Lee Simpson: All right. Thanks Celine. I’m just curious also, you made mention there about the AGI ecosystem. I think none of us can deny that there’s been some great acquisitions, bolt-ons to backstop some of your ambition there. But if we broaden this a little bit to include not just AGI, but TinyML. I’m just very curious to understand your readiness and where the design wins are leaving you for a tick up late-2024 or is this more of a 2025 story with AGI and TinyML? Thank you.
Jean-Marc Chery: Lee, it’s more 2025 story in terms of volume increase, okay? Now we are sampling, okay, MCU that are embedding hardware accelerator and neural network. But okay, it’s a great success when we see all the demand we have. And of course, we are preparing [indiscernible] to have a solid booster in revenue in 2025 and onward.
Lee Simpson: Many thanks.
Celine Berthier: Thank you very much. I think we have time for two more questions. Moira, so next question please?
Operator: Next question is from Sandeep Deshpande from JPMorgan. Please go ahead.
Sandeep Deshpande: Yeah. Hi. Thanks for letting me on. I’m trying to understand, Jean-Marc, what you said about auto’s growth for the year. I mean you said year-on-year, it is about 5%. But then excluding something in 2023, it is 13%. Can I understand what you’re excluding in 2023? And then my — actually, after you answer that, I have a quick follow-up.
Jean-Marc Chery: To be very clear, what I exclude in 2023 is the delta of capacity fee reservation 2024 versus 2023. Why? Because, okay, as expected, in 2024, we have a decrease in the capacity reversion fees from OEM, because we are exiting, okay, progressively from, let’s say, capacity shortage. This must be, let’s say, removed, because it is not product-related or production capacity related in ST. So this is the first delta. Then the second delta is a follow. In 2023, for ADAS, okay, one of our customers contractually has to build a certain amount of inventory to secure the car OEMs. We have not been capable to do it in 2021 and 2022 for all the reasons you remember, frame shortage, wafer, capacity limitation and so on and so forth.
Yes, in 2023, ST had the capability with the investment we have done to fulfill this, let’s say, significant amount of device, filing, okay, the contractual inventory that our customer has to do. Of course, this will not be repeated in 2024. And this was expected. So that’s the reason why this is very specific and unique case must be removed to compare a fair like-for-like and to share with you, okay, this market dynamic. When we make the math, clearly, as reported, our Automotive Verticals will grow mid-single digit as reported. Like-for-like, it will be low-double digit. So this is the math.
Sandeep Deshpande: Understood. So then maybe a follow-up to that would be in terms of margin. I mean if you got capacity reservation fees last year, that would be very, very high, because if the capacity wasn’t necessarily utilized by our clients, does that number you had in 2023 have an impact on your gross margin in 2024 because that doesn’t exist in 2024. And is it going to have a long-term impact on your gross margin?
Lorenzo Grandi: Yes. It’s true that when looking at the gross margin in last year in 2023, capacity reservation fees were, let’s say, of course, making a positive impact on our gross margin. And indeed, if you remember, let’s say, in the first half of the year, we had, let’s say, gross margin that was approaching the 50%, let’s say, but when were in revenues, well-below the $20 billion plus. And, for sure, this was a little bit an upside in respect to our normal path to the 50% gross margin in our model. Now what is happened in 2024, first of all, capacity reservation fees are not disappearing because most of the contracts that we have with OEMs are lasting for this year, some of them also in 2025. But what we have embedded in our model is definitely a reduction in terms of dollars still are in this year, meaningful because there is an amount that is still material.
But definitely, it’s not at the level of the peak that we had last year. So at the end, let’s say, this is something that were expected. The capacity reservation fees, if we look at the contract that we have signed will not disappear in 2024 are still there. In 2025, we’ll be still there, but in — if they will progressively reduce. This is a little bit what we have embedded when we are evaluating our gross margin.
Celine Berthier: Does it answer your question, Sandeep? We have time for one last question.
Sandeep Deshpande: Thank you very much.
Celine Berthier: We have time for one last question.
Operator: The last question is from Stephane Houri from ODDO. Please go ahead.
