Ladies and gentlemen, welcome to the STMicroelectronics fourth quarter and full year 2022 earnings conference call and live webcast. I'm Moira, the conference 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 followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Céline Berthier, Group Vice President, Investor Relations. Please go ahead, madam.
Hey, good morning. Thank you everyone for joining our fourth quarter and full year 2022 financial results conference call. Hosting the call today is Jean-Marc Chéry, President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President of Finance, Purchasing, Enterprise Risk Management and Resilience, and Chief Financial Officer, and Marco Cassis, President of Analog, MEMS, and Sensors Group and head of STMicroelectronics Strategy, System Research, and Applications, and also the Innovation Office. This live webcast and presentation materials can be accessed on ST's investor relations website. The replay will be available shortly after the completion 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 expectations and plans.
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&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, Assistant President and CEO.
Thank you, Céline. Good morning, everyone, and thank you for joining ST for our Q4 and full year 2022 earnings conference call. Let me begin with some opening comments, starting with Q4. ST delivered net revenues and gross margin above the midpoint of our guidance. Net revenues of $4.42 billion increased 24.4% year-over-year and 2.4% sequentially. Gross margin was 47.5%. Operating margin was 29.1% and net income was $1.25 billion. Looking at the full year 2022. Net revenues increased 26.4% to $16.13 billion, driven by strong demand in automotive and industrial and our engaged customer programs. All three product groups contributed to the growth. Profitability improved on a year-over-year basis.
Gross margin was 47.3%, up from 41.7%. Operating margin was 27.5%, up from 19%, and net income was $3.96 billion, almost doubling from $2 billion. We generated strong net cash from operating activities. We invested $3.52 billion in CapEx and delivered free cash flow of $1.59 billion. Our net financial position increased to $1.8 billion at December 31st, 2022, from $977 million one year ago. On Q1 2023. At the midpoint, our first quarter business outlook is for net revenues of $4.20 billion, increasing by 18.5% year-over-year and decreasing 5.1% sequentially. Gross margin is expected to be about 48%.
For the full year 2023, we will continue to execute our strategy with a strong focus on automotive and industrial as a broad run supplier and a selective approach in personal electronics and communication equipment and computer peripherals. We enter this year with a backlog higher than what we had entering 2022. We plan to invest about $4 billion in CapEx, mainly to increase our 300 millimeter wafer fab and silicon carbide manufacturing capacity, including our substrate initiative. Based on our strong customer demand and increased manufacturing capacity, we will drive the company based on a plan for full year 2023 net revenues in the range of $16.8 billion-$17.8 billion. Representing a growth range of 4%-10% compared to full year 2022. Let's move to a detailed review of the fourth quarter.
Both revenue and gross margin came above the midpoint of our guidance by 60 and 20 basis points respectively. On a sequential basis, Q4 net revenues increased 2.4%, driven mainly by ADG, which increased 8.5%. MDG revenues increased 0.7%, while AMS revenues decreased 3%. On the year-over-year basis, net revenues increased 24.4% with ADG and MDG growing 38.4% and 29.1% respectively, while AMS increased 7% year-over-year. Sales to OEMs increased 26.8% and 19.5% to distribution. Gross profit was $2.1 billion, increased 30.7% on a year-over-year basis.
Gross margin was 47.5%, increasing 230 basis points year-over-year, mainly driven by favorable pricing, improved product mix and currency effect net of hedging, partially offset by the inflation of manufacturing input costs. Fourth quarter operating income increased 45.4% to $1.29 billion. Q4 operating margin was 29.1%, up from 24.9% in the year ago period, with ADG at 27.7%, AMS at 25.8%, and MDG at 35.8%. Q4 net income was $1.25 billion, including a one-time non-cash income tax benefit of $141 million, compared to $750 million in the year ago quarter. Earnings per diluted share were $1.32 compared to $0.82.
