Ladies and gentlemen, welcome to the STMicroelectronics Q2 2021 earnings results conference call and live webcast. I'm Andre, the call's operator. I would like to remind you that all participants will be in listen only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star 1 on your telephone. For operator assistance, please press star 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Céline Berthier, Group Vice President, Head of Investor Relations. Please go ahead, madam. Thank you, Andrea. Good morning. Thank you everyone for joining our second quarter 2021 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 results this morning, and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up, please. I'd now like to turn the call over to Jean-Marc, ST President and CEO. Thank you, Céline. Good morning, everybody, and thank you for joining ST for our Q2 2021 earnings conference call. Let me begin with some opening comments, starting with Q2. Net revenues and gross margin came in at the high end of our business outlook range, driven by continued strong demand globally. Year-over-year, net revenues grew 43.4% to $2.99 billion. Our gross margin of 40.5% and operating margin of 16.3% improved from 35% and 5.1%, respectively. Our net income rose to $412 million. On a sequential basis, net revenues decreased 0.8% due to the normal seasonality in personal electronics. On H1 2021, net revenues increased 39.1% year-over-year to $6.01 billion, driven by growth in all product groups except the radio frequency communication subgroup. H1 operating margin was 15.5%, and net income was $776 million. On Q3 2021, at the midpoint of our outlook, we expect net revenues in the third quarter to be about $3.2 billion, representing an increase of 20% year-over-year and 7% sequentially. Gross margin is expected to be about 41% at the midpoint. For the full year 2021, we will now drive the company based on a plan for full year 2021 revenues of about $12.5 billion ±$100 million. A year-over-year increase of 22.3% versus our prior plan of 18.4% growth at the midpoint. This growth is expected to be driven by strong dynamics in all the end markets we address and our engaged customer programs. We also now plan to invest about $2.1 billion in CapEx to support the strong market demand and our strategic initiatives. Now, let's move to a detailed review of the second quarter. Net revenues increased 43.4% year-over-year with higher sales in our three product groups and all subgroups except, as expected, the RF communication subgroup. Year-over-year sales to OEMs increased 38.4% and 53.1% into distribution. On a sequential basis, net revenues decreased 0.8% but were 300 basis points above the midpoint of our outlook. ADG and MDG reported increase in net revenues on a sequential basis, while AMS decreased. Gross profit was $1.121 billion, increasing 66.1% on a year-over-year basis. The gross margin increased by 550 basis points year-over-year to 40.5%, mainly driven by the full saturation of our fabs, compared with the high level of unloading charges last year. Driven as well by manufacturing efficiencies, favorable pricing, and improved product mix. These positive drivers were partially offset by negative currency effects, net of hedging. Our second quarter gross margin was 100 basis points above the midpoint of our guidance, mainly thanks to more favorable pricing and improved product mix. Second quarter operating margin increased to 16.3% from 5.1% in Q2 2020, with improvements in all three product groups. Net operating expenses were $725 million. Net income increased to $412 million from $90 million in Q2 2020, and our diluted earnings per share were $0.44. Looking at the year-over-year performance, all product groups registered double-digit growth. ADG revenues increased 48.2% on growth in both automotive and in power discrete. AMS revenues increased 62.3% on higher analog, MEMS, and imaging product sales. MDG revenues increased 22.3% on growth in microcontrollers, partially offset by the expected decline in radio frequency communications. By product group, on a year-over-year basis, all product groups showed improvement in operating margin. ADG operating margin increased to 9.5% from 2.3%. AMS operating margin increased to 18.6% from 9%, and MDG operating margin increased to 22.9% from 15.9%. Net cash from operating activities increased to $602 million in Q2, compared to $387 million in the year-ago quarter. Free cash flow increased to $125 million compared to $28 million in the year-ago quarter, with CapEx of $438 million versus $312 million in the year-ago quarter. During the second quarter, we paid $52 million of cash dividends to shareholders, and we executed a $156 million share buyback, completing our $750 million share repurchase program launched in 2018. On July 1st, 2021, we announced the launch of a new share buyback program of up to $1.04 billion to be executed within a three-year period. Our net financial position was $1.08 billion on July 3rd, 2021, compared to $1.19 billion at April 3rd, 2021. It reflected total liquidity of $4.25 billion and total financial debt of $3.17 billion. During Q2, we exercised the call option for the early redemption of our 2024 Tranche B convertible bond issued in 2017. The settlement of the $750 million principal amount bond is expected