Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
Report on Form 6-K dated March 21, 2024
Commission File Number: 1-13546
 
STMicroelectronics N.V.
(Name of Registrant)
 
WTC Schiphol Airport
Schiphol Boulevard 265
1118 BH Schiphol Airport
The Netherlands
(Address of Principal Executive Office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or
Form 40-F.

Form 20-F  
Form 40-F  

Enclosure: STMicroelectronics’ 2023 Dutch Statutory Annual Report, including the 2023 IFRS Statutory Accounts.




https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-cover_backxfinancialxreporc.jpgtmicroelectronics N.v. annual report 2022





This document is the version of the 2023 Annual Report of STMicroelectronics N.V. and has been prepared for ease of use. The 2023 Annual Report was made publicly available as specified in the Regulatory Technical Standards on European single electronic reporting format (the ESEF package) (Delegated Regulation (EU) 2019/815). The ESEF package is available on the company's website at https://investors.st.com/financial-information/annual-and-semi-annual-reports and includes a human-readable XHTML version of the 2023 Annual Report. In any case of discrepancies between this version and the ESEF package, the latter prevails.





Contents





7.6.4.         Basis of consolidation
































STMicroelectronics N.V.'s Annual Report over 2023 consists of a message from the President and Chief Executive Officer on the financial year 2023 (chapter 1), the management report (chapter 2 through chapter 5), the dividend policy (chapter 6), the financial information (chapter 7 through chapter 9) and important dates (chapter 10).



CERTAIN TERMS

ASICapplication-specific integrated circuit
ASSPapplication-specific standard product
BCDbipolar, CMOS and DMOS process technology
Bi-CMOSbipolar and CMOS process technology
CMOScomplementary metal-on silicon oxide semiconductor
DMOSdiffused metal-on silicon oxide semiconductor
 DRAM
 dynamic random access memory
EEPROMelectrically erasable programmable read-only memory
EMAS
Eco-Management and Audit Scheme, the voluntary European Community scheme for companies performing industrial activities for the evaluation and improvement of environmental performance
FD-SOI
fully depleted silicon-on-insulator
GaN
gallium nitride
ICintegrated circuit
IFRSInternational Financial Reporting Standards
IPintellectual property
ISOInternational Organization for Standardization
 MASK WORK
 the two- or three-dimensional layout of an integrated circuit
MEMSmicro-electro-mechanical system
MOSFETmetal-on silicon oxide semiconductor field effect transistor
NFCnear field communication
OEM
original equipment manufacturer
PFC
perfluorinated compounds
RF
radio frequency
RF-SOI
radio frequency silicon-on-insulator
 SAM
serviceable available market
 SiC
silicon carbide
STi2GaN
intelligent integrated gallium nitride
TAM
total available market
VIPower
vertically integrated power




1.   Message from the President and Chief Executive Officer on the financial
year 2023

Dear Shareholder,
2023 was another year of growth, driven by strong demand in Automotive and, to a lesser extent, Industrial, partially offset by lower revenues in Personal Electronics. This was reflected in our financial performance, with net revenues increasing 7.2% to $17.29 billion. We continued to strengthen our net financial position while increasing free cash flow and investing in the transformation of our manufacturing base. In this respect, 2023 was another year of steady execution in our manufacturing initiatives as we continued to transform our manufacturing base to enable future growth and drive enhanced profitability, with the expansion of our 300mm capacity and a strong focus on wide bandgap semiconductors.

2023: a year of continued strong demand in automotive

Our strategy is to be a broad-range supplier in the automotive and industrial markets and adopt a selective approach in personal electronics and computer peripherals. This strategy delivered strong results in 2023, with year-over-year revenue growth of 33.5% in automotive and 11.4% in industrial. Communications equipment, computer and peripherals revenue decreased 4.2% and personal electronics was down 25.1%, including the impact of a change in product mix in an engaged customer program. For the year, automotive and industrial combined represented 71% of total revenues, and personal electronics and communications equipment, computers and peripherals represented 29%.

