Ladies and gentlemen, welcome to the Third Quarter 2019 Earnings Release Conference Call and Live Webcast. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference has been recorded. The presentation will be At this time, it's my pleasure to hand over to Celine Garcia, Group Vice President, Head of Investor Relations. Please go ahead.
For joining our third quarter 2019 financial results conference call. Hosting the call today is Jean Marc Sherry, Estee's President and Chief Executive Officer Joining Jean Marc on the call today are Lorenzo Grandi, President of Finance, Infrastructure And Services And Chief Financial Officer. Marco Casey, President of Sales, Marketing, Communication And Strategy Development. These live webcast and presentation materials can be accessed on a Investor Relations website. A replay will be available shortly after the conclusion of this call.
This call will include forward looking statements that involve risks such that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the safe arbor statement contained in the press release that was issued with the result this morning and also in ST's most recent regulatory filings for a full description 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 follow-up. I'd now like to turn the call over to Jean Marc at his President and CEO.
Thank you, Salim. Good morning and thank you for joining ST on our third quarter earnings conference call. Let me begin with some opening comments. 1st, on Q3 and year to date. So Q3 net revenues at $2,550,000,000 and Q3 gross margin at 37.9 percent came in above the midpoint of our guidance, driven by engaged customer programs and new products in as expected, a soft legacy automotive and industrial market.
Q3 operating margin was 13.1% and net income was $302,000,000. On a year to date basis, we delivered revenues of $6,800,000,000, gross margin at 38.4 percent operating margin of 10.9 percent and net income of $640,000,000. 2nd, on Q4. Our 4th quarter outlook is for net revenues to grow sequentially about 5% at the midpoint. Q4 gross margin is expected to be about 38.2% at the midpoint of our guidance.
And assumes about 120 basis points of unsaturation charges. Based on our fourth quarter outlook for the full year 2019, we expect net revenues to be about $9,480,000,000 at the midpoint. This confirms a strong H2 over H1 growth with a double digit operating margin performance. Now Let's move to a detailed review year over year growth up to 1.2% driven by Imaging, Analog, Power Discrete and MEMS. On a sequential basis, we reported strong revenue growth, up 17.5% driven by a specialized imaging sensors, application specific animal products, general purpose and secure microcontrollers, RS products for front end modules, silicon carbide Mosets And Digital Automotive.
This performance was partially offset by general purpose and analog and non forward discrete products. Legacy Automotive products grew a slower pace than expected. Our gross margin was 37.9%, 40 basis points above the midpoint of our guidance. All saturation charges represented 110 basis points lower than our expectation of 140 basis points and better loading in our digital wafer fab. Our net operating expenses were 1,000,000 Moving to our profitability, operating margins was 13.1 percent net income of $302,000,000 and diluted earnings per share, 0 point 3 $4.
Net cash from operating activities was $429,000,000 in Q3 and was 1,090,000,000 for the 1st 9 months. Capital expenditures were $444,000,000 in Q3, similar to the year ago quarter. On a year to date basis, we have invested $937,000,000 for CapEx. As anticipated, we returned to a positive free cash flow in Q3 at $170,000,000. During Q3, we paid cash dividends of $54,000,000 and completed $62,000,000 of share buybacks.
Now let's move to our fourth quarter outlook. We expect net revenues to increase about 5% sequentially at the midpoint of our guidance. All three of our products grew will contribute to the sequential growth with MDG expected to be the stronger contributor. Our guidance assume a contribution from improving market conditions as well as from our engaged customer programs and new product introductions. Our gross margin guidance at the midpoint is 38.2%.
So we see some sequential improvement in gross margin at the midpoint. We do anticipate unsaturation charges to continue estimated about 120 basis points on a year over year basis to decrease the decrease of the gross margin will be about 180 basis points. Q4, net operating expenses are expected to be between $620,000,000 to 6 30. Let me now share with you some important business market and product dynamics starting with automotive. In July, we said we were operating under 2 opposite market dynamics, challenging in automotive legacy, but very healthy in smart mobility application, driven by the electrification and digitalization of car system and platforms.
In early September, we confirmed this view, saying that we would keep on tracking the situation closely for September and then of over. What we are seeing today is that the legacy Automotive business, closely linked to car registrations is recovering at a slower pace compared with what we were expecting when entering the second half. In smart mobility applications, car digitization and electrification, Positive market dynamics are there indeed. Our innovative technology and product portfolio enable us to support our customer shift to more electrification and more digitalization. In car electrification, we provide technology and products for all flavors of vehicles, from the mild hybrid to full electrical vehicles with a broad range of products.
We saw continued traction and additional design wins with our silicon carbide MOSFET and Diodes in application like onboard charging and DCDC conversion. We announced that we will supply high efficiency silicon carbide devices to Renault, Nissan and Mitsubishi for advanced onboard charges. Overall, we can confirm that we are on track for over $200,000,000 for our revenues with Silicon Carbide devices this year. We have successfully completed our key milestone evaluation of Silicon Carbide Wafer Manufacturing. Nortel, Therefore, we have decided to exercise our option to purchase the remaining 45% stake.
We expect to close this acquisition to support the programs of our automotive and industrial customers from 2021. We also continue to progress on IGBT ModFETs and power modules. With a number of design wins in application like traction inverters in electrical vehicles. Our offer for car electrification goes beyond power with a complete range of products such as protection devices, gate drivers, battery management solutions and microcontrollers. I will mention one example.
