Ladies and gentlemen, welcome to the STMicroelectronics 4th Quarter and Full Year 2019 Earnings Conference Call and live webcast. I am Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Celine Dercier, Group Vice President, Investor Relations.
Please go ahead, madam.
Thank you, Alessandro. Good morning. Thank you, everyone, for joining our fourth quarter full year 2019 financial results conference call. I think the call today is Jean Marc Cyrry, Estee's President and Chief Executive Officer. Joining Jean Marc on the call today are Lorenzo Grand B, President of Finance, Infrastructure And Services And Chief Financial Officer, Akrogaki, President of sales, marketing, communication and strategy development.
This live webcast and presentation materials can be accessed on ST's Investor Relations website. The replay will be available shortly after the conclusion of this call. This call will include forward looking statements that involve risk factors that could cause ST's results to differ materially from management expectation and plan. We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results this morning. And also in ST's most recent regulatory filings for a full description of these risk factors.
Also, to ensure all participants have an opportunity to ask questions during the Q And A session, please limit yourself to one question and a brief I'd now like to turn the call over to Jean Marc, let's see President and CEO.
So thank you, Celine. Good morning, everybody, and thank you for joining us for our Q4 2019 earnings conference call. Let me begin with some opening comments. Starting with Q4, we delivered a solid quarter. Net revenues at $2,750,000,000 grew 7.9 percent sequentially, above the midpoint of our guidance of 5% with whole product groups contributing to the growth.
Q44 'nineteen gross margin was 39.3 percent, 110 basis points higher than the midpoint of our guidance. This was mainly due to better than expected, manufacturing efficiencies and improved product mix. Our operating margin was 16.7 percent and our net income was $392,000,000. Moving to the full year 2019. We delivered results, aligned with the full year expectation we provided in upwind 2019.
Net revenues of $9,560,000,000 with a gross margin of 38.7 percent and an operating margin of 12.6 percent. Our free cash flow for the year was $497,000,000, including CapEx of $1,170,000,000, and our net financial position was $672,000,000. On Q1 2020, Our first quarter outlook is for net revenues of $2,360,000,000 at the midpoint a year over year increase of 13.7 percent. The gross margin in Q1 is expected to be 38% at the midpoint, including about 80 basis points of unferturation charges. For the full year 2020, We plan for year over year growth out performing the markets we serve.
The board long term trends in electronic systems that we are focused on are driving demand for our products. These trends are smart mobility, power and energy applications and IoT and 5G. We plan to invest about $1,500,000,000 in CapEx to support our strategic initiatives and revenue growth. To progress towards our midterm revenue ambition of $12,000,000,000. Now, let's move Net revenues confirm our return to year over year growth that started in Q3.
Net revenues increased 4% year over year in the fourth quarter, driven by analog, microcontrollers, imaging and MEMS. Partially offset by lower automotive sales. AMS grew 9.9%, MDG grew 7.6% while ADG was down 4.5%. On a sequential basis, revenue increased 7.9 percent, 290 basis points above the midpoint of our guidance, with all 3 of our product groups contributing to the group. AMS performed above expectations on strong demand for our key products for personal electronics.
The 2 other business groups performed in line with our expectations. With a solid growth in MDG, especially in general purpose microcontrollers and digital ICs. And growth in automotive and for our discrete products. Our gross margin was 39.3%, 110 basis points, above the midpoint of our guidance, mainly due to better than expected manufacturing efficiencies and improved product mix. This gross margin embed about 100 basis points of unsaturation charges.
Our net operating expenses were $618,000,000, in line with our expectations. Our operating margin was 16.7 percent, up 3 60 basis points sequentially. On a year over year basis, our Q4 operating margin was down 10 basis points, with an improvement in the EMS operating margin, fully offset by a decline for MDG and ADG. Our net income was $392,000,000 and diluted earnings per share Let's look now at our full year results. Starting with the recap of the market and business trends we saw during 2019.
Clearly, during the year, we have operated under our global soft market conditions, although with different dynamics for each end market we address. In automotive, we saw on one hand very healthy demand for smart mobility applications driven by the electrification and digitalization of car systems and platforms. On the other end, the legacy Automotive business, which is closely linked to the number of car registration worldwide, faced challenging situation, with global registrations down 5% in 2019. The industrial market and distribution have been operating under soft conditions since Q3 2018. Starting from March 2019, point of sales of our distributors in Asia, restructured sequential growth, There was an acceleration in the 4th quarter with a return to a year over year growth.