to be completed in Q3. Let's now discuss the market and business dynamics. During the second quarter, we were again operating with the backdrop of strong demand, stretching the global supply chain. We have continued to work closely with our customers across all verticals and channels to adapt to this difficult allocation situation. At the same time, we were and are optimizing our investments to increase our manufacturing capacity. COVID-19 continues to be a challenge for the world. During Q2, we saw the spread of new variants, especially in some of the countries in Asia where we operate, such as in India earlier and more recently in Malaysia. Over these days, we feel particularly close to and we strongly support our colleagues and their families in Malaysia, seriously hit by this new wave. Due to this situation, we recently temporarily closed our assembly plant in Muar, Malaysia. Following approval from the authorities, we resume operations after 11 day of closure. Moving to automotive verticals. Bookings remained strong in the second quarter, with demand still well above our current and planned manufacturing capacity. Bookings now cover about 18 months of demand, and we are working on allocating our planned capacity for next year. Our customer activity related to the long-term trends of electrification and digitalization continued to be strong in Q2. In car electrification first, we added to our list of design wins for silicon carbide devices in applications such as DC/DC converters and onboard chargers. We announced a strategic cooperation with the Renault Group to supply advanced power semiconductors for electric and hybrid vehicles. As Renault key innovation partner, ST will benefit from significant volumes of these power modules and wide bandgap power transistor from 2026 to 2030. Overall, our silicon carbide engagements increased again during the quarter. With 81 ongoing programs equally split between industrial and automotive, with 68 customers, our strong pipeline of design wins continues to support well our target of $1 billion of silicon carbide revenues by 2025. We are progressing with our manufacturing investments in silicon carbide, in line with our plan to increase tenfold the front-end capacity versus 2017 and to have 40% of our substrate needs internally sourced by 2024. We are ramping production in our Singapore factory and earlier this week announced that we have manufactured in our Sweden site our first 200 millimeter silicon carbide wafer, a key step in our capacity increase plan. We are also investing in growth of our internal back-end manufacturing capacity for SiC products with expansion of our Bouskoura site in Morocco alongside our plant in Shenzhen, China. We are maintaining our technology lead in silicon carbide, ramping in high volume our third generation transistors for multiple automotive customers globally. This represents a major improvement in performance and in competitiveness versus the previous generation. We are also progressing on our next generation transistor designs in line with our plan. We are taking steps to accelerate our 300 millimeter power strategy. We produced in Crolles our first IGBT 300 millimeter wafer lot for engineering qualification. This technology will be transferred to Aix-en-Provence R3 with production ramp-up as soon as the fab is ready. Moving to other complementary technologies for electrical vehicle designs, we have various wins at vehicle makers. These include high and low voltage MOSFETs in electrification subsystems, VIPower products for motor control and body control modules, 32-bit microcontrollers for IGBT inverters, and electronic fuse technology for electrical vehicle power distribution. Moving to car digitalization, we are focused on technologies and solutions for driver assistance and autonomous driving, V2X communication and embedded processing solutions supporting new car architecture. During the quarter, we announced new additions to our next generation automotive MCU family, so-called Stellar, which provides a scalable integration processing platform for advanced vehicle electronics. Also, in our automotive sensor business, we won multiple sockets with motion sensor for GNSS modules and navigation units, telematics infotainment system, as well as key fob. Let's moving now to industrial. During Q2 demand, we are also very strong in high-end and consumer industrial, both as distributors and OEMs. Factory automation continued to be one of the main demand drivers, together with power tools, home appliances, motion control, and power-related application, including renewable energy. Inventories of our products at distributors continue to be lean across all product families with high inventory turns. Point of sales remained strong in the second quarter across all products and all geographies. We address many applications across industrial end market with our general-purpose and secure MCUs, power and energy management solutions, and our sensors and analog products. In embedded processing, we are continuing to strengthen our leadership by expanding our STM32 family. With a particular focus on wireless connectivity, security, and artificial intelligence. During the quarter, we took an important step. We acquired Cartesiam, a company specialized in software enabling artificial intelligence