In Automotive, we again saw strong demand across all geographies, driven by increasing semiconductor pervasion and structural transformation. The year was also positively impacted by inventory replenishment and a high level of capacity reservation fees. In 2023 we continued to execute our strategy supporting car electrification, in particular in our silicon carbide business, and car digitalization, supporting the shift to software-defined vehicle architectures and the pervasion of advanced driver assistance systems.

In Industrial, demand was still strong during most of the year, especially in power and energy, factory automation and robotics, and in industrial infrastructure. Toward the end of Q3 we saw a progressive weakening of demand, accelerating during Q4. Electrification and digitalization are the main trends driving semiconductor content increase here as well. During the year we had a strong focus on Edge AI, with updates on multiple hardware products including microcontrollers, microprocessors, and smart sensors as well as related software tools to empower developers.

In Personal Electronics and Computer Peripherals, market demand remained weak in 2023, while Communications Equipment demand remained solid in our focus areas.

In this environment, we delivered net revenues of $17.29 billion, up 7.2% from 2022, with a gross margin increasing from 45.5% to 45.9% and an operating margin decreasing from 28.1% to 26.7%. After investing $4.11 billion in net capital expenditures compared to $3.52 billion in 2022, our free cash flow increased to $1.77 billion compared to $1.59 billion in 2022. This was reflected in our net financial position of $3.16 billion compared to $1.80 billion one year earlier.

Long-term trends continue to underpin our strategy

In 2023 we continued to execute on our strategy, which stems from three long-term enablers: smart mobility, power and energy management, and cloud-connected autonomous things. These trends continue to drive our investments and roadmap decisions.

We are transforming our manufacturing base, with a significant expansion of our 300mm capacity and a strong focus on wide bandgap semiconductors. In Silicon Carbide, we continued to ramp our front-end device production in our Catania and Singapore facilities, and we increased back-end manufacturing capacity in our sites in Morocco and China. We also started production in our new integrated silicon carbide substrate manufacturing facility in
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Catania as a significant step in our silicon carbide vertical integration strategy. We furthermore announced a Joint Venture with Sanan Optoelectronics for high-volume 200mm SiC device manufacturing in China. These are important moves to further scale our global SiC manufacturing operations. We advanced also with our 300mm capacity expansion plans. In Agrate, Italy, our new 300mm wafer fab was qualified for production and capacity of slightly more than 1,000 wafers per week was installed as planned. In June we announced the conclusion of the three-party agreement for a new 300mm semiconductor manufacturing facility in Crolles among the State of France, GlobalFoundries, and our company, as approved by the European Commission. In 2024, we plan to invest about $2.5 billion in net capital expenditures.

These initiatives are aligned with our sustainability strategy and our sustainable manufacturing commitment in terms of energy consumption and greenhouse gas emissions, air, and water quality. We are on track to achieve our carbon neutrality goal on scope 1 & 2 and partially scope 3, and our 100% renewable energy goal by 2027. To further these goals we announced, in November, the signature of a fifteen-year Power Purchase Agreement for renewable energy for our operations in Italy with ERG, a leading European independent energy producer. We also continued to work closely with external bodies and to maintain our strong presence in the major sustainability indices.

We recently announced a new organization to deliver enhanced product development innovation and efficiency, time-to-market as well as customer focus by end market. ST will be re-organized into two Product Groups, split into four Reportable Segments and the existing sales and marketing organization will be complemented by a new application marketing organization focused by end markets across all Regions.

Focused on sustainable, profitable growth

Our value proposition remains based on sustainable and profitable growth, returning value to our shareholders in line with our objectives, providing differentiating enablers to our customers, and supporting them with an independent, reliable and secure supply chain. And we are committed to sustainability for the benefit of all our stakeholders.

Following several years of revenue growth and increased profitability, we see 2024 as a transition year. We are adapting our plans according to market dynamics while continuing to execute on our established strategy and operating model. We will continue to capture new opportunities, with our 50,000+ engaged employees working alongside our customers on innovations that make a positive impact on people’s lives.

