STMicroelectronics N.V. (STM) Q2 2020 Earnings Call Transcript

STMicroelectronics N.V. (NYSE: STM) Q2 2020 earnings call dated Jul. 23, 2020

Corporate Participants:

Celine Berthier — Group Vice President of Investor Relations

Jean-Marc Chery — President & Chief Executive Officer

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

Marco Cassis — President of Sales, Marketing, Communications and Strategy Development

Analysts:

Matt Ramsay — Cowen — Analyst

Janardan Menon — Liberum — Analyst

Jerome Ramel — Exane BNP Paribas — Analyst

Sebastien Sztabowicz — Kepler Cheuvreux — Analyst

Gianmarco Bonacina — Equita — Analyst

David Mulholland — UBS — Analyst

Achal Sultania — Credit Suisse — Analyst

Andrew Gardiner — Barclays — Analyst

Presentation:

Operator

Ladies and gentlemen, welcome to the STMicroelectronics Q2 2020 Earnings Results Conference Call and Live Webcast. I am Alessandro, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it’s my pleasure to hand over to Celine Berthier, Group Vice President, Head of Investor Relations. Please go ahead.

Celine Berthier — Group Vice President of Investor Relations

Thank you Alessandro. Good morning. Good morning everyone. Thank you for joining our second quarter 2020 financial results conference call. Hosting the call today is Jean-Marc Chery, ST’s President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, President of Finance, Infrastructure and Services, and Chief Financial Officer; Marco Cassis, President of Sales, Marketing, Communications and Strategy Development.

This live webcast and presentation materials can be accessed on ST’s Investor Relations website. A replay will be available shortly after the conclusion of this call.

This call will include forward-looking statements that involve risk factors that could cause ST’s results to differ materially from management’s expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the result this morning and also in ST’s most recent regulatory filings for a full description of these risk factors.

[Operator Instructions] I’d now like to turn the call over to Jean-Marc, ST’s President and CEO.

Jean-Marc Chery — President & Chief Executive Officer

Thank you Celine. Good morning and thank you for joining ST on our second quarter 2020 earnings conference call. I trust that you, your family and your colleagues are staying safe and healthy, especially those localized in most infected regions. Now to ST results and plans for the rest of the year.

Let me begin with some opening comments. Starting with Q2. During the quarter, we returned to normal operations, supporting our customers’ demand and continuing to ensure the health and safety of our employees.

Net revenues were $2.09 billion, down 6.5% on a sequential basis. As expected, this was due to a decline in Automotive, Analog and Imaging products, partially offset by growth in Microcontrollers, Digital and Power Discrete. Gross margin of 35% included 310 basis points of unsaturation charges.

Our operating margin was 5.1% and our net income was $90 million. For the first half of 2020, net revenues grew 1.6% year-over-year to $4.32 billion, driven by higher sales in Analog, Imaging and Microcontrollers, partially offset by lower sales in Automotive and Power Discrete. Our operating margin was 7.8% for H1 2020 and our net income was $282 million.

Looking at Q3 2020. At the midpoint of our guidance, we expect net revenues in the third quarter to be about $2.45 billion, representing sequential growth of about 17.4%. Gross margin is expected to be about 36% at the midpoint and includes about 200 basis points of unsaturation charges. For the full-year 2020, we will drive the company based on an updated plan for full-year 2020; net revenues in the range of about $9.25 billion to $9.65 billion with growth in the second half over the first half to be in the range of $610 million to $1.010 billion. We expect the growth to be driven by engaged customer programs, new products and improved market conditions. Our capex plan for 2020 is now $1.2 billion. For H1 2020, we invested $578 million.

Now let’s move to a detailed financial review of the second quarter. The quarter was impacted by the weak demand environment, especially in Automotive as well as the operation and logistics challenges due to the governmental regulations related to the COVID-19 outbreak that started in Q1 ’20. Net revenue decreased 4% year-over-year with lower sales in Imaging, Automotive and MEMS, partially offset by higher sales in Microcontrollers, Digital, Analog and Power Discrete. Year-over-year sales to Distribution increased 9.7% and sales to OEMs decreased 9.7%. On a sequential basis, net revenue decreased 6.5%, 380 basis points better than the midpoint of the guidance we gave at the end of April.

By product group, revenue increased sequentially for MDG, while ADG and AMS decreased. Our gross profit was $730 million, decreasing 12.2% year-over-year. Gross margin was 35%, decreasing 320 basis points year-over-year, mainly due to unsaturation charges, including the impact of COVID-19 workforce related restrictions and price pressure. More specifically, unsaturation charges were 310 basis points. Our second quarter margin was 40 basis points higher than the midpoint of our guidance as unsaturation charges were better than expected.

