STMicroelectronics N.V. (STMPA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the STMicroelectronics Capital Markets Day 2020 Strategic Update Presentation Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. [Presentation]

Good morning, everyone. Thank you for joining the fourth and last session of our Capital Market Day 2020, the presentation of our strategic update. Jean-Marc Chery, ST President and Chief Executive Officer, will host this session. He will be joined by Marco Cassis, our President of Sales, Marketing, Communication and Strategy Development; Orio Bellezza, our President of Technology, Manufacturing and Quality; and Lorenzo Grandi, our President of Finance, Infrastructure and Services and Chief Financial Officer. Their presentation will be followed by a Q&A session. Similar to the prior 2 ones, we will host it on an audio-mode only. This live webcast and presentation materials can be accessed on ST's Investor Relations website, and a replay will be available shortly after the conclusion of the event. The presentations will include forward-looking statements that involve risk factors that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement in ST's most recent regulatory filings for a full description of these risk factors. [Operator Instructions] With this, I will now turn the floor over to Jean-Marc.

So good morning, everyone, and thank you for attending this final part of ST 2020 Capital Markets Day. I hope that the first 3 events focused on our 3 product groups have given you a deeper understanding of ST product strategies, leading position and our success factors or differentiators. Today, after my introduction, our goal is to go more into details on 3 topics. The evolution of our served market and our end market strategies with Marco, an update on our technology and manufacturing strategy with Orio and our financial model and midterm target with Lorenzo. Now I take the opportunity to confirm, first, that we are determined to continue to make ST stronger. We have the ambition to outperform the market we serve and become a sustainable and profitable $12 billion company in the midterm. This stems from our balanced market position, a focus on high-growth applications and our solid product IP technology portfolio. It is supported by our operating discipline and by a number of improvement or transformation programs we are engaged in. We have fueled our ambition and our executing our plan, however, under market conditions that are notably different compared to when we met in May 2019. First, our sales market as a whole, did not grow substantially during the past 2 years. Certainly, we are currently witnessing a significant turnaround, but with very different dynamics in our verticals compared to those we were expecting. Also, we need to take into account the U.S.-China trade war implications with a de facto embargo so far preventing us from selling our custom design solutions to an important customer. For a period of time, this will have an impact on the average content value. We will be able to extract from both personal electronics and communication infrastructure end markets. Finally, coming back to the different verticals dynamics. The automotive SAM should grow about 13% on average over the next 3 years, but starting from a 9% decrease in 2020 versus the 2019 levels. The industrial SAM should grow 5%, but with a 3% decrease in 2020 versus the 2019 levels. This situation in the 2 end markets where we are broadly exposed is not going to help offset the impact on our plan of the likely trade war-related revenue losses. This, despite the fact that we continuously outperform these 2 verticals for multiple years across semiconductor market cycles. Based on our latest assessment and current visibility, we have built a sales and operating plan to reach $12 billion full year revenues by 2023 with the corresponding operating margin model that delivers between 15% and 17%. We will maintain a solid financial position in the period, along with a strong ability to generate free cash flow. Importantly, we will continue to invest in product and technology R&D to fuel the pipeline of opportunities we see. I would like to confirm as well there is no change in ST's strategy, end markets focus, strategic objective and value proposition. I will briefly outline each of these now. First, about our strategy. It is based on a model of organic growth toward $12 billion with small and targeted strategic acquisitions. Internal design and manufacturing are the core of our operational activities, complemented with about 30% external activities with selected partners, and maintaining and improving a solid capital structure. Our strategy stems from the 3 long-term enablers, smart mobility, power and energy and IoT and 5G. These are driving our investments and road map decisions, ultimately helping solve some of the major challenges our customers and the world are facing. Next, our end market focus. We are addressing the automotive and industrial markets with a broad approach, leveraging all business models and ST key enablers to reach leadership positions. We are addressing personal electronics, communication equipment and computer peripherals through a more selective approach with custom design business model, taking advantage of the key capabilities that differentiate us. Here as well, we leverage our general purpose product portfolio across this market, targeting high-volume applications. We address these end markets with a well-balanced go-to-market approach directly or through great partnership with distributors, providing our over 100,000 customers product design on our proprietary technologies or selectively external ones. Concerning our strategic objectives. In automotive, we are determined to achieve leadership in car electrification and digitalization. In industrial, we aim for leadership in embedded processing, to accelerate growth in analog and sensors, to expand on power energy management and to accelerate growth with industrial OEMs. In personal electronics, we target leadership in selected high-volume smartphone applications with differentiated products or custom solutions. And we want to leverage our broad portfolio to address high-volume application. In communication equipment, computers and peripherals, we address the market similar to personal electronics with a selective approach. And finally, our value proposition, which underlies all the choice we make. For our shareholders, we are committed to return value in line with our sustainable profitable growth objective. For our customers, we provide the differentiating enablers they need to succeed in their markets. These enablers are technology, IP, products, application know-how and the associated ecosystem. A key factor is also our independent, reliable and secure supply chain to support their growth. For all other stakeholders, people, communities and society at large, our value proposition is a strong commitment to sustainability. This short video will give you an introduction before I give you the details. [Presentation]

So indeed, today, we are announcing that ST stepping up its ambition and plans for the sustainability of its operations. We plan to become carbon-neutral by 2027 for the 40th anniversary of ST's creation. We have built a comprehensive road map to carbon neutrality, which includes 2 specific targets. First, compliance with a 1.5-degree Celsus scenario, defined at the Paris COP 21 by 2025, which implies a 50% reduction of indirect emissions compared to 2018. Second, we intend to source 100% renewable energy by 2027. We will also implement collaborative programs and partnerships in all our ecosystems to promote carbon neutrality among stakeholders and to encourage environmental innovationis. It is with a great pleasure that I would like to complete my introductory speech today to announce that, in January, we will welcome ST's new President of Human Resources and Corporate Social responsibility, Rajita D'Souza. Rajita brings with her 27 years of experience in an international carrier built with 4 major European and U.S. manufacturing and services companies. Rajita will be a perfect fit with ST's management team to successfully address the value challenges I have shared with you today. I will now leave the stage to Marco, Orio and Lorenzo to share with you our plans to make ST even stronger with our ambition to outperform our served market, becoming a $12 billion profitable company in the midterm while continuing to demonstrate resilience within the current changing dynamics and keeping a solid financial structure. Thank you for your attention. I am now pleased to hand over to Marco Cassis.