During the quarter, we won a design with a major electrical vehicle manufacturer our 32 bit automotive microcontrollers will be at the heart of electrical vehicle charging adapters. Current digitalization for us includes Head assistance, V2X Communications, and the range of systems from embedded control units to domain controllers using our MCUs. Here, we continued to build momentum. An example, like I mentioned, is the design win controllers in a standalone body gateway. That's the Central Communication not inside the vehicle, enabling Cross domain communications and connected services.
Moving now to industrial, our 2nd broad area of focus and where we plan to accelerate our growth. The market dynamics of the third quarter were still soft overall with mixed performance across applications and products. However, there are some positive signs. First, The inventory correction at distributors, which has been impacting our general purpose microcontrollers business for several quarters is now over. This business grew over 25 percent sequentially 2nd, the positive signs we started to see since March for the point of sale increase at distributors worldwide are still there with the exception of Europe.
Forward devices demand is facing different dynamics. Demand is strong for silicon carbide MOSFET, highgbt and low voltage performance, While high voltage power modes and non power discrete are still suffering from soft end market demand, umplified by an inventory correction due to sharply time of the industry. Moving now to a short preview of our achievements in the quarter for industrial, one of our targets for this market is leadership in industrial embedded processing solution. To that end, we are strengthening our hardware software and ecosystem offering around our microcontroller families. During the quarter, we introduced new hardware, such as our first SCN32, in an 8 pin package.
This further expands the market we can address to simple under the project that did 32 performance in a compact and cost effective form factor. We also added to a CM32 ecosystem with the release of a number of software packages. In Q3, we also introduced new analog products for industrial, addressing lighting power supply and factory automation applications. We won a number of new designs with metering industrial sensors, intelligent power modules and power discret for applications such as power tools, induction heating, home automation, white goods and industrial compressor. Moving now to personal electronics.
The current visibility we have is showing strong demand for our key products. As you know, in this end market we target leadership in specific high volume smartphone applications as well as associated variable gaming and accessories markets. During the quarter, we won designs and home production for new products in many categories. We were awarded the design wins for our portfolio of sensors, time of flight, ambient light, motion and pressure sensors. We also had wins for Secure Solutions wireless charging, touch and display products.
In addition, we have design wins and ramp up shipments for motor driver and display products for portable game consoles. I will conclude with a few words on our objective to capture opportunities in 5G devices with RF mixed signal technologies and product During the quarter, we were awarded wins for digital and mixing yield ethics for AirF SOI designs, to be used in 5G smartphones and device. 5G's an area of focus also for our efforts in the communication equipment market, on top of satellite communications and cloud computing. During the quarter, We continue to execute on programs and also our new designs across a range of applications. This includes a design with our of global navigation satellite system, ICs, chosen by an important provider of global internet access.
To conclude my remarks, take away. During the first quarter, we reported strong sequential growth, double digit operating margin, a strong increase in net income and a return to positive cash flow. For the fourth quarter, we expect to see at the midpoint of our guidance, sequential revenue growth and an improvement in our gross margin. We do expect further improvements in our operating profitability and free cash flow generation as well. Combinding together, Q3 revenue results and our Q4 outlook at the midpoint, we are in line with our expectations of a strong sequential growth H2 over H1 with an uplift in revenues close to $1,000,000,000.
For the full year 2019, we expect net revenues to be about 9.48 $1,000,000,000 at the midpoint. Our engaged customer programs and new product introductions across the end market we target are well on track and based on important secular electronic demand drivers. Smart mobility, power and energy and the IoT. This enabled us to better navigate the macroeconomic and the market dynamics, both short and long term. Thank you for your attention.
We are now ready to take your questions.
We will now begin
you.
First question is from Stefan Houri from ODDO. Please go ahead.
A question on the sequential evolution you're expecting for Q4. You said that you expect all the divisions to grow sequentially, but notably, you talked about MDG as probably the biggest driver for Q4. Can you help us understand a little bit better if it is only linked to the end of the inventory correction that you have talked about Or is there anything more I. E. Market share gains with the new range that you have launched?
Thank you.
As I have said, during my address, I think there is 2 positive points first of all, we continue to see a POS sequential increase, from from March. So this is a point number 1. As I told you, the level of inventory now in distribution at for MCU is at a standard level or slightly below a standard level. So means we are in a let's say where you have a POS increasing level of inventory at the standard, okay, to support demand and more important in such market condition is to be capable to make term business quarter to quarter because when you are facing, let's say, such business condition, your visibility is limited, but is not an issue as far as you have a strong capability to make term business quarter to quarter. And this is exactly the situation we are and and we offer shortly time to our customer and with our strong product portfolio, we are able to support their demand.
Germak, Lorenzo speaking, if I can add that, we talk about MDG. So there is the component that is related to microcontroller. But in this area, we have also, let's say, the digital and we have a customer program that will contribute to this is not only
Okay. And if I can have a follow-up on the margins because it seems that your gross margin is thing a little bit better than you initially thought earlier this year. So is it coming from the ForEx adblading or the product mix, what is in your view the main element? Thank you.