Since March as well, America stopped declining the premium slot. In Europe, we have the inventory correction at our distributors was completed in Q3 2019, while some excess inventories remain in general and non power discretes. Demand for our key products was solid, getting stronger during the year and exceeding expectations in the second half. All devices, smartphones accessories, wearable, contributed with some early contribution from 5G smartphones. In communication equipment and computer peripherals, the art desiring market decreased as expected, dropping 13% in 2019 with a recovery in the second half.
We saw 5G infrastructure growth, copper sighting the wind down of our legacy ASIC and set top box business. Looking now at our results. They are aligned with the full year expectation we provided in our 3 2019. Net revenues were $9,560,000,000, decreasing 1.1% year over year and within the range we had indicated. We had a strong H2H1 growth of about $1,000,000,000, driven by a stronger than expected contribution from engaged customer programs and new products.
Sales to OEMs represented 70% of total revenues, while distribution represented 30%. By vision of origin, 38 percent of our 2019 revenues were from America, 33% from Asia Pacific and 29% from EMA. In terms of revenue by product group, 2 of them grew while one decline. ADG revenues increased 1.4% revenue from Automotive Product subgroup were substantially flat, reflecting 2 opposing dynamics, growth in car visualization with ADAS and microcontrollers, and a decline in legacy products. Revenues for the Power Discrete subgroup increased mainly driven by silicon carbide products, power musculate and IGBT, and partially offset by the non power districts.
AMS revenues increased 4.6% driven by personal electronics application and partially set by lower sales in industrial and other drives. MDG revenues decreased 10.3%, mainly due to the inventory correction at our distributors, which affected general purpose microcontrollers during the first half of the year, MDG restarted year over year growth during the second half of twenty nineteen. Gross margin was 38.7 percent at the high end of our April 2019 range, impacted by 70 basis points of unsaturation charges. Controlling our operating expenses in line with our model, we delivered an operating margin of 12.6%. By product group, AMS posted an operating margin of 18.1%, MDG was 13.4%, and AGG was about 10%.
Net income was about $1,000,000,000, translating into $1.14 diluted earnings per share. Moving to now to other financial indicators. Net cash from operating activities increased 1.3 percent to $1,870,000,000. CapEx was $1,170,000,000 in line with our investment plan. Free cash flow in Q4 were $461,000,000, bringing the full year free cash flow for the acquisition of Nortel.
Cash dividends totaled $240,000,000, As part of our existing share buyback program, we repurchased shares, totaling $250,000,000 in the year. From a balance sheet perspective, we exited 2019 with a net financial position of $672,000,000, substantially stable compared to last 2020 outlook and the full year 2020. For Q1, we expect that the midpoint net revenues of $2,360,000,000, increasing year over year by 13.7 percent and decreasing sequentially by 14.3%. On a sequential basis, revenues from all of our 3 product groups are expected to decline in what will be a shorter and seasonally lower quarter, 4, we anticipate better than usual seasonality for personal electronics products. On a year over year basis, main revenue growth drivers are expected to be seasonally electronic products, mainly imaging and analog products, general purpose microcontroller and silicon carbide products.
Our gross margin guidance at the midpoint is 38% including about 80 basis points of unsaturation charges. The sequential gross margin decrease is mainly due to the impact of the usual annual contract price renegotiation and unfavorable product mix. Year over year, the decrease is mainly due to unsaturation charges and related manufacturing inefficiencies, including the start up of the 200 millimeter fab we acquired in Singapore last year. Unusual price declines. Not fully compensated by improved product mix and a positive currency effect net of hedging.
For the full year, We plan to We are operating in a market driven by Broad, long term trends in electronic systems. This is driving demand for semiconductor content and as a consequence for our products and solutions. We also see that the supply chain has no substantially normalized from the excess inventory effect we saw last year. The current view for the market we serve is positive and we expect the next 3 months will be important to confirm this dynamics. In terms of CapEx, we plan to invest about $1,500,000,000 in 2020 to support our strategic initiatives and revenue growth.