Thank you, Jean-Marc, and good morning, everybody. My presentation is designed to give you more details on our served markets evolution in the context of this unprecedented year as well as on our strategy and updated approach by end market. We experience the headwinds, but the strength of our product portfolio and customer base gives us the ability to cope with the short-term market dynamics while we continue to take advantages of opportunities driven by the technology disruptions happening on the market. We are convinced that ST is well positioned to outperform its served markets in our strategic focus areas. So let's begin. Let's start by looking at the development of the market over the past few years. After 2 years of strong growth, our served markets had low or no growth in 2019 and 2020. For 2020, the current WSTS forecast is for our SAM to be up overall 2.4% with significantly different dynamics by end market. We are not equally exposed to all parts of the market. As Jean-Marc just mentioned, in automotive and industrial, we are broadly exposed. In personal Itronics, computer peripherals and communication infrastructures, we have a more selective approach. So our performance depends less on the overall market trend. Taking this into account, we estimate the growth of our effective market to be overall flattish in 2020. In both cases and based on our Q4 revenue guidance, we will clearly outperform the market this year. Looking at our served markets, we see that for automotive and industrial, 2020 is a kind of a reset here. In the midterm, the automotive SAM will grow at 13% on average over the next 3 years, but from the very low 2020 levels. Industrial will be growing 5%, but again, from low 2020 levels. And these dynamics are somewhat reversed for the other 2 markets. You can see in this chart, the delta between the latest forecast for the 2020 SAM and the forecast from May 2019. We see that the SAM is significantly lower for both automotive and industrial. While it has increased for personal electronics and communication equipment, computers and peripherals. But we did perform well this year. One of our points of strength is the solid position we hold across all the markets we serve. You can see here that in product areas where we target to be broad, we have leading position across our portfolio. And in those markets where we also have a selective product approach or we invested early in innovation like in silicon carbide, we are market leaders. Our go-to-market approach is well balanced. Today, we serve over 100,000 customers with a differentiated model depending on the customer type. Our model for serving our customers has not changed, and we have a balance here between customers from our end markets, including new entrants to the top 10, in line with our strategic focused areas. Bosch, Continental, Inter-Mobileye and Tesla from automotive; Apple, Huawei and Samsung for personal electronics; Ciena, HP and Seagate from communication equipment, computer and peripherals. For industrial, due to the fragmented nature of this market, we do not yet have a top 10 customer, although, as you will see later, we work with many of the top players. Our sales are balanced across the regions in which we design in our products as well as by customer type and channel. This balance has shifted somewhat in the 9 months of 2020, reflecting the weakness in automotive and industrial markets in the first half of the year. The same dynamics are visible from lower distribution sales and lower revenues coming from European customers due to their exposure to automotive and industrial. I will move now to a discussion of our end markets. For each, I will start with a recap on our strategy and approach then move to discuss the key changes in the market and any adaptation of our strategy. I will then give you some more color on the market trends and how we are addressing them. This will be linked to what you have already seen in the presentation from my colleagues of the product groups. Let's start with automotive. Here, our objectives are to lead in car electrification and digitalization. As Marco Monti has already explained, our business model is to collaborate with car manufacturers, Tiers 1, and the technology leaders to develop leading-edge automotive solutions. We also partner with distribution to address a broader customer base, and we have specific solution we deploy here such as full kits. We also have specific partnership in China that are crucial to long-term success. So what are the key developments in the automotive markets? Here, I will not list again everything that has already been discussed. But to summarize, the longer-term trends, whether in technology, legislation or consumer behavior confirm the strategic direction we have taken to focus our investment on car electrification and digitalization. The main market changes compared to the last Capital Market Day have been the deterioration of the environment with car sales down by 20% in 2020. This has put higher pressure on legacy automotive business closely linked to volumes. In parallel, the automotive industry has adopted an accelerated path toward greener and safer cars. In light of this, our strategy in automotive remains unchanged. As described by Marco Monti, our reaction has been to accelerate our ongoing action plans to better serve macro trends. This includes expanding our electrification programs based on the silicon carbide, IGBT, microcontrollers and smart power solution as well accelerating partnership in Asia for electrification. We have also increased our efforts on gallium nitride material. Another example has been to refocus of efforts on L2, L2++ program in ADAS, in line with customer demand. I would like now to reiterate what Marco Monti presented in the ADG presentation. ST is the only company among the top automotive players that grew on average in the last 3 years by more than 10% per year. The industry in the same period grew by 5%, and the top 3 players by 2%. Also in the first half of 2020, we believe that ST gained market share, driven by our efforts on electrification and ADAS where we clearly outperform the market. The automotive semiconductor market is driven by the combination of car volumes and silicon content. After a difficult 2020, car volumes are forecast to recover and grow over the next 3 years with still quite some variability in the forecast and with a significant shift of mix between internal combustion engine and electric or hybrid vehicles. This is an important factor, being one of the key drivers for silicon content growth in the coming years. If we look now at the total automotive semiconductor market growth, not just our served market here, we can see that the majority of this growth is clearly coming from car electrification and digitalization, both of which are doubling in value in the next 3 years. The silicon content is highly dependent on the type of car produced, varying from around $400 in an internal combustion engine vehicle to $700 in a hybrid to well over $1,000 in a fully electric vehicle. This is driving the electrification TAM growth. ADAS growth is driven in the short term by an increased pervasion of middle level L2++ ADAS systems in entry-level car models even if we see a pushout of fully autonomous projects. So as I was saying, the longer-term trends in automotive confirm the strategic direction we have taken to focus our investment on car electrification and digitalization. And despite the short-term headwinds, automotive remains an important growth driver. Let me now move to industrial. As already outlined, our objectives here are leadership in embedded processing, acceleration of growth in analog sensors, expansion in power and energy management and acceleration of growth with industrial OEMs. Here, we use our deep industrial knowledge to develop solution optimized for specific applications, and we combine this with our broad portfolio. The industrial market is highly fragmented. We target industry leaders with specific products adapted to their needs and then address the wider market with the same product as well as with the rest of our portfolio. Looking first at the key industrial market developments. The pandemic had a negative impact. This is particularly true for factory automation, an important part of this market. This has resulted, as we have seen, in a significant industrial market forecast declining versus previous expectation, but with favorable growth rates in the next 3 years. This growth is mainly driven by automation and motor electrification as well as a need for higher power efficiency, battery charging, sensors and data-centric industrial IoT. Here again, our strategy has remained the same and we have made significant progress in its deployment. We have strengthened our industrial embedded processing offering with portfolio extensions, ecosystem, investments and connectivity acquisitions. We also strengthened our power offering with silicon carbide and gallium nitride investments, agreements and acquisitions. And we added additional field resources and customer support structures, including 2 new competence centers that we opened in China. Semiconductor content growth in industrial is coming from some common trends: automation in factories, buildings and homes, the need for higher power efficiency in data-centric industrial IoT applications. Within the main industrial application, those where ST is focused are among the largest and with the highest growth. They offer many opportunities for ST in the areas where we are targeting to accelerate growth: embedded processing, analog and sensors and power and energy solutions. ST is in a great position to address these opportunities and expand its presence, thanks to our broad portfolio and strong existing market positions. Overall, we are #5 in the industrial market with key areas of strength. In microcomponents, we are #5. But within this area, we are #1 in 32-bit microcontrollers. We entered the MPU market recently, and we expect to grow significantly our position here. In power discrete technologies, we are #3 with high ambitions, as you have seen. We are #5 in analog and #10 in industrial sensors, areas where we are investing in new and innovative products. Let's look now at the embedded processing market in more detail. This is a market set to grow 5.4% compounded through a combination of general-purpose microcontrollers and microprocessors. The main growth drivers of this market for industrial are the need for features and the functionalities that support the trends I mentioned earlier. This includes more wireless connectivity, more security, ultra-low power, motor control and power system digitalization and, of course, artificial intelligence. Our strategy here is, since quite some time, to leverage our leadership position in MCUs and strengthen in parallel our offer across the growth drivers I have just outlined. Also, we expand our MPU offer. This is what we are doing, as you have seen in Claude Dardanne's presentation. Moving now to the power market for industrial. This is another large opportunity. Here, you see some of the applications where we are particularly focused and already well positioned. All of these have power semiconductor content exceeding 1/3 of the total content, and ST has the know-how and breadth of portfolio to be able to address the specific needs of each of these areas. In the presentation of AMS, Benedetto Vigna mentioned how we are seeing a number of emerging applications in industrial IoT becoming a reality now. These applications are all driving a demand for sensors and connectivity on top of embedded processing. Here, we are well positioned to meet this demand with innovative products like our smart sensors that enable AI on the edge of the edge. So in industrial, we are advancing our strategy to expand our presence in 2 ways: first, through the breadth of our portfolio, leveraging our leadership position in embedded processing; and also accelerating our go-to-market strategy with OEMs beyond our traditional strength in the distribution channel. Moving now to personal electronics. Here, our main focus is on smartphone application-specific products that are also suited for other personal devices. We also take advantage of our general purpose portfolio for the broader personal electronics market. We build dedicated products for some top smartphone players, and they have a number of market-leading products for other players. As you will see later on, we see growing opportunities already materializing in meaningful revenues also in the wearable and accessories market as well as in the gaming and personal care devices. The main developments of the personal electronics market are well-known to all of us. First, the U.S.-China trade war, it has changed the smartphone player landscape with market share shifts among the key players. The second is macroeconomic. In 2020, smartphone sales will decline. Sales were very weak during the first half, mainly due to the lockdown measures and rebounded during the second half. We also started to see 5G smartphone sales taking off and a strong eSIM adoption with shipments doubling in 2020 versus 2019. As another direct result of the pandemic, the work-from-home effect positively affected accessories and other personal electronics sales. Our end market approach has remained largely unchanged. We have progressed in expanding our portfolio as you have seen in Benedetto's presentation. We are also developing our next-generation optical sensing solution to consolidate our position as a leader, and we have launched an open market wireless charging solution. We are also accelerating our efforts in customs analog solutions. On the go-to-market approach, we are leveraging our strong customer relationship to sell our broad portfolio. Our focus in smartphones include the areas where we have been focusing on already for many years and where we have market-leading positions and leading IP and technology: so optical sensing solutions; customer analog and power management; secure solutions, including secure element, NFC and eSIM; as well as sensors like our motion and environmental sensors. Our 5G RF business has clearly been impacted by the situation related to the U.S.-China trade war. However, the investment that we have made there in terms of technology and IP development will be beneficial for our IoT strategy going forward. On top of these focus areas, we are bringing more content per device through our general-purpose microcontroller and analog portfolio. And as I have already mentioned, accessories are a significant opportunity, both in the short and in the long term. Here, you can see the ST semiconductor content that a true wireless stereo headset can contain. This has been a real boon for our sensor business, as you can imagine, since each headset contains multiple sensors and then multiplied by 2. So to summarize, on personal electronics, we are on track to be leader on selected high-volume smartphone applications with differentiated products or customer solution with an accelerated effort in custom analog. And on to our fourth end market, communications equipment, computers and peripherals. Here, we have 3 strategic objectives. First, to address selected high-volume application with differentiated products or custom solutions. This includes solutions for data storage and printer cartridges where we have ongoing long-term relationships with key manufacturers. Second, we address selected application in cellular and satellite communication infrastructure with a specific ST mixed-signal technologies. And third, we leverage our broad portfolio to address high-volume applications like PC and servers with products from our power, analog, sensor and embedded processing offer. There have been 3 key market development in this area since our last Capital Market Day. We have seen the first deployment of LEO satellite constellations helping to drive ubiquitous Internet access complementing 5G. Also in 2020, cloud and digitalization investment have been accelerated by the pandemic as these have become critical to ensure business continuity. And of course, in this area, there has been a significant impact of the U.S.-China trade war. In terms of key developments in our end market strategy, we are capitalizing on ST's know-how to develop and manufacture products dedicated to high data rate communications, such as 5G and LEO satellite constellations. We are also expanding our portfolio offer in computers and peripherals, transitioning resources to new products such as customer analog devices addressing growth areas. So here, despite recent headwinds, we still see opportunities to leverage our specific know-how. With that, I have come to the end of my presentation and I would like to conclude with a few key points. We believe ST is well positioned to grow faster than our served market. Our strategy stems from long-term trends, reshaping industries, societies, and ultimately, our customers' business models. We work with customers to address the need for smarter mobility solution driven by electrification and digitalization, the need for much more efficient power and energy management across all devices and systems. And we support them in the large-scale deployment of the Internet of Things, accelerated by the rollout of 5G connectivity. Thank you. It is now my pleasure to hand over to Orio Bellezza.