Moving onto net operating expenses. As we outlined last quarter, we are maintaining strict discipline on expense control while protecting our R&D, sales and marketing programs and transformation initiatives. Net operating expenses at $620 million were below what we anticipated when entering the quarter. Our second quarter operating margin was 5.1%, decreasing by 390 basis points on a year-over-year basis. Both ADG and AMS operating margin decreased while MDG’s operating margin improved. Our net income decreased to $90 million and EPS to $0.10 compared to $160 million and $0.18 respectively a year ago.

Turning now to the revenue performance of the product groups on a year-over-year basis. ADG revenues decreased 17.8% on weaker demand in legacy automotive while Power Discrete grew. AMS revenues decreased 10.1% with MEMS and Imaging lower while Analog sales were higher. MDG revenues increased 24.1%, reflecting strong growth in Microcontrollers.

In terms of operating margin by product group on a year-over-year basis, MDG operating margin increased to 15.9% from 7.6%, while ADG operating margin decreased to 2.3% from 8.2%, and AMS operating margin decreased to 9% from 10.7%. Net cash from operating activities increased 19.4% to $387 million in Q2 compared to $324 million in the year ago period. Free cash flow was a positive $28 million, including capex of $312 million compared to a negative $67 million in the year ago quarter.

During Q2, we paid cash dividends totaling $37 million and executed a $63 million share buyback as part of the company’s previously-announced share repurchase program.

Moving now to our business and end market review, let me start with a comment. During the second quarter, we returned to normal operations, supporting our customers’ demand and continuing to ensure the health and safety of our employees. These have been our priorities since the start of the pandemic. In preparation for the return of all our employees to our sites worldwide, we put in place very strict safety protocols. Today, we are back to full operation of our manufacturing activities worldwide. Our non-manufacturing employees located in areas still under specific restrictions are progressively returning to our offices in line with local regulation. Our back-to-site plan coupled with the engagement of our employees enable us to keep all our committed programs on track and to maintain a high level of customer interaction.

So, let’s now discuss the market and business dynamics. The automotive market was hit by closures at carmakers and Tier 1s of different types across the globe; first, China in Q1 followed later by Europe and the US. Q2 is confirmed to be the bottom and the market was worse than expected with lockdowns extended in some regions. China confirm recovery, partially compensating for the worst situation in Europe and in US. We have started to see benefits from automotive incentives in France from June and South Korea for the full-year, supporting the anticipated recovery in Q3 and Q4. The legacy automotive market is clearly suffering, amplified by the pandemic situation. We did not see and do not see any substantial slowdown of customer activity as well as lockdown megatrends and ST’s strategic growth driver in smart mobility are concerned; electrification and digitalization. In car electrification, we had to get a little bit of new design wins for silicon carbide MOSFETs in a traction inverter and in an on-board charger and DC/DC converter for electrical vehicles. We are also seeing opportunities for silicon carbide in electrical vehicles beyond these areas. An example is climate compressor, where the characteristics of silicon carbide allow it to address deficiency and site [Phonetic] challenges in this specific application. Beyond car, we also had an important design win for battery management system for e-bikes, the real growing area. Overall, our silicon carbide engagement with customers has increased during the quarter. There was no slowdown in already-awarded project, and as of today, we are engaged with 58 customers in 64 ongoing programs. These programs are split around 50/50 between automotive customers and industrial customers.

Moving to car digitalization, where we are focused on technologies and solutions for driver assistance and autonomous driving, V2X communication and embedded processing solutions, supporting new car architectures. During Q2, we saw a continuous flow of awards for our 28 nanometer Phase Change Memory microcontrollers (Stellar), driven by the evolution of car architectures. On ADAS, we saw a strong Level 2 and Level 3 adoption in mid and entry level cars. We expect that during 2021, one-third of cars produced will have a vision-based system using ST technology. We are also growing our share in automotive microcontrollers, including those for 77 gigahertz radar applications.

During the quarter, we also won sockets for our Global Shutter automotive imaging solution for driver monitoring system from two major OEMs. And this is an important step in our diversification strategy related to optical sensing solutions.

