how much manufacturing expense is absorbed by the products made during a period. Demand for higher-value devices can also change the overall sales mix. ST continues to reshape its manufacturing footprint and cost base while investing in selected technologies, leaving the quarterly margin sensitive to capacity utilisation and the eventual balance of product demand.
Distribution accounted for 32% of revenue during the quarter, compared with 30% in the second quarter and 27% a year earlier. ST reported that inventory in the distribution channel continued to run below its standard target, while the company’s own inventory increased slightly in preparation for expected fourth-quarter sales. Channel inventory and manufacturer inventory serve different purposes: one supports customer availability through distributors, while the other covers production and fulfilment needs within the supplier’s operations.
For the fourth quarter, ST expects revenue at a midpoint of $4.15 billion, representing approximately 10.5% sequential growth and 24.7% growth against the year-earlier period. Its gross margin midpoint is 39%, including an estimated 40 basis points of unused capacity charges. The company uses these assumptions to indicate approximately $14.5 billion in revenue for full-year 2026, or 22.8% annual growth, with an expected full-year gross margin of about 36.4% on a US GAAP basis.
ST is expanding selected capacity while continuing its manufacturing and cost-base restructuring. The fourth-quarter midpoint forecast assumes further sales growth and a 39% gross margin, but the final result will depend on production utilisation, product mix and realised demand. The contrasting operating performances of embedded processing, RF optical communications and power and discrete devices provide separate measures of how broadly the semiconductor recovery is progressing.
