STMicro lifts data centre revenue forecast after Q3 profit beat

By Nathan Vifflin and Fabrizio La Rocca

Oct 29 (Reuters) - STMicroelectronics raised its 2026 forecast for AI data centre revenue on Thursday, after demand from data centres and satellite operators helped it beat market expectations for third-quarter earnings.

The Franco-Italian chipmaker now expects about $1.3 billion in data centre revenue in 2026, up from a July forecast of more than $1 billion, and reiterated its 2027 goal of well above $2 billion.

CEO Jean-Marc Chery told analysts demand was driven mainly by STMicro's silicon photonics chips, which use light rather than electrical signals to move data between servers.

Its quarterly operating income excluding one-off charges nearly doubled to $429 million, beating the $400.5 million expected by analysts polled by LSEG.

STMicro forecast fourth-quarter revenue of $4.15 billion, give or take 3.5%, up from $3.76 billion in the third quarter and above analysts' estimate of $4.10 billion. In July, it had said sales would top $4 billion in the final quarter of the year.

"In an environment where demand remains well above supply, we continue to expand capacity," Chery said in the earnings statement.

The company, which makes chips for cars, factories and smartphones, said higher sales of communication equipment, computer peripherals and personal electronics drove the beat. Demand from data centres and low-Earth-orbit satellite manufacturers added to a broader cyclical recovery, Chery added.

MARGINS IMPROVE, PRICES RISE

Gross margin rose to 37.3% from 33.2% a year ago, helped by sales of more profitable chips and less idle factory capacity. It is expected to reach about 39% in the fourth quarter.

With supply tight and input costs rising, STMicro is raising prices on selected products and could see stable or slightly higher prices next year, Chief Financial Officer Lorenzo Grandi said.

Asked whether heavy AI spending was sustainable, Chery told journalists that STMicro's data centre business was "much more related to the top five hyperscalers than the neo-cloud business", referring to smaller AI cloud providers whose debt levels have drawn scrutiny.

He also said STMicro was planning the supply of its equipment, materials and chemicals three to four years ahead, as a push for "sovereign" supply chains free of China, Taiwan or the US makes them more complex.

(Reporting by Nathan Vifflin and Fabrizio La Rocca in Gdansk, editing by Milla Nissi-Prussak)