Moving now to industrial. The dynamics of the industrial market remain mixed. Some applications like home appliances and lighting are still weak. But during the quarter, we started to see some positive signs in key application areas for ST, such as renewable energy and factory automation. Distribution is an important element of our go-to-market strategy in industrial. Here, the overall situation in the channel has improved. In Asia, and mainly in China point of sales trends were strong sequentially and now also up year-over-year. With a healthy level of inventory in our distribution channel, especially for Microcontrollers and MEMS. From April, we also started to see positive signs for Analog and Power and Discrete. America and Europe are still weak. Point of sales on a year-over-year basis is not improving, and inventory levels are still somewhat high in general purpose analog and industrial power conversion. We address the industrial market with our general purpose and secure microcontrollers, analog and sensors, power and energy management solutions. One of our objective in industrial is leadership in embedded processing solution. We recently made two acquisitions for further strengthen the wireless connectivity capabilities of our STM32 microcontroller family. These acquisitions cover Narrow Band Cellular and Ultra-Wide Band wireless technology from [Indecipherable]. These technologies are key wireless connectivity solutions that will enable a new wave of IoT-connected object and innovative applications, especially in industrial. They complement our existing wireless connectivity offering. We have now shipped over 6 billion parts from our STM32 family. In parallel, we are continuously strengthening our offer, in term of hardware, software and ecosystem. Some examples from the quarter include the launch of the STM32 Digital Power Ecosystem for power supply controls, tools from partner that complement our artificial intelligence capabilities and software packages that simplify development of safety critical products.

Another strategic objective is to accelerate our growth in analog and sensors for industrial. In Q2, we won several new designs with our analog products for industrial applications. For example, we received awards for motor drivers and smart power products from industrial equipment, lighting and home appliance makers as well as metering customers. And in industrial sensors, our new industrial grade inclinometer was adopted by multiple large customers.

We are targeting expansion in industrial power and energy management. And with our Power Discrete products for industrial application, we learned [Phonetic] design wins for high-voltage MOSFETs in power supply, solar, lighting, adapters and home appliances. We also captured favorable awards with silicon carbide again, IGBT and intelligent power modules for motor control, charging stations and renewable energy. We also had design wins with our power management IC combined with a STM32 standard microprocessor.

Moving now to the personal electronics market. Despite the slowdown in consumer demand for smartphones during the quarter, we saw increasing demand for anything related to accessories, wearable, gaming and continued innovation-driven semiconductor demand for smartphones. We serve this market with our sensors, secure solutions, power management, analog and front-end modules. We lead in a number of very specific high-volume smartphone applications as well as in wearable, such as smart watches, to — wireless stable wearables and gaming devices. We also aim at capturing opportunities in 5G with RF mixed signals.

During the quarter, we won numerous new designs in home production of our products in flagship devices, including an increasing number of 5G models. Some examples of our products include motion sensors, time-of-flight ranging sensors, secure solutions such as eSIM and secure elements with NFC, touch display, any wireless charging product. We ramped production of our new multi-pixel/direct time-of-flight sensor for world-facing camera applications in a new flagship device for a global smartphone leader.

In communication equipment and computer, peripherals, during Q2, we saw solid market demand for our designs for sensors as well as continued demand for 5G-related products. Our strategic approach to this end market is focused on cellular and satellite communication. We were awarded designs based on ST proprietary technologies for a processor for a satellite application as well as several RF projects for telecommunications infrastructure.

Now, let’s move to a discussion of the third quarter and brief comments on the full-year 2020. For the third quarter, we expect net revenues to be about $2.45 billion. This sequential growth of about 17.4% will be driven by our engaged customer programs, new products and improved market conditions. Gross margin is expected to be about 36% at the midpoint and includes unsaturation charges of about 200 basis points fully related to demand.

For the full-year, I outlined earlier our sales and operating plan to drive ST to 2020 net revenues now in the range of about $9.25 billion to $9.65 billion and for growth in H2 over H1 between $610 million and $1.010 billion. This plan reflects an improvement compared to the previous range of $8.8 billion to $9.5 billion we expected entering Q2. Our capex plan for 2020 is now about $1.2 billion.

Before concluding, I would like to share with you our updated plans and timeline for our Capital Markets Day. During the ongoing pandemic, we will be conducting a virtual Capital Markets Day as it is not prudent to host a physical event and we are aware that some of you are not yet in a condition to travel. With this decision, we decided to break the event into four separate modules, three of them covering ST product groups strategy and roadmap, the fourth one focus on the overall company strategy, including our financial model. The preliminary schedule is as follows: MDG September 15; ADG November 6; AMS November 20; and overall strategic update December 9.