Let's now discuss our full year results, starting with the business development. 2022 was a year marked again by strong demand in automotive and industrial. Still impacted by supply chain challenges due to continuing shortages and capacity constraints. In the second half, we started to see a market softening in personal electronics and computer peripherals. In automotive, we again saw unprecedented demand across all geographies, driven by increasing semiconductor penetration, structural transformation, and inventory replenishment. We continue to execute our strategy for car electrification, in particular in our silicon carbide business. We added a wide range of wins in next-generation electrical vehicle design with our power discrete solutions. The latest one is with Hyundai Motor, who has chosen our ACEPACK DRIVE silicon carbide MOSFET, Generation 3 base power module for traction inverters in its current generation electrical vehicle platform.
In silicon carbide for automotive and industrial, we achieved $700 million of revenues with silicon carbide in 2022, with a plan to be above $1 billion in 2023. We finish the year with 115 awarded projects spread over 80 customers, adding 25 projects and eight customers during 2022. About 60% of these projects are for automotive customers. We continue to lead in silicon carbide as we have moved to high volume production of our third generation transistor for multiple automotive customers. We will ramp our fourth generation transistor in volume in the second half of this year. In car digitalization, we had a range of wins with our MCUs and power solutions for new zonal car architectures.
We won designs with our next generation Stellar Automotive MCU and announced a cooperation model with Volkswagen CARIAD, including the joint development of a system-on-chips MPU. We also received awards with our partners, Mobileye for ADAS and Autotalks for V2V. In our automotive sensors, we continue to increase the scale of our business in inertial sensors, growing by over 40% year-over-year. In global shutter imaging sensors, we received awards for five key programs during the year. In industrial, demand was also very strong through the year, especially in power and energy, factory automation and robotics, and in industrial infrastructure. What we define the B2B part of the industrial market. We continue to strengthen our embedded processing solution leadership with our STM32 microcontroller and microprocessor families and ecosystem.
We continue to win many designs in a wide range of industrial applications and to achieve record volumes and sales of STM32 products. In power and energy management applications, such as electrical vehicle charging stations, photovoltaic systems, and industrial power supplies, we had many important design wins with our power discrete portfolio of both silicon and wide bandgap-based devices, and we further extended our product offer during the year. We progress with sensor for industrial applications with revenue growth of around 50% year-over-year. We introduced new industrial sensors, such as the first intelligent sensor processing unit, launched together with Generation 3 main sensor, as well as time-of-flight sensor for touchless sensing application. These enable design wins with customers in many areas, such as equipment condition monitoring, asset tracking, and scales.
During 2022, we introduced 80 new industrial analog products with awards in application for factory automation, motion control, metering, power tools, and home appliances. In personal electronics and computer peripherals, we started to see a market softening in the second half of the year, while communication equipment demand remained solid through the year in the areas we are focused on. In personal electronics in 2022, we won many sockets in flagship smartphones with motion and environmental sensors, time-of-flight sensing sensors, wireless charging product, touch display controllers, and secure solutions. We also leverage our broad portfolio to address high volume personal electronics applications, such as smartwatches, headsets, and other wearables, as well as gaming accessories from leading player in each area. In communication equipment, we progress well with engaged customer program for selected applications in cellular and satellite communication infrastructure and received new awards based on our proprietary technologies.
These were for satellite, optical, and wireless infrastructure ICs based on our mixed-signal processes and 28 nanometer FD-SOI. Let me now share a summary of our main 2022 manufacturing initiatives. We are transforming our manufacturing base to enable our future growth and drive enhanced profitability with a significant expansion of our 300 millimeter capacity and a strong focus on wide bandgap semiconductors. In silicon carbide, we are following our plans to increase 10-fold the front-end capacity versus 2017, and to have 40% on our substrate needs internally sourced by 2024. We continue to ramp our silicon carbide front-end device production in our Singapore facility on top of the Catania 1, and we increase back-end manufacturing capacity in our sites in Morocco and China.
