Financial Trends -- 4/10
Cyclical semiconductor at the bottom of a deep automotive/industrial downcycle that is inflecting on the top
line — revenue YoY has gone from -27.4% (Q1'25 trough) to +23.0% (Q1'26), a clean five-quarter monotonic
acceleration with volume (+17%) and ASP (+6%) both turning positive. But the bottom line is still wrecked: gross
margin sits ~1,600bps below the cycle peak and is merely stabilizing, operating margin is barely positive, and
free cash flow has turned NEGATIVE (FY25 -$249M; Q1'26 -$723M incl. the NXP MEMS acquisition). Revenue
acceleration is the bull case; it does not yet constitute financial strength. The mandatory negative-FCF penalty
caps the score.
Weight: 25%
Gross Margin
Stabilizing
33.8% Q1'26 | ~1,600bps below peak
Op Margin
+2.3%
Barely positive | Recovering off -4.8% trough
Quarterly Revenue Trajectory ($M)
Clean, monotonic revenue acceleration off the cycle trough: -27.4% (Q1'25) to +23.0% (Q1'26).
Five consecutive quarters of accelerating YoY growth, confirmed by the underlying mix flipping — volume YoY
went from -12% to +17% and ASP YoY from -15% to +6% over the same span, a volume-and-price double inflection
driven by an automotive/industrial restock with book-to-bill above 1 across all end markets. This
second-derivative story is the entire bull case.
Gross Profit & Margin ($M)
Revenue rips +23% YoY, but gross margin barely moves (+40bps to 33.8%).
Gross margin remains ~1,600bps below the 49.7% Q1'23 cycle peak. The margin lag is the key tension: even with
volume surging, GM is held down by fab underutilization charges, SiC price erosion, unfavorable product mix,
and a $140M capacity-reservation-fee headwind carried through 2026. This is why a strong top-line inflection
is not yet translating into financial strength.
Annual Financial Summary (FY ends December)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Net Revenue ($M) | $12,761M | $16,128M | $17,286M | $13,269M | $11,800M |
| Rev YoY | — | +26.4% | +7.2% | -23.2% | -11.1% |
| Gross Margin | 41.7% | 47.3% | 47.9% | 39.3% | 33.9% |
| Operating Income ($M) | $2,419M | $4,439M | $4,611M | $1,676M | $175M |
| Operating Margin | 19.0% | 27.5% | 26.7% | 12.6% | 1.5% |
| EBITDA ($M) | $3,464M | $5,655M | $6,172M | $3,436M | $2,029M |
| FCF (Non-GAAP, reported) ($M) | $1,120M | $1,591M | $1,774M | $288M | -$249M |
| Diluted EPS | $2.16 | $4.19 | $4.46 | $1.66 | $0.18 |
| Diluted Wtd Shares (M) | 924.8 | 946.2 | 944.2 | 939.3 | 923.1 |
Key trends
- Revenue: peaked FY23, down two straight years, now inflecting: $12.8B (2021) to a $17.3B FY23 peak, then -23.2% (FY24) and -11.1% (FY25) into the trough — with the quarterly series now re-accelerating to +23% YoY in Q1'26
- Operating income -96% from peak: From a $4,611M FY23 peak to just $175M FY25 (operating margin collapsed from 26.7% to 1.5%) — the depth of the downcycle
- EBITDA -67% from peak: $6,172M (FY23) to $2,029M (FY25); EBITDA margin 35.7% to 17.2%
- FCF turned NEGATIVE: $1,774M (FY23) to $288M (FY24) to -$249M (FY25) — the single most important quality flag, triggering the mandatory penalty
- Share count roughly flat: 924.8M (2021) to 923.1M (2025), with $367M of 2025 buybacks; no dilution
Segment Revenue ($M, quarterly — 4-segment structure post-Q1'25 reorg)
Three of four segments inflecting +23% to +34% YoY.
AM&S (+23.3%), EMP (+31.4%), and RFOC (+33.7%) are all growing double-digits off the trough. The lone
laggard is Power & Discrete (-2.0%), where SiC/discrete pricing remains the soft spot — the very segment
that houses STM's only dominant (oligopoly) position.
Free Cash Flow & Operating Cash Flow ($M, annual)
FCF collapsed from $1,774M (FY23) to $288M (FY24) to NEGATIVE -$249M (FY25); Q1'26 -$723M.
Operating cash flow held up ($2,151M FY25) but was overwhelmed by heavy capex, the NXP MEMS acquisition
cash-out (~$895M in Q1'26), and financial-asset payments. This triggers the mandatory negative-FCF penalty
(-2) and is the single most important quality flag in the entire review — the recovery is being funded by
debt against negative cash generation.
Score Rationale
Score of 4/10 reflects a cyclical semi whose top line is inflecting hard but whose financial strength is still weak, with negative free cash flow triggering the mandatory penalty.
Pre-penalty anchor: 6/10. Revenue YoY is accelerating (five straight quarters, -27% to +23%, volume and ASP double-inflection), but margins are not yet expanding (stabilizing off a deep trough, still down YoY on a full-year basis), and share count is flat-to-slightly-declining (neutral-to-positive). Strong revenue inflection offsetting weak-but-stabilizing margins anchors at 6.
Mandatory penalty modifiers:
- Negative FCF: -2 — FY25 reported Non-GAAP FCF -$249M; Q1'26 -$723M. Hard rule: cannot score above 6 regardless of revenue growth. Applies.
- Share dilution >10%/>25%: n/a — shares flat-to-down (923M FY25 vs 944M FY23)
- Revenue growing but operating income declining: borderline, not applied (avoids double-counting margin weakness)
- Debt growing faster than revenue 3+ quarters: not applied — total debt broadly flat-to-down ($2.88B to $2.13B)
6 (base) − 2 (negative FCF) = 4/10.
Assessment: A textbook cyclical-trough-to-recovery setup on the top line — but gross margin is ~1,600bps below peak and merely stabilizing, op margin barely positive, full-year operating income -96% from the FY23 peak, and FCF gone negative. The bull case lives entirely in the second-derivative; trailing financials do not yet support a high financial-trends score.
Data sourced from Daloopa (company_id: 4654). Fiscal year ends December 31. Margins/FCF computed from reported line items; YoY computed from the revenue series. All financials in USD.