on the edge. Adding their machine learning technology to ST existing solutions will provide the best edge artificial intelligence solution portfolio on the market. We have many design wins for our STM32 products during the quarter. I would like to mention just one where we design in multiple products in a drone for home security. Our second objective in industrial is expansion in power energy management. Here we capture a number of wins with our power discrete portfolio. For example, again, with silicon carbide transistors and modules, with high and low voltage silicon MOSFET and with IGBTs. These were in applications such as solar inverters, energy storage, charging infrastructure, industrial power supplies, power adapters, home appliances, and finally, air conditioning and lighting. The third objective is to accelerate on growth in analog and sensor for industrial. In the quarter, we had many new design with our analog products with awards in application like motion control, smart grid, factory automation, and home appliances. We also continued to win business in sensors for industrial applications. One win I would like to mention is for circuit breaker products from a major player with a low power industrial-grade accelerometer. Moving now to personal electronics market. We saw the same trend as Q1 with strong demand both for smartphones and other connected devices, including wearables, tablets, hearables, true wireless stereo headsets, and game consoles. In personal electronics, we continue to progress with our 2 strategic objective. First, to lead in selected high volume smartphone application with differentiated products and custom solutions. In Q2, we won sockets in flagship devices with motion sensor, multi-zone time-of-flight ranging sensor for laser autofocus, wireless charging products, touch display controllers, and secure solutions such as embedded SIM and secure elements with near-field communication. Our second objective is to leverage our broad portfolio to address high volume application, including wearable devices. Here we have the wins with a broad range of flight, motion, and environmental sensors, including a new generation waterproof pressure sensor, as well as with analog and power products and microcontrollers. We are gaining traction with our 60 GHz transceiver products for very fast contactless data transfer. The famous ST60. Here we achieve key design wins and production launch for projects with multiple customers in different applications. We progressed with our solution for augmented reality based on laser scanning, and we signed a development agreement with a leading player for laser driver ASIC to be used in next-gen smart glasses. In communication equipment and computer peripherals, we continue to see the adoption of 5G related products as well as sustained demand, especially for notebooks and Chromebooks. We also saw low earth orbit satellite programs launch in a number of countries. We have three strategic objectives in our approach to this end market. One is to address selected application in cellular and satellite communication infrastructure. In this area, we receive multiple RF SOI front-end module award, as well as several RF ASIC projects for telecommunication infrastructure. We also started production for a second-generation RF front-end IC for the user terminal of a satellite system from a leader in this area. Our other objectives are to address selected high volume application with differentiated products or custom solutions while leveraging our broad portfolio. Our wins here include time-of-flight and motion sensors for laptops and tablets, as well as many general purpose MCU design-ins. We also ramp production of our global shutter image sensor for a computer vision application at a major OEM. We also ramp production of the first ST design, PiezoMEMS printed in a commercial inkjet printer following a multi-year development with a leading printing company. Let's move to a discussion of the third quarter outlook. For the third quarter, at the midpoint, we expect net revenues to be about $3.2 billion, representing year-over-year and sequential growth of 20% and 7% respectively. Gross margin is expected to be about 41%, representing a year-over-year and sequential increase of 500 basis points and 50 basis points respectively. Looking at the full year, we will now plan to drive the company based on 2021 net revenues of $12.5 billion, plus or minus $100 million. This plan will translate into year-over-year growth of 22.3% at the midpoint. Drivers of this expected growth are the continued strong dynamics in all the end markets we address and our engaged customer programs. Our updated 2021 CapEx plan of about $2.1 billion will help increase our manufacturing capacity to continue to support the strong global demand of our customers. It will also support our strategic manufacturing initiatives, such as our Agrate 300 millimeter FAB. We were recently announced that we are bringing Tower Semiconductor on board to accelerate the ramp-up to large volume and scale. To conclude, in the second quarter, our net revenues and gross margin came in at the high end of our business outlook range. We also maintain our financial strength, are demonstrated by our operating profitability and cash flow generation. For the full year 2021, we