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STMicroelectronics STM shares have plunged 51.2% on a year-to-date (YTD) basis against the Zacks Semiconductor-General industry and the Zacks Computer & Technology sector’s return of 132.2% and 27.4%, respectively.

Over the same time frame, shares of its competitors, including NVIDIA NVDA, Amtech Systems ASYS, and Texas Instruments TXN, have climbed 186.6%, 36.9% and 16.1%, respectively.

This underperformance can be attributed to the deterioration in customer backlogs and order entry during the third quarter. STM asserts that it reflects a clear shift in customers' priorities, moving decisively from fully battery electric vehicles to hybrids, and transitioning from premium to economy models. Furthermore, car manufacturers are actively downsizing production to manage inventory levels effectively.

Softness in Power & Discrete and Microcontrollers was primarily affected by ongoing weakness in the Industrial end market, which negatively impacted top-line growth. In the first nine months of 2024, the company generated total revenues of $9.95 billion, down 23.5% from the same period in 2023.

STMicroelectronics N.V. Price and Consensus

STMicroelectronics N.V. price-consensus-chart | STMicroelectronics N.V. Quote

STM Provides Dim Q4 and FY24 Guidance

For the fourth quarter of 2024, STM expects revenues of $3.32 billion at the midpoint, indicating a year-over-year decline of 22.4%. The Zacks Consensus Estimate is pegged at $3.32 billion, indicating a year-over-year decline of 22.5%.

Gross margin is expected to be about 38% at the midpoint, impacted negatively by about 400 basis points, mainly due to the combination of product mix and sales price and higher unused capacity charges. The consensus mark for earnings is pegged at 35 cents per share, down 18.6% in the past 30 days. This indicates a year-over-year decline of 69.3%.

Full-year 2024 revenues are expected to be $13.27 billion, indicating a decline of about 23.2% year over year, mainly due to lower revenues in Automotive and to a lesser extent lower revenues in Industrial, partly offset by slightly better revenues in Personal Electronics. The consensus mark for revenues is pinned at $13.27 billion.

The consensus mark for earnings is pegged at $1.65 per share, down by a penny over the past 60 days, indicating a fall of 63%.

The gross margin is expected to be about 39.4%, negatively impacted by approximately 290 basis points of unused capacity charges.

Hence, STMicroelectronics anticipates a delayed recovery in the Industrial end market and a lower-than-expected increase in Automotive end market revenues in the second half of the year versus the first half.

Expansion of the Industrial Market to Aid STM’s Prospects

Despite the near-term challenges, the recent product launches and strategic collaborations might help STM stock to recover.

STMicroelectronics’ latest collaboration with Qualcomm Technologies for the next generation of industrial and consumer IoT solutions augmented by edge AI is a remarkable development. Per the agreement, Qualcomm will combine its leading AI-powered wireless connectivity technologies, starting with Wi-Fi/Bluetooth/Thread combo system-on-a-chip, with the market-leading microcontroller (MCU) ecosystem from STM.

The EVLDRIVE101-HPD motor-drive reference design by STMicroelectronics featuring a 3-phase gate driver, STM32G0 microcontroller and 750W power stage on a circular PCB just 50mm in diameter easily fits into drones, robots and drives for industrial equipment, such as pumps and process-automation systems.

The latest launch of ultra-low-power STM32 MCUs that can reduce energy consumption by up to 50% is a plus for its Industrial end. It reduces the frequency of battery replacements, and the impact of discarded batteries, allowing designs to operate without batteries, using energy-harvesting systems like solar cells.

STM's launch of ST Edge AI Suite, a consolidated collection of software tools uniquely created to enhance the development and deployment of embedded AI applications, is a major development.

Expansion in Automotive End Market to Aid STM’s Prospects

STM's introduction of Automotive microcontrollers for next-generation cars is significant. These software-defined vehicles will use Ethernet as the main bus protocol, featuring expanding memory and performance capabilities to enhance functionality over time with zero downtime.

The release of the ASM330LHBG1 automotive 3-axis accelerometer and 3-axis gyroscope module with a safety software library that enables a cost-effective solution for functional safety applications is also a positive achievement.

What Investors Should Do With STM Stock

STM’s shares are currently cheap, as suggested by a Value Score of A.

The stock is trading with a forward 12-month Price/Sales of 1.76X compared with the industry’s 16.10X.

STM currently carries a Zacks Rank #3 (Hold), implying that existing investors should keep holding the stock while new buyers should wait for a better entry point into the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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