Thank you, Marco. Good morning and good afternoon to everyone. I am pleased to give you an update on ST manufacturing strategy today. Let me start by introducing to you our vision and model. As you know, we are an independent integrated device manufacturer. Our manufacturing machine is a key enabler supporting our product and market strategy and plans. Our objective is to offer our customers the best products with the highest quality, service and security of supply. This has been more important than ever during this unique year. We manage our manufacturing through a balanced utilization of internal and external production. In our internal front-end fabs and back-end plants, we manufacture our portfolio of differentiated products and technologies. We have established integrated competent centers of manufacturing technology development at our 11 sites located in EMEA and Asia. We support the introduction of new products and accelerate time to market and time to volumes. We complement our internal capability through a long-established partnership with silicon foundries and assembly and testing subcontractors. This allows us to serve our customers with multiple and flexible sourcing options, both on standard technologies and leading-edge FinFET CMOS technologies and others. These partnerships represent about 30% of our activity. I will shortly give you an update on the 4 major programs that we have represented at our 2019 Capital Markets Day: first, wide bandgap technologies, silicon carbide and gallium nitride; second, power modules packaging; third, our 300-millimeter front end fabs plant; and fourth, our manufacturing and outsourcing strategy. But before discussing in detail this area of focus, I would like to confirm our commitment and investments in technology R&D, supporting a wide portfolio of technologies that are the foundation of our differentiated product offer across our reference end market. In front end, on top of our internal developments, we also rely on the collaboration with silicon foundries in leading-edge CMOS technologies including 7-nanometers and 5-nanometers FinFET mostly for automotive ADAS application. Also in back end, we complement our wide offer of packaging solution with established collaboration with subcontractors, especially in the areas of power modules as I will come back to later. Let me now update you on our strategic programs in manufacturing, summarizing the changes and evolutions versus the 2019 Capital Markets Day. Following this summary, I will go into more detail on each of these programs, starting with wide bandgap technologies. Here, we have expanded our power MOSFET front-end capacity. And for packaging, we have also qualified a ramp in mass production, a second source in Bouskoura, Morocco. We have made progress in the integration of the Norstel team. We are preparing for internal mass production of silicon carbide substrates. In gallium nitride, we have installed an internal full process capability. We are capitalizing on the acquisition of Exagan and we have activated a collaboration with TSMC. The second major program is in power modules. For this, we have set up internal capacity at Shenzhen and started production in collaboration with a subcontractor. The third program is around our 300-millimeter plants. Here, in 2020, we have increased production capacity at Crolles, France and progressing the construction of the new fab in Agrate, Italy. Concerning manufacturing and outsourcing, we have now increased the percentage of foundry utilization to a level of about 25% and progressed in the qualification of additional processes. Let's enter now a more details on each of these programs I just described, I will start with the wide bandgap technology. In silicon carbide, we are further investing in capacity expansion and technology evolution at our 150-millimeter manufacturing plant in Catania. We have accumulated impressive experience and reached full maturity in volume manufacturing, yields and automotive-grade quality. We also continued to capitalize on the strength of our manufacturing and R&D competence center in Catania to introduce and ramp up new products and perform new customer qualifications. We are migrating our production to the third generation of power MOSFET process technology still in planar transistor structure. We continued developing the next-process generations, including a trench structure transistor based on a super junction architecture. In line with our target to achieve $1 billion revenues by 2025, we have plans to multiply by 10x the capacity initially installed in 2017. For this purpose, we have installed equipment and will qualify in 2021 a second production line at our Singapore manufacturing campus. Concerning silicon carbide substrates, we confirm our strategy for vertical integration of the silicon carbide supply chain. We have completed the acquisition and progressed in the integration of our Sweden silicon carbide affiliate, ST Norstel. We started to source a small portion of substrate for our production from the Norrköping pilot line. We are also making progresses in the development of the 200-millimeter crystal growth process where the industry will progressively migrate in the second half of this decade. We are well ahead in the design and the site identification for a new plant for mass production of substrates. We have the objective to start production in 2022 and achieve more than 40% of internal sourcing by 2024. Summarizing our overall silicon carbide strategy. Our power MOSFET technology road map will drive the production evolution to the next few years from Generation 3 to Generation 4 based on our competitive and robust planar transistor architecture while we see the introduction of trench bay transistors in the midterm. On the capacity side, as said, we are expanding in Catania and we are investing in the second line in Singapore in 150-millimeter. I would like to clarify that the equipment we are installing are 200-millimeter compatible and ready for its future diameter conversion. In back end, we have now 2 lines, both automotive qualified in Shenzhen and Bouskoura. Concerning the substrate supply, I confirm we have 4 suppliers qualified in production. And with 2 of them, Cree and SiCrystal, we have signed a multiyear supply agreement. We have taken major steps in the direction of vertical integration with the completion of the acquisition of Norstel, now 100% owned. And we invested in R&D and small-scale capacity in Norrköping where we are focusing on our development on 200-millimeter crystal. We will communicate in due time about our new initiative on the internal mass production of silicon carbide substrates. This completes our view on the silicon carbide manufacturing. Moving now to gallium nitride. For radiofrequency GaN, we have installed 150-millimeter production line in Catania where we are in qualification phase. In the future, we'll have the option to convert the production to 200-millimeter to go with the technology evolution and business demand. For power GaN, we have installed internal 200-millimeter epitaxy tool at our Tours plant in France and we have now the capability to run a full manufacturing flow internally. We continue our technology collaboration with CEA-Leti on both diodes and transistors architecture. At the same time, we are capitalizing the acquisition of the Exagan team competencies, both in terms of design and gallium nitride epitaxial growth. In order to accelerate our access to the market, while we continue to build a competitive internal road map, we have established a partnership with TSMC addressing both discretes and integrate GaN in system-in-package solutions. Power modules is another very important area of focus for our back-end manufacturing to support our power technology strategy. We have a well-established competence center in Catania and we have started an advanced power package lab at our Shenzhen plant as well. In Shenzhen, we are today in production with power modules of various complexity and we have full control of a related supply chain of materials and subcomponents. We can produce both standard and customized solution based on the abetting of both silicon and silicon carbide devices. The production capacity in Shenzhen is under expansion and we have an active partnership, in particular, for ACEPACK drive solutions with an Asian subcontractor. I will now move to 300-millimeter strategy evolution. Today, our 300-millimeter footprint is based on our Crolles 300 fab and the number of collaborations with silicon foundries. As already announced, we have started the construction of the new 300-millimeter fab at our Agrate site in Italy having, as a main mission, the development and production of smart power BCD, PowerMOS and IGBT. With these 2 fabs, we have the capability to create infrastructure to dramatically expand our total internal 300-millimeter capacity in support of our differentiated product portfolio in digital and power technologies. Including the expected growth in silicon foundries, our 300-millimeter production base is set to increase materially. In Crolles, we have further increased our production in 2020, mainly in specialized imaging sensors, microcontrollers and FD-SOI by expanding our clean room and installing new equipment. Going forward, the fab can be further expanded in similar modular way through step-by-step extensions of the current building and facilities, sizing the fab to the evolution of the market demand. In Agrate, during 2020, we have progress in the construction of the building and the installation of the first elements of the fab facilities. In the first phase of the investment, we will install a development and first industrial deployment line to prepare for process and product qualification expected by the end of 2022. After that, we will modulate the production investment and ramp up according to the market demand. During this year, we have continued to work on scaling up critical analog and power process modules in Crolles 300. This will allow us to accelerate our learning curve when the Agrate fab will be ready to start. The Agrate tool set will be fully compatible with Crolles 300 in order to enable fast process exchange and the maximum flexibility between the 2 fabs, especially in analog CMOS and other derivative technologies. Let's move now to our strategy in outsourcing. We confirm that the partnerships with silicon foundries is a key ingredient of our strategy, mainly on 2 aspects: first, to provide our customer with multiple sourcing options for both industry standard technologies and for a number of ST proprietary technologies we transfer; second, to gain access to advanced CMOS FinFET nodes below 18 nanometers where huge internal investments are not justified by the size of our business. Our current level of foundry outsourcing is about 25%, and we want to retain the flexibility to further modulate this percentage according to production needs. To set the ground for this, we are currently executing the transfer and the qualification of additional technology families, such as embedded nonvolatile memory 14 nanometers, IGBT and PowerMOS, and we're looking for additional opportunities. At OSATs, we are producing about 35% of our back-end production value and we plan to remain stable around this level. Moving now to capital investment. Our 2020 CapEx plan is about $1 billion to $2 billion. These investments are designed to support both the execution of our short-term business plans as well as our strategic initiatives. About 1/3 of the 2020 CapEx is supporting our major key programs described today. For example, the 300-millimeter strategy, mostly for the construction of the Agrate fab, but including also the expansion of the Crolles clean rooms; process capability in gallium nitride and the installation of a joint MEMS lab in Singapore for piezo materials. About 40% of the CapEx has been dedicated to capacity growth to support our sales in the second half of this year and beginning 2021. This includes the growth of silicon carbide capacity in Catania and start-up of Singapore; equipment for capacity growth in Crolles, both 200- and 300-millimeter in FD-SOI embedded nonvolatile memory, analog CMOS and imaging; and back-end assembly and testing. For the remaining CapEx portion, as you know, in 2020, we have faced some challenges in some of our fabs to adjust to sudden changes in our markets. Analog and power fabs producing legacy technologies in automotive and industrial have been and still are affected by unloading. As a consequence, we had to devote some CapEx to move up faster the technologies at those fabs. To complete the CapEx picture, we have invested in advanced BCD mix, technology R&D as well as in several programs for the reduction of environmental impact as well as the automation and modernization of our operations. In conclusion, we confirm that manufacturing is a key enabler to support ST's strategy, and importantly, our customers. Our production sourcing strategy is based on a balanced make-or-buy model and strong relations with foundries and others. We have provided an update today on the status and evolution of 4 major strategic programs. First, power technologies, investment in production expansion and technology development for silicon carbide, gallium nitride and vertical integration of silicon carbide substrates; second, power modules packages; third, expansion of 300-millimeter manufacturing footprint with the construction of the new fab in Agrate for analog and power technologies and modular growth of Crolles in a cluster model that also includes the silicon foundries; and fourth, the expansion of the technologies accessible at foundries in order to increase the make-or-buy options at support of our growth. In line with this, our 2020 investments at $1 billion to $2 billion are designed to support longer-term strategic programs as well as immediate capacity and technology mix evolution. Thank you for your attention. It is now my pleasure to hand over to Lorenzo Grandi.