To conclude, I would like to reinforce two key points. First, while we continue to ensure the ongoing health and safety of our employees in response to the global pandemic, during last quarter, we have returned to normal operations. Our Q2 results along with our Q3 guidance are clear reflection of that. Second, ST fundamentals are solid. The strategic decisions we made years ago have enabled us to successfully serve secular growing market trends addressing key societal needs. We work alongside our customers both for the short and the long term. We are determined to continue to make ST stronger by consistently executing our strategy quarter after quarter with a clear sales and operating plan.

Thank you. And we are now ready to answer your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Achal Sultania from Credit Suisse. Please go ahead.

Achal Sultania — Credit Suisse — Analyst

Hi, good morning. Maybe can you provide some color on the inventory side? I guess you’re still running at a very high inventory on your own books. I think last quarter you mentioned that you have a plan to get it down to about 100 days by the end of this year. So, are we still looking to achieve that target by end of 2020?

And then secondly on this Huawei impact, like just want to understand how much of that Huawei impact is in your guidance for second half of this year or is it something that you’re still assessing how that situation unfolds. And at this point, it’s very difficult for you to assume some of that impacting your second half guidance. Thank you.

Jean-Marc Chery — President & Chief Executive Officer

Thank you. So Lorenzo will answer the first question and I will answer the second one.

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

Good morning to everybody. Lorenzo speaking. Thank you for the question. During the second quarter actually, our inventory increased. During the second quarter, for sure, one of our priorities was, let’s say, back to manufacturing of our people, and indeed we ran a little bit better than expected. As you know, our unsaturation charges came lower than what was our original expectation entering the quarter. So at the end, the inventory at the end of the second quarter was in the range of 129 days of inventory.

In the second half of the year, we will continue to monitor our inventory and indeed the level of unsaturation in the second part of the year will continue to be present with around 200 basis points both in Q3 and in Q4. And I do expect, let’s say, that in Q3, our level of inventory, the number of days will go down in a range of between 115 days and 120 days. And I do expect for Q4 to go back to the level that I was mentioning already during the first quarter earnings release in the range of 95 days to 100 days.

Jean-Marc Chery — President & Chief Executive Officer

Thank you Lorenzo. So about Huawei, I would like to highlight again that we address this customer following our strategy of selective approach in personal electronics and communication infrastructure. Okay. The products that we sell them are all within our strategy clearly. And among the products that we ship to them, there are custom solutions, application-specific standard products and general purpose products. Clearly again, we acknowledge the May 15, 2020 announcement by the US Bureau of Industry and Security. ST will simply comply with the laws and applicable regulation as we continue to support our customers. We had no impact in Q2. We do not have any impact in Q3, and we will have some impact in Q4, which is already embedded in the indication we have given for the full-year 2020 plan. I hope it answers your question.

Achal Sultania — Credit Suisse — Analyst

Yeah, thanks. Thanks a lot, Marc — Jean-Marc.

Operator

The next question comes from Andrew Gardiner from Barclays. Please go ahead.

Andrew Gardiner — Barclays — Analyst

Hi, good morning gentlemen. Thanks for taking the question. I just had one high level one regarding your level of visibility at the moment. And if we could perhaps contrast it to this time three months ago, at that time back in April, you talked about pushing back on your customers in terms of sort of scrubbing the orders, scrubbing the backlog to make sure that it was reasonable given the kind of end demand that we are all seeing. How you feel about that at the moment? How is the order book? Are there good orders? Are you worried about double ordering? There has been some talk about inventory being built by one of your closest peers within the supply chain given fears over further disruption due to the pandemic. Just sort of, how can you — yeah, give a bit more detail in terms of the level of visibility you have into the back half at this point. Thank you.

Jean-Marc Chery — President & Chief Executive Officer

So I will take it and Marco Cassis will complement.

Marco Cassis — President of Sales, Marketing, Communications and Strategy Development

No — yes, okay.

Jean-Marc Chery — President & Chief Executive Officer

We confirm the situation entering in Q3 is completely different the one entering in Q2. Well, in Q2, our, let’s say, book-to-bill ratio has been well below 1 because impacted by the correction in Automotive and correction, okay, we have driven. Okay. Yes. Okay. We confirm that we have taken the initiative entering in Q2, okay, to discuss very closely with our customers, so the Tier 1 and really to clean the backlog and to align the backlog, okay, with the consumption of products we have from consignment stock. So entering Q3, the backlog is clean for all the verticals we address. So automotive, industrial, personal electronics and communication infrastructure and computer peripherals. But saying that, okay, we have solid visibility of the backlog in Q3. Again, I made the comments about the POS, okay, growing sequentially and year-over-year in Asia. Yes, okay. We see Europe and America are still weak, but all the data points, the usual data point we have in our hand, which are again the backlog, the POS, okay, you know are really clean. The inventory level at Distribution in Asia is clean. Okay. There is no overall inventory. We saw also some sign, positive on Analog and on Power and Discrete on top of Microcontrollers and MEMS. So we are very confident, okay, in the visibility we have. Then again, okay, Top 10 customers are important data for our business. Here, okay, we have very close intimacy on the supply chain, and we have the adequate visibility. Well, altogether between the backlog and the customer intimacy, okay, make us confident on the guidance we provided for Q3.