About the gross margin, Lorenzo speaking, when we were discussing about the gross margin But looking at the gross margin of the quarter, let's start from the gross margin of Q3, where it comes a result, then respect our original guidance is mainly driven by a lower level of unloading charges. This lower level of unloading charges are due mainly to the fact that our production was increasing in order to fall off better revenues than expected for the quarter. There is also some component. This the unloading charges accounted for around the 30 basis points of improvement in to our original guidance, the remaining 10 basis points of substantial is a better than expected exchange rate. So at the end, let's say the gross margin came a little bit better on the way that we have better level of the loading.
For Q4, we always said that that's our view was that the lowest point for our gross margin this year should have been Q3 and this confirm, let's say next quarter, we are targeting to be slightly above 38%.
Okay. Thank you very much.
The next question is from Andrew Gardiner from Barclays. Please go ahead.
2, if I could, one on the comments on Automotive and then another one on the sort of gross margin and utilization. Just in terms of automotive, Jean Marc, you mentioned that the, sort of the trends that you're seeing in the legacy business have been sort of worse than you'd anticipated when entering the second half when we last spoke around July. Can you confirm that it is indeed recovering, right? You feel that there is a bottom in that part of the market. It's just that the pace of recovery there is is slower than you would have hoped.
I'm just wondering what kind of sort of order linearity have you seen 3 third quarter? And and into October so far? Is there a consistent trend or be it one that's just a bit weaker than you thought? And then I'll follow-up on the utilization.
So I confirm exactly what you understood from my address. Clearly, when we enter in third quarter. Our expectation was a recovery, improving condition for our legacy product. And we always said and I repeated early September that mid September to mid October will be critical period to assess the dynamic. What we can confirm that we see improving market condition, but clearly at a lower pace than expected.
So this is the point number 1. My other point, we do not usually comment we all see improving booking trend on the automotive legacy, which is, let's say, making us make the assessment that things are improving. And you know, is based on the car registration. Now what we can say, clearly, we can say that we acknowledge that, there is a kind of consensus that we will see improving worldwide, a combustion engine based internal combustion engine based car registration, starting now and certainly, next year. But what is difficult to assess globally it is how it will propagate through the automotive supply chain and how it will be transformed in semiconductor demand.
Today, what we can only say, we say, we expected improving market conditions for legacy. Yes, it is happening at a lower pace than expected. So this is really the data point I can share with you.
Okay. Thank you for that. And then
if I could ask another one on the fab utilization, Lorenzo, you said that the 4Q guidance clearly confirms that your 3Q has been the low point for gross margin and seems like utilization levels at a similar level the fourth quarter. How are you starting to plan for 2020? I realize it's early, but just in terms of your conviction around trends into 2020 and therefore what that can mean for fab utilization late this year and into early 2020? Thank you.
Well, let's say the fab utilization in Q3 was in the range of 77%. This was the loading as you rightly say in Q4 will be similar slightly below because you see that the overall the unused charges are a little bit increasing because we move from 110 basis points in Q3 to 120 point in Q4. So we will be more in the range of 75%. What about, let's say, the unsaturation trend in a, in a, in a, in a, in the next quarters? In 2020, our plan is to keep our inventory under control.
There will be some smoothing effect in the first of the year, but we want, of course, to not increase in a significant way our inventory. So these the expectation is that we will have an answer duration in the first step part of the year in the first half of the year. And this is mainly driven by the fact that there is a significant change in the mix of demand. The technology. We've that is a main impact in our mature technology.
For sure, the level of saturation charges will depend on the evolution of the market condition and our plan for the 2020. At this stage, my expectation, as I that is that we still have a level of unsaturation in the first half of the year and we expected to improve in the second part of 2020.
The next question is from Alexander Petak from Societe Generale. Please go ahead.
Yes, good morning. I just have a little follow-up question on ADG, where you say that the revenue decreased in automotive Could you maybe quantify maybe your year to date overall automotive sales, how they evolved versus last year or for the third quarter alone, whichever you can provide. And also in power discretes, you had an increase in the quarter. Could you be more specific on customer segments were behind that? And then just finally on geography, you were implying previously that Europe was lagging in certain markets in terms of the past recoveries.
That's still the case today.
Okay. Thank you. So I'll take the question. What I can say that assess and look our overall automotive segment, year to date, facing a market of the car registration decreasing slightly above 5%. ST is increasing year to date about 5% compared to the same period last year, year to date.
So, as we said, our capability to enable a solution for our customer on to execute their transformation to more electrification and more digitalization is enabled us to grow much faster than the market we are facing from car registration perspective. So this is the point And we do believe that at the midpoint of our guidance of Q4 and the full year at $9,480,000,000 for overall ST. We will conclude the year for automotive with a growth full year 2019 versus 2018 about 5%. So on the power discretes, more clearly, power discretes is driven by, over performance in Silicon Carbide in Westlake. And Diodes, and let's say pushed by a performance of one important customer.
But as I said during my, my address, IGBT Mosfet, and low voltage power modes, also our key contributor to the growth. Where we are facing a different dynamic now is a high voltage power asset certainly link to some inventory correction because now for this device, the industry lead time quite short. And the end demand also is a suffering, because the overall industry oil market weekend.
Thanks. And on geography.
Hello, on geography. So on geography, for power district, not for automotive.
What is your question, Alexander? Is it for a question on geography? It's just of Podistry or is it more global?