Good morning, everyone, and welcome to our last presentation on this 2020 STC Microelectronics Capital Market Day. My colleagues during the session dedicated to product groups drove us through ST product portfolio and product road maps. We went through our business opportunities in automotive and in smart mobility, driven by digitalization and electrification; our road map in image and sensor, addressing personal electronics and now diversifying in other markets; our large analog portfolio supporting our penetration in the industrial market as well as our MEMS and microcontroller products that are progressively including more and more features from connectivity to artificial intelligence at the edge. A wide and consistent product portfolio pervading all markets targeted by ST. This morning, Marco and Orio gave to you a comprehensive view of our strategy to address our served market and our manufacturing strategy and technology road map, all this to show that ST is a unique company addressing secular growing markets with key intellectual properties, core competencies in technologies and innovative products supported by world-class manufacturing asset. All these ingredients to make ST to play a leadership role in the semiconductor industry. Let's move now to illustrate how all these ingredients will translate in value creation for our shareholders. Today, I will cover 2 main topics: the recent past, our financial results; and the midterm and future, an update on our midterm financial model. So let's start to review and comment the ST company results. Last time we met almost 2 years ago at our 2019 Capital Markets Day in London, I started my speech showing a similar table covering the company results from 2015 to 2018. Over that time frame, we delivered a significant revenue growth, improved profitability and strengthened our financial position. Easy life for a CFO with revenues growth consistently outperforming the market, gross margin improving for more than 600 basis points, additional $1.2 billion of net income and free cash flow increasing by more than 60%. But at that time, many of you rightly were asking me and the management team about ST ability to be less volatile than in the past and more resilient on the results in a more adverse market environment with low or no growth. I was lucky. The following 2 years added to my result a summary table, 2019 and 2020, gave me the opportunity to answer to this question about our degree of resilience. After 2 years, 2017 and 2018, with a market double-digit growth came 2 years with no or low single-digit growth. In addition, we experienced an increased tension in the commercial relationship among economic areas, in particular, U.S. and China. And finally, a worldwide pandemic is still not yet over, really a perfect environment to test our ability to deliver in adverse condition. I could not ask more to try to convince you about ST reduced volatility on the results. Let's have a short look over the last 2 years. We continued to grow. This year, we will outperform the market, showing a growth compared to 2018 and almost reaching the $10 billion. Gross margin even materially impacted by unloading charges, especially this year, still ranged around 39% and 37% in the 2 years. Our operating margin remained above 12%. And our EBITDA and ability to generate cash were not reduced, maintaining intact our ability to invest for the future in R&D and CapEx. Net financial position continues to be healthy. Let's now go in some more details about these 2 last years. Over the last 2 years, most of our quarterly revenues has been increasing on a year-over-year basis with the exception of the first 2 quarters of 2019 where our market experience and inventory correction mainly at our distribution customers strongly affecting our microcontroller and analog products revenues and in Q2 this year where the impact of COVID-19, in particular, for the automotive market, brought a severe drop in demand. Despite the challenges, we maintained revenue substantially stable in 2019 and revenue growth in 2020. Revenues particularly strong in the second half of the year, outperforming our served market, and this, despite the current consequences of the U.S.-China trade war, where, as you know, 1 of our top 10 customers will not contribute to the revenues in Q4. On the top line, resilience is evident. This result on our revenues is not coming by chance. The breadth of our product portfolio, our diversified addressed markets and the wide, and in many cases, tight relation with our customers support us in performing in a challenging market environment. This chart illustrates how differentiated the dynamics in the top line among groups, regions and customers have been balancing each other and enable to mitigate adverse market condition. As an example, when in year 2019 MDG was facing a strong inventory correction in the distribution channel, the other 2 groups grew, outperforming their reference market. On the contrary, when in year 2020, the strongest negative market impact was on the automotive, MDG, together with AMS, was one of the strongest drivers of our growth. Similarly, for the region of origin of our customer, you see how the red and the green arrows moved in the 2 years with the strength in some customer and markets, balancing weakness in some other. In these last 2 years, we performed well with our major customers and this has more than balanced the more difficult market conditions faced by our distribution channel. Distribution, however, remains one of the main focus of our go to market, representing around 30% of our revenues and strongly recovering in the second half of this year. Our wide portfolio technology flavors, market diversification addressing secular growth drivers strongly helped in balancing the weakness with the strength resulting for the company in an overall outperformance of our served market. Now gross margin. In 2018, our gross margin reached 40% with no unused capacity charges, high level of our fab utilization. Moving into 2019 with progressively deteriorating market conditions, utilization rate of our fabs was declining. And in Q2, we started to be impacted by unloading. Anyway, we were able to maintain our gross margin well above 38% at 38.7% or 39.4%, excluding unused capacity charge. This year, 2020 was even more challenging. The level of unsaturation charges including the ones generated by the workforce-related restriction imposed by the pandemic lockdown, reached around $160 million, compressing our gross margin now expected for the year at 37% or 38.6%, excluding unused, at the midpoint of our Q4 2020 guidance. We suffered some degradation, but for sure, with significantly less volatility than in the past where our gross margin was much more severely impacted in adverse market conditions. Q2 2020 has marked the bottom, and from there, we are now back on a recovery path with Q4 at the midpoint above 38%. We are not yet back to the optimal condition in our factoring infrastructure. We still expect a short-term unbalanced technology mix in respect to our capacity. So as I already said during Q3 2020 earnings release, we still foresee few quarters with some unloading charges. An important ingredient for our margin expansion is the leverage on OpEx. From 2018, we increased our net OpEx by around 5% moving from a quarterly average of $610 million to around $640 million in 2020, excluding the positive nonrecurrent R&D grants catch-up expected in Q4 this year. I would qualify this result as a good control of our expenses, allowing the company to maintain a sound full level of expense-to-sales ratio. Our focus in controlling expenses, however, did not translate in delaying our effort toward innovation. That remains the lifeblood of ST. Looking at the last 3 years. We spent $4.5 billion in R&D, representing about 15% of our revenues. To support our organic growth, we invested a few hundreds millions to acquire focused and specialized companies, reinforcing our product portfolio in areas like wide bandgap materials and connectivity. And we invested $3.6 billion in CapEx, maintaining on the state of the art our manufacturing infrastructure and technology development while preparing the company future competitiveness with our strategic initiatives. All this maintaining and improving our solid capital structure, ST exited the third quarter of 2020 with $3.5 billion of liquidity after distributing $128 million of cash dividend and after repurchasing $125 million of our common shares. Our net financial position was $662 million, constantly improving over the last years. In Q3, we redeemed the first tranche of our 2017 convertible bond and we launched a new one for $1.5 billion, very positively received from the market. And finally, we expect to exit the year with a strong free cash flow and further stronger net financial position. One healthy balance sheet for a healthy company ready to capture growth opportunities in our served markets. We are very pleased to see that the financial market appreciated the work done to make our company more solid and less volatile and our trust in the perspective of a profitable growth in the coming years. Our common shares have outperformed our peers in the SOX index. From December 31, 2015, to the present, our total return to shareholders, including dividends, increased 584% versus 361% of the SOX, ST stock price at its highest level since 2001. I would like to thank all of our shareholders for their trust and support they have shown to our company. But more to come. Let's walk now together about our midterm ST expectations. It isn't the first time I speak to you about the midterm financial model for our company. Last time was at our Capital Market Day in May 2019 where I was commenting our $12 billion model. Few things haven't changed since then, and I would like to share with you how these changes will translate in our financial model. Our visibility today regarding our market dynamics, the consequence of what we call the trade war, the demand shift in technology and the currency evolution is certainly different in respect to the one of almost 2 years ago, creating opportunities and headwinds. Let's start from the evolution of our market. In May 2019, we were assuming a soft served market in the year 2019 followed by at around 4% to 5% compounded annual growth rate for the following years. This, together with the enabler customer programs and market share gains, should have allowed ST to reach our $12 billion target revenues at a time we position either a run rate in the second half of 2021 or for the full year 2022. As Marco was showing a few minutes ago, clearly, our served market has not evolved as expected. Year 2019 was, as anticipated, a soft year. But definitely, this year, 2020, is well below our original expectations. And the dynamics by end market have been also quite different from what we were projecting. Our automotive and industrial SAM where we compete with broad offering and wide market reach declined in 2020 instead of growing. The recovery is now expected at a pace similar to the one originally expected, but starting from a lower market size. On the contrary, personal electronic and communication equipment, computers and peripheral, where we compete with more selected business opportunities leveraging on our strengths, performed better than expected in year 2020 and are expected to do so also in the future. This has helped us significantly in 2020. Unfortunately, the impact of the trade war will partially limit in the medium term our ability to extract additional content and fully benefit from these favorable dynamics. While we are fully confident to achieve our $12 billion target, now we see it delayed in respect to our original expectation to be reached by 2023. The turmoil, we experienced this year in the automotive arena and partially also in the industrial not only resulting in a reduced size of our market, but also accelerated the change of the product demand to our more advanced technologies. During his presentation, Marco Monti has shown how we are now experiencing a strong acceleration of the transition to serve new mobility trends, car electrification, ADAS application as well as new architecture of the electronics in the car and how the weight of the traditional automotive core electronics in ADG is decreasing faster as a percentage of the revenues. Marco was telling us that while at the beginning of 2019 at our Capital Market Day he was expecting traditional automotive represent around 50% of its sale in midterm horizon, now this expectation is below the 40% of midterm sales. Good news for our product mix that will be enriched with more complex and performing products, less good news for our manufacturing infrastructure. In order to follow this evolution, we needed to convert some excess capacity for our legacy products to our more advanced technology faster than originally expected. These need a little of time and additional CapEx. In the meantime, the short-term unbalance between demand and available capacity will result in some temporary unloading charges as well as CapEx adding depreciation not immediately compensated by product mix. The $12 billion compared to what we were thinking at the beginning of 2019 will be reached with more products requiring high CapEx technology respect to the ones requiring no or low CapEx, more accretive product mix to gross margin at the cost of higher level of depreciation. Another moving part has been the currency exchange rate. ST is a global company with a strong European base. Our manufacturing infrastructure range from Europe to Asia. While our revenues are mainly denominated in U.S. dollars, our cost basis and our expenses are quite exposed to euro. As you well know, we adopt an hedging policy on our costs and our expenses to mitigate possible volatility of the euro-dollar exchange rate, to allow us to mitigate swing short term, but of course, not fully protect us from midterm evolution of the exchange rate. When we look at where we stand 20 months ago and where we stand today, the euro has significantly appreciated compared to the U.S. dollars. At that time, our expectation was for an average euro-dollar in the midterm period of around 1.12 and we were modeling our financial target based on that assumption. Currently, that assumption appears out of date. While it's always difficult to assess the evolution of our midterm period of the exchange rate, as of today, we are modeling our financial midterm target assuming euro-dollar exchange rate of 1.16. In the chart, we offer U.S. sensitivity analysis of the company result to this parameter. For 1% of variation of the euro-dollar exchange rate, we have an impact from $8 million to $10 million on our operating income per quarter, substantially equally split from impact on gross profit and impact on expenses. Our midterm plan is still to reach the $12 billion revenues through organic growth, but as already highlighted, with around 1-year delay in respect to our original view due to market condition. At this level of revenues, our gross margin is now expected to be between 39% and 40% assuming optimized loadings with an operating margin between 15% and 17%, thanks to the leverage on expenses. CapEx in the period will range between $1.5 billion to $1.7 billion. I acknowledge something has changed in respect what I was presenting some time ago, but some has not. And what has not changed will be the ability of the company to solidly deliver at that level of revenues, free cash flow well in excess of $1 billion after a level of investments supporting expected revenue growth, the financing of our strategic initiatives and possibly some further [ moat ] acquisition to complement our technology and product IP portfolio. But allow me to give you a little bit more color on the various dynamics. This year, at midpoint of our guidance, we will reach $9.97 billion, very close to the $10 billion. Main contributors to our midterm revenue growth are expected to be automotive, mainly driven by car electrification including silicon carbide and digitalization, as well as on our traditional automotive business largely thanks to the recovery of car production volumes. Personal electronics will continue to be an important driver. Our selected customer programs have been a strong enabler to increase our penetration in this market together with the application-specific standard product and also standard products like our STM32 microcontrollers, now more and more pervasive in many smartphone accessories. Industrial with analog, sensor and microcontroller will expand. Many new programs are starting in the field, yielding revenue increase in the short and medium term as well as increased appetite in the mass market and in distribution for our product offer, now complemented both in analog and in microcontroller with more and more features for a larger variety of application. In communication equipment and computer peripheral, revenues opportunity will shortly materialize like the one in low-orbit satellite constellation, including satellite and associated user terminals or power management solution for server, CPU, GPU, SSD. With this level of revenue growth, we will expand our profitability target to reach a level between 15% to 17%, an expansion between 300 to 500 basis points compared to the level we expect to close the current year. As I have already mentioned, in Q4 2020, we will have a onetime catch-up in R&D grants, not any longer recurrent. We will face some FX headwinds and the normal price pressure of our market over the period. This price impact medium term will be substantially offset by improved mix. Moving forward, product mix benefit will overcome the price erosion, bringing a net positive contribution. At $12 billion, we will run at full capacity without unloading charges. The improved manufacturing efficiency boosted by optimal loading of our manufacturing infrastructure will materially contribute to our margin expansion, only partially offset by the higher level of depreciation resulting from the investment additional needed to rebalance our technology mix capacity. The last component to improve our profitability will be the expense-to-sales leverage, with expected growth in expenses well below the revenue growth. When comparing our current midterm model with the one shared at our Capital Market Day in 2019, we have lost something in profitability when reaching the $12 billion revenues. I try to depict in my presentation the major changes: some market dynamics impacting revenues evolution in time and product mix, the consequent need of higher investment improving mix, but at the same time, increasing depreciation burden at about 1 year more in expenses dynamic that at $12 billion imply to lose some leverage. Exchange rate will place an additional detractor. All in all, anyway, our EBITDA will only marginally be impacted and our ability to generate cash will substantially remain at the same level of one -- of the one I was presenting to you a few months ago. All our product groups will contribute to support our midterm financial model, leveraging revenues growth and specific margin expansion drivers. Over the period, ADG at low to mid-teens level; AMS, at mid- to high teens level; and MTG at high teens to around 20%, a well-balanced contribution to the company profitability. Our capital allocation remains unchanged. Two main pillars: to sustain our growth and to secure shareholders' return. Sustain growth through maintaining efficient and expanding our manufacturing infrastructure, preparing the further next step of our company, supporting our strategic investment like the move to 12-inch, expansion on new material and fostering open innovation. Our CapEx needs for the growth will be, at the same time, mitigated by progressive expansion of our production to our foundry at OSAT. We will continue to complement our IP and product portfolio with target strategic acquisition in a make-or-buy balance. Secure shareholder returns where we do intend to continue to use in the next years cash dividend as our primary means to distribute wealth to our shareholders, consistent with our expected cash generation, and in addition, to continue with the share repurchase programs. In conclusion, I hope and my colleagues and I have, during these days, offered to you a compelling value proposition. Indeed, ST has demonstrated capacity to deliver growth results, and in these last periods, to be resilient to adverse condition. Not only the company has bright future ahead and we are aiming for a stronger and even more resilient company. We see significant opportunities to grow our revenues, improve our profitability and make ST financially stronger. Ultimately, we are focused on the creation of long-term value for our shareholders. Thank you very much for your attention.