Marco Cassis — President of Sales, Marketing, Communications and Strategy Development

Yes, Jean-Marc. And let me just add a little bit of information. In April, our sales and operating plan was based on visibility for the full-year of a sum, in the markets that we serve that was going to be between minus 5% and minus 13%. Now, we have updated and upgraded our view to a sum that will be between the minus 5% to minus 7%, in line with all the indicators that we are getting from our key customers and the evolution of the market, as I already said, of our POS and POP for Distribution. Again, this evolution is key because one market that we are focusing on in our strategy is clearly the industrial market, and this market is extremely fragmented. So the performance of the Distribution channel, there is a very good indicator of how things are evolving. Clearly, industrial is still mixed. We have applications that are still suffering, like we said before, like lighting and home appliances. But we saw good improvement and recovery coming from other applications that are extremely important for us still, like renewable energy and factory automation, sorry.

So there again, China is leading the pack because as you know very well, in terms of timing, China is first. So the main impact was in Q2. In Q2 — in Q1, sorry. In Q2, there is a very good recovery, sequentially strong and also year-over-year in terms of US. And again, underline that the stock level is absolutely under control. Thank you.

Andrew Gardiner — Barclays — Analyst

Thank you Jean-Marc, thank you Marco.

Operator

The next question comes from Matt Ramsay from Cowen. Please go ahead.

Matt Ramsay — Cowen — Analyst

Yes, good morning. Thank you very much. I wanted to dig into the ADG business a bit because there has been some moving parts in the last couple of quarters with the manufacturing challenges in discretes in Q1 and then maybe those recovering in the second quarter with the Auto business being down pretty dramatically in Q2. Maybe you could break that business down a little bit and let us know what your expectations are for those two segments of that piece of the business into the third quarter. And then if you have any comments, I think, Texas Instruments talked about the other night the month of May in particular being the bottom for their automotive business that they saw down I think 40% in the quarter. Are you seeing those same trends? Thank you.

Jean-Marc Chery — President & Chief Executive Officer

Maybe I start to answer again and Marco will complement. Well, it is clear that in Q2 for ADG we have, let’s say, different dynamics. Well first Power Discrete recovered very, very strongly; first because of free of supply chain constraints related to the, let’s say, labor workforce in the value splint, where we have been impacted and the main one was the closure of Shenzhen definitively and limited workforce attendance in [Indecipherable] impacting strongly Q1. Q2 was free of, let’s say, this shortage of capacity linked to the COVID-19. So, first effect overall, okay, Power Discrete recovered strongly in Q2 with supply chain coming back to normal operation. But then again inside Power Discrete, we have, let’s say — you know that know we have very wide portfolio, okay, from high-voltage power MOS, low-voltage power MOS, IGBT, silicon carbide MOSFET and, okay, some discrete, okay. In discrete, we have, okay, some, let’s say, integrated passive and active device addressing, okay, the RF part on personal electronics. But, overall, this mix of products, okay, the dynamic was very positive, and for various reasons, but more — silicon carbide, I guess you know is because of electrification of the car; IGBT as well; low-voltage power MOS as well for 48-volt application, so makes, okay, Power Discrete, okay, really strong in Q2 versus Q1 and this dynamic, okay, will continue in Q3.

