STMicroelectronics N.V. (STMPA) Earnings Call Transcript

Good afternoon and good morning, everyone. Thank you for joining the presentation of our Microcontrollers and Digital ICs Group, MDG. This is the first session of our Capital Market Day 2020. As you know, due to the ongoing pandemic, we have decided to conduct a virtual event this year and to break the event into 4 separate modules, 3 of them covering ST's product group strategy and roadmap, the fourth one focus on the overall company strategy, including our financial model. Today, Jean-Marc Chery, ST's President and Chief Executive Officer, will start with an overview of our key goals. Then Claude Dardanne, our President in charge of MDG, will present his group. It will be followed by a Q&A session. Joining Jean-Marc and Claude today are Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer; Marco Cassis, President of Sales, Marketing, Communications and Strategy Development. A few housekeeping items before we start. This live webcast and presentation materials can be accessed at ST Investors Relations website. A replay will be available shortly after the conclusion of the event. As usual, this presentation will include forward-looking statements that involve risk factors that could cause ST's result to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement 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. I'd now like to turn the floor over to Jean-Marc, ST's President and CEO.

Good afternoon or good morning to everyone. It's a pleasure for me to be here to kick off our 4-step Capital Market Day. This is an appointment we were determined to keep even during such an unprecedented year. With the current macroeconomic situation, marked by uncertainties related to the ongoing pandemic and also the U.S.-China trade war, we felt it was particularly important in ST strategy and plans beyond the short-term dynamics, which you are already well updated on. Before I hand over to Claude Dardanne, who will discuss MDG, I would like to focus on my remarks on ST's strategy. Let me start upfront by confirming that the underlying principles of our strategy have not changed. We remain determined to continue to make ST stronger and outperform the markets with them. We will discuss the financial model more in detail in December, but let me share already that our midterm ambitions remains to become a sustainable and profitable $12 billion company. This is our goal. How we plan to do that? First, taking our decisions based on our value proposition. For our shareholders, we are committed to return value in line with our sustainable profitable growth objective. For our customers, we provide the differentiating enablers they need to succeed in their markets. These enablers are technology, IP, products application now and the associated ecosystem. A key factor is also our independent, reliable and secure supply chain to support their growth. For other stakeholders, people, communities and society at large, our value proposition is a strong commitment to sustainability. This is embedded in the way we conduct business. And it is also well aligned with our business focus, addressing the opportunities and the challenges associated with the long-term trends at the heart of our strategy. We believe this paves the way to long-term sustainable growth for ST as a global company for our stakeholders and more broadly for society. Strategy is about making choice. Over 1 year ago, we choose to set our strategy based on 3 long-term enablers: smart mobility, power and energy and IoT and 5G. These are driving our investments and road map decisions and success with our customers. We will soon see in Claude's presentation, for example, MDG's contribution to enabling IoT everywhere, driven by 5G powered business as well as products designed to support the digitalization of power and energy systems. We are addressing 4 end markets: 2 with a broad approach, automotive and industrial; and 2 with a more selective approach, taking advantage of key capabilities that differentiated us. We leverage our general purpose products portfolio across all these markets. The data available today suggests that our SAM is positioned to grow in 2021. We need more time to assess the size of this growth. We deliver on our strategy by providing our over 100,000 customers products based on our proprietary technologies or selectively external ones. Our portfolio and road map is divided in 6 categories. The MDG presentation will cover 2 of these today. General purpose and connected MCUs, MPUs, secure MCU, EEPROM as well as ASICs based on ST proprietary technologies. Our strategic objectives are largely unchanged. In Automotive, we address this market broadly and aim to lead in car electrification and digitalization. In Industrial, we also address the market broadly, but with specific focused goals. First, we target leadership in embedded processing. You will soon hear in detail from Claude, but let me already share with you that we are investing in our embedded processing portfolio, one of the big successes of ST over the past years with the STM32 family. And this effort will also benefit other key markets that we sell, such as personal electronics. 2 other key objectives for us in industrial are to accelerate in analog and sensors and to expand on power and energy management. In personal electronics, we address selected high-volume smartphone applications with differentiated products and custom solutions where we need. We also leverage our broad portfolio to address high-volume applications. This market where the landscape is changing currently, but it is expected to remain a growing market, both in terms of volume and in content. This, thanks to an accelerating of 5G smartphones, starting with Asia as well as wearables and accessories. And ST has a comprehensive portfolio to serve all smartphone makers. In communication equipment, computer and peripherals, our approach is to be selective and capture opportunities, leveraging our differentiated propriety technologies, specifically in hard drives, printers and cellular satellite communications. Claude will describe the progress we have made in developing and deploying our RF capabilities, and will explain our evolving strategy in the face of the headwinds related to the trade war. We also address this market with our broad portfolio of general purpose, MCUs, power and discrete, analog and MEMS. To conclude, this is a strategy that is driving our sales and operating model and our investments. This strategy has proven effective also with our customers over these past months, in spite of the unprecedented situation. In fact, we have seen no slowdown of our strategic programs in the areas of focus, I have just outlined. This is a strategy which is fully consistent with our model of organic growth. With small and targeted acquisition as you will see in Claude's presentation. And with the ultimate goal of keeping a solid financial structure returning value to our shareholders. With that, let me now hand over to Claude Dardanne after this short video. [Presentation]