are driving the company with a plan based on net revenue of $12.5 billion, ±$100 million. This growth stems from the expected continuation of strong dynamics in all the end markets we address and our engaged customer programs. We will continue to focus on our customers, adapting our supply chain to support the current strong demand and to fuel longer-term growth. Thank you, and we are now ready to answer your question. We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and one at this time. The first question comes from the line of Aleksander Peterc from Societe Generale. Please go ahead. Yes, good morning, thanks for taking my question. Firstly, on your revenue guidance upgrade, could you help us understand if this is mostly driven by pricing or volume, or is it really both? As a point of detail, at what point do you expect the RF business to return to growth within MDG? Again, on this division, what explains the strong margins? Is it mostly microcontrollers pricing or anything else at play here? Thank you so much. Thank you for your question. Lorenzo will answer. Thank you, Jean-Marc. Thank you, and good morning to everybody. About our guidance on the revenues, yes, we have increased in respect to the previous visibility. How it comes, this increase? Well, I have to say that it's a combination. It's a combination definitely of volumes. There is more volumes that we see. You will see also that our gross margin is improving, and here we have a positive efficiency from our manufacturing machine. Of course, we are trying to get the maximum that we can get from the investment that we are doing. This will translate also in a little bit higher volumes that will help. Definitely, it's also true that we are enjoying an environment in pricing that is a little bit better than we were expecting. The combination of these two factors definitely are the one that allow us, let's say, to have increase in our guidance, as well as also a better visibility on some, let's say, engaged customer problems. That at this stage we see, let's say, materialize with a little bit higher level in respect to what it was the visibility that we had some months ago. Second question was about. Radio frequencies. the radio frequency. When we will see, let's say, radio frequency, let's say, improve. On a year We do expect, let's say that, already with our guidance of next quarter, there will be an improvement in terms of revenues for the radio frequency. Definitely our expectation is that next year there will be a significant change in the trend on this subgroup. We will see, let's say, with the engaged customer programs that we have, definitely an improvement in the revenues. I would say that Q3 will be still a difficult quarter. Q4 will start to see, let's say, a significant improvement, and then the trend will be improvement trend all over the next year. Okay. Just briefly on margins? On the margin of MDG, the rationale for the strength of the operating margin in MDG. MDG, let's say, is improving the margin, especially in the areas of microcontroller. We had a positive impact on the product mix, let's say, in this area, positive. Definitely also, let's say, it's thanks to a balance with a good level of price environment that we are experiencing in this area. Of course, this is where we have increase and stability in term of pricing. This help the margin. For sure also, thanks to the fact that our microcontrollers are bringing more and more added value to our customers. Here it's very visible also the return that we have done in our investment in R&D. Also we started to see some return in our investment that we have done, let's say, in the new acquisitions. At the end, this is where we were expecting to have good return, and these are materializing. Very clear. Thank you very much. Thank you, Alex. Next question, please. The next question comes from the line of Matthew Ramsay from Cowen. Please go ahead. Yes, thank you very much. Good morning, everyone. Guys, I just wanted to ask about the seasonal patterns in some of your divisions. There's going to be a flagship product from one of your large customers that maybe launches on time versus a little bit of a delay last year. In particular, your AMS division seasonality is much, much stronger in the results that you just reported in the second quarter than it was seasonally last year. I wonder if you might comment on that. Is it internal versus external supply that was imbalanced? Is there a different change in sort of buying patterns and maybe how we can expect seasonality in some of the businesses in the third quarter guidance? Thank you. Thank you for your question. I already anticipated during previous calls, okay, that this year, the profile of the revenue for personal electronic will be rather different than last year. Last year, you know that from, let's say, February to April in Asia, the COVID-19 impacted a lot activities, okay, and also delayed some programs development. As a matter of consequence, push out, let's say, program start and the revenue, okay, in Q2 2021 was really low. When we entered in the year, I already announced that this year, we see a much better profile. Then, okay, after I do not comment customers, let's say results and success. I guess you have seen this year one of the major announcements of one customer