No, it was a general question you were referring in the last quarterly call to Europe lagging and you saw some pockets of weakness extending actually at the last call. So I was wondering if this has changed somewhat in the current period?
Overall for the group? No, we confirm overall, okay, for, let's say, geographies that we see the POS let's say increasing sequentially, materially in Asia. In America as well, but in the, let's say, slower pace. But in Europe, for sure, it is still decreasing. And we do believe it is consistent with the macroeconomic condition in Europe and in Central Europe related to the industrial market.
Thank you very much.
The next question is from Sandeep Deshpande from JP Morgan. Please go ahead.
Yes, hi. Could I ask about your view of visibility that you have into design win activity into 2020? I mean, clearly in a year when the semi cycle is so weak this year, you've had significant new design win activity, which has held up your sales much better than your peer group. So, I mean, do you have visibility in how this design win activity looks into 2020. That's my first question.
And my second question is, in terms of the mix, such really, I mean, is the, I mean, in terms of the long term guidance on margin from the company, is the intention that the gross margin of the company remains at these at the kind of peak levels you saw last year? Or is it that you intend to change the mix over the next few years to reach the midterm operating margin targets.
So I'll let Lorenzo to answer our gross margin mid term, even if I would at least to answer, but I will come back under design wins.
In terms of gross margin, midterm, we confirm if you take, let's say, today, the gross margin, how we run-in terms of gross margin, if you take, let's say, the gross margin at midpoint of Q4 for the year, it will be in the range of 38.4 percent for the full year 2019. And this gross margin is overall impacted by around 80 basis points of answer duration. In respect to this gross margin, so it means that if you exclude the situation, we are above 39% with an impact on a manufacturing efficiency that is not at the best because you know that when the said, but not fully loaded, not at the best. We confirm that our medium term target for gross margin is in the range of 40%, 41%. The main driver it will be for sure, let's say, optimization of our manufacturing efficiency with the loading.
We see some improvement also in the mix, but we will not be the strongest driver in terms of gross margin improvement.
Well, about the design win and what I can say about 2020. Clearly, what we are, let's say, acknowledging now that first we are monitoring for sure all the funnel of a opportunities we have with our new product, new design either when they are, let's say, general purpose device or application specific device. And this funnel of opportunities is growing. And the conversion rates to transform these opportunities in real business is accelerating. Well, I have to say it is, let's say, this kind of phenomena is very win on 1 when you go through a tough market condition.
So you have an acceleration of new product and new application. And you have a deceleration of mature product and mature and mature technology So this is exactly the phenomena we are more and here again, ST, overall and then I can discuss about market, but overall with our, let's say, white bond gas materials, so silicon carbide, again, low voltage performance So we address very well all the opportunities in automotive and industrial power and energy control. With our microcontroller at 14 nanometer today, we addressed, okay, the domain microcontroller with our advanced BCD, we address also all the opportunities for automotive and ASIC for the industrial. Well, in last but not the least, personal electronics. Clearly, our time of flight ambient light sensor, our secure solution, our wireless charger, and the RF mixing oil technology, to address the front end module, receive a great appetite from our customer.
So I have to say that 2020, it's too early to disclose anything about 2020, but certainly ST will take benefits next year about new product and program going as we have done this year.
Thank you. The
next question from Sebastian Stavowitz from Kepler Cheuvreux. Please go ahead.
Yes, thanks for taking my question. So could you please comment a little bit on the dynamic you are seeing with the Chinese smartphone OEM and notably following the Huawei component ban. Have you seen any kind of pickup of demand while those guys are accelerating, I would say, the shift away from U. S. Suppliers?
And also on Industrial General Purpose Analog. When do you expect to see the end of
the contributor to your question. Okay. Well, first of all, about the OEM you are spoken about, I will not comment. You know that it's a policy of ST to do not comment a specific customer what I can say is that, this is an important customer for ST. It is fully embedded in our strategy.
To address high volume application, but being very selective for smartphone. Again, we target sensors menced and specialized imaging. We target embedded processing solution, number 13. We target wireless charger and, okay, I think something you have seen something public. And then, okay, we target front end module with our technology.
And the demand is strong, okay, for our key product and technology. More about industrial general purpose, general purpose analog at this stage, it's very difficult to see when we can state that inventory correction we've had driven by an end demand growing and inventory level coming back to standard. So for the time being, I will be prudent to do any time schedule of the end of inventory.
Okay. Thank you.
The next question is from David Mulholland from UBS. Please go ahead.
Hi, thanks. I just wanted to follow-up a little bit from the first question, but more generically in China, how has your business trended in quarter and into Q4. And just part of the reason for asking OCI a couple of nights ago is a lot more cautious on their commentary into Q4. So I'm trying to understand what the what you think the delta might be between what you're seeing and how they're guiding for some of these market into Q4 and whether some of that might be the strength you might be seeing in China?
Well, again, I think I do not want to let's say, specifically speaking about China, okay, again, it's more global for ourselves. So we address the mass market worldwide. Again, we see a POS increasing of our distributor in Asia, okay, in the with a strong base. In Europe, as I said, it is it is reversed, okay, and for obvious, obvious reasons. And in America, it's okay.