We are building an integrated silicon carbide substrate manufacturing facility in Catania as an important step in our silicon carbide vertical integration strategy. Volume production is expected to start in the second half of this year. Just recently, we have produced in Catania the first 150 millimeter ingot out of this facility. In term of R&D activities, we have completed full MOSFET device processing using our internally produced 200 millimeter substrate. We will announce that we will cooperate with Soitec on silicon carbide substrate manufacturing technology. With an agreement to qualify Soitec SmartSiC technology for future 200 millimeter thick substrate production. In our 300 millimeter strategy, in 2022, we have further expanded capacity in our Crolles, France site. We also signed an MOU with GlobalFoundries to create a new 300 millimeter semiconductor manufacturing facility adjacent to ST's existing facility in Crolles.
In Agrate, Italy, having completed in 2022 the first industrialization line and the qualification of the engineering sample, we are now ramping our new 300 millimeter wafer fab. We plan to have a capacity of about 1,000 wafers per week by the end of this year. These initiatives will be aligned with our sustainability strategy and our sustainable manufacturing commitment in terms of energy consumption and greenhouse gas emissions, air and water quality. We are on track to achieve our carbon neutrality and 100% renewable energy goals by 2027, as announced in December 2020. One important contributor to our plan was the adoption in 2022 of a district cooling system in Singapore, ST's single largest wafer fabrication site. We expect to eliminate 30% of the site's carbon emissions on completion.
We also continue to work closely with external bodies. We are well-ranked by the Carbon Disclosure Project and included in the Dow Jones Sustainability World and Europe indices. Looking now at full year 2022 financial performance in greater detail. Net revenues increased 26.4% to $16.13 billion. On a year-over-year basis, automotive revenue grew 51%. Industrial was up 34%. Communication equipment and computer peripheral increased 19%, and personal electronics grew 2%. This performance was consistent with both end market dynamics and our strategy. We have a strong focus on automotive and industrial as a broader supplier of application-specific and general purpose products, targeting leadership position. Automotive represents about 33% and industrial about 29% of our total revenues in 2022.
We selectively address the personal electronics and communication equipment and computer peripherals market, targeting some leadership positions with a few differentiated products or custom solutions, complemented by our general purpose product portfolio. In 2022, personal electronics represented about 27% of our total revenues and communication equipment, computer peripherals, 11%. By customer channel, sales to OEMs and distribution represented 67% and 33% respectively of total revenues in 2022. Similar to the split in 2021. By region of origin, 41% of our revenue 2022 were from Americas, 30% from Asia Pacific, and 29% from EMEA. Looking at the sales performance by product group, ADG revenues grew 37.2% on strong growth in automotive and in power discrete.
AMS revenues were higher by 7.1% with an increase in imaging and MEMS, partially offset by a decrease in analog. MDG revenues increased 37.5% with strong growth in both microcontrollers and radio frequency communication. Gross margin increased to 47.3% for 2022 compared to 41.7% for 2021. Principally driven by favorable pricing, improved product mix, currency effect net of hedging, partially offset by the inflation of manufacturing input costs. We delivered a strong increase in operating margin to 27.5% for 2022 compared to 19% in 2021. All product groups demonstrated year-over-year growth with ADG operating margin up to 24.6% from 11.8%.
AMS operating margin up to 25.2% from 22.3%, MDG operating margin up to 35% from 23.9%. Net cash from operating activities increased 70% in 2022, totaling $5.2 billion. After investing $3.52 billion in CapEx in 2022 compared to $1.83 billion in 2021, our free cash flow increased 42.1% to $1.59 billion. Cash dividends paid to stockholder in 2022 totaled $212 million. In addition, during 2022, ST executed share buyback totaling $346 million under our current share repurchase program.
ST net financial position of $1.8 billion at December 31st, 2022, reflected total liquidity of $4.62 billion and total financial debt of $2.72 billion. Let's move to our first quarter 2023 financial outlook and our plan for the full year 2023. For the first quarter, we expect net revenues to be about $4.2 billion at the midpoint, representing year-over-year growth of about 18.5% and a sequential decrease of about 5.1%. Gross margin is expected to be about 48% at the midpoint.