In order to progress towards our midterm revenue ambition of $12,000,000,000. This segment includes the addition of capacity for some of our existing technologies and investments and mix evolution for our 200 millimeter fabs. It will also support the TRNG activities and the maintenance required by our manufacturing operations and infrastructure. It also includes about $400,000,000 of investments for strategic initiatives, continued investments in our new Agrade 300 millimeter fab, that will support our growth in BCD, IGBT and other power technologies. R and D for gallium nitride power technologies and products production ramp up for gallium nitride for RF devices and investments for silicon carbide These include substrate activities following the acquisition of Nortel.
They also support our plans to establish internal manufacturing of 150 millimeter wafer and drive the evolution to 200 millimeter wafers. To conclude, our 2019 financial performance was aligned with the full year expectation we provided in April, Revenues were within the range, operating margin was above 12% and free cash flow covered our cash dividends and share buybacks. Mentaining our financial flexibility with a stable net financial position. At the same time, We invested $1,170,000,000 to support short term demand as well as our strategic program for our future growth. For 2020, we plan to return to solid revenue growth, outperforming the market we sell, smart mobility, power and energy management, the IoT and 5G are driving the demand for semiconductor content.
ST is very well positioned to support its customers across these trends. Thanks to our product portfolio enabled by our differentiated technology. We continue to progress towards our mid term revenue ambition of $12,000,000,000 and deliver sustainable profitable growth. We look forward to meeting you at the mobile worst Congress in Barcelona on February 25th, and at our annual capital market day in London on May 6 to discuss our end market and product strategy in detail. Thank you.
And we are now ready
questions.
The first question comes from Stefan Houri from ODDO. Please go ahead.
Definitely from ODDO. I just wanted to come back a bit on the, on the automotive market because you say you said that you are seeing some contradictory trends between the mass market and smart automotive product So can you give us some details on how you see the growth in this market for you in 2020? And if you could give us some outlook for the silicon carbide projects that you have? Thank you.
More. So I will take the question and, and certainly, Markku, at least, we'll complement it. But first, to go straight to the point, about silicon carbide, let's say, initiative, we see our revenue in 2020. Above $300,000,000. Then in automotive.
In automotive, clearly, what we confirm that, next year, overall, certainly, the car registration will be flattish. We see different dynamic, Europe, America, and asia, asia, China. But before to go inside this dynamic, we clearly confirm that overall, what is related electrification. So means, okay, car moving to electrical powertrain or hybrid car or mild hybrid car is a really a solid trend. Clearly, we see as well that ADAS per region level 1, level 2, okay, are still really still solid and continuing.
A specific, a little bit more specific to ST, microcontroller, or less advanced microcontroller in 14 nanometer is really solid in term of a growth perspective. So clearly, if we assess by a regional, what we do believe is that in America, the vision is stable between thermal combustion engine and electrical, electrical car powertrain. In Asia, certainly, we expect, that and in China, you know, that the main driver in China So we touched on the bottom in Q4 and we will see stability in Q1 and we expect, okay, slightly some growth starting Q2 and the remaining part of the year. Well, I have to say that Europe is more complex. Certain Europe is more complex because, you know, about the WLTP effect.
And clearly, this is some we are monitoring very carefully in term of mix between electrical, car, full electrical battery car, hybrid car, my Libre car, and, gasoline, thermal combustion engine and the trend on the diesel. The mix here is, is more complex. However, again, we do believe that we touched down the bottom in Q4 last year.
Okay, this is Matt. We'd like to give you a little bit more color on silicon carbide. So, we have, in this moment, engaged in 50 projects with 26 with 26 customers. And lastly, this is 50% with automotive customers and 50% with industrial customers. So this is just showing you that our pipeline of opportunities expansion of opportunities in silio and carbide keep accelerating, and we are extremely well positioned there.
For what is related with Automotive, I just reconfirm what Jean Marc has just said to you clearly, 2019 was a difficult year in terms of coverage expiration with a minus 5% year over year and minus 8% specifically on China. The forecast for this year is to go to a stabilization with small growth of +1 spreads is combined with an increase of penetration of, others and electrification should help us to grow during this period. But the legacy market is stabilizing now, and we see how it's going to evolve.
Okay. And thank you. And the follow-up is still on silicon carbide. Last year, I think that one customer was about 80% of your sales, if I'm correct. In 2020, how many customers will be live and driving growth in automotive and in industrial, if you can Can you give us the detail?
Thank you.