Thank you, Lorenzo. We are now ready to take your questions.

The first question is from Matt Ramsay from Cowen.

Yes. Thank you very much for the presentations.I guess for my first question, guys, I guess I'm not that surprised to see a bit of underwhelming or conservatism around the top line revenue targets for the longer-term model. But I was surprised a little bit at some of the dynamics around margins. One of the things that shows up in, Lorenzo, your slides this morning is both comparing, I guess, the 2020 model versus 2023 and also your old view of the medium-term model versus the new view is a pretty significant sales price decline headwind. I wonder if you guys might expand upon that a little bit and just talk about the different pricing dynamics in the different markets that you're seeing now? And then I have a follow-up.

Lorenzo, you take the question?

Sure. Thank you for your question. When we look in respect to the model that we have developed, let's say, in 2019 and the model that we have today, I would say that in terms of the assumption of dynamic in the pricing, we have not actually changed our view in the sense that at the end that we have taken an assumption in terms of the evolution of the price that is the one substantially that we have -- we took at the time in terms of price pressure. For sure, there is some, let's say, delay in the $12 billion. So it means that the price dynamic, it includes substantially 1 year more and this is actually something that we have embedded in our model. It means that there is 1 year, let's say, more of price decline. It's even true that on the other side, we were improving somehow our mix that partially is compensated this. But as I was trying to also explain that this improvement in the mix doesn't come free, especially on the short-term period. It means that we need to invest and we need to invest a little bit at a higher level in respect to what was expected when we were entering 2019 and we were describing our model. This means that, let's say, in the short term, this will be substantially offsetting the improvement in the mix. Medium term, let's say, I would say that this will help to improve our, let's say, positive mix in our gross margin. But this -- in the time frame, let's say, to reach the $12 billion will not be so significant. I really do expect that this will factor in much stronger, let's say, after the $2 billion or in a medium -- longer-term time in respect to the model. I hope this is clarifying a little bit the question.

Yes. I guess as my follow-up, if you look at the expansion of the SAM for the company between 2020 and 2023, I think, I don't know, I calculate it between 4% and 5% depending on -- for the whole company as -- depending on the mix that you gave us. Automotive is going to significantly outperform that, I guess, a 13% CAGR. But in the slide -- in the talks today and a couple of weeks ago in the auto talk, you guys talked about a changing or an accelerating change to the dynamics of legacy products versus the electrification and intelligence products and with the expansion of the SAM and the growth there, but also below target model operating margin for your automotive business. Maybe you could talk a little bit about the dynamics of growth in operating margin of the legacy products versus the new products and how you expect that to change over time as profitability improves for some of the electrification business.

So Lorenzo, you...

Yes. I will take the question. The automotive in our model is for sure the group -- one of the groups that is contributing more to the group. This is driven by the growth of the market. We have seen -- was shown by Marco in his presentation. And definitely also is the one -- when we are talking about the mix, is the one that is the main contributors of this change of the mix. It's not the only one definitely, but is one of the main contributors. So it means that at the end, automotive is a driver in terms of improving in margins. It's a driver due to the fact that, first of all, there is a positive contribution of the mix even if, as I was saying already before, we needed to invest. We need to invest. So in short term, here, we will have the impact of the depreciation. But definitely, the contribution will, at the end, result in a positive. And on the other side, here is where we have the main benefit on the leverage on the expenses because, yes, let's say, in ADG overall, let's take in ADG, that includes, for sure, the strong contribution of automotive. Here, let's say, we will have a positive impact in terms of leveraging on the expenses. So the expansion of the operating margin, the operating profit in this group is expected to be one of the main contributors to our model.

The next question is from Aleksander Peterc from Societe General.

It would seem to me that part of the lower margin guidance in your $12 billion model is higher CapEx. And I'm just wondering to what extent this is a structurally higher CapEx, given the nature of your markets as they are now? Or is it just a temporary adjustment, given the rapid shift that you have seen in your end markets? And so against this backdrop, would you still drive the company towards a 17% to 19% margin company longer term? Or is this 15% to 17% the best you can achieve in the markets that you serve?

I'll take also this question. In terms of CapEx, you're right. When you look at the CapEx, actually, what we have indicated is something higher than what was indicated in previous conversation that we had. This is driven by 2 main ingredients, I would say. And that I would not qualify them -- let's say, I would qualify them a little bit temporary. On one side, there is, as I was explaining before, the fact that we need definitely to accelerate our transformation in our fab [ core ] technology. And this is now something that we see very clearly because we see that the demand is much stronger on technologies that are implying higher CapEx in respect to what was expected previously. We will do this investment. We do believe that this investment will yield profit for our company, will generate, let's say, improving for our company in the medium term. On the other side, in these years in front of us, let's say, when we look at 2021, 2022, we have also a significant amount of strategic initiatives that are putting the basis for the future of our company. And here, of course, we are entering in a phase in which we need really to focus on these initiatives. There is definitely our growth, significant growth in silicon carbide. This will be a driver, new wide band material like gallium nitride. So we need to invest. We need to secure our growth here in order to achieve our target of [ $12 billion ]. This is something that we are determined to achieve. And the second is our transformation for -- from a -- to 12-inch. This means that we need to move to the 300-millimeter. And in the period, we need definitely to be ready in order to face the next step for our company toward $15 billion with an infrastructure in terms of manufacturing that is competitive. And this is mandatory in order to be competitive, in order really to have an improvement in our gross margin, significant step forward on that, we need definitely to move to 300-millimeter. So yes, the next years and the next couple of years, we'll see, let's say, for the company, definitely an effort in terms of investment. As I was trying also to show to you is that the company, in any case, has the financial strength to keep, let's say, to maintain this kind of CapEx without degradating our ability, let's say, then to generate return for our shareholders and to maintain a significant solid net financial position for our company in the next couple of years.

