Aleksander Peterc: My first question would be really on what we should expect on the price front. Usually, if I remember well, you had in the first quarter some customer price declines every year, so that was a little bit of a pressure on gross margins in Q1. That didn’t really happen in this year because of the general price increases, but is the normal pricing pattern set to return in ’24 in the first quarter? And then I have a quick follow-up.
Jean-Marc Chery: Now about price and Lorenzo will comment. What I can say. Basically, I already said in April. We said some past effect in distribution, which is normal. When you go back to normal, let’s say, situation in term of supply, POS, POP, that you are well balanced between demand and offer. You go back to normal, let’s say, price effect. Let’s say, low single digit on the yearly basis. We know it, everybody know it. This is something, which is fantastic, the semiconductor industry. So as I speaking, it stopped on distribution, so we have seen it in appeal. We see it in Q3, and we will see it in Q4, clearly. More than for the rest, there is no specific price effect and price pressure from customer. We have contract. We have new product. We have engaged customer program. Well, there is no surprise. There is a coming back to a normal situation. More than that, I cannot comment.
Aleksander Peterc: And a quick a quick follow-up just on automotive where you have very good visibility. Can you tell me if excluding silicon carbide, is your automotive business set to grow meaningfully next year or not?
Jean-Marc Chery: Yes.
Aleksander Peterc: Meaningfully?
Jean-Marc Chery: Yes. No. I don’t have — I well understood. So if I remove silicon carbide, yes.
Lorenzo Grandi: Short answer.
Operator: The next question comes from the line of Francois Bouvignies with UBS. Please go ahead.
Francois Bouvignies: I wanted to follow up on Alex’s question on automotive. I mean, this quarter, you’ve delivered 30% growth. I mean, if you look at TSMC, it was down 11% year-over-year calling that the industry is going is through an inventory correction. And also, I’m sure you saw as well the macro data with OEMs, orders for auto is coming down significantly, especially in Europe. We also saw GM and Honda with like push outs of EVs. So, it seems to be very different than what you report and also what you save into next year, what you just said. So, I’m just wondering, do you see anything or is your guidance factoring some maybe EV penetration slowdown into next year, because I guess it’s something that you would see that happening or it is just your lead time so long that, basically you don’t see it yet? I am just trying to reconcile basically what we see on the ground and what you are delivering and how it can be disconnected, if you know what I mean?
Jean-Marc Chery: No. Perfectly, I see there is no disconnection. Now if your question is, this year, basically, cement industry, the automotive segment we support, basically, will grow at 36%. More clearly, also embedded in this fantastic growth, more there is a specific item, which are related to the period of shortage that ST has benefited in 2023 was a capacity regulation, which is quite material. However, even if you remove this effect on our growth performance, our automotive segment in 2023 basically will grow 28%. So next year, I have to say that, this capacity regulation will be still present, but in a less order of magnitude than 2023 and it’s normal because exceptional product line. Now, we have the capability to better support the car maker through the Tier 1 or directly.
But then the Tier 1 and the carmaker, they are acknowledging as well that we are reducing our low lead time and reducing our lead time by step-after-step. We could see booking with the book-to-bill below one on automotive. Simply the fact that they will stop to load 18 months in advance in ’24 in advance, and we could anticipate that in 2025 instead to have a 100% backlog coverage, we will be maybe 80% backlog coverage. So this is a trend we are seeing point number 1. Point number 2, I’m sorry, again, with all the respect I have with the TSMC, they have a partial view of automotive. We have the full spectrum of product portfolio to see what is happening in automotive. And I confirm to you that, except like-for-like results of the silicon carbide, we will grow.
For sure, we will not grow at 28%. We will grow significantly, but not at 28%. This I can confirm to you. So as a takeaway, I can tell you that, yes, next year we will have a little bit benefits less on capacity field as I mentioned. We will see our customer acknowledging our capability in ’24 to better deliver with short early time. So normally, they are booking with a decline in order to adjust themselves to this fact. We would expect to enter in ’25 with 80% coverage on automotive. So this is the point number 2. Point number 3, we will grow overall in ’24, and it is based on stable production cars volume that we consider around 85. Now, the feedback we have from our customer and the feedback there is from analysts is next year’s is more than 90 million vehicles produced.
This is not the base of our forecast. Then point number 3, I repeat, this year is 11 million to 12 million of battery-based electrical vehicle. Next year, we can expect, okay, to go well above 15 again. So this will call for a big demand Personal Electronics and Micro. But then, you have the change of architecture that are coming from the old definitively. And then the customer, I think, acknowledges that we can better supply, they come back to better sophistication of the legacy. So, there is more and more semiconductor and a product in legacy application. So all in all, this is building a scenario for next year of growth for automotive, for ST taking into account the portfolio we have.
Francois Bouvignies: And maybe my follow-up would be on the CapEx. I mean, as we see the, orders, I mean, excluding autos a bit uncertain and the utilization charges. How do you think about the budget of your CapEx next year? And, obviously, I don’t expect you to give your CapEx, I mean, you can if you want. But is it something that you review given the current situation that maybe delay some of the project or CapEx? How flexible do you want to be on your CapEx side given the current environment?
Jean-Marc Chery: We are running every two months, let’s say, two years SNOP with different scenario and so on and so forth. I can confirm to you that we have this flexibility to adjust our CapEx and, yes, in current circumstances, where there is not an automotive, I repeat, not on our global key account on guest customer program, but on mass market distribution and small OEMs, some uncertainty that we have to monitor, that the CapEx we will spend next year will be below the CapEx we have spent this year.
Operator: The next question comes from the line of Stephane Houri with ODDO BHF. Please go ahead.
Stephane Houri: Actually, the question is about the Chinese market and the competition, you may face there because if you listen to the large equipment manufacturers, basically, they are selling a lot of machines and those machines are probably going to be used to manufacture or to build chips for automotive. So, how do you see this happening? Is it putting a bit more pressure? Is it changing your plans? And I have a follow-up.
Jean-Marc Chery: Thank you, Stephane. I think sometime already answered this question. We have initiated now since two years, let’s say, diversification in our source of this microcontroller, but analog as well, including, power analog, BCD, more in silicon carbide with our joint venture with the Sanan. We will have use — okay, we will take benefits of this investment done in China to produce our microcontroller. And as I said during my address, we are building, and we have already built, I have to say, an infrastructure in China to support this market. So foundry, we will use local foundry for microcontroller including pursuing some of our technology. We have already built competence center to address the high growing application.