Ma'am, about China, again, China is an important region, totally, let's say, important for us but totally consistent with our strategy to be a broad range, a leader in Automotive And Industry On Market. And you know that China in automotive is the most important region, because they produce about 20,000,000 per year. So it's important region, industrial as well and in personal electronic where we target the high volume application being selective, the appetite for our technology is very strong. So there is no more than that. And but for sure, China is an important region for it.
And then just one quick follow-up. On the country, you've been giving Orion Automotive and the design traction you've been talking about for a couple of quarters now, both IGBT and silicon carbide. Can you just help us to quantify this? Is it possible to put a number on where you think you are in terms of value of design wins, even if it's over a multiyear period, but just something to get a gauge in on what that success is being
No, we cannot give a specific, let's say, number on on SIC and in IGBT. Well, okay, a well known number, okay, that I I disclosed, during the past quarter was the number of program on 6 or 35. But I simply say that no, it's moving to 40.
Thanks very much.
The next question is from Matt Ramsay from Cowen. Please go ahead.
Yes, thank you very much. Good morning. Jean Marc, I think I wanted to follow-up a little bit to David's last question. Contrasting your microcontroller business at Texan. I know that they recently made some pretty sharp changes in their distribution strategy, trying to go a bit more direct, taking Avnet out of their mix, for example, I think some of the prior questions were around your business trends in China, but I think I wanted to see if you might comment on how you're seeing the overall distribution landscape, given the changes at TI and maybe some distributor friendly business on your side contributing to some of the strengths?
And then I have a follow-up. Thanks,
Well, I fully respect AI strategy and the consistency, okay, of what they are doing. About ST, you know that it is slightly different because our partnership on distribution is mainly targeting demand creation. And we are very pleased with the partnership and various cooperation. We have across the world and especially in Asia about this activity of demand creation. Which is, let's say, a very complementary of the outstanding ecosystem we have developed around the STM32.
Because you know that one of the main strengths of ST is a broad branch portfolio we have in SCM32, with a very strong ecosystem around that in term of user applications, in term of tools to support the design, prototyping and so on and so forth. So we are very pleased, okay, with our partnership with distributor. Between the demand creation and the strong ecosystem we offer to them. So this is our strategy. Well, as I said, this year, we suffer and we were one of the company announcing it as a really, as the earlier, last year, okay, 1 in end of August last year, Of course, okay, we have seen inventory correction, okay, during the past few quarters.
But since March, the POS is continuously increasing. The stock are at the right level. The design wins are coming. The funnel of opportunity is growing and the conversion rate is increasing. So we are pleased with this strategy and then, okay, TI is following another one, but again, okay, we have a lot of respect and we we see the consistency of Ti.
So we have no more comment about that.
Thank you for that. That's helpful perspective. Just a quick one, Lorenzo on operating expenses. It looks like you're going to be, I don't know, 2% to 3%, something like that higher OpEx this year. Is that sort of a growth rate we should anticipate or it seems like the opportunity funnel is widening a bit.
So I just wonder on spending levels going forward into next year. Thank you.
Yes. On expenses, actually in Q3 expenses, when we talk about expenses, we talk about the net expenses, including also the line of other income and expenses that we have, you know, SG And A, R&D and other income and expenses. If you look in Q3, our expenses came at under $31,000,000. This is a little bit on the high side of what I was saying entering the quarter. If you remember, I was talking the 620,000,000 dollars, $630,000,000 as a range.
What it will be in Q4, our expenses. My expectation for Q4 is firm that we will be between $6.20 $6.30. But in Q4, I do expect that to be on the low side of everything And this is mainly driven by the fact that on the line, other income and expenses will be much more positive than what we have seen in Q3. Due to the fact that we will be in the condition to in some jurisdictions to recognize a significant amount of R and D grants. So it means that at the end, I would confirm what I have said last time during our last call that overall in the year, the expenses will came in between 6 2630, if you take the average quarterly on our expenses.
The evolution of our expenses. For sure, next year, there will be some increase because there is some increase of activity that is in the inflation rate, this things, but I repeat that there will be not a significant increase. We will increase, but we believe that the structure of the company at this stage is such that can support the level of business that we have and the ambition that we have with this level of business. So you can factor in some increase in the range of 3% or 3%, but no more than that.
The next question?
Yes. No, I have, please. Another question?
Yes. The next question is from Ashal Sultania from Credit Suisse. Please go ahead.
Thank you everyone. And just coming back to the Silicon Carbide business, obviously, a lot of growth this year, it seems, is driven by one key customer in the U. S. You've announced a few design wins, but I think most of them are going to ramp in 2021 and beyond. That's my understanding.
Maybe I'm wrong. So if that's the case, like how should we think about the Silicon Carbide business next year, specifically in 2020, Is it still going to be predominantly driven by volume growth at key customer or we can actually expect some new customer ramping already next year? Thank you.
So if you allow me, for this year, correct a little bit, okay, your assumption that, our silicon carbide is only driven by one customer was valid for last year. 2018, but not this year. This year, okay, we have a significant amount of other customers. Which have started mass production and so for us revenues, of course, in the second half of this year. So what you say is a little bit, let's say, valid for last year, but not for this year.