The next question is from Andrew Gardiner from Barclays.

If I could start just by saying I can understand sort of the qualitative statements you are making and you have been making over the last couple, few presentations, very bullish. Recent updates have generally been very bullish. And yet the quantitative manifestation of that in today's numbers is quite a bit weaker. So I'm struggling to sort of to make those 2 things come together. There's obviously a lot of moving parts, in particular, in your slides there, Lorenzo. I was just wondering if we could go over 2 quick points on that. One, in terms of revenue. It looks like you're forecasting a much lower level of growth in the "engaged customer programs" going forward over the next 3 years than we've seen over the last few years. Is that separate from the trade war impact, which is, of course, also related to an engaged customer program? So could we -- when you talk about the trade war loss, that's obviously -- Huawei is significant, if not the vast majority of that. Is that separate from the lower growth you're forecasting in engaged customer programs? And then if that indeed is the case, what is that low level of growth sort of telling us in terms of your expectations about new business, new content, potential pressure on legacy content there? It just seems quite a bit lower than we might have anticipated, given what you've shown us in recent years. And then also, Lorenzo, if I could just come back to the earlier question on pricing. Are you suggesting that now because you've sort of effectively rolled out another year, sort of call it from '22 to '23, that's why the sort of the pricing has got such a significant impact on the margin target as a whole? Doesn't -- again, it wasn't totally clear as to why pricing now is so much worse in terms of the impact on the margin than what you were thinking it was going to be 2 years ago.

So for the first question, okay, about revenue, I will take it. As I explained [ obviously ] in my introductory speech, okay, our revenue dynamic, okay, to go from, let's say, Q -- this year where we will complete about $10 billion of, let's say, revenue to $12 billion. So basically, there is, let's say, 5 blocks. One of the key driver of the revenue growth for ST is clearly, the next 3 years would be what is related to car electrification and car digitalization. And again -- and inside, okay, this dynamic, okay, silicon carbide would be a key growth driver, okay, going from this year, okay, below $300 million but with a run rate at $300 million to go to by 2025 to $1 billion on a smooth way. So clearly, this is okay, one of the big driver. Then, okay, we have, let's say, engaged customer programs, okay? Mainly, okay, in the field of personal electronics and communication equipment and computer peripheral, they will contribute, okay, as a second, let's say, order of magnitude, okay, to the growth. Then it is what is related to the market. Clearly related to the market, there is 2 parts. There is, let's say, the industrial overall, and there is automotive legacy. About industrial, okay, our assumption, okay, our model, this is what I told in my introduction and what Marco and Lorenzo have said, our assumption is the market will grow by 5% average on the next 3 years, okay, but with 2020, decrease minus 3%. Now about automotive legacy. Clearly, today, what we are seeing is quite, let's say, incredible, okay? Because the run rate of the demand we have in Q4 and since September is equivalent run rate of 98 million of vehicles produced, okay, if we take it as a run rate full year. And as Marco explained, it is clearly something we have not put in our model because in our model, we have put, let's say, next year something at the midpoint of around 80 million vehicles; 2022, around 87 million; and 2023, around 90 million, okay? So this is our model. So in our $12 billion, let's say, the automotive legacy will contribute consistently with the assumption we have taken on overall, let's say, vehicles produced. Yes, I confirm to you that today, this is absolutely not what the customers are requesting. You know that, okay, the overall supply chain is totally under stress because of this situation. But for the time being, our model has been built like that. Moving forward, if we have to adjust, okay, the company will adjust. But building our sales and operating plan, okay, we have decided that, okay, the model and the visibility we have and the assessment we have and overall discussion is something which is more in the range of what we described. Now then the detractor. Clearly, at this moment, we have received few license during Q4 to supply, okay, our important customer in China, but only for very specific standard products. So clearly, our assumption is that on custom design, and you know that the custom design product, okay, were important for us to address this customer, especially addressing 2 very high-growing applications: the communication infrastructure for 5G and the front-end module of smartphones for 5G. And clearly, we have discounted, overall, this potential revenue that for ST was important one versus the former plan we built, okay, 1.5 years ago. So this is an assumption we have taken because by fact, today, we have no license on custom design solutions. We have license on standard products, okay? So yes, we have taken into account. But on custom design, we have not taken. So overall, okay, we have considered that the $12 billion revenue by 2023, acknowledging the very strong dynamic on car electrification and digitalization. The great dynamic on our engaged program with important customer on personal electronics, mainly, but in some communication infrastructure as well. Then the industrial market at 5% compound average growth. Automotive legacy, based on the number of vehicles, okay, we disclosed to you; and with the detractor, which is custom-designed product, okay, we developed for a specific customer for 5G infrastructure and 5G device. Moving forward, if we acknowledge and if we are convinced the automotive will grow faster, of course, we will adjust.

I'm going to take the question about the dynamic of the pricing. If you go to what I was showing in 2019 in a similar chart in which I was showing operating margin drivers, midterm model, you will see that when I was merging price net of mix and there was a red bar, let's say. That was the combination between, let's say, what was the dynamic of the price that we were envisaging at the time and the mix, positive impact of the mix. The overall result was negative. It was a red bar at the time. Today has not changed significantly if you compare the 2 charts. This time, what I have done was simply to segregate the 2 components. On one side, you see the price. On the other side, we see the mix improvement. If you merge it together, you will see that these are slightly improving in respect to what was our expectation of the time. I explained to you that the mix now is a little bit more accretive than what it was at the time. So you see that at the end, there is no significant change in the assumption that we have taken in respect to 2 years ago in terms of price dynamic for the market. We assume a price dynamic substantially similar moving forward that is reflecting the normal trend of our industry, let's say, where there is an expectation in price dynamic due to the learning curve. And this is substantially, let's say, offset by the manufacturing productivity improvement plus the overall impact of the product mix. If you look at that, let's say, you will see that at the end, the assumption that is behind this is not so significantly different than what it was in 2019. So this is what I can tell you, let's say. No specific, let's say, assumption of strong price decline than the normal one. And you will see that already in 2019, when you see the chart was combining the effect, I repeat, of price and net of mix, you will see that there was this red box, let's say, that was one of our detractors. Similarly, is now, let's say, there is nothing really changed in respect to that.

Okay. Just to make sure that we're talking the same chart. I mean I'm looking on Slide 71, where you're comparing the change in gross margin and operating margin. And on the top chart there, the bridge for gross margin. As you described, you've got your midterm 2019, 40% to 41% -- or midterm in 2019, CMD 40% to 41%. The biggest detractor of gross margin to get us to what you've just told us is pricing relative to what you had already told us in 2019. So that -- it looks on that chart as though the -- there is a significant incremental price decline relative to what you had seen readily [indiscernible] 2019.

Yes. I see your point. So it's 1 year more. It's 1 year more of price decline, offset by productivity improvement and by product mix improvement. You see there is 1 year more of dynamics. This is at the end. If you at the end, look at the gross margin, you see that when you compare this chart, you see that at the end, the pricing, productivity improvement, let's say, are offset mainly by FX, let's say, and this additional depreciation that need to sustain the product mix. These are the main impacts that we see in respect to what was our expectation in 2019. It's not a matter of pricing. The pricing and productivity mix and productivity improvements substantially offset each other. The problem is that the productivity mix, let's say, is not enough to slightly above, let's say, the need of additional investment and depreciation. That's why I was saying short term and medium term, we are not enjoying fully the positive coming from the productivity mix due to the fact that we need to invest harder in order to achieve it. And then you have the negative of FX. This is the way that I suggest to read this chart.

The next question is from David Mulholland from UBS.

I just wanted to follow up a little bit on what Andrew just asked on the decisions you've made around shifting the revenue target from 2022 to 2023. I know you hadn't given it officially. Last time, it was only in the Q&A. But in terms of the point we are right now in the cycle, you've obviously had to take some assumptions to come to that. But everything we're seeing from the industry right now is suggesting there's a very strong acceleration and things are getting better quicker than people expect or had been expecting, including potential letters to customers from companies, including yourselves, being reported, that could be potentially positive for pricing. So I just wanted to understand what have you embedded from a general cyclical recovery perspective. Because potentially, I'd say if the market does recover more strongly and these things tend to surprise on the upside, you could be operating in a better environment than you'd thought before. And so have you basically kept a similar market assumption to what you thought before for 2022? Or are you assuming a smaller kind of organic market that you would have been addressing? And then we've obviously got the impact from those customers in that shift. So I just wonder if you can talk a little bit about that. Because it feels to me a little timing-wise, a difficult time to guide, given how quickly the market could recover. And it feels like you might have embedded a slightly more conservative assumption on how quickly the market recovers.

