Tesla Supplier STMicroelectronics Sees Slowing Sales Growth Amid Chip Market Woes — Update

By Mauro Orru

STMicroelectronics said it expects more than $20 billion in sales by the end of the decade, delaying a target it hoped to hit much earlier as the chip inventory glut that plagued the industry in recent years weighs on growth.

The European chip maker is forecasting sales of roughly $18 billion in 2027 and 2028 that should climb to more than $20 billion by the end of the decade. The company had previously hoped to exceed the $20 billion mark between 2025 and 2027.

Meanwhile, STMicroelectronics expects a gross margin of about 44% to 46% in 2027 and 2028, growing to roughly 50% by 2030. The group had previously forecast a gross margin of more than about 50% between 2025 and 2027.

The revisions come as the semiconductor industry continues to grapple with bumpy orders. Demand for chips to power artificial intelligence in data centers is booming, but orders for chips in electric vehicles, industrial machinery and some personal electronics have been weak in recent months.

Car makers and other device manufacturers are still working through piles of chips that they procured during the pandemic, meaning they don't need to place significant orders now.

Meanwhile, auto makers are battling competition from local rivals in China and a challenging electric-vehicle market. Several car makers have cut their guidance this year to factor in slowing sales, further dampening demand for the chips that power their vehicles.

STMicroelectronics is particularly exposed to the auto industry since it counts Elon Musk's Tesla, Hyundai Motor, German parts supplier Continental and Israel's Mobileye among its customers, according to the company's 2023 report.

The group last month downgraded its annual guidance for the third time this year to reflect sluggish demand after net profit and sales slumped in the third quarter. STMicroelectronics is forecasting revenue of about $13.27 billion this year and a gross margin slightly below 40%.

The company expects an adjusted operating margin of about 22% to 24% in 2027 and 2028 that should grow to more than 30% by the end of the decade. It previously forecast that growth between 2025 and 2027.

Meanwhile, its free cash flow margin should reach around 20% excluding one-offs in 2027 and 2028 and grow to more than 25% by 2030, also later than originally planned.

Write to Mauro Orru at mauro.orru@wsj.com