2.    Corporate overview
In this annual report, references to "we", "us", "the Company", "our Company" and "ST" are to STMicroelectronics N.V., references to "ST Group Company" are to any of STMicroelectronics N.V.'s direct or indirect subsidiaries, and references to the "Group" are to STMicroelectronics N.V. and its direct and indirect subsidiaries.
Certain terms used in this annual report are defined in "Certain Terms".
2.1. History and development of STMicroelectronics
STMicroelectronics N.V. was formed and incorporated in 1987 as a result of the combination of the semiconductor business of SGS Microelettronica (then owned by Società Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and the non-military business of Thomson Semiconducteurs (then owned by the former Thomson-CSF, now Thales, a French corporation). We completed our initial public offering in December 1994 with simultaneous listings on the Bourse de Paris (now known as “Euronext Paris”) and the New York Stock Exchange. In 1998, we also listed our shares on the Borsa Italiana (the Italian stock exchange).
We operated as SGS-Thomson Microelectronics N.V. until May 1998, when we changed our name to STMicroelectronics N.V. We are organized under the laws of The Netherlands, with our corporate legal seat in Amsterdam, The Netherlands, and our head offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH Schiphol, The Netherlands. Our telephone number there is +31-20-654-3210. Our headquarters and operational offices are managed through our wholly owned subsidiary, STMicroelectronics International N.V., and are located

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at 39 Chemin du Champ des Filles, 1228 Plan-les-Ouates, Geneva, Switzerland. Our main telephone number there is +41-22-929-2929. Our agent for service of process in the United States related to our registration under the U.S. Securities Exchange Act of 1934, as amended, is Corporation Service Company (CSC), 80 State Street, Albany, New York, 12207. Our operations are also conducted through our various ST Group Companies, which are organized and operated according to the laws of their country of incorporation, and consolidated by STMicroelectronics N.V.
2.2. Strategy & objectives
We have over 50,000 creators and makers of semiconductor technologies mastering the semiconductor supply chain with state-of-the-art manufacturing facilities. As an integrated device manufacturer, we work with more than 200,000 customers and thousands of partners to design and build products, solutions, and ecosystems that address their challenges and opportunities, and the need to support a more sustainable world. Our technologies enable smarter mobility, more efficient power and energy management, and the wide-scale deployment of cloud-connected autonomous things. We are committed to achieving our goal to become carbon neutral on scope 1 and scope 2 and partially on scope 3 by 2027.
Our strategy focuses on long-term value creation for the Company and its affiliated enterprises and takes into account the short-, medium- and longer-term evolution of the markets we serve and the environment and opportunities we see. It stems from key long-term enablers: Smart Mobility, where we provide innovative solutions to help car manufacturers make driving safer, greener and more connected; Power & Energy: our technology and solutions enable industries to increase energy efficiency and support the use of renewable energy and cloud-connected autonomous things; which transform our lives and the objects we use with smart, connected devices for personal, business and industrial applications.
We are focused on application areas which are expected to experience solid growth rates driven by broad, long-term trends in electronic systems. These trends require enablers such as autonomous systems, robotics, securely connected machines and personal devices, digitalization and electrification of automobiles and infrastructure, advanced communications equipment and networks and more power efficient systems. These enablers drive in turn the demand for the electronic components we develop and manufacture.
We are a global semiconductor company that designs, develops, manufactures and markets a broad range of products used in a wide variety of applications for the four end-markets we address: automotive, industrial, personal electronics and communications equipment, computers and peripherals. For the automotive and industrial markets we address a wide customer base, particularly in industrial, with a broad and deep product portfolio. In personal electronics and communications equipment, computers and peripherals we have a selective approach both in terms of the customers we serve, as well as in the technologies and products we offer, while leveraging our broad portfolio to address high-volume applications.
2.3. Organizational structure
We are organized in a matrix structure with geographic regions interacting with product lines, both supported by shared technology and manufacturing operations and by central functions, designed to enable us to be closer to our customers and to facilitate communication among the research and development (“R&D”), production, marketing and sales organizations.
While STMicroelectronics N.V. is our parent company, we conduct our global business through STMicroelectronics International N.V. and also conduct our operations through service activities from our subsidiaries. We provide certain administrative, human resources, legal, treasury, strategy, manufacturing, marketing, insurance and other overhead services to our consolidated subsidiaries pursuant to service agreements for which we recover the cost.
2.4. Products and activities
Our diverse product portfolio includes discrete and general purpose components, application-specific integrated circuits (“ASICs”), full-custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. It benefits from a unique, strong foundation of proprietary and differentiated leading-edge technologies.
We use all of the prevalent function-oriented process technologies, including complementary metal-on silicon oxide semiconductors (“CMOS”), bipolar and non-volatile memory technologies. In addition, by combining basic