So I'll take it and Marco will complement. Yes, clearly, when we look the market dynamic today and the momentum compared to what we -- we see a few weeks ago, it's yes, very strong, okay? And by the way, okay, I can confirm to you that, okay, in Q4, ST will deliver revenue well above the midpoint of the guidance we provided to you, clearly. Point number one. Then, okay, when we look inside, okay, this dynamic, okay, we confirm what? We confirm first, okay, by market. On automotive, okay, clearly, the mega side of automotive, electrification, digitalization, okay, for the short term are according, okay, what we anticipated. And when we look, okay, the program, okay, we have. And you remember, okay, mainly on silicon carbide and the [ fab with 68 ] programs, okay, we have planned revenue extracted from these programs, okay, according to the visibility we have on the electrical vehicles and hybrid vehicle, okay, we see. And at this period of time, okay, there is no reason, okay, we, let's say, materially change, okay, this forecast between 2020 to 2023 in terms of, let's say, battery-based or hybrid vehicles. Then the second point, I repeat, on automotive. On automotive legacy, okay, yes, okay, the current run rate, okay, and we see September. And if you remember, okay, we explained to, let's say, the market, the financial market, that we have seen a very sudden demand increasing, booming, okay, moving basically from a run rate of, let's say, 65 million, 70 million vehicles produced to now 98 million vehicles produced. And as a matter of result, okay, all the supply chain is under stress, definitively, either from IDM but from foundry, okay? So the 200-millimeter wafer firm are fully booked basically for 9 months. The 12-inch, okay, as well. So clearly, okay, there is something, okay, very, very strong on automotive. Is it sustainable, okay, for the full year for next year and meaning that 2021 will be already a year equivalent to before COVID? Today, this is not the assumption we have taken. This is something we will monitor, okay, discussing with our customers. And believe me, we discuss basically every day, okay, with our customer. We discuss every day for 2 reasons. First, the comanagement of the supply chain in order to supply them. But we discuss with them to understand what will happen in second half of next year in order also to drive our investment, to drive our resources. And when we will be totally confident that it is moving forward to 2021 a year equivalent of 2019, we will adjust ourselves. But for the time being, this is not the assumption we have taken. So this is about automotive. And then the industrial market. The industrial market, again, the dynamic is quite clear. Asia has recovered following the V shape, okay? And that's the reason why here we perform very well. Thanks to our STM32, let's say, microcontroller; thanks to our Power Discrete; now thanks to our Analog product. And we have seen smoothly, Europe and America, okay, growing sequentially, okay, consistently with the expectation of the economy. Our assumption is the industrial market as an average will grow compound average growth rate at 5%. So this is the second point, and we have planned our sales and operating plan accordingly. But then personal electronics, and clearly, okay, this year has been driven by 2 things. One, the famous effect of stay and work at home. So boosting, let's say, the full platform, so PC, tablets, smartphone and accessories. Clearly, also a second effect [ full year ] has created some, let's say, turbulence on the supply chain is a de facto Huawei embargo, okay, since September 15. Okay, and everybody knows that, okay, Huawei has built some inventory in order to face this situation. And in Q4, there is a seasonal effect which is, okay, clearly related to the introduction of the new device of the well-known California customer. And then, okay, our plan is based on the assumption on smartphone, okay, which will be produced and sold, okay, next year, okay, with a material change in 5G versus 4G and taking into account the assumption of the program we have. But here, again, we have a major detractor compared to the past, is we will make -- we will not take benefits of the 5G content. Why? Because our custom design product and technology we were supposed to sell to Huawei are becoming 0. And we have taken the assumption to be 0, okay, next year and moving forward. But okay, for sure, we'll have the benefits of all the other programs with all the other smartphone players in the field of optical sensing solutions, secure solutions, custom analog solution and general purpose portfolio. Now last but not the least, the communication infrastructure. Again, a major detractor because our assumption is no revenue extracted from the important customer we have in China. But we will have all the revenue right leading to an important program we have with a low orbital communication infrastructure. So this is the overall picture on which we have based on our sales and operating plan. Now as usual, okay, this is a driver of our, let's say, our CapEx, our resources, our OpEx consistently with our capability to generate cash flow. As Lorenzo mentioned, okay, this capability to generate EBITDA is fully there and we will drive our [ sales ] like that. Would we need to adjust looking at the automotive industry coming back much faster, okay, to 2019? Yes, we will do it and we will have the capability to do it. But okay, we will communicate smoothly because today, we have a great visibility for Q4, Q1 and Q2. But we will see for the full year '21.

That's great. And if I can just follow up quickly on the margin. And if you were, for instance, not to see that year delay that you've embedded in the margin targets, is it fair to say that you'd maybe be about 1 percentage point higher than the guidance you've given if you do get to that revenue level by 2020 and you don't have to embed another year of OpEx expansion and so on into the numbers?

You mean if we will reach faster the $12 billion, I have understood correctly the question? Yes, I think yes, that in respect to what I was trying to explain, yes, for sure. Some of this impact is also related to the fact that we reached the same level of revenues a little with -- I mean with, 1 year, let's put it this way, of delay in respect to what was originally expected. And this, for sure, let's say, has not improved the ability to keep exactly at the same level the model. For sure, anticipating this will be a benefit. There are some impact that at the end will remain there. Because at the end, not too high [ there are figures ] but for sure, the current situation about currency is not helping our company, I was trying to see. Of course, we will work in order to mitigate as much as possible this. We need to somehow, let's say, to find some -- to, let's say, improve our sales in order, let's say, to absorb some of that, but will not be possible to absorb everything. So yes, I would say an anticipation for sure will help. This is a -- there is no discussion.

Just to put some numbers on it, though, there's obviously a 2 percentage point change in the margin target for 2020. Is it fair to say about 1 percentage point of that is that year delay and 1 percentage point is currency? Or how would you break that down?

Okay, in term, if you want, in terms of currency, let's say, substantially, the impact overall is slightly below 100 basis points. And let's say, due to -- in respect to the previous model. The rest, if you want, including everything, of course, including on the operating margin. Then, of course, let's say, there are other ingredients that will be mitigated with an anticipation in our revenues.

The next question is from Sandeep Deshpande from JPMorgan.

I'd like to actually just go back to that question, to that Slide #71 and the margin guidance as such, really. So when you look at that, I mean if you're saying that pricing was not the main delta because that was always there, which was offset by productivity improvement, et cetera, it looks like in terms of that first graph there on gross margin, that the incremental depreciation and that means more CapEx is having an impact on the margin. And then on the second, in terms of the operating margin, you seem to have higher OpEx. So would you say that you underinvested for a while and both in OpEx and CapEx, which is what needs a catch-up here, which is lowering the margin? Because -- I mean there was this expectation that your margin would continue to improve because the delta here seems to be the CapEx and the OpEx because -- rather than the pricing. And then I have a quick follow-up on the revenue but it's a small one.

No, okay, of course, you can read in many ways, let's say. But if you want, let's say, at the end, as I was saying, on the gross margin, you see that the pricing and productivity improvement, substantially, let's say, offsetting each other. It's a little bit higher than pricing, but at the end, the productivity is substantially, let's say, recovering that. There is on one side, let's say, the product mix that is improving is on green side. But on the other side, you see that this comes at the cost of additional depreciation. So at the end, the overall effect is slightly positive but not enough positive to offset completely and to overcome the -- what is the impact of 1 year more in the learning curve in terms of pricing. On the OpEx. On the OpEx, apart of, let's say, the FX, on the OpEx, you have to consider that there is at the same level of revenues, $12 billion, 1 year more of dynamic in the OpEx. And this, of course, is slightly reducing the leverage. And the leverage is not any longer, the one that was expected in 2019, where we had, at the time, let's say, 2 years of, let's say, dynamic in the OpEx. Here, we have 3 years of dynamic in OpEx. I don't know if you see the point. But for sure, this, at the same level of revenues, is that somehow reducing the leverage that we can achieve on our OpEx. Is it clear, the answer?

Well, I understand. But you see the point is that you have given a midterm guidance, right? So it should have taken into account the OpEx guidance. So that's why I'm not really understanding why now there is a negative. I can understand the FX impact. FX is new. But I don't understand the OpEx impact as additional OpEx when that previous guidance was not a particular year, it was a midterm guidance as such really.

Yes. But when we were giving this, let's say, assuming that midterm guidance was, let's say, to achieve the $12 billion in 2022 substantially. Today, the same guidance of $12 billion is to achieve in 2023. So we have -- you see the point. So at the end, let's say, OpEx cannot be -- stay at the same level that was expected, because, of course, at this point, let's say, we have a dynamic inside the OpEx and this is somehow increasing a little bit the OpEx. So we cannot at the same structure, let's say, that we have today, we do not envisage any kind of any restructuring or things like that. At the same structure, we have at least 1 year more of salary, you see the point. And then, of course, being at $12 billion, we have this impact.

The next question is from Achal Sultania from Crédit Suisse.

Two questions, please, from my side. First on the CapEx. If I look at the CapEx numbers that you've given, it seems like to have additional $2 billion of revenues over the next 3 years, you're planning to invest about $1.2 billion on top of what you're already spending, $400 million extra per year. So it just seems -- and then you are saying that you will probably reach full capacity utilization again in that $12 billion revenue target. So I'm just trying to understand is that the ratio we should be looking at, that you have to spend -- to get extra, every extra dollar of growth, you have to spend that kind of CapEx in the future. And if that's the case, shouldn't we argue that this CapEx number has to remain sustainable at a higher level going forward beyond 2023? And then secondly, if I look at the revenue guidance, that this $12 billion by 2023, it clearly seems that you're kind of implying that beyond the next year recovery in 2021, you're looking at more like a 4% or 5% CAGR growth, which to us, it seems like, clearly, the expectations in the market is that auto and industrial probably are going to grow at a higher pace than that. So are you inherently implying that the rest of your business, Analog, Sensors, MPG, all those things, are probably going to grow like low single-digit or flattish beyond 2021?

Maybe, Achal, to help Lorenzo and Jean-Marc to answer your first question, could you remind us how you did the calculation?

Yes, sure. So basically, what I was saying is that your CapEx today is $1.2 billion. And you're talking about $1.5 billion to $1.7 billion range in the midterm, which is about $400 (sic) [ $400 million ] extra per year. So to get to -- from $10 billion today of revenues, to get to $12 billion, that's $2 billion extra revenues, you're basically spending $400 million on top of what the normal level of CapEx is per year. And so that basically implies about $1.2 billion of additional CapEx to drive $2 billion of extra revenues. And so that's what I wanted to understand. Is that the ratio we should be looking at for every extra dollar of growth in the future?

