STMicroelectronics (STM) reported fourth-quarter 2025 results that tell two different stories depending on which numbers you're looking at. Revenue came in solid, beating expectations and even showing a bit of growth. Profitability? That's another matter entirely.

The European chipmaker, which supplies components to major players including Apple Inc. (AAPL) and Tesla, Inc. (TSLA), posted quarterly net revenues of $3.329 billion. That represents a modest 0.2% year-over-year increase, but more importantly, it edged past the analyst consensus estimate of $3.298 billion and landed slightly above the midpoint of the company's own guidance range of $3.280 billion.

Breaking down the customer mix, year-over-year net sales to original equipment manufacturers increased 0.6%, while distribution channel sales decreased 0.7%. So the topline held together reasonably well, all things considered.

Profitability Takes a Hit

Here's where things get less cheerful. Adjusted earnings per share came in at just 11 cents, dramatically missing the analyst consensus estimate of 25 cents. That's not a rounding error—that's a fundamental profitability problem.

The gross margin landed at 35.2%, which actually beat the midpoint of company guidance by 20 basis points. But zoom out a bit, and you'll see it declined 250 basis points year over year. The culprits? Weaker manufacturing efficiencies formed the primary drag, with additional pressure coming from adverse currency movements and lower capacity-reservation fees.

The margin compression rippled through to operating performance, where the operating margin collapsed by a substantial 730 basis points to just 3.8%. STMicroelectronics reported a net loss of $30 million on operating income of $125 million for the quarter.

Now, that reported operating income figure includes $141 million in impairment, restructuring charges, and other related phase-out costs. These expenses stem primarily from the company's previously announced program to reshape its manufacturing footprint and resize its global cost base. Strip out these one-time items, and adjusted operating income stood at $266 million—still nothing to write home about given the revenue base, but a more accurate picture of ongoing operations.

Winners and Losers Across Segments

The segment-level results reveal which parts of the business are holding up and which are struggling. The Analog Products, MEMS, and Sensors segment delivered the strongest performance, growing revenue by 7.5% to $1.45 billion. The Embedded Processing segment posted more modest growth of 1.3%, reaching $1.02 billion in revenue.

On the other side of the ledger, the Power and Discrete products segment experienced a sharp revenue decline of 31.6% to $412 million. That's a substantial drop that speaks to weakness in specific end markets. Meanwhile, the RF & Optical Communications segment provided a bright spot with revenue rising 22.9% to $449 million.

CEO Jean-Marc Chery noted that the company delivered fourth-quarter net revenues above the midpoint of guidance, supported by stronger sales in Personal Electronics and, to a lesser extent, CECP and Industrial. However, Automotive came in below expectations—a noteworthy detail given the segment's importance to the company's long-term strategy.

Looking ahead to capital allocation, Chery said STMicroelectronics plans to invest between $2.0 billion and $2.2 billion in net capital expenditures in 2026.

What the CEO Is Saying About 2026

During the earnings call, Chery characterized 2025 as a transition year defined by a difficult end-market landscape and persistent inventory corrections within the automotive and industrial sectors. The first half proved particularly challenging, but he noted a pivot in the latter half that culminated with a return to year-over-year revenue growth in the fourth quarter.

This momentum has given the company better visibility entering 2026, supported by a progressively stabilizing distribution channel and a healthier overall market environment compared to last year.

Here's the interesting part: Chery signaled a bullish outlook for 2026 based on both broader cyclical recovery and company-specific growth drivers, but he declined to provide formal guidance. "Well, we will not guide for 2026 today clearly, but we are confident in our ability to grow organically for next year. Well, it's clear that we enter in a better and healthier situation compared to 2025," Chery said.

So they're confident, just not confident enough to put actual numbers on it yet. The CEO did identify a key catalyst for his optimism: the expected resolution of excess inventory issues, which he anticipates will be fully cleared by the end of the second quarter. That would position the company for stronger performance in the back half of the year.

Cash Flow and Near-Term Guidance

From a cash generation perspective, quarterly operating cash flow came in at $674 million, a slight decrease from $681 million in the year-ago quarter. Free cash flow, however, improved to $257 million from $128 million in the prior year. That's a positive development that suggests the company is managing working capital more efficiently despite the operational headwinds.

The balance sheet remains solid. STMicroelectronics maintained a net financial position of $2.79 billion as of December 31, 2025, with total liquidity of $4.92 billion against total financial debt of $2.13 billion. That provides plenty of cushion to weather any continued market softness.

For the first quarter of fiscal 2026, the company projected net revenues of $3.04 billion at the midpoint, representing a sequential decrease of 8.7% with a potential variance of plus or minus 350 basis points. That guidance came in slightly above the analyst consensus estimate of $3.00 billion, which is mildly encouraging. The gross margin for the quarter is expected to recover somewhat to 33.7%, plus or minus 200 basis points.

STM Price Action: STMicroelectronics shares were up 0.53% at $30.49 during premarket trading on Thursday.