over-performing. Of course, okay, the vendor attached to this customer are benefiting of better seasonality this year in Q2 2021 versus last year. Thank you, Jean-Marc. Just as my follow-up question, Lorenzo, I mean, 41% gross margin, I guess, thinking about things up five full points year-over-year. Obviously, the underloading charges have gone away. As we look out forward and you increase CapEx, add more capacity, potentially get more capacity at foundries, and there's some rumblings of increased pricing from some of the foundries to their customers. How do you think about gross margins trending from here as we look forward and the business grows? Thank you. Yes. We see in the next quarter gross margin in the range of 41%. I would say that what is our expectation is on this level, considering the situation of our fabs, manufacturing fully loaded, for sure to remain stable this year on this kind of levels. At the end, for the total year, we do expect it to be a little bit higher than the 40% gross margin with a Q4 that will be similar to Q3. Moving forward, we do expect that we have all the ingredients to remain on this level of gross margin substantially. Of course, will depend on the evolution of the market. For the time being, let's say, we see the market very, very positive, continuing to be very strong, moving forward. This is more or less what we can say about the level of gross margin. For this year. For this year, yes. All right. Thank you very much, guys. Appreciate it. Thank you, Matt. Next question, please. Andrea? The next question comes from the line of Sebastien Sztabowicz from Kepler Cheuvreux. Please go ahead. Yeah. Hi, everyone, thanks for taking the question. What kind of visibility do you have for 2022 at this time of the year? Basically, do you start to receive any substantial orders that will be around during 2022 in any specific verticals? The follow-up, on the OpEx side, how should we model the OpEx in Q3 and in Q4? Thank you. Thank you. Marco Cassis will take the question for the order booking and Lorenzo for the other questions. Thank you very much for your question. Yes. In Q2, this is true across all the segments, we have seen our orders booking extending 18 months, basically covering all the 2022. I have to say that the demand is higher than our capacity and our planned capacity. We are working now to allocate the capacity, especially for the automotive segment. In term of expenses, how to model, let's say, I'm talking about net expenses, now including also the grants and the other income and expenses. In Q2, we were landing at the range of $725 million in the quarter for the expenses. We continue, let's say, to really push on our programs in R&D. We try, let's say, to accelerate our effort in this respect. My expectation for the second part of the year is that we will land our expenses per quarter in the range between $735 million-$740 million expenses per quarter. This is the current visibility that we have. I would say, let's say definitely for Q3 and also for the year. When you look at the total year, we land the year, let's say, with a quarterly expenses in that range. Just to complement the question about the coverage. If you take the backlog on requested date from customers we have in our hand, basically it is covering 30% above the planned capacity we have for this year. It is covering above the full capacity we plan for next year already. Based on the capacity CapEx we have this year and the CapEx we will, let's say, plan next year. You see, the coverage, okay, for 2021 and 2022 is very strong. Of course, let's say the additional dynamic is that this coverage is more and more done with, let's say, firm and non-cancelable order. Thanks a lot. The next question comes from the line of Sandeep Deshpande from JPMorgan. Please go ahead. Yeah. Hi. Thanks for asking, letting me on. Congratulations on good results this morning. I have a question on your microcontroller business. When you look at your microcontroller business, it is growing incredibly strongly year-on-year when we look at the headline numbers, especially when you say that there is RF there, which has declined year-on-year. Given that the market is saying that there are shortages and you are supplying the market with potentially 30% up year-on-year in microcontrollers, is there not a risk of oversupply here happening sooner than what the market expects? I have one quick follow-up. Again, what we are monitoring on microcontroller is really the consistent dynamic between the POS, the POP. We monitor also the inventory level at the distributor, clearly. We are monitoring the gray spot market, because we know it could happen. All these KPI are on the green. Are on the green because for the time being, overall, there is a shortage. Because microcontrollers are basically using capacity either from 8-inch wafer fab on 180 nanometer technology up to 130, or massively, they are using 12-inch fab from 90 nanometer to 40 nanometer. This capacity is fully saturated. There is no risk of oversupply, and also simply because no new fab will be put on the market before a longer period of time, except fabs of ST. My other question is regarding your CapEx. You've raised CapEx again. Can you highlight where the spending is occurring from here? Is this to do with your particular