Main revenue contributor, okay, this year is still our main automotive customer because you know that, other, let's say, electrical car, phase 1, the move more on the agility. So it's clear that for us, still the main revenue contributor is our main customer. Moving to a 3 year horizon, we clearly believe that the contribution from this customer will account for above about 50% of our total seek revenues. And thanks to significant growth, with other automotive and industrial customer. So it means we will start, okay, to have contribution from the other one next year.
Okay. Thank you very much.
The next question comes from Achal Sultania from Credit Suisse. Please go ahead.
Hi, good morning, everyone. Just if you can talk about maybe about the inventory on your books, obviously inventories down $100,000,000 a quarter in Q4, Q3 and Q4 both. But we're still looking at the fab underloading charge which is down from 100 bps last quarter to 80 bps, your guidance for Q1. Clearly, like it seems you're still trying to manage inventory on your books very carefully. So should we expect some level of fab utilization pickup from starting from Q2?
And then secondly, on again, on inventory in the channel, Obviously, we saw a pickup in your microcontroller business starting from Q3 last year. I guess, some of the inventory in general purpose analog and discrete, you mentioned previously was still running a bit higher than expected. Or normalized level. So where are we on those two products in terms of inventory in the channel? Thank you.
Good morning, Lorenzo speaking. I take the question. I will start from our inventory in the as we have seen in Q4, our inventory went down materially. We are now in the range of 90 days. As usual, in the 1st part of the year, our inventory will likely increase will increase due to the fact that, of course, we are preparing also the revenues for the growth revenues expected in Q2 and in the second of the 3, but will be definitely lower than what it was last year.
You remember, last year, we ended Q1 with an inventory on hand in our books that was in the range of 125 days. This year, I do expect it to be materially lower than standard of days, something in the range of 110 or something like that. So an increase, but not a huge increase. In term of, in term of unsaturation, we, actually, we are in the first quarter as you As you know, an saturation that is impacting in the range of 80 basis points, our March. What is our visibility at this stage for unsaturation along the year?
Yes, the unsaturation will continue also with the lower level in Q2. But then our expectation is that we will substantially go full saturation of our fab and almost a full saturation of our fab in the second part of the we will impact that in the first half for some saturation, moving down from Q1 to Q2. And then in the second part, the, we could really see this level be substantially not material. In terms of inventory in the channel, maybe I leave a map or to answer
to the system.
We see in this moment that the supply chain now normalized from excess inventory effects. The only exception is for a few standard products such as the general purpose analog and non power distribution. Overall, again, we see the supply chain now normalized.
Okay. Thank you. Maybe I cannot a little bit more color about unsaturation now because to be honest, unsaturation for us in this 1st part of the year, more than on the control of our inventory that, of course, that we put in place is not disappointed, but is also related to the fact that we have and saturation related to the fact that we see a quite significant change in terms of mix, with the acceleration in demand on new technology, most advanced technology and low demand on the legacy technology. This is creating lack of capacity, if you want, needed to invest for, improve our mix moving toward most advanced technology, while we have in the 1st part of the year, more access on the legacy technology. This will be cured during the first half And this is also one of the reasons why we will see answer to ratio moving down during the year.
Okay. Thanks a lot, Lawrence. That's clear.
The next question comes from Sandeep Deshpande from JP Morgan. Please go ahead.
I have a couple of questions. So firstly, I have a question on your spending. I mean, you've raised CapEx in the year. In your prepared remarks, you indicated that you are spending on various devices. Is there any particular segments that you are spending on such as, I mean, majority of the spending going towards power transistors or it is going towards your optics and sensors.
So maybe you can give us product color in where the spending is happening given that there is a significant increase in spending. And then I have a follow-up regarding overall your sensors business. I mean, maybe you can give us a roadmap on what you see at this point. I mean, where your optical sensors are going towards? Thank you.
Excessive question. Well, about the CapEx. Well, clearly, I think I have been quite clear about the strategic initiatives. So I do not come back on it. Now there is a remaining, 1,000,000,000 of it is to invest in R&D, equipment, more for differentiation.
So new materials, okay, a new theme for imaging, this kind of, of self. And, overall, let's say, maintenance, okay, to continue to have a really efficient fabs and assembly plans. Well, about the capacity increase, I have to say it is driven by advanced technology enable our products. So I would like to speak about BCDA, BCD9, 14 nanometer, a secure microcontroller, 28 FPSOI, advanced, advanced imaging sensors. So it is really a power, much better, IGBT, low voltage Mosfet, okay, driven by a mileage grid car, hybridization of the car.