For 2023, based on our strong customer demand and increased manufacturing capacity, we will drive the company based on a plan for full year 2023 revenues in the range of $16.8 billion-$17.8 billion, representing growth over 2022 of about 4%-10%. Automotive and industrial will be the key growth drivers of our revenues in 2023. We plan to invest about $4 billion in CapEx. About 80% of this amount is mainly related to the increase of our 300 millimeter wafer fab and silicon carbide manufacturing capacity, including our silicon carbide substrate initiative. The remaining 20% is for our R&D, laboratories, manufacturing maintenance and efficiency, and our corporate sustainability initiatives. To conclude, last May at our Capital Markets Day, we shared our value proposition.
This is based on sustainable and profitable growth with our $25-$27, $20 billion+ revenue ambition and the related financial model. Our end market focus on automotive and industrial as a broad run supplier of application-specific and general purpose products, targeting leadership positions on personal electronics and communication equipment and computer peripherals, with a selective approach targeting some leadership position with a few differentiated products or custom solutions complemented by our general purpose product portfolio. Providing customers with differentiating enablers and a reliable and secure supply chain. Last but not the least, a strong commitment to sustainability. In 2022, we made important progress in all these areas, and we will continue along the same pace in 2023. Thank you. We are now ready to take your question and to answer.
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touchtone telephone. You will hear a tone to confirm that you've entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and one at this time. The first question comes from Alexander Peterc from Societe Generale. Please go ahead.
Yes, good morning, and thank you for taking my question. Congratulations for strong results and a very solid guidance. Now, I'd just like to understand, you know, given your first quarter gross margin outlook of 48%, are there any specific positive mix effects here at play that will shape out differently in the remainder of the year? I remember, Lorenzo, you said previously that we should probably look at gross margin flaps to maybe slightly up for the current year. Is that still valid? How should we think about the shape of gross margin over the year? Thank you.
You take that. Yeah, Lorenzo will take the question. Thank you.
Okay. Good morning, everybody. Thank you for the question. For the gross margin of Q1, when I look sequentially this improvement, this is mainly driven by two factors, I would say. The first one is related to a positive product mix that is continuing impacting positively our revenues and our gross margin.
Actually, I would say that in this first quarter, we have still some positive effect on price increase. This was mainly on some specific customer and some specific area, I would say mainly in automotive and partially also for some customer in the industrial. Of course, it's not the same magnitude that we experienced last year, but still there some positive negotiation that are improving our gross margin. On the other side, of course, our gross margin is impacted by some increase also in our input cost in the manufacturing. All in all, anyway, we see this improvement in respect to the previous quarter and expect Q4 of around 50 basis points.
Moving forward, the gross margin at the midpoint of our revenue indication for the year is expected similar to the one that we had in 2022. We are substantially confirming what I was saying also, during Q4. On one side, we have a product, positive product mix. The manufacturing productivity, we expect some improvement. In term of pricing, we expect a substantially stability in term of prices. With the price, we do not expect in the course of the year play significantly high, positive or negative, as, but to stay substantially stable. These, all these will be offset for sure by increased input cost in our manufacturing. We have not to forget that, we start our 300 millimeter.
That is sub-optimal in terms of, let's say, volume and production this year. This will impact, to some extent our gross margin, especially in the second part of the year. At the end, starting from the 48%, we see as average in the year, something more similar to 47% for the total year.
Excellent. Thank you very much. Just a quick follow-up, if I may. Can you tell us how far out your current and plant capacity is currently fully booked? Is the top end of your guidance range aligned with the hypothesis that you remain sold out into year-end? How does this work out? Thank you.
About capacity, there is different dynamic. It is clear that we have to look now by technology and packaging clusters. It is clear that all technology which are related to automotive and, let's say B2B, industrial. Here I have spoken about power technology, so six MOSFET, IGBT, vertical integrated power, high voltage, low voltage MOSFET. As well, okay, some advanced power driver like BCD and high performance microcontroller on 40 nanometer. Our capacity are fully booked for the year, definitively. For the other one, which are more addressing personal electronics, consumer market. We are going back, okay, something we classify normal, okay? Entering the year, the capacity is well utilized but not fully booked for the year.
That the reason why for such a, let's say, market, now our lead time are improving, okay, moving forward.
Thank you very much.
Next question, please.
The next question is from Didier Scemama from Bank of America. Please go ahead.