And next year, yes, we will continue to grow at, let's say, important path okay, we are building we are building capacity for that. This year, that's the reason why we invested, okay, material amount of CapEx to support the perspective of growth, for next year on silicon, the carmine, That's the reason why, okay, thanks to the fact that the milestone, what Northhead has been should. And we have decided now to take the full ownership of North Wales and forecast, okay, to start production by 2021. So now, okay, next year, 2020, well, with the current visibility we have, will be another year of material growth for Silicon Carbide. We are on track this year we will outperform above the $200,000,000 and all of our programs are on track to go to $1,000,000,000 by 2024.
Thank you. One follow-up, if I may, on on the margins, like, historically, microcontroller, I think has been the highest margin business for ST. Obviously, we've seen improvement in AMS also clearly while MDG has gone down because of inventory correction. Is that still a fair assumption in the long term that, microcontroller should still be well above every other product line in terms of EBIT margin contribution?
In terms of operating margin, yes, in the sense that if you remember what we said and what is our view, we said that overall, we see, let's say, on the on the margin for MDG that is including microcontroller to be in the range of 20% operating margin. When we look AMS in the average of the or there is a strong seasonality in AMS, but we will be in the mid high teens. And when we look, let's say, in to ADG, we will be more in the middle of teams. And these I confirm, I confirm that this is more or less the mix that we will land among our groups for what concerns the operating margin.
Okay. Thank you, Lorenzo.
Question is from Jerome Brammel from Exane BNP Paribas. Please go ahead.
Yes, good morning. Jean Marc, questions. So the first one is concerning the 3 d sensing. How do you see on the main long term, the technology involving, with the current solution we have in the market from structure light and time of flight, how do you see the technology being deployed let's say, within 2 to 3 years. And the follow-up will be on the silicon carbide, competitive landscape.
How do you see, why do you see the reason for being vertically integrated, which seem to be the trend that you and your competitors are, going for a while, which is unique in the semiconductor industry. We don't have any other example of have been vertically integrated with the waste of supply. So yes, so just your view on these two points.
So silicon carbide, you know that the characteristic of any power device to drive the cost down, engineer at value expected by our customer is to really work on the device process itself, on the raw material goes down and to a size the design of the package or of the module. And for both the Wafer device and for that says raw material, for sure, the perspective to increase the wafer size will be a key growth driver for the cost reduction. So ST, we do not want to be limited by, anybody in our strong willingness to decrease the cost of this device. That's the reason why we have decided to control partially of our supply China, we always said that we do not intend to supply 100 percent of our raw material lead. Is only to the intention to support a share of our internal need.
That's the reason why, okay, we have signed a very important agreement with Cree, okay, 1 year ago and the relationship with Cree is, is very good. But, okay, we want really, to look deeply in the raw material in order to accelerate as fast as we can. Water size conversion and cost reduction. So this is about the silicon carbide. But clearly, about, 3 d sensing, more, 3 d sensing, but for for sure, for the time being, let's see, is really focusing on the structural light and, and 3dish facing with important current customer we have.
And, our mission is to support at the best, the performance improvement and the cost decrease of the solution. Overall, we do believe that the future of, let's say, 3 d sensing, debt matching, face recognition will evolve to a solution based on the indirect time of flight. So and driven by cost reduction objective. So is something, okay, we are convinced about that's the reason why we are running a development and and we have a road map adequate for that. More also we consider that ambient light sensing is important device to have.
Well, and then, okay, we know that the Android player are highly interested in 3 d sensing solution, for here fitting. And, and our road map is well adapted to that. Well, after, okay, you know Jerome that to comment more deeply, is trying to speak about Circate and this
is what I cannot.
Thank you. Next question please.
The next question is from Anthony Stoss from Craig Hallum. Please go ahead.
Good morning. I wanted to follow-up on your comment that you expect your auto business to be up about 5% year over year in 2019. When you look into 2020, I'm curious your thoughts on content expansion. For instance, if global auto units are flat, where do you think your revenue could grow in 2020? And then I had a follow-up.
Now on Automotive, okay, let's share together, let's say, a fact and an amount of context. And not make prediction, okay, because this is not our job to make prediction. So about element of context, again, Okay. There is a very strong drive on electrification calling for silicon carbide in MOSFET, Diodes, IGBT, and low voltage power modes. And mainly the low voltage power modes are for the 48 volt.
Here, there is a strong demand of components and the growth will be sustainable and material in 2020. Then there is digitalization. So digitalization for us is clearly at us and you know that we have a strong partnership with with Mobileye, V2X communication and associated component of ADASA is not only the processor, but it is rather, lighter, okay, sensor, let's say, sensor fusion, the microcontroller, all this kind of stuff. There is V2X communication and there is more and more the change in the architecture of vehicle moving from, let's say, fragmented ECUs to a domain controller. Again, here, similarly, okay, the demand will continue to be very strong for next year.
But then about all the other legacy, means powertrain and self for internal combustion engine, infotainment. So this kind of legacy legacy product, what we acknowledge now, we acknowledge that certainly for 2020, we will see improving condition for car registration, about internal combustion engine vehicles. This year was terrible. Because overall, okay, it's a drop of minus 5, minus 6% and especially in China minus 10%. But we acknowledge that for next year, certainly we will see some things stable, let's say, flattish.