So it is well spread across our product portfolio and driven by differentiated and advanced technology. So, so, and as as Lorenzo mentioned a few minutes ago, one part is for additional capacity increase to support our solid growth we expect for 2020, second half and the first half of twenty twenty one because, you know, there is a lead time, okay, between the CapEx and the revenue, it is point number 1. And another part is a mix adaptation of a work fab, namely Singapore, where we will have to adapt this fab, okay, to support advanced technology I mentioned. So this is okay for the, for the CapEx. About our, clearly, ST, more first of all, direct time of flight for a ranging sensor, auto focused support and so on and so forth.
So we continue to grow. And basically, we address all the platform player. About Deepmap sensing, front side, ST, really will continue to act as a leader to address, front facing, face recognition, both for a structured light and other technology if they are requested. NST is also a key player for the rear facing So we developed a strong product and technology to address the world facing and back side of the smartphone. And we do expect to start to grow on this business starting next year.
Thank you very much.
The next question comes from Matt Ramsay from Cowen. Please go ahead.
Yes, thank you very much. Good morning. I wanted to, you guys covered some of the silicon carbide stuff for 2020 in the commentary and really appreciate the detail. I wanted to ask the first question on longer term visibility in the silicon carbide business, you've closed Northstar and obviously signed a new agreement with Rome for supply maybe what do you see for sort of a multi year visibility of design wins across Silicon Carbide? And how long might it take you to integrate those deals into the supply?
And then I have a follow-up. Thanks.
I confirm that our the current program we have, so 51, well spread in automotive and industrial. It's totally consistent in terms of funnel of opportunities. Foresee to sustain our objective of 30 percent market share of this business and achieve by 2025 minimum $1,000,000,000 of revenue extracted from this MOSFET on silicon carbide. And clearly, that's the reason why in order to secure short term our supply chain We have increased our agreement with 3, and we have agreed a strategic agreement with Secrista. In parallel, as many time share with you, we have invested in Nortel.
A European based raw material provider to develop an internal supply chain and we will decide the time only what will be the weight of this internal supply chain. But more important, this internal supply chain will be also a driver, a key driver for R&D. So means the conversion to 200 millimeter. And for sure, a key driver to improve our self in term of yield efficiency and productivity for the raw material. So at the end, to support our $1,000,000,000 target by 2025, we will have a well spread and balanced supply chain between 2 key players, 3 and Secristan and 1 internal one to secure our supplies from Europe, and driving our R and D and conversion to 200 millimeter.
So this is our strategy on Silicon Carbide.
Thank you very much for that, Jean Marc. As a follow-up for Lorenzo, I wanted to ask about gross margin. There was some fairly significant upside in the fourth quarter. You guys mentioned mix and manufacturing efficiencies, but the guidance for March is sort of back towards where consensus was You also mentioned sort of a negative mix effect and some pricing negotiations. Maybe you could break out some of the pieces of that gross margin on a sequential basis, and that would really be helpful on the drivers.
Yes, sure. In Q4, actually, our gross margin came better than expected we were guiding the range of 38. So the 2, we came at 39.3. Actually, there was a 2 2 important components, and we will remind about that. 1 was related to the mix.
The mix went better than expected. This was driven by products, I would say, some of our products relate to personal electronic and also let's say product related to the microcontroller that came with the an improved mix in respect to what was our initial expectation. 2nd point, it was a much better performance in our manufacturing, especially in the Canada, because you know that in our substantially our manufacturing which is different between front end and back end. Front end is something that efficiency in the fab are somehow reflecting in the next quarter gross margin. Why, again, if you perform better in the 2nd part of the production phase that is dependent.
This is also reflecting during the quarter. We are a good surpriser, mainly driven by higher level of volume in a on the back end side. This was the reason that brings the gross margin, higher levels than expected. On the other side, when we look at the dynamic of the gross margin moving from Q4 to Q1, we see this decline of 130 basis points. This is, there is definitely an impact related to the price renegotiation that we have at the beginning of the year.