Well, about Automotive, well, clearly, Automotive for ST what was running well is ADAS with partnership we have with Mobileye, okay, which really show, let’s say, a very good dynamic in Q2, and will continue in Q3. About legacy automotive, the pure legacy automotive means application-specific ICs, okay, analog or let’s say microcontroller for legacy automotive. Well, definitively, okay, Q2 has been a — let’s say, a very challenging quarter. We took the initiative as I have said to push our customers to clean their portfolio in order to be sure that in Q2, we will not build at their level, okay, inventories and all inventory in consignment stock. Well, and as a matter of the result, we have a very strong decrease [Phonetic] in legacy automotive Q2 over Q1, above 20%. But what we have seen in term of dynamic late June and early July, okay, the run rate of consumption from the consignment stock, okay, starting to rise up. And in Q3, I can confirm to you that including the legacy automotive, we will see a growth sequential, means we confirm and I confirm in my address that we are convinced that Q2 is a bottom, okay, of legacy automotive and we will start to see, okay, market recovery Q3 and most likely acceleration after the summer period because you know that generally speaking, okay, and mainly in Europe, okay, the carmaker and then Tier 1 are closing for vacation period they had planned and we will certainly see, okay, an acceleration in September and Q4 overall. So this is the color I can give to you and Marco can complement it.

Marco Cassis — President of Sales, Marketing, Communications and Strategy Development

Yes, I would just complement with some extra data points. As you have underlined, clearly during Q2, the automotive market was badly hit, but let’s not forget this was linked with closures of carmarkers and Tiers 1. So mechanically, it was impossible to have production and also the demand was strongly hit by the fact that mobility of people was extremely low. It’s also proved by the way that during Q2 we saw a different dynamic in China. China went out of the coronavirus situation during Q1, and in Q2, as you know very well, the demand in terms of cars in China has rebounded more or less with a V shape. So again, due to these dynamics, it’s surely the bottom. And from Q3, as Jean-Marc say, we start seeing a recovery.

Let me underline also that we expect to receive benefits coming from the incentives that various governments are putting in place; for example in France and in South Korea. And important to underline another point is that we now see any substantial slowdown of the customers’ activity for what is related with our longer market trends and what is for ST strategic — are the strategic growth drivers in smart mobility, which are related to electrification and utilization. So again, Q2 was the bottom and from Q3, we start seeing in — the recovery.

Matt Ramsay — Cowen — Analyst

Thank you very much gentlemen for the detail. Appreciate it.

Operator

The next question comes from Janardan Menon from Liberum. Please go ahead.

Janardan Menon — Liberum — Analyst

Hi, good morning. Thanks for taking my question. I just wanted to examine the medium-term target of $12 billion of revenue that you had talked about previously, and given the stronger-than-expected trends that you’re currently seeing through the second half of the year, what your thoughts are on that right now? Can we assume that you still have a fairly unchanged time horizon for meeting that compared to your previous comments, including your Capital Markets Day last year or there will be any shift in it? I think you had referred to a possibility of meeting that on a annualized run rate basis by the second half of ’21. Would that be still a possibility?

And secondly, on your general purpose microcontroller business, the MDG revenue has grown at 24.1%. And I would assume that a lot of that is from the general purpose microcontrollers. So, clearly that is doing at least close to the mid-20s of growth rate. Is that a market growth rate in your estimation? How much of that would be market share gains, and where — what kind of applications do you think is driving this most predominantly?

Jean-Marc Chery — President & Chief Executive Officer

Well, so I will answer the first question and start answer the second and Marco will complement. Well, about the $12 billion, well, it is clearly our target, okay. Management target, okay, of our next three-year sales and operating plan, we are working on because this is an exercise, okay, we rework and update every year. About the timing, when it will be achieved inside those three years, I guess, okay, you will share with me that it deserve a bit some assessment and analysis to, let’s say, better understand the implications of the legacy automotive market and when the production of light vehicles, okay, will come back to the 2019 level, and as well to understand the implication related to the USA-China trade war. But again, I confirm, okay, yes, $12 billion, okay, will be achieved, okay, within the next three years.

About microcontroller, clearly, microcontroller growth is not only general purpose, it’s also secure microcontrollers, both with embedded SIM and secure solution with NFC; in microcontroller ICs as well, both 32-bit and 8-bit. And also I would like to highlight and again I recall you because this is something we shared with you during the various communication we had altogether that last year we introduced, okay, 10 new products. And from, let’s say, ultra-low power microcontroller well suitable for IoT kind of consumer application, and high-performance, let’s say, microcontroller, well suitable for industrial application. But on top of that, okay, we are continuously improving the ecosystem around the microcontroller. So between new product introduction, let’s say, the ecosystem, our supply chain, okay, because also microcontrollers are using 50-50, okay, internal manufacturing of ST and external, let’s say, well-known important foundry. Our supply chain has been very strong, okay, also during this period. So I repeat that ourselves, we never closed any wafer fab and our partner foundry never closed any wafer fab. We have been successful to manage as well the OSAT and our internal assembly and test.

