Investing.com -- Shares of STMicroelectronics fell on Wednesday after the company announced a delay in its long-term financial targets.
The semiconductor manufacturer extended its ambitious goal of achieving $20 billion in revenue and a gross margin of around 50% to 2030, a shift from its previous target of 2025-2027.
The company also introduced interim milestones for 2027-2028, reflecting a more cautious outlook amid ongoing industry challenges.
STMicroelectronics, widely regarded for its role in automotive and industrial semiconductors, now expects to reach approximately $18 billion in revenue with a gross margin between 44% and 46% by 2027-2028.
This adjustment underscores the headwinds the company faces, particularly in wide bandgap semiconductors like silicon carbide (SiC), which has encountered delays in adoption this year, according to Morgan Stanley (NYSE:MS) analysts.
Management pointed to the automotive sector as the cornerstone of its growth strategy, emphasizing the transition to electric vehicles and advanced driver-assistance systems (ADAS) as key drivers.
Additionally, STMicroelectronics highlighted the role of 300mm wafer manufacturing and new materials like SiC and gallium nitride (GaN) as critical components of its long-term roadmap.
To align with these updated targets, the company outlined plans to scale back certain manufacturing facilities, likely focusing on overseas sites, while concentrating capital expenditures on its most strategic areas.
This cost-cutting and manufacturing "rightsizing" program is projected to deliver savings in the high triple-digit million-dollar range by 2027, supporting a target operating margin of 22%-24% by the same period.
The latest guidance marks a stark contrast from 2022, when the company projected it could achieve $20 billion in revenue by 2025-2027, fueled by growth in car electrification, IoT, and foundry services.
At the time, management expected 10% of sales to come from wide bandgap semiconductors, 32% from 300mm wafer production, and 20% from its foundry business. Those projections also included a free cash flow margin of at least 25%, buoyed by efficiency gains from a stronger product mix and higher pricing.
“We also expect the company to not just reiterate the time-line of the cost reduction program but to even outline which manufacturing facilities may be scaled back (we assume overseas facilities only) and where capex can be focussed,” said analysts at Morgan Stanley in a note.
The company’s focus on cost management and investments aims to lay the foundation for growth beyond 2025-2026.
“We expect more details later but the intermediate guidance suggests the upcycle should be in full force by 2027/28 in our view. Given the elongation of the current,” said analysts at Barclays (LON:BARC) in a note.