programs with some customers, or is this more general CapEx associated with your Agrate fab, et cetera? No, it's a global capacity increase adaptation, okay, on test, okay, on assembly and yes, in a certain extent in wafer fab. Okay, now part of the $2.1 billion of CapEx, pure capacity is about $1.4 billion-$1.5 billion. Yeah. Hello? Is it okay? There is no other- No, thanks. Is it okay? Okay. We had lost you, Sandeep. Sorry for that. I heard that. Thank you. Thank you very much, Sandeep. Next question, Andrea. The next question comes from the line of Stéphane Houri from Oddo BHF. Please go ahead. Yes. Hello, good morning. The first question is, to know that with your full year 2021 sales guidance upgrade, you basically view Q4 at about $3.3 billion, if I'm correct. My understanding was that there was no available capacities anywhere, neither externally nor internally. Is it a new capacity that you're building up that are arriving faster than expected, or is it coming from foundries? The second question is, could you share with us your view on 2022 CapEx? Because as you said, with the CapEx of this year, you're adding $1.4 billion-$1.5 billion. If it's the same next year, it means that the $15 billion target could be within reach in 2023 under the current condition, if I'm correct. Thank you very much. In fact, we achieved $3.3 billion in Q4. When you assess capacity, in fact, we can go up to $3.4 billion because this is $100 million of range we have provided for random event. From capacity perspective, it is $3.4 billion. Our capability to go to $3.4 billion is related for the wafer fab side to the CapEx we have injected in H1. Taking into account the time you hook up equipment, you qualify them, and one cycle time. We are enjoying the CapEx we had in H1 to support the revenue definitively of Q4. I have to say, unfortunately, that it is offset by decommitment of some foundry. We will receive less wafer in H2, mainly on our some general purpose device from foundry partners because they allocate more to automotive. Based on the, I guess, okay, you know the overall pressure on the automotive market. Not our automotive. Not our automotive, unfortunately. Now, clearly our capability to grow, mainly in H2, is related to our internal manufacturing, offset for a period of time by a decrease of volume supply of foundry H2 versus H1. Next year will be another story. The 2022 CapEx? About 2022 CapEx, I will communicate end of January. As usual, we are working on it. We are working closely with our equipment vendor, because you know, cycle time of equipment increases a lot. This is something we are working on, and we, of course, will communicate in due time. Okay. Thank you very much. Thank you, Stephane. The next question, please, Andrea. The next question comes from the line of Andrew Gardiner from Barclays. Please go ahead. Good morning, all. Thanks for taking the question. Jean-Marc, I had a follow-up to that last one in terms of CapEx, particularly as we look into next year and just sort of the potential for capacity expansion. Given the lead times on the equipment side that you mentioned and the fact that this equipment really needs to be installed in the first half of next year in order to give you sort of upside relative to the current plan that you might have for 2022, isn't effectively, you already know what your maximum capacity for next year is, given those lead times? Is there still some flexibility with your equipment providers to actually upside that or not? Thank you. No, we have a clear view. First of all, where we have, let's say, clean room, wafer fab expansion capability, and where we can receive equipment. Well, first of all, it will be at Agrate because we will start to receive equipment in Agrate end of this year. At Agrate, 300 millimeter will start to contribute to ST revenue by Q4 2022. We have engaged in parallel. As soon as we have seen the market upturn in December, we have decided immediately an expansion of Crolles. When we share with you the manufacturing strategy in Crolles, we are capable to add on material surface of clean room in 1 year and grow very fast. Starting end of this year, we will be capable, basically, to increase the capacity of Crolles well above 9,000 wafer per week. It will be, let's say, a very strong leverage to support the market we address. We will fully saturated, okay, the 8-inch fab in Singapore. We bought, okay, 2, 3 years ago from Micron. From infrastructure point of view, okay, we know exactly where we can add equipment, and we have booked all the slot. Yes, I confirm to you, the sales and operating plan of 2022 is well known. The challenge for us is allocation, how we allocate to verticals, region, and customer. From a volume point of view, technology cluster, package cluster, manufacturing location, from the feedback, we have a very accurate view for next year, and secure. Understood. Thank you, Jean-Marc. If I could just follow up on the point you made on Crolles. You're saying 9,000 wafer starts per week by the end of this year? I recall you saying at the first quarter that you were aiming for that. Of next year. Next year. Okay. Just, quickly, on the pricing point, where you're highlighting that as part of the reason for gross margin outperformance in Q2 and Q3. Just given the timelines there, is that