Jean-Marc Chery: Basically, in the second half of 2024, in the middle of the range we have indicated, we expect to grow, I have to say, about $1 billion, a little bit higher than $1 billion. It is clear that part of this growth is related to backlog we have already, especially in the engaged customer program, both in personal electronics and communication equipment. It is based also on automotive, on the backlog of firm order we have, which is the usual visibility we have. But then the key question is clearly the industry, where today the backlog coverage is slightly below, I have to say, standard of backlog coverage at this time. But again, we know because there is two distortions, very short lead time from any semiconductor supplier and distortion from inventory.
It is clear that, again, the booking that we will enter in Q2 and Q3, a billable for 2024 for industrial, as well as some business in Q4 will be important. At this stage, having made the reset that we share with you today, we consider the risk to the industrial that potentially would not materialize in H2 is within the range we have indicated. That’s the reason why we have done this significant reset compared to the midpoint of what we say generally of about $1.9 billion. I guess you have already done the computation. This $1.9 billion, $1.3 billion is Industrial, by the way, and $600 million is Automotive. I said automotive, half is an electrical car from one specific, and the other one is a big change and inventory correction. On industrial, again, having made this $1.3 billion adjustment, now we do believe, even if we have to continue to monitor very carefully the plan we have of booking billable of 2024, the risk is within the range we have provided.
Lorenzo Grandi : Maybe I can add…
Didier Scemama: Very, very clear. Thank you very — sorry, go ahead.
Lorenzo Grandi : Maybe I can add two words about the gross margin. I think that at this stage, our visibility on the gross margin is that the second half in the range of 41%, slightly above 41%, this is a reasonable assumption considering the fact that for sure at this level, we will continue this level of revenues, we will continue to have a significant level of unloading charges. We are planning the second half at 77% loading for our trucks, as we will continue to keep under control the level of our inventory. Well, there could be some opportunity maybe to do better, there could be, as usual, some risk if maybe the price pressure is higher than what we have embedded, but I think that at this level, this is a reasonable level in which the company should stay all over the year.
Didier Scemama: Yes, and obviously, if industrial comes back a bit better, your margins will be better. Very clear. Thank you so much for your color. I just have a quick question on your automotive business, Jean-Marc. So, one of your customers publicly disclosed that they’re going to accelerate the introduction of lower-priced electrical vehicles. And I think, you had sort of articulated in the past that you felt like you were pretty well positioned to capture the platform for that particular customer. So, I wondered, A, is the $500 million you just mentioned earlier in your script related to that? And then B, how do you feel about your position now that that ramp is coming a bit earlier than expected?
Jean-Marc Chery : It is clear that, well, first of all, this year, the $1.3 billion for a silicon carbide MOSFET is a growth, so we have to be satisfied with this growth. Yes, it’s below our expectation. Why? Because mainly one customer classifies the 2024 year as a transition and expects to come back to a growth trajectory, ’25 and beyond. We will participate to this growth trajectory. And of course, it will contribute to the $500 million growth of silicon carbide we will execute next year.
Didier Scemama: Very well. Maybe final quick one, if I may. Any changes or any reason why we should not look at your 2025, 2027 financial ambition, $20 billion of revenue, 50% gross margin, 30% operating margin? Is anything changed in that? Perhaps more backend loaded, I appreciate that, but anything change in your mind?
Jean-Marc Chery : We have not changed our model. By the way, we expect this year to organize a Capital Market Day in November. The investor relation will communicate to you. And of course, it would be a unique opportunity to share the situation and to share the update.
Didier Scemama: Many thanks.
Celine Berthier : Okay for you, Didier?
Didier Scemama: Yes, thank you so much.
Celine Berthier : Thank you very much. So next question, Moira?
Operator: The next question is from Andrew Gardner from CT [ph]. Please go ahead.
Unidentified Analyst: Good morning, guys. Thank you very much for taking the question. I just was interested in the point you’re making, Jean-Marc, on industrial and in particular into distribution inventory. You’ve given us an update in your prepared comments regarding where you sit on your own books. But where do you view things in the channel at the moment? How much further are you expecting things to decrease? And therefore, how is that therefore influencing the way you’re framing the second half? Thank you.
Jean-Marc Chery : Well, today, overall, we have assessed that we have an excess of inventory in the channel distribution of about two months. Clearly, the POS of the distributor will be the first key API that will start to decrease this two months of inventory. And with the visibility and the discussion we have with them, is that these two months will be absorbed by Q2. And by Q3, we will be in position to re-increase smoothly our POP and to accelerate in Q4. Well, unfortunately, that’s the reason why in Q2 we cannot accelerate our POP. That’s the reason why we continue to decrease in industry. This is the visibility we have today. So again, POS monitoring is very critical. But again, we are seeing some green spots that end customer and end application, some end applications are coming back to growth.