This is impacting our gross margin in Q1, and this is usually seasonal. In terms of prices and negotiation, we have this impact with step down beginning of the year. We recovered partially during the year, of course, thanks to efficiency mix and on, but it's difficult to recover in the 1st 3 months. Then we have a mix that is not Staborable as was in Q4. What we see in this quarter, the mix is, substantially a detractor on the gross If you want, you can model something in the range of 100 basis points at the pricing and 50 basis points in the mix.
Then do we have some recovery here and there, but in thermal and some manufacturing efficiency, but at the end, the end, LSA, we lose substantially this 130 basis points due to this big driver for Q1.
Thanks very much.
Your next question comes from Alexander Petric from Societe Gener Please go ahead.
Yes, good morning and thanks for the question. Can we first touch up on the, the OpEx, where do you see it, in the quarter, in the first quarter, and how we should model it going into the remainder of the year? And then I have a follow-up. Thanks.
In the about the OpEx, about the OpEx, you see that substantially OpEx in Q4 came in line with the expectation. You have also noticed when I talk about OpEx, I always include also the impact in the line other income and expenses that was quite positive in the quarter due to the that we had grants, as I was anticipating, entering the quarter recognized during the quarter. During Q4. The expectation for the next quarter is to have expenses that will stay in the range of between $626,000,000 $630,000,000, net of tax, including other income and expenses. The quarter is shorter.
So you will see, let's say, lower negative expenses in SG and A and in R&D. And a little bit lower level of other income and expenses. When we will look at the year, I'm pretty sure the order of later, I will have this question. So maybe I will anticipate that. What is the current visibility today?
As I was saying, last year, when I was discussing with you, the in term of structure, we think that the company could sustain the growth that we target. Saying that, of course, there will be some increase in our expenses and at the level of the inflation rate, plus let's put it in this way. So at the end, including other income and for the year. What I see for the full year, 2020, an average in the range between 600 and something that will arrange between $640,000,000 $650,000,000.
Okay. Thanks. Thanks for this. And then secondly, you had very, very strong AMS margin. Now I'd just like to understand if this was particularly favorable mix, or is this the new now for the seasonally strong for quarter at ST?
Thanks.
Well, I was mentioning that Q4 was impacted by favorable mix and good performance in manufacturing, especially in the end. I would say that, the group that was enjoying more of these 2 effects is actually AMS as you can see from the result of the quarter from the operating margin of the quarter. Yes, I confirm. This group that was was enjoying these 2 positive effects during the quarter.
The next question comes from Alex Duval from Goldman Sachs. Please go ahead. Yes.
Hello. Good morning. My first question was just to come back on this new CapEx guidance of $1,500,000,000. Obviously, that's decently up year on year and a bit ahead of consensus. Obviously, you've given a lot of detail on some of the specific technologies, you're investing in, but I just wanted to clarify to what extent this is about safeguarding products, projects that you already had envisaged when you issued your $12,000,000,000 target?
And to what extent it's about going after new opportunities that recently have come onto your radar. And if so, any more color on that would be interesting. Also, related to your smartphone activities, there'd been some reports recently there could be lower smartphone unit shipments than expected at 1 very large Chinese smartphone player. And therefore, given that that potentially could have been a big incremental opportunity for ST to what extent do those kind of situations in China have an impact for ST and to what degree can you diversify within China or taking other steps in order to mitigate any impacts on that incremental opportunity May thanks.
Thank you for the question. So I take the CapEx 1 and Marco will comment about smartphone. About CapEx. So I repeat, so $1,500,000,000, okay, out of which, okay, there is 400 again, for our strategic initiatives or repeat. So it is, I got a 300 millimeter fab because beyond 2021, starting 2022, and beyond, okay, we will need to have advanced analog and smart power technology, going to a 19 nanometer and, let's say shrinking and shrinking nodes.
So we must prepare ourselves. Then, second, it is a initiative on a gallium nitride, both for our power and energy control strategy, because again, ST starting, okay, 2 years from now, we have totally completed our position to address this market with, I repeat, hybrid touch power modes, lower touch power modes, highgbt, modules, silicon carbon modes set, and soon gallium nitride. So we have the full spectrum of technology package and module to act as a leader on this market and capture the megatrend. So this is the 2nd strategic initiative on the underground. And then consistently, with the acquisition of Storecell, we will start to elaborate our whole facilities on the on switch side.