Good afternoon or good morning. This year is a very challenging for everyone. However, I am very pleased to be here to update you on the Microcontroller and Digital ICs Group progress. MDG represents about 1/3 of ST business. In my presentation, you will see how MDG drive or contribute to many of ST's strategic goals that were just shown for industrial, personal electronic and communications equipment and computer peripherals. With $2.64 billion revenue in 2019, MDG is addressing 2 major activities. First, the general purpose microcontrollers, memories and secure micro, MMS group, covers all products based on nonvolatile memories technologies. It represents 75% of MDG business. Second, the RFC subgroup focusing on RF, digital and mixed-signal activities, represents 25% of MDG business. During the past 4 years, MDG revenue growth was in the 5% range. MMS being close to 7%, while RFC remained flat due to closure of the set-top box activities. For the past 10 years, MMS has leveraged ST advanced nonvolatile memory technologies, generating a steady growth. In this area, we have a number of targets. First, we have the ambition to become the worldwide leader in embedded processing, addressing faster-growing market. We are now a strong #2 global supplier in a general purpose microcontroller, excluding automotive, and we are entering the embedded microprocessor market. Second, we aim to become the worldwide leader in secure solution. We are already the leader in embedded team. We master authentication solutions, and we are now focusing on the secure mobile transaction market. Third, we are determined to remain worldwide leader in EEPROM, focusing on contactless near field communication products. Turning now to our RFC activity. Here, we aim to leverage ST's advanced proprietary technologies in RF signal to address the growing demand for high data read communications such as 5G and satellite constellations. During my presentation, I will explain our strategy to achieve these targets. We address the embedded processing market with our STM32, 32-bit microcontroller family based on ARM Cortex-M core. Launched 12 years ago, we have built the broadest portfolio of 32-bit microcontrollers with more than 1,000 partners available. We serve more than 60,000 customers worldwide, and we have shipped more than 6 million units since 2008, with an average growth near 10% in the past 4 years, our global market share is now close to 20%. To enrich our offer, we launched last year our first STM32 microprocessor incorporating varying performance ARM Cortex multicore, and we are now developing the second-generation of products based on 16-nanometer FinFET technology. In 2019, we reached the #2 worldwide position through organic growth, while there have been many significant consolidation moves in the market during the past 10 years. Since 2008, the general purpose microcontroller market has evolved from 8- and 16-bit to 32-bit and from proprietary core to ARM core. ST has been at the forefront of this transition, focusing on 32-bit ARM-based architecture. Now let's look at the future and what we are planning to do to become the worldwide leader in the embedded processing domain. The average growth of the embedded processing market is expected to be above 5% during the next 3 years. Embedded processing product are the brain of a large variety of applications. Therefore, this will generate a huge demand for product requiring more computing power, more connectivity capabilities, more security and the ability to run artificial intelligence at the edge. This growth will be driven by IoT pervasion accelerated by 5G deployment and digitization of industrial applications. Let's take Industry 4.0 as an example to illustrate the trends. Industry 4.0 requires more wireless connectivity to track assets. Ultra-wide band offers centimeter-level accuracy to track assets on the factory floor, and cellular IoT addresses outdoor asset tracking. With more connectivity to the cloud, industrial assets will be even more subject to attack from hackers. Only a holistic approach, 2 securities such as ST's STM32Trust can address security threats. AI at the edge is enabling services like predictive maintenance, which maximizes uptime for industrial equipment. In addition, ultra low power is key for asset tracking, and we observe a wide adoption of motor digitalization. This example is representative of the global market requirements. Let me explain how we address them. To become leader in embedded processing market, we are determined to reinforce our STM32 business. Building on 20% share, we are investing massively in the future of our STM32 portfolio. In addition to the continuous improvement of each function of the STM32 architecture, we are especially focused on 3 access for investment. First of all, wireless connectivity; second, security; and third, artificial intelligence. All of this is supported by our advanced and state of the art ecosystem. I will present these 3 access in the next chapter, starting with wireless connectivity. Today, ST offers reference designs to serve the global embedded connectivity market, covering the wide variety of [ standard ]. Our STM32 SoC solution are ideally placed to benefit from market trends towards greater integration. Our BLE, Zigbee, Thread, LoRa and Sigfox solutions are available in volume production, while Wi-Fi and NFC are under development. To complement and speed up our STM32 SoC offer, we have recently selected and acquired 2 companies focusing on wireless connectivity. First, Riot Micro for its expertise in a low-power similar IoT; second, BeSpoon specialized in ultra wide band connectivity. These 2 acquisitions will make ST the only provider capable to provide all IoT connectivity SoC solutions. First, let me present the Riot Micro acquisition covering cellular IoT. Our current [ peripheral ] design on the left is based on a third-party RF front-end module, modem and external flash. Certification is ensured by module maker or end customer. The Riot acquisition brings a new generation of modem hardware and software. ST will also provide the associated RF modem module. Furthermore, ST will manage the full certification process. Ultimately, our STM32 will offer the most integrated SoC solution. The market will benefit from the advanced characteristics of our modem in terms of low power, size and memory footprint associated with our integrated SIM. Let me talk now about our acquisition in ultra wide band and our strategy going forward. 