primarily on mass market distribution pricing? Can you comment perhaps on the difference between that versus your longer-term contracts, and how are those negotiations progressing? Given the tightness we see in the market, are you able to get more, better pricing out of those longer-term negotiations? Marc, I will reply to this one. As you can imagine, we cannot go in the detail of how we are splitting the price increase. Overall, the approach is, let's say, fair, and it is across the different segments. Of course, it is a price increase which is happening through the full supply chain, and the price environment is, in this moment, positive for us. Okay. Thank you, guys. Thank you, Andrew. Next question, please, Andrea. The next question comes from the line of Didier Scemama from Bank of America. Please go ahead. Oh, good morning. Thank you for taking my question. Just like to push on a little bit on pricing, just to clarify things a little bit. One of your biggest competitors in Japan this morning, just, guided 500 basis points above on gross margins for Q3. I just wondered, clearly 41% gross margin is a nice surprise. I'm just wondering how much conservatism is actually baked in that relative to what these guys are saying. Related to that, I just wondered if you could quantify, on the gross margin, the impact of the Malaysia fab closure or back-end site closure for 11 days, if it had an impact and whether that unwinds nicely in Q4. I've got a follow-up. Thank you. Lorenzo? About Malaysia, the main impact that we are going to have in Q3 is definitely on the top line, more than on the gross margin. On the gross margin, we will have a few basis points impact, at the end, let's say, it's not the main impact that we will got during this quarter. Actually, you can understand that with some days of closing, let's say, definitely we will have impact on our ability to serve our customers. This is the main impact that we have for our Malaysia. Yes, about the pricing. Yes, for sure, in our gross margin, there is a positive impact in term of pricing. Increasing in pricing, also, let's say, I would say that together with that, we have also positive impact on the product mix that is helping our gross margin. I can tell you that definitely the increase in price is not 500 basis points. We are not there yet. Let's say it's much less than that. In respect to different situation, let's say, in the past, in which substantially there was more balancing between capacity and demand, and where the pricing impact was usually negative, bringing down, let's say, having a negative impact on our gross margin, and maybe, let's say, somehow offset by the product mix, by the innovation. Here, the two things are together. There is definitely help in our gross margin. For sure, let's say, I can say that, compared to the level of the previous quarter, I can say that, I mean, in Q1, where we were the range of 39%, the pricing increase has contributed by the little bit less than a half in improvement. Okay. My follow-up is on automotive. I saw that you signed a supply agreement with Renault, and it looks like virtually all the other automotive OEMs are now insourcing the inverter. I asked that question last quarter, and I think you told me that, Jean-Marc, that the tier ones were your main customers, which I appreciate. It looks like the tier ones, at least some of them, are going to get squeezed out in the transition to electrical vehicles. I just wondered, who's going to take the gross margin of those tier ones? Is it equally split between the automotive OEMs and yourselves? Do you feel that your engineering capabilities are going to warrant better pricing power? Is that part of the reason, effectively, why you feel confident now to sign long-term contracts with some of your customers that are non-cancelable with reasonably firm pricing? If I quote what you just said. Here, I think, the automotive industry, for sure is facing two major transformations. Well, there is one transformation which is well-known, which is the one related to the electrification. Clearly, with more and more battery-based electrical vehicles, where here, clearly, the powertrain and what is wrong with powertrain is totally different. The sourcing of the electronic subsystems, the business model related to the electronic subsystem could be really different. Here, one very great example is the model of Tesla. Well, the other transformation that now the automotive industry is doing, but here I cannot comment too much, because we are not used to comment our customers', let's say, plans and action. Yes. We will see in the future, let's say, certainly some car maker doing maybe more the software and the design of some electronic subsystem, then will subcontract to EMS and will not subcontract the turnkey solution to tier one. We are convinced that tier one, let's say, model will remain. That's the reason why. For us, what is important for the short-term to do and for the long-term to do, first, the short-term is to supply them fairly and properly in full respect of the tier one, which are our customers. When you have a car maker making its own system, they address us straight. This is an example of Tesla, as an example. For the long-term, ST to develop, let's say, technology package and module to enable this transformation. Here