Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 23, 2026 · Beat 4 of last 7 quarters
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ST's raised data center revenue ambition to >$1B in 2026 and >$2B in 2027 underscores the accelerating AI infrastructure buildout, particularly in optical connectivity and silicon photonics. The company's strong book-to-bill and tight supply signals across multiple product categories indicate sustained demand for AI data center components. ST's expansion of its 800V power portfolio and collaboration with NVIDIA positions it as a key enabler of next-generation AI compute infrastructure.
Q2 2026 net revenues were $3.49B, above the midpoint of guidance, with strong growth in Communication Equipment & Computer Peripherals (+50% YoY), Industrial (+34% YoY), Automotive (+16% YoY), and Personal Electronics (+20% YoY). Gross margin was 34.8% (35.2% non-U.S. GAAP), and non-U.S. GAAP EPS was $0.31, beating consensus. Book-to-bill was close to 2 overall, with distribution inventory now below target. Free cash flow was positive at $75M. The company raised its data center revenue ambition to above $1B in 2026 and well above $2B in 2027, driven by optical connectivity and silicon photonics. They also announced a $1.5B convertible bond issuance and early redemption of a $750M convertible bond due 2027.
Management guided Q3 2026 revenue to $3.7B ±350 bps, up 6.2% sequentially and 16.2% YoY, with gross margin of ~37% ±200 bps. They expect Q4 revenue above $4B, driven by AI data center and LEO satellite programs, resulting in H2 vs H1 growth above normal 15% seasonality. Full-year 2026 non-U.S. GAAP net OpEx is now expected slightly above $3.8B, up low double-digit YoY. Data center revenue ambition was raised to above $1B in 2026 and well above $2B in 2027, with 100% backlog coverage for 2026. Gross margin is expected to improve sequentially in Q4 but with temporary headwinds from underloading and manufacturing reshaping costs.
“We now expect revenue above $1 billion in 2026 and assuming the current dynamics continues and with the current engagements we have well above $2 billion in 2027.”
on Data center revenue ambition
“We see clearly an acceleration in the adoption of 800 gig and 1.6 terabit per second pluggable optics. And those are actually generation and categories of transceivers where now we are seeing a triple effect and this triple effect is a fairly large market share when it comes to the microcontroller, taking care of the control plane, and a growing share when it comes to the electronic IC driven by our BiCMOS technology. And starting from next year, but really accelerating next year is actually our growing revenue in silicon photonics supporting photonics IC that are being part of those pluggable transceiver.”
on Optical connectivity growth drivers
“We confirm our confidence level to reach $18 billion in 2028. And clearly, announcing the dynamic and increasing our indication on data center, it is clearly one of key growth driver that will position our company on $18 billion by 2028.”
on 2028 revenue target
Can you give qualitative comments on how Q4 gross margin could proceed and how you see that evolving into 2027?
Lorenzo Grandi confirmed Q3 gross margin at 37% and said Q4 will improve sequentially, but with headwinds from underloading charges (due to new fab startups in China) and manufacturing reshaping costs. He noted FX benefit will be neutral in Q4. Product mix from data center will be accretive.
Can you provide more granularity on what's driving the big increase in 2027 data center revenue versus prior expectations? How much is optics vs power? Is the >$2B number still capacity-constrained?
Remi El-Ouazzane explained the growth is driven by 800G/1.6T pluggable optics adoption, with triple effect from MCU, BiCMOS electronic ICs, and silicon photonics. He noted they have scalability in Crolles and are not gated by capacity. Jean-Marc Chery added that demand is well above supply, and they are closing the gap with capacity expansion.
On the data center revenue guidance hike, was that driven by increased demand outlook or faster capacity expansion?
Jean-Marc Chery said it's both: demand is well above the $1B figure, but they raised guidance due to capability to grow in assembly/test and advanced 300mm technology. Backlog for 2026 is 100% covered, and engagements cover 2027 expectations.