Yes, thank you very much, congratulations on the spectacular guidance for Q1 in 2023. Jean-Marc Chéry, I'd like to understand one thing on your silicon carbide business. Number one, is it clear or did I understand correctly that you've slightly raised that guidance to from $1 billion to $1 billion+ ? Secondly, in that number, can you tell us a little bit about the mix between, you know, discretes versus modules? Because it seems like some of your competitors are shipping mostly modules, whereas you're shipping mostly discretes. Obviously the value added of modules is substantially greater than the value added of discrete. In other words, not comparing apples to apples, if that makes any sense. I've got a follow-up. Thank you.
Well, thank you. Yes, I confirm that our plan for 2023 is above $1 billion. Clearly, the mix, okay, we have is mainly modules. Okay, first of all, okay, with one of our main customer and the main part of the program, okay, we have been awarded, are significantly based on the ACEPACK, okay, module we have. Our main business is module related. However, okay, this is not a KPI, okay, we communicate in detail. Qualitatively, I can confirm to you that it is mainly on module.
Okay, excellent. On the second half, gross margin comment that you made, Lorenzo, can you quantify the sort of start-up cost in Catania in the gross margins? That would be helpful. Thank you.
We, the, in term of the startup cost, we have two components, I would say. One, one is the what is qualified startup. Means that this cost will not hit our gross margin, but will be reflected in other income and expenses. This is from an accounting standpoint, let's say, are the pure start-up costs. When your fab is not yet, let's say, at the minimal capacity. This will be visible in the line other income and expenses, that actually this year will be somehow lower in respect to what we have seen in 2022 for this reason, but not impacting the gross margin.
What I'm referring is on the in once the fab will be out of the startup and will start to produce, will be still in a sub-optimal situation in term of efficiency. Because the volume is not yet enough to really to have a wafer cost that is comparable with a full build-out at fab 300 millimeter. This will impact the second part of the year of our gross margin. What I'm saying is that starting with 48%, the average of the year will be in the range of 47%.
Means that will not give us opportunity to improve in respect to the first quarter, but will not be even a big detractor because at the end, the average will stay in this range.
All right. Just one quick one for Jean-Marc. Is there anything you want to call out for the second half for personal electronics, a win or a loss, or anything that we should be aware of when we model the business, please?
Yeah, maybe I will comment the full year plan. We have indicated at the midpoint. Clearly, at the midpoint of the plan we indicated, $17.3 billion, it is clear that we will grow every quarter sequentially. We will grow every quarter year-on-year basis. Moving forward, at a softer pace. Why? Because we have to look dynamics by product group and dynamics by verticals. By product group, as we said, clearly, ADG and MDG will grow double digit. While MDG will have a slightly decrease.
By end market, it is clear that on automotive and industrial, the company will grow and will perform better than the market we address with double digits, driven by the high-growing application we are focusing on and by the increasing capacity, okay, we built in H2 2022 and we are building in H1 2023. On communication equipment and computer peripheral, we will grow slightly in line with the market. Clearly here it is driven mainly by the engaged customer program we have, offsetting by, let's say, the computer peripheral. Well, now in personal electronics, it's another dynamic. Here, we will have a decrease. We will, let's say, decrease our revenue, so lower definitively than the market. Why?
Because we will have a change in mix, in important engaged customer program, which will be accretive on our gross margin, but with less revenue. This is okay, the dynamic, okay, we will have moving forward in 2022.
Marvelous. Thank you so much.
Thank you. This is next question, please.
The next question is from Matthew Ramsay from Cowen and Company. Please go ahead.
Hi, this is Joshua Buchalter on behalf of Matt. Thank you for taking my question and congrats on the awesome results. I guess, I wanted to follow up on the previous question and double-click on industrial and auto in particular. I mean, there's widespread, I guess, concerns of macro softening, and one of your large peers earlier this week called out some weakness in digestion in industrial. I guess, can you walk us through and provide a little more granularity on what gives you confidence in industrial and also auto? Is that still benefiting from replenishment inventory like it was last quarter? Thank you.