3 markets are already active. First, industrial asset tracking, is already deploying ultra wide band technology for real-time localization with a centimeter accuracy. Second, smartphone research is enabled by ultra wide band, which is being massively adopted by smartphone makers, enabling many markets. And third, car access is a combination of ultra wide band technology for the accurate distance measurement and secure technology to manage the keys. Our current technology design is in volume production. Addressing the industrial market, it is based on a third-party RF front-end module, the BeSpoon modem and STM32. Then we will provide an STM32 SoC integrating a new generation of ultra wide band modem acquired from BeSpoon associated with our RF front-end module. This will sell the industrial and IoT markets. When adding our secure microcontroller, we will also serve the secure automotive and smartphone use cases. Ultimately, we will offer a more integrated SoC solution for smartphone applications, integrating the ultra-wide band modem secure element and NFC controller. Of course, these new solutions will be compliant with all the relevant standouts. This will make ultra wide band SoC solution the most appealing on the market. Now let's move to the second focus area for embedded processing, security for IoT. End-to-end security in IoT cannot be enough [indiscernible] it must be an integral part of product design in silicon, software and at system level. To offer the most secure solution, we master all steps of the virtual cycle of trust from integrity to protection. Our long experience in secure microcontrollers, branded ST secure, gives us a deep understanding of these complex security mechanisms. Thanks to our experience, we offer our customer the STM32Trust comprehensive toolbox to meet the needs of all IoT security use cases. For the most demanding application, STM32Trust uses STSAFE as a secure companion chip. STM32Trust components have achieved well-recognized certification: PSA Level 2, SESIP Level 3, Common Criteria. With STM32Trust, our customers can build simply and safely all their trusted devices, enabling secure end-to-end connections. Moving to our third focus area, artificial intelligence or AI. Like security, AI is a pervasive technology, which applies to all market segment. Our AI strategy is to address all applications with ever-smarter objects. We are engaged in 3 steps. Step 1, we pioneered the use of AI on the very edge with our STM32Cube.AI. It is fully compatible with all deep learning frameworks, and we participate to the TinyML foundation. This allows our STM32 community to extend their application domain. Step 2, STM32Cube.AI continues evolution provides turnkey solution, covering production monitoring, sound analysis and computer vision applications. Our partner program is accelerating adoption of AI at the edge on STM32. Step 3, we will further enrich our STM32 platform, abating a proprietary neural processing unit, or NPU. Our scalable NPU, we allow to tell our AI offer to each market segment. Let me conclude this part on embedded processing. We have structured our microcontroller portfolio into dedicated series, covering all application-specific requirements, and we have grown our STM32 portfolio to more than 1,000 partners. We still invest significantly in our mainstream MCU such as our G4 series tailored to high-performance motor controller. In ultra low power and security, we are deploying our new fully certified L5 series based on the ARM TrustZone and [indiscernible] Cortex-M33. In wireless STM32, the WB Series covering Bluetooth low energy and the WL series for LoRa [indiscernible] are in volume production. In high-performance STM32, we have introduced dual core architecture with H7 series. Finally, we keep extending our microprocessor family, offering an 800 megahertz product. All above products are supported by our advanced ecosystem. We achieved a 20% market share by offering an extensive STM32 portfolio supported by a state of the art ecosystem. The purpose of the ecosystem is to provide our customers with a sophisticated and user-friendly tool to facilitate their embedded system development. We deliver full solutions encompassing hardware boards, software libraries, tutorials, webinar and a set of qualified ST partner that are complementing our offer. We are permanently enriching our ecosystem. Amongst the latest news, in April this year, we announced a partnership with Microsoft on Microsoft Azure RTOS for STM32 MCUs. And finally, we support an exhaustive set of cloud connectors for all the main cloud providers based in USA and China. Let's move now to the next chapter of our strategy, covering our secure solutions. We have been serving this market for the past 25 years, and we are now ranked #3 worldwide, and we are targeting a leadership position. The traditional smart card market is declining, while secure solutions, boosted by wireless connectivity pervasion are fueling growth in smartphones, wearables, IoT and automotive. Personal electronics is the main market for secure solutions driving the growth. We are also a worldwide leader in embedded SIM. In Personal electronics, we also offer our secure element and NFC controller for secure mobile transaction. Our ST54 [ combo ] chip embedding secure element, NFC controller and embedded SIM in volume production provides an important path to miniaturization. With our secure microcontroller portfolio, we also address application requiring strong authentication like IoT and machine to machine. Lastly, we offer complete solution to secure the connected car. The