So all in all, okay, this is the reason why, okay we are growing on microcontroller, which is, let’s say, the advent of new product introduction, inventory cleaner distribution channel, very good recovery in 8-bit and a very strong supply chain which go through this pandemic outbreak challenges without any disruption. So this is all the enabler making ourselves growing at this level and having this leadership position. So maybe Marco, you want to add something?

Marco Cassis — President of Sales, Marketing, Communications and Strategy Development

Yes. Just to reply straight to one of your points, yes, we have gained market share, and — in microcontrollers. And this is, as Jean-Marc was saying, mainly linked with the fact that we are transforming the funnel of opportunities that we have created during the last year, etc. with the new family of microcontrollers and we are leveraging on our leadership position in microcontrollers, which means our reach of customer, small customer and big customer through the distribution channel, is clearly helping us to gain ground in the microcontroller domain.

Janardan Menon — Liberum — Analyst

Understood. Thank you very much.

Operator

The next question comes from Jerome Ramel from Exane BNP Paribas. Please go ahead.

Jerome Ramel — Exane BNP Paribas — Analyst

Yeah, good morning. Two quick one. The first one, how should we model the opex for the coming quarter? And second question, Jean-March you mentioned a time-of-flight for world-facing. Could you elaborate a little bit, are you bringing the timing of its ramp up or is it a direct or indirect time-of-flight? Yeah. Thank you.

Jean-Marc Chery — President & Chief Executive Officer

Thank you Ramel. So Lorenzo will take the first question and I will take the second.

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

Sure. I will take expenses and how to model the expenses for next quarter and the following one that we closed [Phonetic]. At the end, at this stage, you see that on Q2, our expenses, and when I talk about expenses, I always include also the line other income and expenses. Overall, so net expenses came at $620 million. This $620 million was a little bit better than the expectation entering the quarter, if you remember, and this was mainly driven by the fact that of course the lockdown plays a little bit in favor to have lower expenses with significant reduction in traveling and some reduction also in discretionary expenses.

Moving inside the third quarter, my expectation is that expenses will be more in a range that is our average range — quarterly average range for the year that I still confirming in the range of $635 million to $645 million per quarter. So it means that there will be some increase in expenses moving from Q2 to Q3. I do expect that that will be more or less of a midpoint of this range what I was mentioning, while confirming the total — this range for the full year.

For the full-year, if you take our expenses in the full-year and you divide it by four, our average should be that, between $635 million to $640 million per quarter. So this is confirmed, notwithstanding some acquisition that we are doing, so it means that we do not expect that this will increase our level of expenses.

Jean-Marc Chery — President & Chief Executive Officer

Well, about — we have started production. So — because, you know, this device would be introduced on a new flagship. So in order to be ready with the supply chain when the flagship will be introduced in the market, okay, we have started the production now. I can mention it is addressing [Indecipherable] and it is based on our, let’s say, multi-pixel still direct time-of-flight technology, what we call our SPAD technology, single-photon avalanche diode and I already mentioning the fact that I need to address, okay, world rear-facing application. And here, you know that on this world rear-facing application, you will have okay both technologies with of course different features. So multi-zone, multi-pixel direct time-of-flight and you will have as well indirect time-of-flight. So this is what I can disclose, Jerome, at this moment.

Jerome Ramel — Exane BNP Paribas — Analyst

Thank you very much.

Operator

The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Please go ahead.

Sebastien Sztabowicz — Kepler Cheuvreux — Analyst

Yeah. Hello everyone and thanks for taking the question. On your full-year guidance, it seems sales slightly declining for the full-year. Where do you see the three divisions evolving over the full-year? Which one are likely to outperform and underperform your main target?

And coming back on the silicon carbide, can you help us understand what was the level of revenue you have already generated in the first part of the year? And what is your view or your updated target for the full-year? Do you think there is still a chance to come closer to $12 billion of revenue or it is a bit too optimistic taking into account the slow start of Q1 in silicon carbide? Thank you.

Jean-Marc Chery — President & Chief Executive Officer

So, I take the question and again, my colleagues, okay, will complement. On silicon carbide, you remember in April during our meeting conversation, unfortunately what we have lost in Shenzhen, okay, cannot be recovered. This is the point. But here, okay, well, this is not something we will update regularly because it is not, let’s say, a very regular KPI we monitor. But if you remember where I shared, okay, with you, okay, last quarter that we assessed to have a PVO [Phonetic] between 2020 to 2024 of about $2.8 billion on silicon carbide, well shared between automotive and industrial, but with the design win we had during Q2, now, okay, we assessed this PVO to be above $3 billion, which is showing our dynamic. But for this year unfortunately, what we lost in Q1 are definitively lost. Then about the full-year, Lorenzo can disclose the…

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

Maybe I can take your question. When we look at full-year and I refer in terms of revenue what is the midpoint of our indication that is in the range of $9.45 billion. How is the dynamic between the three segments? Well, there are two segments that will increase; one is MDG. MDG will increase revenue on the year in the range of the high-single digit and this is mainly driven by our microcontrollers, both general purpose and secure.