Okay. Now what is really challenging is difficult for the time for the time being is to assess that this car registration stability or it will propagate through the supply chain of the carmaker of the automotive and how it will transform in semiconductor demand because, let's say, a little bit disturbed, but some inventory correction year on there, a change of architecture, acceleration of system and so on and so forth. So what we expect for our 2020 is internal combustion engine car registration flattish situation improving in term of supply chain, struggling about the excess inventory here and there. And then a transformation in semiconductor demand. But it is still difficult to assess, okay, with a strong accuracy what is going on.
What is really important at this stage is the capability for semiconductor vendor to be flexible enough to be agile enough to react very fast to the demand to customers. And I have to say that here our ST with our internal manufacturing, we have a good strategic position to support this kind of market situation.
Thank you for that. And then as a follow-up, you brought your inventory days on hand down to about 100 days in Q3. When I look at your revenue guide for Q4 is fairly similar up a little bit year over year, yet your inventory is about $200,000,000 above where it was a year ago. What's the goal on inventory days on hand that you're comfortable with? Thank you.
Yes, about inventory, you're right. At the end of Q3, we were around 100 days of inventory. Our expectation for this quarter, Q4 is that the inventory will go down father in respect of where we stand today. We should be definitely below 100 days in the range of 90, 95 days of inventory by year end.
Thank you. Thanks, guys.
Thank you, Tani. We are now close to the end of our call in CRE, but we are ready to take Maurer, we will take a few questions at our left no matter if we extend the research. So next question, please.
The next question is from Johannes Schaller from Deutsche Bank. Please go ahead.
So on Silicon Carbide again, I mean, a lot of the contracts in the market there, given that the volumes are quite low, from your side, but also from what your competitors like we have announced. I would assume a lot of these contracts are largely or de facto single source at the moment Can you share with have you seen any contract in the market that is already multi sourced on silicon carbide in a meaningful way? And I have a follow-up on MDG.
Well, it's really difficult to comment about the multi sourcing contract on Silicon Carbide. For 2 reasons. For reason, number 1, okay, we do not disclose the discussion we have with our customer is point number 1. And the point number 2, silicon carbide in Westside is a difficult device, okay. And ST, we have accumulated 1,000,000 of PCs and tons of wafer.
So we are totally perfectly comfortable the reliability of our device and the success rate of the qualification we have at customer level. I am not so sure the competition is comfortable as well to be qualified on time on the reliability requested by Automotive Markets.
That's clear. And on MDG, I mean, you're running currently at a pretty similar revenue run rate, what you had to Q44 2018, but your EBIT margins are about 200 basis points lower. I understand underutilization is some of that, but there may be also a pricing element, a mix element with more digital and other stuff in there? Could you maybe break that down a little more for us kind of where that headwind is coming from? Thank you.
In terms of for MDG, overall, it's true that we are running with an operating margin that is lower in respect to what it was Here, we have some headwinds. 1 is, as you said, one is related to the fact that that for sure manufacturing Even if I remind you that unsaturation charges are not charging the various segments, but are in the others. Any way the impact of not good efficiency is definitely manufacturing, not good efficiency, manufacturing is impacting the result. 2nd ingredient is that the the mix inside the group is not particularly favorable it will improve definitely with improvement in the microcontroller, but it's not particularly favorable for sure, these ingredients are not boosting our operating margin. These are, I would say, the main impact.
Yeah.
Okay. So the non microcontroller part has essentially held up better over the last few quarters than the micro part and that is driven the deterioration in mix. And I would guess that will revert somewhat in Q4.
Exactly.
Understood. Thank you. That's clear.
Thank you. Is your next question, please?
The next question is from Jena Domenon from Liberum. Please go ahead.
Hi, good morning. Thanks for taking my question. I just wanted to go back to the new program ramp the design win activity that you talked about and the funnel of opportunities that you are seeing, which is expanding even in the low part of the cycle. I was just wondering how does that now relate to your midterm revenue target of model of 12,000,000,000 dollars that you talked about at your Capital Markets Day, given how those new programs have ramped in the second half of this year, and the new design wins and activities that you're seeing. Does that make you more confident or less confident versus May?
In terms of achieving that within a midterm of the $12,000,000,000?
Controlled by ourselves means, our new product, introduction and roadmap and the related We are on track with all the programs we are managing, but we have no, let's say, time delivery sleeping clearly, whatever are in the field of a microcontroller for MDG, AMS or ADG. So, so at this stage, okay, we confirm our confidence level, okay, as we said, the gap and market debt to reach $12,000,000, either as a run rate in the second half of twenty twenty one or a full year in 2022.
Understood. And just a follow-up on your RF front end module business. You talked about some additional design wins on that. I was just wondering, are these new design wins at one customer or are you now having RF front end module design wins at multiple smartphone OEMs?
Is mainly, okay, is mainly one customer.
Understood. And you talked about on the analog application specific analog strength in the second half. Is that predominantly on wireless charging that you're referring to? And Once again, is that at one customer? Is that at multiple customers that you're seeing that traction on wireless charging?
It's wireless charging multiple customer.
Understood. Thank you very much.
Thank you. Next question please.
The next question is from Aditiama from Bank of America Merrill Lynch. Please go ahead.
Yes, good morning guys. Thank you for letting me on. Just two questions if I could. Firstly, again, on the analog business in the quarter, you talked about growth, but you also mentioned general purpose analog was weak. Just wanted to get a bit more color on what exactly drove the growth within Analog, any color on what this product does and whether it was a specific customer or multiple customers would be helpful?