we have to say we have the both cooperation. We have cooperation where we work on platform with tier 1, and the most well-known one. We have example of cooperation, like the one of Renault we have announced. We are, let's say, convinced that in the future, you will see, let's say, dual agreed or complementary model living together. More than that, I cannot comment on my customer. Can I squeeze a quick one on silicon carbide? The 8-inch substrate announcement, can you just clarify when you expect to be in volume production for that product? What could be the impact on gross margin, if and when you ramp that? That would be great. Congrats on this, by the way. Well, thank you for the congrats. We will have to move to mass production. We will move to mass production when our own fab will be, let's say, set up in Catania. This one will be done end of 2023, 2024. We will start on 8-inch before, and mainly sourcing from 3. We will start on diode next year, and we will start on transistor in 2023. We will source internally, transferring this 200-millimeter technology to our Catania infrastructure when it will be ready. In Catania, we will have a mix between 150-millimeter and 200-millimeter, because it will take time to have everything converted to 200-millimeter. Well, about the contribution of 200-millimeter to gross margin. Well, in semiconductor, usual leverage for cost improvement is wafer size increase, so 200-millimeter. It is a die shrink. Our fourth generation of transistor device we are developing will shrink our transistor. You work on the design on modules. Here on modules, we are optimizing our design for custom design solution. We are working in cooperation with important module maker also to decrease the cost. I cannot tell you the detailed% of the contribution of the gross margin to silicon carbide. I confirm to you our cost reduction program for silicon carbide is very strong. Okay. Wonderful. Thank you. Thank you, Didier. It was very long questions, very interesting. Unfortunately, we have now time only for one more question. The last one. The last question comes from the line of Amit Harchandani from Citi. Please go ahead. Thank you. Good morning, all. Amit Harchandani from Citi. If you don't mind me squeezing in, too. The first question is really with regards to the semiconductor cycle. A lot of debate in the industry on peak cycle fears. Based on inventory comments, pricing comments, your visibility, why shouldn't we think of ST growing double digits next year, purely based on some of the numbers you've given out there? Your perspective on the semiconductor cycle, and any thoughts on growth visibility into next year. Secondly, if I may, a lot of debate also about 3D sensing. You've been a key player in the industry. There's talk of technological changes there. Could you give us a sense for visibility on your engaged programs? I think in the past, you have talked about a three-year visibility. Any thoughts on 3D sensing, where you stand today? Thank you. The first question is about? About the cycle and the visibility we can get, whether there is debate on peak cycle or this kind of thing. Maybe difficult to answer on the cycle itself, but the visibility of ST growth in fiscal year 2022 as of today. No, this is what I said a few minutes ago. Today, we have a coverage in terms of backlog, which basically this year is 30% above our maximum capacity plan. With a material increase of our capacity next year, the backlog already fully covered. Okay. More and more, you have non-cancelable order. It is simply due to the fact that there is an acknowledgment of the electronic industry that the capacity limitation and what we classify semiconductor shortage will last next year. Up to next year minimum. Especially on the embedded electronics, where you have, let's say, specialty technology from 0.35 micron to 28 nanometer. We know that all this technology and related capacity are very saturated and will be saturated for next year as well. That's the reason why no customer acknowledge it and put orders properly, let's say, plan. We consider the visibility is unprecedented. The booking is really consistent with this fact. This is what we can say. Again, we monitor the inventories in the supply chain through our distribution channel. I confirm to you that whatever are the geographies, whatever are the product group, this inventory are very lean. The inventory turn is incredibly high. There is consistent growth between what we supply to distributor and what they sell. There is absolutely no, let's say, indication of visibility which decline or something like that. This is what I can say about the visibility. About, let's say, Face ID, I can, let's say, simply repeat what I say. You know this is complex system. You have very complex software in. You have hardware, let's say, which are custom design components. Here, we have a visibility, three years ahead of what is happening. That's the reason why, we are, let's say, comfortable with what I said for 2021, and we have a very good visibility for 2022 and onward. More than that, I cannot comment. That's very helpful. Thank you, Jean-Marc. Thank you very much, Amit. This will conclude the session for today. Thank you. Thank you. you. Thank you very much. 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