STMicroelectronics: Maintaining Neutral Stance Amid Earnings Pressure and Limited Visibility

STMicroelectronics maintains a neutral stance due to earnings pressure and limited visibility. The company's share price rallied ahead of Q2 results but dropped after the figures were released, which is not surprising to us. We continue to follow the name closely.

STMicroelectronics (NYSE: STM) has been under scrutiny following its Q2 2025 results, which saw a 14.4% decline in sales to $2.76 billion, missing Wall Street expectations. The company's gross margin reached 33.5%, and operating profit excluding one-offs delivered a $57 million output, indicating a 662 basis points year-on-year contraction. These negative results were primarily due to lower manufacturing efficiencies, unused capacity, and a lower product mix.

The company's outlook for Q3 2025 is not optimistic, with anticipated sales of $3.17 billion at the midpoint, implying a 2.5% decline year-on-year. The gross margin is expected to be 33.5%, impacted by 340 basis points of unused capacity charges and a 140 basis points impact from FX. The company's inventory days remain flat on a quarterly basis but are 37% higher than last year, suggesting potential pricing pressure and higher comps from Chinese semiconductor players.

STMicroelectronics announced the acquisition of NXP's MEMS sensor business for $950 million in cash. This acquisition is expected to be accretive to STM's P&L and lead to an EPS acceleration. However, the automotive industry backing of NXP's business may face headwinds due to a slowdown in the auto industry.

The company's financial estimates are challenging to gauge due to ongoing restructuring initiatives and different reporting metrics. Despite a few positives in the last quarter, including a net sales increase if the OEM component is excluded and a positive new acquisition, the overall outlook remains uncertain.

Institutional investors have shown interest in STMicroelectronics, with ABC Arbitrage SA increasing its position by 55.1% in the first quarter. Analysts have given the stock a consensus rating of "Hold" with an average target price of $32.21. However, the company's neutral stance is backed by earnings pressure, limited visibility, and potential downside risks such as higher unused capacity, higher restructuring activities, and a slowdown in consumer electronics and the auto industry.

Given the current circumstances, STMicroelectronics' risk/reward profile remains unfavorable on a 6-12 month view. Despite a few positives, we prefer to stay on the sidelines for now.

References:
[1] https://seekingalpha.com/article/4812912-stmicroelectronics-neutral-stance-maintained-amid-earnings-pressure-and-limited-visibility
[2] https://www.marketbeat.com/instant-alerts/filing-stmicroelectronics-nv-nysestm-shares-bought-by-abc-arbitrage-sa-2025-08-05/