So this is about strategy. Then about, let's say, the remaining CapEx remaining CapEx, it is clear that what is happening in 2020 after a global soft market condition of 2019 is quite usual. You see the demand for high end technology, a great So for us, all the demand, I repeat, BCBA Trink, BCD9, BCD10 soon, 28 of decoys, 14 nanometer for secure solution, 28, okay, for microcontroller, automotive, 14 nanometer for general purpose microcontroller, IGBT for hybridization, low voltage for my Libre. All these applications are calling for capacity increase in our fab because we offer solution enabled by differentiated technology. So our CapEx is either to add on capacity on this technology and application or to adapt the list of our wafer fab.
And you know very well as a model because I very often share with everybody. Basically, you need to increase capacity $0 $8 per dollar of growth. And to maintain your infrastructure, adapt genics, put a new equipment in LNG. Basically, you need to spend 7% of your sales. And as we subcontract, with our partner 20% of our production for foundry and about 30% in assembly and test, of course, this model is discounted by this external production ratio to total production.
So this is a model. So this CapEx is fully consistent with the model and with our strategy. So this is about CapEx. No, I'll let Mark speak about smartphones.
About smartphone, as you know, 2019 still was a year with number of smartphone declining year over year. 2020, the expectation is that the smartphone are going to increase again leveraging on the introduction of the 5G smartphones coming to the market. So there will be an increase of number of phones with an increase of ASP inside the phones. On top of that, for the Chinese smartphone maker, we're asking We are leveraging, of course, on a leadership position that we do have, for example, on wireless charging or on MEMS, and we are to gain market share in those sets.
The next question comes from Jerome Rommel from Exane BNP Paribas. Please go ahead.
Yes, good morning. Jean Marc, two points on the strategic initiative Interesting comment on gallium nitride, you seem to be more active on that field. So two questions on the gallium nitride. When do you expect keen to start shipping the gallium nitride on silicone for RF power. And on power that you reviewed, should we expect some traction, you know, to achieve for the 48 volt anytime soon?
Thank you.
It's very technical question. About tariffs, by next year, okay, we expect to start to generate revenue starting 2021. For a power device, but it's clear that why GaN is so important in our technology portfolio, is because each time, you need to have to increase the frequency and you need to have power. The gun is a good answer for charging whatever is a onboard charger for automotive or other kind of device charger. Where you need to go fast and with higher power, this technology is great.
And silicon carbide, silicon carbide, is a key, success factor. Each time you go to a very, very high power. As an example, to move to 8.50 volts, to have a very faster charger and to optimize the battery and the footprint, silicon carbide is mandatory and is a killer in front of the agility. So, so this is the breakdown. Well, clearly, for power gun, we are developing the technology we are in parallel over initiative that I cannot disclose now because, okay, it's confidential for and lean.
And but clearly, this initiative has to boost our positioning on this power device using and we expect it will contribute to our 3 year plan, towards our $12,000,000,000 revenue.
Thank you. And maybe as a follow-up on the comment you made on 3d sensing developing new fields. Are we talking about polymer fields?
Is solution. I'm trying.
Next question please.
The next question comes from Andrew Gardiner from Barclays. Please go ahead.
Good morning, guys. Thanks for taking the question. Just had another one on the CapEx spending, if I could sort of try the question a different way, clearly you're spending a lot more this year than you have done in the prior 2 years. And I can understand how you're what you're describing, Jean Marc, in terms of the strategic initiatives and why they need investment. I'm just wondering if this step up in plan was always on your always on the cards for this year in terms of your internal planning or in fact are you seeing the opportunities materialize a bit sooner and therefore you've actually had to pull forward some of the spending to get things in place to drive the product ramps, drive the revenue.
And therefore relative to the EUR 12,000,000,000 target you set out there for the medium term is this high level of CapEx suggesting that we could see that a bit sooner rather than later? Thank you.
Yes. So you each of you remember what we mentioned, okay, a work capital market day. We said basically, 2 important things. We speak about 2019. Okay, which facing global soft market condition, we have to go through delivering a solid performance And in step time, okay, we need to spend the CapEx between 1.1to1.2 in order to support the second half of growth and to support strategic initiatives.