We see also growth in AMS. In AMS, we have a growth that will be in the range of low-single digit, and this will be driven by Imaging and Analog. Why we see declining revenues in ADG? ADG will be definitely impacted by the situation of the market in automotive even if there will be a recovery in the second part of the year in respect to the first part of the year. Still looking at the overall year, we will have a decrease, and this decrease will be in the range of the low-teens. Overall, the company will be in the range of minus 1%, 1.1% is our, let’s say, indication for the year.

Celine Berthier — Group Vice President of Investor Relations

We are running short of time now. We have time for one or two more questions — two more questions if you don’t mind. As usual, for the ones that have other question, Investor Relations team is ready to answer separately after this call and do not hesitate to reach out.

Operator

The next question comes from Gianmarco Bonacina from Equita. Please go ahead.

Gianmarco Bonacina — Equita — Analyst

Yeah. Good morning. Just a clarification on the gross margin for the full-year. In the previous call, you mentioned the range of 35% to 37%. Now, clearly, the midpoint of your sales range for the full-year has increased. So shall we think for the full-year gross margin closer to the 37%? Thank you.

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

Well, at this stage, as we said, the gross margin that we see today, with this second half impacted by an average 200 basis points of unloading charges in both quarters, Q3 and Q4. As I said, the gross margin, we see something in a range between 36% to slightly above 37%. So, of course, it will depend on the level of revenues that we will achieve.

In terms of unsaturation, in terms of production plan, we will not change dramatically, because of course, our lead time in order to fill our fab will not be — is such that of course the degree of freedom that we have in order to modulate that production is not so big. So, we — our expectation is to be between really 36% and slightly above 37% at the highest level of our revenues.

Gianmarco Bonacina — Equita — Analyst

Okay. For the full-year?

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

For the full-year. Yes, of course.

Gianmarco Bonacina — Equita — Analyst

Okay. Thank you.

Celine Berthier — Group Vice President of Investor Relations

So the last question now please. Alessandro?

Operator

The last question comes from David Mulholland from UBS. Please go ahead.

David Mulholland — UBS — Analyst

Hi. Thanks very much. I just wanted to follow-up on the Huawei situation. Obviously, you said there is a lot of business today that’s standard products. There is no issue, but there is some that’s custom. I just wondered is that something that there is such engagement and level of custom to that, it just has to go away or is this something you can transition while still adhering to the rules to become a kind of standard product business with enough time to develop a more standard solution if I can put it that way?

Jean-Marc Chery — President & Chief Executive Officer

No. Again, okay, we address this customer, okay, with values, let’s say, operating model, okay, from custom design to application-specific and let’s say general purpose device. There is no, let’s say, other approach again than to be compliant with what will be confirmed, because we were expected to have clear detail and confirmation mid-July. That’s still not the case. And I have honestly no other comment, okay, than the one I have done few minutes ago answering the question.

David Mulholland — UBS — Analyst

Thanks very much.

Jean-Marc Chery — President & Chief Executive Officer

Thank you.

Celine Berthier — Group Vice President of Investor Relations

Okay. So that will conclude our call. Thank you very much everybody. Have a nice earnings season for everyone of you that are engaged in that and we speak at the next earnings [Technical Issues].

Jean-Marc Chery — President & Chief Executive Officer

And Celine, the Capital Markets Day.

Celine Berthier — Group Vice President of Investor Relations

Yes. And yes, I need to remind you in the address, Jean-Marc has been talking about various appointments [Indecipherable] Capital Markets Day. So the next one before our earnings, yes, thank you, is the one with [Indecipherable] to discuss MDG on the 15 of September. This will be our next event from ST. Even if again it is virtual, so, hopefully this will be easier than to travel around the world to meet with us.

Jean-Marc Chery — President & Chief Executive Officer

Okay. Bye-bye. Thank you.

Marco Cassis — President of Sales, Marketing, Communications and Strategy Development

Thank you.

Lorenzo Grandi — President of Finance, Infrastructure & Services and Chief Financial Officer

Good bye.

Operator

[Operator Closing Remarks]