No. The CapEx model, okay, ballpark, okay, is for the technology mix and product portfolio we have is basically, if you want to grow, let's say, $1, you have to spend, okay, for capacity increase, $0.80. So it means you want to grow 10% your sales, you have to grow, okay, to put CapEx for capacity of 8% of overall sales. Then there is more what we call maintenance, okay, R&D spending, okay, CapEx for sustainability, okay, for the carbon neutrality and so on. So ballpark, it is 7% of the sales. Now of course, you have to discount it by your external manufacturing ratio. So clearly, if you make the computation, if you want to grow 10% per year with external production 25%, you need to spend between 11% to 12% of your sales to grow 10% per year, okay? Then here at ST, we have basically 3 programs which are [indiscernible] this model. It is to prepare our 300-millimeter fab, okay, because here, it's a huge, okay, call of CapEx without any generation of revenue between now and 2023, basically. The buildup of the building, the buildup of the facilities and the first industrialization line, okay, which is CapEx spent to prepare the objective, okay, to go to $15 billion by 2025 as a target. So this is the first strategic program. And the second strategic program is a decision we have taken to go vertical in the power solution with silicon carbide. So it means to build an infrastructure, okay, in order to provide to ST by 2024 40% of internal production for raw materials, silicon carbide. And again, why? For 2 reasons, in order, okay, to medium, long term decrease our cost of material; to drive, okay, the process improvement, so it means to move to 200-millimeter silicon carbide raw materials. And last but not the least, okay, I'm sorry for that, but for strategic independence, because, today, the major vendors on silicon carbide are either American or Japanese. And unfortunately, the recent events show that we must be careful on these very strategic materials, which is silicon carbide, which will drive all the electrification application. So this strategic program basically are representing on the average of our plan in 2021 to 2023, per year average, something in the range to 3% to 4% of our sales. So at the end, okay, the model is 11%, 12% plus 3% to 4%, so it's 15% to 16%. So the model is very clear. So when we will come back, okay, to a period when we would have completed our exceptional CapEx to build up the strategy I have described to you? Yes, we will come back, okay, to a CapEx model around 12% of our sales to sustain 10% growth.

Okay. That's clear. And the second part, on the revenue side of things?

Yes.

Yes. On the revenue, I can take it. So again, we go back to, first of all, automotive. As Jean-Marc has already said, our assumption is based on the growth of units in terms of cars, which is maybe underestimating what is the actual rate. But as we said before, if this trend will be confirmed, we will adapt to that. For the rest of the market, if you consider on the 3 years, overall, we will grow compounded 8%, which is more than 5% of the overall SAM that we are addressing. And you need to consider that there is a part that we are going to -- we need to discount, which is the impact of the trade war. We are going to lose the portion of the 5G business that was embedded in our plan and now needs to be discounted.

Yes. Okay. But you're still -- I think you're still maintaining that you can reach $15 billion by 2025, which will probably imply a big acceleration in 2024 and 2025, much higher than the growth you modeled for the 3 years. So does that change?

No, first, we are determined to achieve $12 billion by 2023, okay? Again, based on the assumption we share with you today, I repeat, okay, vehicle produced per year, next year, a midpoint around 80 million. And then going back to 2019 level, okay, by 2023, first assumption. Second assumption is industrial market growing at 5% for industrial. And then all our engaged program and number of phones and so on and so forth. Yes, I confirm that, okay, entering in this new 3-year sales and operating plan, we are starting, okay, to build our next target, which certainly will be something about $15 billion by 2025. But okay, we will have time to discuss this point with you.

The next question is from Jerome Ramel from Exane BNP Paribas.

Yes. Just a quick one. Lorenzo, if the CapEx should be around $1.5 billion to $1.7 billion going forward, how should we model the depreciation for the next couple of years? And the second question is concerning your outsourcing, which is already at 25%. Is that the max you're going to go through? Or do you think there's some room for further outsourcing?

Okay. I go with this. At the end today, let's say, our depreciation, including amortization, and let's say, we will be close -- sorry? So a suggestion. We will be closer to [ 1 million ]. Then we will, let's say, you should model that substantially, let's say, this investment will -- the period that we will amortize this kind of investment that we are going to do, with a range between 7 years to 10 years, let's say. So this will be the addition in terms of replication that you should consider, let's say, moving forward with this level of CapEx. Because, of course, let's say, investing in equipment is more toward 7 -- 6 or 7 years, but in 300-millimeter is higher, then there is a facility. So this is the level that we should consider.

So Lorenzo, should we say that depreciation and amortization are ballpark 10% of our revenue?

Yes, I would say so. Because at the end, let's say, if we look in our model, let's say, this level of depreciation and amortization in our model will be in the range of $1.1 billion, something like that.

So about the outsourcing, we would have been very pleased, okay, to increase the outsourcing ratio. But the point is today the 200-millimeter fab is from foundry which are providing, okay, [indiscernible] flash for MCU, analog mixed signal, okay, for front-end modules or other customer analog application are full and there is no more investment in 200-millimeter. So today, okay, there is absolutely no flexibility in the foundry landscape on 200-millimeter. And clearly, on 12-inch, very, very similar, because there is a strong demand on, let's say, all advanced digital device, okay, driven by the strong demand on communication infrastructure and personal electronics. And all the peripheral device which are linked to this application which are in a mixed 200-millimeter and 300-millimeter fab, the demand is very strong. And on top of that, the automotive industry, short-term demand, which are booming and which has not been anticipated, absolutely not anticipated. So we would have been pleased to have, let's say, more flexibility outside from our foundry player and partner. But today, we are, first, very happy to our internal manufacturing in order to address the base of our customer demand, okay, with the flexibility and IDM is capable to provide.

Okay. And maybe in the same vein, Jean-Marc and Lorenzo, I think there was a lot of investors believing that with the current tight situation, we could see price increase within the industry. And you said that you haven't changed your ASP assumption in the guidance you gave for the gross margin. So do you think that potentially is something that could happen, that we're going to see some price inflation because of the tight capacity? Or that's something that any way you're not betting on?

So I take it and Lorenzo will complement. Well here, okay, we have spoken about our midterm plan, our model and so on, okay. We don't, let's say, elaborate this kind of model based on what happened yesterday. Because imagine we have done our model in April. Remember, so imagine we have done the model in April, okay? So clearly, today, there is a, let's say, a very tight situation overall worldwide in the supply chain, okay? Again, driven by various causes. One cause is absolutely not anticipated V-shape recovery of the demand on automotive, a very, very solid demand from personal electronics and communication infrastructure, a really solid demand from industrial, okay, in Asia and start of increasing demand in Europe, in this overall, let's say, context. But yes, okay, when supply chain is struggling, okay, it is a full supply chain. So from materials, so raw silicon, chemical, assembly materials and so on and so forth. And here and there, okay, we may have some tension on price, which are, let's say, above the normal trend. Here, we play, let's say, with a normal trend because it is a midterm plan. Then ST, okay, never communicate on our tactics about price management because it is a really short term, okay, and we do believe that it is information that it is pure operation.

Yes. I would say that there is no much more to add there, because at the end, as Jean-Marc was saying, let's say, the model has been built, let's say, on an assumption that is not taking into consideration of short-term events, all these kind of things. For sure, as all the models, we have opportunities and we have threats. This is for sure. But at the end, what we have taken was a normal evolution of the price that we see over a midterm, long-term period for our industry, without taking into consideration the short-term dynamics that on one side will help, or maybe on the other side, that would be somewhat less effective. But these are events that maybe we will discuss a little bit later on in the next 6 months looking at how the evolution will be in the market.

The next question is from Adithya Metuku from Bank of America.

Yes. I'll just keep it short. Just 1 question. You talked about this low orbital satellite infrastructure program and obviously, there are some YouTube videos out there showing one of these programs having hundreds of chips from ST. So -- and there's also been an article on Business Insider about this. I just wondered if you could give us some color. I know you can't talk about specific customers, but I wondered if you might be able to give us some general color around how much content these sort -- these reception devices can contain and how we should think about the opportunity from the low orbital Internet streaming program. And also, I'm aware that one of your big customers has applied to get -- to the FCC to deploy 5 million terminals. So any color around this would be very helpful.

So here we play simply consistent with, let's say, the strategic objective we disclosed to the market since a long time. We are working on it basically since 2015. So -- and I was, let's say, personally engaged in. Here, we are leveraging the unique capability of ST, offering custom design solutions on radio frequency and analog mixed signal technology. And from, let's say, BiCMOS technology, 28 FD-SOI technology, as an example, which is a great technology with RF device, okay, very efficient. So this is where we are. And now, okay, the program is starting, okay, in 2021 and should contribute, okay, to the revenue growth of ST between 2021 to 2023. Now, okay, I guess you understand I cannot comment specific to the customer, as we have ever done, okay, for personal electronics as well, okay? We say, yes, we are, yes, we have the same information that you shown by the other, definitively. So we are happy to see us in this application. But I must not, okay, comment more specific. I simply say it is fully consistent, okay, with our strategic objective, okay, we shared with you since [indiscernible].

Understood. Maybe just a quick follow-up on that. You said you were personally involved with this program since 2015. Usually for CEOs to get personally involved in a program, it has to be pretty big. How should we think about your personal involvement in this?

That's because it was my job to do it at this period of time, okay? If you remember, at this period of time, I wasn't the CEO, okay, focusing on model processing system. And manage -- I was the General Manager. And yes, okay, we had this, let's say, R&D discussion, opportunity discussion and then, okay, the program is paying back, okay? So we are very happy. But again, more important is to act consistently with our strategic objective. I repeat on personal electronics and communication infrastructure, we are very, very selective to not defocus ourselves, but we leverage a strong capability ST has in radio frequency and analog mixed signal, in optical sensing solution, in secure solutions and in custom analog. So this is simply the payback of our strategy.

So with this, we are at the end of the presentation. Jean-Marc?

So thank you, Celine. First of all, I would like to thank you for your participation and attendance to the -- this Capital Market Day event. Okay, we were, let's say, being pragmatic, forced to speak in the [ indiscernible] event. I expect, okay, from information, transparency, [indiscernible] market headwinds, tailwinds, okay, it has fulfilled new expectations facing this unprecedented year, okay. Moving forward, okay, we expect altogether that we will meet soon physically, okay? But at this stage, it's already difficult to say. I am convinced our company will move out this year stronger than entering, okay, in 2020. We faced, okay, many events, but the company is stronger. We are determined to achieve by 2023, according to the assumption we have taken, $12 billion, being profitable and sustainable, maintaining our capability to generate cash with an EBITDA which will improve, okay, through the period. And yes, okay, build a company moving to a dynamic, okay, to start to envisage by 2025, okay, revenue close to $15 billion. So this is my takeaway. So thank you again. Thank you for this year. Thank you for your questions. Thank you for your support. And looking forward to see you or at least to discuss and meet, okay, at our Q4 earnings, end of January. So -- and please enjoy the end-of-year festive period, despite the various local lockdown decisions from countries. So see you soon. Bye-bye.