And sequentially, it will translate in POS increase and start to translate in inventory decrease and for us POP increase in Q3. This is today the plan we have built, discussing with our customers. Also, what is making us confident is that looking at some results of competition going straight to end customer, we have seen a restart. So means when the channel inventory will be absorbed, our POP will rise again.
Unidentified Analyst: Thank you, Jean-Marc. Also, perhaps one for you, Lorenzo, as we’re coming through a slightly deeper trough in the cycle than anticipated, how are you managing the OpEx for the year? Can you just update us in terms of the levels we should have in our model? Thank you.
Lorenzo Grandi : Of course, this year we will have a control of our OpEx for which we will continue to protect for sure the innovation and the R&D. But we will prioritize other programs that are definitely important. But if you want less critical that the innovation and the introduction of the new products. So today, we do expect for the year compared to last year, a moderate increase in our expenses. We do not expect a decline, a moderate increase that we size between 2% to 5%. Consider also that I’m talking about the net OpEx. Means that I’m including also the level of grants that are increasing this year in respect to last year. This is more or less what we see today for the evolution of our OpEx in the year 2024.
Unidentified Analyst: Thank you very much.
Celine Berthier : Thank you, Andrew. Another question, please, Moira.
Operator: The next question is from Sandeep Deshpande from JPMorgan. Please go ahead.
Sandeep Deshpande : Yes, hi. Thanks for letting me on. I have a question, firstly, in terms of your guidance. Clearly, I mean, there has been inventory overhang in your supply chain and slowdown in the market. But is there any impact from pricing in the guidance at all? And what do you see in terms of the pricing environment at the moment in microcontrollers specifically, as well as in your discrete market?
Lorenzo Grandi : I take this question, Sandeep. Yes, as I was saying before, we have some pricing impact in our indication of the year. For sure, there are, as I was saying before, different dynamics between the different markets that we serve. The most impacted in terms of pricing is microcontroller, definitely, industrial in general and microcontroller. Anyway, when we look overall at the dynamic, for instance, when I look at the dynamic of Q1, our price decrease was in the range of low single digit, a little bit higher than what we were expecting. And this is also partially explaining why we miss partially our gross margin midpoint guidance but not dramatically higher. Moving forward, we continue to expect some erosion, for instance, in Q1 average company, considering that some areas like automotive, we have a renegotiation now, there is no any longer price decline moving forward, or not so much here, not so big.
We have a model as something in the range of 1% or 1.5% price decline and moving forward in Q3 and Q4, some still price decline. As I was saying before, in any case, at this stage, we don’t see a huge impact on pricing, a very significant impact on pricing. For sure, in some area, I repeat, like microcontroller in some geographies, yes, is a little bit higher than the average of the company, definitely higher than the average of the company and this has been embedded in our numbers.
Sandeep Deshpande : And I mean, just following-up on that question, I mean, automotive, as you said, is not changing at all this year. I mean, you will negotiate new prices in December, will that actually mean that there is another price change next year in autos given that, the industrial market, which uses similar chips, is seeing a big correction this year but then a correction this year, and then autos will see that next year in the pricing? Then following on that, I mean, on the gross margin, are there any one offs in your gross margin this year? I mean, clearly, you talked about the underutilization charge in the year, but there were some positives last year. Are there any positives being repeated this year, which is helping your gross margin at all? Thank you.
Lorenzo Grandi : In terms of pricing, what can I say is that the main discussion with the Tiers 1 are done. The price has been embedded in this dynamic. We do not expect, it was not embedded at this stage, any renegotiation in terms of price for 2024. For what concerns the impact of gross margin, well, you have to not forget that our gross margin, more than on one time, is helped by the capacity reservation fees. These have not disappeared this year in respect to last year. Yes, they are not high like it was last year. They are declining in respect to last year. Still, they are giving a positive impact. This is also, if you want, also answering to your first point about the pricing in automotive, of course, we have the capacity reservation fees still there.
You understand that there is no strong pressure here. There is still, from our customer, the willing to secure the capacity, to secure the availability of the parts. As we have said already in the past, this is an element that definitely we will see declining over the next year and the following years, because we know we have already the contract done. Yes, this will go down moving forward. This year, definitely, is still an element that is impacting positively our gross margin, I would say, in a meaningful way. It’s still a positive impact.
Sandeep Deshpande : Thank you.
Celine Berthier: Okay, so we have time for one last question.
Operator: The last question is from Jerome Ramel from BNP Paribas. Please go ahead.
Jerome Ramel: Yes, good morning. Thank you for squeezing me in. Yes, quick two questions. The first one would be, where are the lead times currently, and what is the loading of your front-end fabs? And then I have a quick follow-up.
Jean-Marc Chery : Lead time, on average, are below three months.
Lorenzo Grandi : It’s very short.
Jean-Marc Chery : It’s very short. And taking into account the inventory level we have, we are also capable to capture some spot-turn business within the quarter quite easily. Front-end loading, Lorenzo?