Yeah, okay. I think it's important to spread the industrial market into. I repeat, this is what we classify the B2B. B2B, well, first of all, there is power and energy. When I have spoken about power energy, I have spoken about the generation of energy, conversion of energy and storage. With the whole initiative you have worldwide on renewable energy, okay, and in all geographies, okay, the demand for power electronics and, let's say, both controllers encompassing microcontrollers get driver and sensor is huge, okay? There is absolutely no investment softening in the field of power energy. The second point, okay, about power energy is the main consumption of electricity in the world is related to motion, okay, engine, motor, electrical engine.
Everywhere in the world, okay, there is initiative, okay, to make more efficient all the engine which are connected to industry and factories. Here the demand for power electronics, again, in term of investors, in term of board controllers, MCU power electronics is huge. This is exactly the same for factory automation and robotics, okay? Because of the shortage of talent in the world, because of the lesson learned, okay, from the post-pandemic, okay, there are many, many industries which are making them more automated and asking for more robotics. Here is the same. It's also the same in the logistic, okay? The robots you need in the, in the massive, let's say storage, infrastructure are completely with the robot, okay, asking for many microcontroller and so on and so forth.
Last but not least, this is a heavy infrastructure that you have in countries and in cities. This market is growing at the same pace than automotive. Asking for power, MCUs, and BCD technology for driver. The second part of the industrial market is more what we call the consumer one, which are battery-operated tool. You know, since two, three years, there is an acceleration of all, let's say the professional and consumer small tools to move from thermal combustion engine base or a plug-in on the grid to battery operated. Yes, here, there is a softening of the market, but the expectation of customer is a restart in Q2.
There is healthcare, where the volume are less, but is in a, let's say similar. Here I would like to insist that on industrial market, you have two different dynamics. You have really a dynamic which is strong, the B2B. Here is driven by a transformation, so decarbonization and automation of the industry, so conversion of semiconductor. There is a second dynamic, which is going back to normal, softening, which is battery operated tool. Home appliances is basically the same, and healthcare. I don't know what the main competitor you refer say, but I can confirm to you this is what we see, and this is the backlog we have, and this is what the customer are demanding.
Did he answer your question?
Thank you for all the color there. I guess, for my follow-up, I wanted to ask about silicon carbide substrates. You've seen a player, the leading player in substrates sort of have yield issues the last quarter or two, and it was great to hear you reiterate the confidence of 40% internal substrates over the next next year. Could you just walk me through, what gives you... How can you be so confident, I guess, in your ability to both medium term and longer term, get access to substrates, and particularly given some of your peers are going full vertical, others are going the other end and placing bets all over the place with multiple suppliers?
Would just be great to hear an update on your view of silicon carbide substrate supply. Thank you.
No, no, I would like to comment, okay, let's say the planning horizon of three to five years, okay, and to confirm what is our strategy. No, again, on substrate initiative, our intention, okay, was to, let's say, build an internal source in order, okay, to warranty to any customer, okay, with whom we have a strategic agreement, okay, let's say some security of the supply chain. Okay. We have seen during the past few years, okay, that some issues could occur.
One of the lesson learned we have taken, this silicon carbide is so key enabling technology for the electrification of the machine and the decarbonization of the industry that we consider that for a while, to offer a strategic independence to our key customer was, let's say, a key initiative of us. The second objective, to acquire internal capability on on this substrate initiative is R&D and efficiency. We want to be, let's say, not dependent anybody, to move our production to 200 millimeter. We do not want, okay, to be dependent anybody, to insert strong innovation in our substrate initiative. As an example, the SmartSiC technology from Soitec.
Now ST will be equipped, is equipped, very soon with all this internal capability. To offer strategic independence to our customer and to drive in a self-management mode our efficiency and innovation. This is what we want during now and the next five years. Beyond this horizon, we will see which complementary partnership or open partnership we can do. ST is not a company close to partnership. I would like to recall a GlobalFoundries partnership, TowerJazz partnership. ST is perfectly open to any manufacturing cooperation and agreement, but it's too early to speak about that.
Thank you very much.
Thanks for all the color.