And secondly, and then I've got a follow-up on the inventories after.
No, on analog, so what is related to general purpose and industrial and and distribution is still weak because of our inventory. So we are facing inventory still recollection and also it is amplified in Europe. Then what has driven our growth on Analog is related to application specific, so either related to personal electronics, but seasonal effect on our design. And you know that overall, our this drive this year, okay, is a very strong dilution as the market of this drive is decreasing 30%. But across the year, the profile of the business is backloaded and it is linked to seasonal effect.
And we have taken benefit of this seasonal effect.
Understood. And just quickly following up on the inventories, I just wondered if you Obviously, you talked about inventory correction being over in MCUs, but inventory correction is continuing in other parts of the market. So I just wondered if you could do a quick tour around the different verticals and talk about how you're seeing inventories in the entire supply chain in autos in industrial and some of the key markets that you address. Any color here would be very helpful. Thank you.
But inventory, on what we monitor. Again, we see standard level of inventory on the channel for MCU and MEMS, we still let's say, excess inventory, in general purpose and alloy, in high voltage power modes and in, let's say, a non power discrete. And we see a healthy situation on lower level test program effect and the and the and IGBT. More than that our OEM. So when we address the threat of OEM, it's difficult to assess inventory level.
Overall, more and then at ST level, okay, you have seen that we are decreasing, we are decreasing our inventory. So I think for us, what is important is to have a distribution inventory level at the LC situation in order to be sure that we will take immediately benefits of the end demand increase, especially when it will happen in Europe. Unfortunately for general purpose and analog, it will take a little bit longer and for a high voltage performance and the and start down discrete. For the rest, okay, we are totally ready to enjoy a growth. And this is exactly what we have done on MCU and especially in Asia and on men's, about the rest of the industry, more difficult to say, I think, important to your way, okay, what analysts, industrial analysts are providing, okay, we know that some ideas are still have an important level of inventory.
Foundry, I don't know, and this is what I can say. Thank you.
Very good. Thank you.
I think we have 2 more questions to come, Maurer, so we will take those 2 ones. The next question please.
The next question is from Tristan Jara from Baird. Please go ahead.
Hi, good morning. Could you expand on the potential content and revenue opportunity that you see from 5G trends both on the device and in cost structure side, over the next year and also expand on the opportunities you see with SOI?
Well, so you know that the RF front end module for 5G So the content will increase. And so this is the main difference between 4G and 5G. It is an increasing, demand in the front end module. So and the front end module involving globally for blocks So the filters, passive network component. So then you have power amplifier, low noise, amplifier, and switches.
So the SOI RF technology is a good technology as far as you continue to improve and enable performance for switches and a low noise on Clifier. NFT today, okay, we developed interface a well known, let's say, great technology, 8 inches of RF SOI, And in parallel, we developed a roadmap to convert to 12 inches on 65 nanometer based on 65 SOI. And this technology is fulfilling the expectation of our customer in term of performance enablement. So this is where ST is and this is where ST is growing between the LFSOI and the 65 nanometer design element or SOI. More than there is other, let's say, opportunities for us related to 5G.
More definitively, there is an automotive Vivek 2X collection. Industrial, we will have the IoT. That's the reason why in our road map we are developing a system on ships, all building a data cellular modem to address IoT for 5G. And it is a strong effort for the company, okay, to be able to deliver this kind of system ownership in the future. For then, personally, acrylics, I have spoken about, it is mainly the RF module.
And then in communication, communication equipment, well, it is clearly that technology for millimeter wave communication links will be important like the GaN, of the SSOI. And this is where it's is focusing as well. So this is basically, okay, a ballpark, the picture I can share with you.
Great. Thank you very much.
Thank you. Next question and last question, Mohan, please.
Today's last question is from Jean Marco Bonacino from Equita. Please go ahead.
Yes. Hello. Two quick questions for me. The first one is, if you can just confirm the final cash out for Northstar, if this will be in the region of $60,000,000, then the second one, in terms of the impact of the stocking on your revenue for the full year 2019, you are guiding for 9.5 1,000,000,000, which is a 2% decline year over year. I wanted to know if you try to make an estimate of how much this year overall, the stocking was a headwind for you on this figure.
But in term of Northdale, yes, I substantially confirm and let's say we have signed the agreement. The evaluation is is known. So at the end, it will be in the range of $60,000,000. This is what what will impact our cash flow in the next in the next quarters. In respect to how much has been the impact of the stocking.
This is not easy to say, let's say, in the sense that, of course, is is a component and all the lower demand. I would say that probably on our declining revenues has been probably a significant component. We start to see these already last year in the second half, but for sure, the first half of the in 2019 has been significantly impacted. To be honest, to give you our number is not so simple, but I would say that at least let's say half of the decline
Okay. Maybe just a quick follow-up, in terms of your addressable market, do you have, let's say, an estimate for the full year 2019 just to in terms of year over year change?
In term of -3-3 percent? Yes, exactly. Let's say what we see is that it should be in the range of minus 3 percent -4 percent.
Okay. Thank you.
I think this concludes our Puthrie earnings call. Thank you very much for your participation.
Thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Carrasco and thank you for participating in the conference. You may now disconnect your lines. Goodbye.