evolution of the automotive industry to connected cars is bringing a new opportunities for secure products. First, the emergency call feature and advanced telematic. All car will have a mobile connectivity module. For that purpose, we offer the automotive-grade ST for SIM in volume production. Second, remote access to the vehicle implies that all functional modules must be strictly controlled to verify the integrity of the running software. We ensure the authentication of the engine control module with our ST33 secure element. Third, we support the NFC-based digital key standard with our ST25 NFC reader associated with our ST33 secure element in the car. The smartphone embedding our ST54 NFC secure element act as a digital key. So next-generation car, digital key, will embed ultra wide band and Bluetooth energy, providing additional security features. Our next microcontroller generation will include these features. In this last example, we are using an ST25 NFC reader, which is part of our EEPROM portfolio and that we present now. To consolidate our EEPROM worldwide leadership, we are strongly focusing on the contactless market. The contactless market growth is driven by NFC pervasion with expected 2-digit average growth in the next 4 years. Near field communication is a main standard for short distance point-to-point connection. Our RF EEPROM tags and readers, product offer complement our secure microcontroller portfolio. This pervasion is illustrated by industrial applications such as lighting or metering, secure ticketing for public transportation, secure wireless pairing for consumer market. Our ST25 RF EEPROM portfolio is supported by an extensive dedicated ecosystem. With this product and our strong position in wired EEPROM, we consolidate our worldwide leadership. We have now covered the general performance controller, memories and secure micro, all based on nonvolatile memories technologies. The MMS products just presented are located at the edge in the application close to the end user. Now let's move to the RFC subgroup focusing on RF, digital and mixed signal activities. Here, we enter the new infrastructure connected world where users expect reliable access to high data rates and reduce latency, enabling more real-time applications. New communication infrastructures, such as 5G and satellite constellation are starting to support these needs. We have the relevant proprietary technology portfolio and design expertise to address both markets. In 5G, we support the 3 layers. First, 5G is being deployed at frequencies below 6 gigahertz. It uses additional bands and beam forming techniques to maximize the efficiency of the antenna. This is generating a need for more RF front-end modules. Second, 5G in 24 gigahertz under development will dramatically increase data rates and will be suitable to very dense areas such as stadiums. Third, 5G sub-gigahertz enables high density connected nodes above 1 million per square kilometer. This will boost IoT deployment for all applications such as asset tracking and Industry 4.0. In addition to 5G, we also support satellite constellation. They are complementary to 5G since they are also covering sparsely populated area with high bandwidth. Low Earth orbit satellite constellation, also called LEO sat, exploit RF techniques similar to 5G. All satellite Internet communication constellations are based on LEO sat to guarantee low latency capability. Several projects are being developed by system or service providers, such as SpaceX, OneWeb, Amazon and others. All rely on millimeter wave frequencies and a beam forming techniques. Thanks to our long-term investment in RF and radiation hardening, we have the high silicon technologies to address this field, leveraging our silicon germanium, or Si-Ge, and FDSOI processes. We also master the beam forming techniques needed for active antenna in design as well as production and test. Our products are ready for mass production, both for the satellite system and for high-volume user terminal. All 5G and LEO sat systems make a massive use of RF front-end modules. We have the ambition to pursue our growth in this domain. In 2020, we continue to expand our presence in RF front-end module, serving our customers with wafer modules. Our growth relies on our proprietary silicon technologies, RF SOI and Si-Ge from 130-nanometer down to 55-nanometer. We serve the volume communication infrastructure and smartphone markets via COT model. We are now engaging the cellular IoT and 5G infrastructure markets with front end module application-specific standard products. Here, we leverage our internal technologies and designed to offer solutions optimized in performance, form factor and cost. In conclusion, we intend to be a key provider of RF solutions to support the strong and long-term growth of 5G and satellite Internet, focusing on ASSP to bring more added value. In conclusion, I am pleased to confirm that the 2020 business trend is good despite the pandemic. So first half 2020 MDG revenue were 12% higher than first half 2019. Going forward, we are going to reinforce the 3 pillars I talked about: embedded processing, secure solution and RF communications. First, in embedded processing, we will continue to invest in the STM32 microcontroller portfolio. We'll provide STM32 SoC dedicated to IoT market. We will speed up STM32 microprocessor deployment. In secure solutions, we will focus on new markets requiring advanced security features and consolidate our offer for embedded SIM, secure element, NFC controller and auto application solutions. And finally, in RF communication, we will capitalize on our know-how to develop and deliver products dedicated to high data rate communication, such as 5G and low satellite constellations. We'll reinforce our position as an RF front-end module supplier based on ST advanced technologies for IoT and communication infrastructure. So to sum up, we are in line with the plan presented during last year Capital Market Day, and we are pursuing our efforts to achieve our goals. Thank you. [Presentation]