Thank you. Next question, please.
The next question is from François Bouvignies from UBS. Please go ahead.
Hi. Thank you very much. I have two quick ones. The first one is on maybe microcontrollers that have been a big driver in 2022 and seems to be still in Q1. Can you give some color around the dynamic in microcontroller specifically that has been, you know, constrained for the last few quarters? I mean, it looks like inventories are going up significantly. What do you see, I mean, in term of supply demand and pricing dynamic, inventories for microcontroller specifically, even though you assume pricing to be flat, you know, on average. You know, would be very interesting to have your microcontroller view specifically. The second question I had is on silicon carbide.
It's actually, to confirm the 40% for zero substrate in-house for, I think it was 2024. Jean-Marc, I was not sure I understood your answer. I mean, do you still target to have 40% next year, or it's maybe more like a three, five years aspiration? I just wanted to clarify that point. Thank you.
No, no. It's by 2024. It means, by Q4 2024, we would like to have 40% internal production.
Okay. It's 200 millimeter, 150, that you expect?
It will be 150 at the early stage and step after step we move to 200.
Clear. Good clarification. Thanks.
On MCU, by the market remain strong overall. We have spoken about STM32, I guess, general purpose. Remain, the market remains very strong. Overall, I have spoken then, okay, I will give maybe some specific color. Yes, the demand, the capacity and the inventories has started to be more balanced clearly. The lead time, okay, are starting to reduce step after step in certain product family. The pricing is stable. Where we have still, let's say, capacity constraints, it's on some ultra performing, okay, microcontroller for industrial application, for B2B application. Okay, this ultra performing microcontroller, which sometimes including, let's say connectivity, security and AI, are in competition with microcontroller for automotive.
Basically, they are sharing the same 40 nanometer technology capacity. Here, clearly, we are still on the, let's say, important capacity saturation, lead time, which are, let's say, quite above a normal situation, and in a certain extent, with some allocation. For the mainstream microcontroller STM, STM32, for the ultra-low power microcontroller STM32, we are moving step by step to a more normal situation. I repeat, okay, with still a strong demand and in a pricing environment which is stable, whatever is, let's say go to market channel we use.
Thank you, Jean-Marc.
Thank you very much. Next question, please. I think we have time for one or two questions, depending on the length of the question and answer. Third question and then we will adjust.
The next question is from Sandeep Deshpande from JP Morgan. Please go ahead.
Hi. Thanks for having me on. two or three questions if I may quickly. Jean-Marc , you've had a great guidance for the full year. You are highlighting that in the second half that there is some mix shift with your main consumer electronics customer. So essentially, it looks like all your growth for the year is coming from the automotive industrial space. Is that correct? I would like to understand what is exactly happening. Because you mentioned in an earlier question, that there is some shift happening in terms of the consumer electronics customer, in terms of the part. I'd like to understand that. I have one quick follow-up.
Yes, what I would like to confirm, that in 2023, completing the plan we disclosed to you at the midpoint, our company will have about 70% of our revenue generated by automotive and industrial market, and about slightly above 30% from personal electronic and communication equipment and computer peripheral. It is perfectly aligned with the $20 billion ambition that we share with you at the capital market day. This is exactly what we want to do. This, yes, I confirm, in 2023, we will finish the year in a mix in term of vertical exposure, which is a strategic target we set up as a management team during the capital market day.
Here, okay, I repeat, okay, on the personal electronic overall moving forward along the year, we have a mix change, okay, in the important engaged customer program. This mix change will translate in less revenue year-over-year, but better gross margin generation. This is what I can confirm to you, and this will happen, okay, smoothly moving forward across the year.
Understood. Thank you. Just quick follow-up on manufacturing, I have. I mean, how much of your production in 2022 was 300 millimeters? Going forward with your ramping up of Agrate, how should we look at that 300 millimeter as percentage of your production in 2023 and then in 2024?
It was, let's say slightly above 25%.
Internal, eh?
Internal.
We are talking about internal only.
Jean-Marc, is it, so because there was some conversation earlier on the margin mix because of the ramp-up of the Agrate fab, that there will be some negative impact on gross margin in the second half of this year, but will it be accretive in 2024?