But what we say on another side, we say in order to support our ambition, So while the $12,000,000,000 midterms, we know and we share clearly with you that our CapEx will be by year in the range of 1,100,000,000 to 1,500,000,000. It was in May. You know that the main outcome again, the main outcome of this past 2019 year, which was really a global soft market condition, but really with a very different dynamic. And I repeat, again, on legacy automotive, on industrial market. Clearly, we see an acceleration of the obsolescence of the mature technology, but in the same time, we see an acceleration of demand for more surface technology, analog or embedded processing solution in order to enable more complex product.
And here, we see an acceleration. And this is calling for capacity because ST are specially developing technology, targeting this kind of market. On any other end, okay, we comment about personnel. So personal electronic, whatever on the device, smartphone, wearable, and accessory, our content of semiconductor. ST specific is increasing.
So it is calling for capacity increase, but let's say, according to the demand. But then for the microcontroller overall, our model process solution. Again, you know, that here, we subcontract, widely in foundry, that, clearly, for secure microcontroller, automotive microcontroller, and some specific system on chip embedding microcontroller in 14 nanometer. Here, we see the same phenomena for more, let's say, acceleration of new technology and product. So that means overall according to the plan we have today in term of revenue growth, in term of mix, in term of technology for the second half of twenty twenty and the first half twenty twenty one, we need to spend this CapEx on top of the strategic initiative I have shared with you.
Again, always targeting above 20% of also seeing informally, thanks to the partnership, the main partnership we have, which companies like SMC or Samsung, And we see that in assembly in place where we are well above 30%. So this is again the color about CapEx.
Thank you very much. I appreciate.
I was
just going to say thank you for that detail. I was just wondering if I could follow-up. I mean, in terms of what you're describing there, in terms of the growth in the second half of this year into the first half of next. You guys have talked clearly for some time now about outperforming the the market which you serve, you didn't specify a number there for what you think the served market is going to grow. You just mentioned TSMC.
I mean, they've talked about semi's X Memory growing 8% this year. It's not perfectly analogous to your served market, but there are similarities. Mean, how do you see your served market growing in 2020?
Well, you know, okay, this is a public information, okay, the latest forecast from WSTS for the market we serve is about 20, a year of growth of 7.5 percent. We expect that the next 3 months will confirm this dynamic And this is a number we have taken into consideration elaborating our business and industrial plan to drive the company. Got it.
Thank you very much.
Yes. Alexandre, we will take the last question. The last question, for this, for today, obviously, investor relations team remain available for any of your other we can take some calls after this call. Thank you very much.
The last question comes from David Mulholland from UBS. Please go ahead.
Hi. Just two quick ones for me. Firstly, on the trends you're calling out into Q1 in AMS and for Personal Electronics, be better than seasonal. Can you just give us some color on whether that's because your largest customer there is trending better than seasonal? Or if this is because you're seeing other products at other customers starting to ramp up a bit more, I guess, things like your RF power amplifier business.
And then secondly, just on the various silicon carbide supply agreements that you've signed, can you just help us understand the structure of those and whether there's some sort of take or pay arrangement or whether there's just flex in that, what are you giving to get this commitment from supplier on the capacity?
Phone, it is widespread and, more. We cannot comment in detail the customer rationale, but I can say it is well spread and there is a various, let's say, good reason behind. And, and it's better, okay, release and the usual, usual seasonality. But it is ForeSee, it is well spread across our customer base. And you know, we address all the customers, okay, whatever they are Chinese or American.
More about silicon carbide more, you know, that I cannot comment the detail of a strategic agreement and contract Again, I do believe that the company like Chris and, and the Fitry style, from Z perceived ST as a strategic partner, a key player with today leading position on Silicon Carbide. And thanks to the 51 programs we have in a good position, to achieve a market share and $1,000,000,000 revenue by 2025. So I guess, this is the reason why it's to company our interest with us. To participate to overall success.
But if I can just clarify that, because there's a lot of variation in patients on how pricing will trend for wafers? Have you already potentially pre agreed things like pricing over the next 2 to 3 years as part of that?
Our ambition is sustainable and profitable growth. So we are acting consistently.
I tried. Thanks guys.
That's fair. Thank you very much. This will conclude our call, I think. Thank you very much all of you, and see you next quarter for this type of calls. And in the meantime, as Jean Marc has reminded, We have our presentation at Mobile Bocongari on the 25th February and our Capital Market Day on 6th made.
And I take the opportunity because it is still possible to reach everybody and happy and profitable new year 2020. In France, it's it's possible.
Thank you. See you soon. Thank you.
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