I hope you have enjoyed the presentation. We are now ready to take your questions with the help of Alice, our operator. So Alice, please, if we could get the first question.

The first question from the telephone comes from the line of Mr. Matt Ramsay with Cowen.

I think the -- there's been quite a few big events in the semiconductor industry over the last couple of months from all angles, both technologically and politically. And one of those happened over the last couple of days with the NVIDIA proposed acquisition of ARM. And obviously, the MCU franchises for your company and for many of your competitors and your partners are based on the ARM architecture. And if you could just maybe spend a couple of minutes and talk about where your road map stands across ARM and potentially any other MCU technologies. And if there's any initial takeaways from your management team about how you might feel assuming maybe a non-independent semiconductor company owning the ARM IP and the road map going forward?

Thank you, Matt. Before I pass the question for the road map to Claude, just, I would like to make an overall comment from ST view. Well, first of all we have developed over the past 15 years with ARM, a great cooperation. And we are very pleased with the capability and the IP provided by ARM. We have acknowledged the information, of course, and we are very pleased that NVIDIA confirm they will maintain the model of ARM and they will maintain the headquarter in Cambridge. Well, saying that, we will see. And now I pass to Claude to answer your question in more detail about the road map.

For what concerns, the road map, we are engaged since 30 years in developing advanced MCU-based Cortex, Cortex-M core. Today, we are using 7, 8 different core for an entry-level to high-end type application. And we will pursue this activity. Today, there is nothing locking us. We are engaged. We are going to be lead partner with ARM on the new platform. And we are -- I think we are successful shipping those devices in volumes for years. And we want to pursue this effort. For what concern, microprocessor, same thing, we are engaged with ARM Cortex-A, and we want to keep moving that way. So for us, there is, today, no change. We are moving on with our road map and we keep going on with our strategy.