Yes. Yes, definitely. Of course, in the course of this year, in 2023, we are not be in a scale for our 300 millimeter in Agrate, such as that it will be accretive at the level of our gross margin, you know. At the end, as we said, we will end the year with the 1,000 wafer per week. Still is too low. You know that our priority is to grow as fast as we can in this.
In 2024, our expectation is that you will start to be neutral to our gross margin, and then in the second part of next year, to be accretive, as we target to increase this capacity along the 2024. This year, no, it will not be, let's say, accretive to our gross margin. This is one of the reason that you see that in respect to the starting point of our gross margin in the first quarter, we have no opportunity to improve over the year. Our average for the full 2023 will be close to 47%, similar to the one that we had in 2022.
Understood. Thank you so much.
Thank you very much, Randeep. Now we have time for our last question.
Today's last question is from Andrew Gardiner from Citigroup. Please go ahead.
Good morning. Thank you for squeezing me in at the end here. Lorenzo, perhaps, one for you. Could you normally give us a update in terms of your OpEx outlook? If you could help both in terms of first quarter as well as how you see things trending through the year. Then a quick follow-up after that if you don't mind. Thank you.
In term of expenses, net operating expenses actually in the first quarter are expected to increase in respect to our Q4 operating expenses. This is mainly due to negative impact of the calendar, because during Q4 we have, let's say, vacation at the end of the year, as you know very well, with the Christmas period. We have increase of activity. We have also some unfavorable currency effect in this quarter in respect to the previous quarter. We have also to consider that we will have a negative impact in the line other income and expenses. There are two reasons for that. One, I was explaining before, is due to the start-up cost that we account in this line.
The second reason is that we do expect in Q1 a lower level of R&D income grants, let's say. Due to the fact that for administrative reason we are not in the position to recognize, let's say, all the amount of R&D grants in Q1. Most likely there will be a catch-up in Q2 of these R&D grants due to the renewal of the various convention with the various authorities. At the end, when we look the Q1, our net operating expenses, including other income expenses, should fall in the range of $900 million-$950 million.
In terms of how you think that trends through 2023?
Well, for the year 2020, 2023, let's say, I would say that this year will be a year of quite a significant, let's say, investment in term of R&D, in term of activity, in term of, let's say, digitalization of our company. We have many programs running. I would say that, while in 2022 we enjoy a significant, let's say, leverage on our expenses, my expectation is that, let's say, in 2023, we will not enjoy a significant leverage on our expenses at the midpoint of our revenues indication.
Okay. Steady as a percent of sales on 2022.
Yeah.
Okay. If, if I could just squeeze a quick follow-up in. Back to the personal electronics question. I mean, if I, if I go back to how you guys framed the outlook for 2023 back at third quarter, you'd given us an initial indication of growth, and you said at that time that you thought you could grow across all three divisions in 2023. As we start the year here in January, you're now saying no, AMS is going to be down, driven by this reframing of the personal electronics relationship. You know, has something material changed in the last few months, you know, with that that's driving this mix towards lower revenue but higher gross margin?
It feels like it's more socket change than any pricing dynamic, because if it was pricing on a similar path, gross margin logically wouldn't move up. Is there anything more you can add to that? Thank you.
I mean, yeah. Yeah, okay. There is two point. There is point number 1 is the usual, okay, seasonality of Q1 of the personal electronic overall. Well, this is not a surprise. Again, what I commented of the mix change, okay, with an important engaged customer pro-program is absolutely not a surprise.
Okay. I guess, that's all you can say. I understand. Thank you very much, guys.
Just to clarify, because we had a question from the book with Lorenzo, the amount of net OpEx for Q1 is $900.
$915 or something like that.
$15. $915.
Not $950. $15.
Yeah, exactly. Just to be clear on that.
I take sometimes some cushion in giving the indication, but this time it received a little bit too much.
With this, thank you very much for the view. I think this concludes our call for this time.
Thank you, everybody.
Thank you.
Happy New Year for everybody.
Thank you.
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