The next question comes from the line of Jerome Ramel with Exane BNP Paribas.

Claude, maybe could you explain us why you have had such an outperformance with your revenue up 12% this year? And I guess the market, if we look at the WSTS number are not up. So how do you explain such an outperformance? And maybe as a quick follow-up, in the slide, you show -- showing the size of the MDG microprocessor market of roughly [ $4 million ]. What is your target in terms of market share for that specific market?

The target for us, for what concern, general purpose micro is to become #1. Solid #1. We are #2 today. And so we have to achieve the market share, which is in line to the leadership position. So we are growing this year. I mean the first half 2020 versus first half 2019. We enjoy a good result, plus 12% versus last year. And I think that we have a lot of activities worldwide. We are very, very efficient, I think, addressing the mass market, where we are extremely successful everywhere in the world with more than 60,000 customers. On top of that, activities with a key OEM is growing a lot. So we see a huge demand from big companies developing all the application on one single platform. And I think that we are the preferred choice because we are covering everything from entry-level to high-end application. And we are covering a lot of option in terms of industrial interfaces. We are giving a lot of option in terms of low power. And of course, we are going to -- we are planning to add more and more devices covering connectivity. So I think that we enjoy this growth because I think that we have spent a lot of money to develop a lot of new product, a lot of differentiation versus our competitor. We have a lot of people designing on Cortex-M core. Right now, we try to bring differentiation with advanced peripheral more solution, very efficient ecosystem. And I think that today, we are in a good shape. So we enjoy first half and believe me, I hope towards also second half.

The next question comes from the line of Achal Sultania with Crédit Suisse.

Maybe a question on the margins. So if I look at MDG business, this business peaked in margins back in '18, I think margins were almost 18.5%. You're doing kind of similar sales this year, but margins are much lower, around 15% -- 15%, 16%, in that range. So can you help us understand what are the drivers for margins in this part of the business? Is it pricing? Is it mix? And then secondly, on the RF business, specifically, you had a large engagement with one of the key Chinese vendors in the RF market last year. Obviously, that partnership is going to be much smaller going forward. So can you talk about what your relationship in 5G is on the RF side with other vendors in the market?

Thank you for your question. It's quite a large one. Maybe Lorenzo, you give an overall perspective about the finance. And Claude, if you want to complement something specific feel free. And from my side, I will take the question related Huawei.

Thank you, Jean-Marc. And maybe I will start to talk a little bit about the margin in general and the one for MDG. If I look at the margin, for sure, this year has been a year, in the first part, impacted by the fact that our manufacturing efficiency was not at the best for the reason that you can easily understand. This year has been a difficult year, especially in the first 6 months. Now it's getting better. And of course, all our groups has been impacted in some way. By the way, the margin of MDG were substantially holding, let's say, during this period. And we do expect now to see a further improvement in the margin, driven by the fact that the group is continuing to increase their revenues. And in terms of manufacturing efficiency, we are improving. I would say that -- and then maybe Claude, you can also somehow expand, we do not see significant strong impact related to price pressure. It's not -- this is mainly, I would say, something related to the fact that our -- the situation of our manufacturing was impacted in the first part of the year by the pandemic and by the lockdown, these kind of events that, of course, are not -- such that are creating a little bit of pressure on our margins.

So Claude, do you want to...

Yes. I think that today, for what concern, the margin on general purpose micro, we are able to keep earning with the previous margin of last year, in fact. And when we see some -- on top, a little bit, is due to the fact that we are addressing a big, big, big application -- very large volume application, where, in general, the price policy is a little bit more severe. So I mean -- but today, we don't anticipate any major issue on margin for what concern on the debt processing activities.

So thank you, Claude. So now I would like to, let's say, answer from ST level with Huawei. First of all, we address this customer consistently with our strategy regarding personal electronics and communication equipment. It means either we address with differentiated product or custom solutions, so very, very selectively. And it is true that for radio frequency device, it is exactly the case with Huawei, but also we leverage our broad general purpose portfolio, application-specific standard, personal electronics and communication infrastructure. So means general purpose MCU and power and discrete. But it is clear that all our products are covered by the latest foreign produce -- direct product rules, what we call the [ FDPR ]. Why? Simply why? Because we are using the best building blocks enablers. So process material, assembly materials, equipment, EDA, IP provider, in all the top 10 of the vendors in each block, you have 5 or 6 American. And the semiconductor industry has built a global economy like that. So of course, all our products are covered by this rule. And we will be totally compliant with this rule. From the impact on ST, so I confirm valid for ST and valid for MDG, Q3 and the year-to-date is absolutely not impacted. And being very specific on the objective shared by Claude last year about the radio frequency, let's say, division and communication division, up to now, all the objective has been, let's say, achieved. Then from revenue perspective in Q4. It is clearly our duty, as a management team, to don't take any risk debate about the fact we will have or not the license to continue to export to Huawei. So it is consistent with our enterprise risk management process. So we have totally discounted the revenue of Q4 in terms of indication or guidance, and put Huawei away at 0. I think I am clear. Now beyond Q4, it is another story. We will wait and see, and we will communicate later on when at the end of the year, I will communicate on the strategy. But at the end, I would like also to confirm that Huawei is part of our top 10 customers, and ST is a company, which is totally emotionally engaged with our customers. And up to now, emotional engagement are not restricted by laws. So I confirm that we are emotionally engaged with Huawei.

The next question comes from the line of Dominik Olszewski with Morgan Stanley.

Obviously, STMicro has a very strong profile and market position. And I wanted to hone in on the Chinese microcontroller market or demand outlook. Obviously, you have a strong developer ecosystem there, big distribution network, long history of engagement and leading products. But could you maybe provide some color on the competitive dynamics in China coming from maybe some of the local players, the likes of GigaDevice, maybe most prominently? And more generally, how do you strategically deal with the sort of the push to localized Chinese content and how that affects the MCU market?

So if I have well understood, it is specific to MDG competitive landscape. So I address the question to Claude, and then if Marco want to complement. Feel free, Marco.

Okay. Today, in China, of course, we have a very, very large activity on microcontroller and STM32. And our business is very solid. And of course, because we have a nice business and we have nicer share, we have a solid competitor running after us. Some are American. Other people are Chinese competitor. Today, we see the Chinese people coming. They are competing with products, which are in general, entry-level product. And of course, as they are trying to gain share versus us, but it's a global market. We have -- there is a big market. The market is growing. There are competitor coming. It's up to us to try to bring more innovation, better competitiveness in order to keep earning with our share. I think that today, we are not losing any share in China. And of course, it's not our goal to lose share. We will try to even increase the share within the next few years.

Yes. If I can complement, as Claude has explained before, for example, with the new families like the G4, we are able to keep pushing the Chinese market towards further innovation. The funnel of opportunities that we do have is stronger and stronger. And our position in China, if I can say, is stronger than ever. So as Claude said, competition is coming, but innovation and a very strong ecosystem is the best way for us to keep growing in the very important Chinese market and [ not only ].

The next question comes from the line of Aleksander Peterc from Societe Generale.

Can we talk a little bit about the RF front-end modules? Which frequency bands do you currently support? Presumably, this is sub-gigahertz -- sub-6 gigahertz for the time being, as I understand it. Do you have any intention of moving into millimeter wave products as well there? And can you share any market share numbers either now or targets a few years out?

Well, thank you. So of course, I address the question to Claude.

Okay. For what concern, the RF front-end module, first of all, we have the foundation of this activity. I mean, we have the right technology road map, which is a key point to succeed. So we -- until now, we are using middle business model, which was mainly COT and ASIC. So it was -- this market, these technologies were used in 5G 6-gigahertz. We are engaged today with some application, engaged in millimeter wave type frequency. Then also, I guess, you have seen in my presentation, our goal is to provide the full solution for IoT embedded processing. So we will provide sub-gig, all our RF front-end module, which are users -- which are used. So what we want to do today? So we have existing platform. We have existing customer. Today, the goal for us is to go with bringing more added value, and we are going to move with additional investment in order to develop more application-specific to our product. In other words, we will no longer be focusing on COT model, but we will have our own design, we'll have our own production, and we'll sell the complete solution to customers. Of course, this is -- this will take some time. It will take 1 or 2 years to bring the right portfolio in the market, but of course, the goal is to bring ASSP product covering 1-, 6- and 24-gigahertz type applications.

The next question comes from the line of David Mulholland with UBS.