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processes, we have developed advanced systems-oriented technologies that enable us to produce differentiated and application-specific products, including fully depleted silicon-on-insulator (“FD-SOI”) technology offering superior performance and power efficiency compared to bulk CMOS, bipolar CMOS (“Bi-CMOS”) and radio frequency silicon-on-insulator (“RF-SOI”) for mixed-signal and high-frequency applications, as well as a combination of Bipolar, CMOS and DMOS, vertically integrated power (“VIPower”), and intelligent integrated gallium nitride (STi2GaN) technologies for smart power applications, Power MOSFET, silicon carbide (“SiC”) and gallium-nitride (“GaN”) for high-efficiency systems, Micro-Electro-Mechanical Systems (“MEMS”) technologies for sensors and actuators, embedded memory technologies for our microcontrollers and differentiated optical sensing technologies for our optical sensing solutions.
As of December 31, 2023, our product groups are as follows:
Automotive and Discrete Group ("ADG"), comprised of dedicated automotive integrated circuits (“ICs”), and discrete and power transistor products.
Analog, MEMS and Sensors Group ("AMS"), comprised of analog, smart power, MEMS sensors and actuators, and optical sensing solutions.
Microcontrollers and Digital ICs Group ("MDG"), comprised of general-purpose microcontrollers and microprocessors, connected security products (e.g. embedded secured elements and NFC readers), memories (e.g. serial and page EEPROM) and RF and Communications products.
In the first quarter of 2024, we announced that we are re-organizing our product groups and reportable segments to further accelerate our time-to-market and speed of product development innovation and efficiency. Effective as of February 5, 2024, we have moved from three product groups and three reportable segments (ADG, AMS and MDG), to two product groups and four reportable segments (the “Product Group Reorganization”), as follows:
Analog, Power & Discrete, MEMS and Sensors, led by Marco Cassis, ST President and member of the Executive Committee, including two reportable segments (Analog Products, MEMS and Sensors and Power and Discrete Products); and
Microcontrollers, Digital ICs and RF products, led by Remi El-Ouazzane, ST President and member of the Executive Committee, including two reportable segments (Microcontrollers, and Digital ICs and RF Products).
2.5. Sales, Marketing and Distribution
Our sales and marketing organization is organized by a combination of regional and key account coverage with the primary objective of accelerating sales growth and gaining market share. Emphasis is placed on strengthening the development of our global and major local accounts; boosting demand creation through an enhanced focus on geographical and key account coverage with strong technical and application expertise, supported in the mass market by our distribution channel and local initiatives; and establishing regional sales and marketing teams that are fully aligned with our strategic end-markets: automotive, industrial, personal electronics and communications equipment, computers and peripherals.
We have four regional sales organizations reporting to a global head of Sales & Marketing: Americas, APeC (Asia Pacific excluding China), China and EMEA (Europe, Middle-East and Africa). Our regional sales organizations have a similar structure to enhance global coordination and go-to-market activities. The sales and marketing teams are strongly focused on profitable revenue growth and business performance as well as on fostering demand creation, expanding the customer base, maximizing market share, developing new product-roadmaps and providing the best technical and application support in the field for our customers. The sales and marketing activities are supported by sales engineers, system marketing, product marketing, application labs, competence centers, field application engineers and quality engineers.
In the first quarter of 2024, we announced that we will complement the existing Sales & Marketing organization by implementing a new application-specific marketing organization by segment, offering customers end-to-end system solutions based on our product and technology portfolio, covering the following four end markets:


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Automotive;
Industrial Power and Energy;
Industrial Automation, IoT and AI; and
Personal Electronics, Communication Equipment and Computer Peripherals.
The current regional Sales & Marketing organization will remain unchanged.
We engage distributors and sales representatives to distribute and promote our products around the world. Typically, distributors handle a wide variety of products, including those that compete with ours. Our distributors have a dual role, in that they assist in fulfilling the demand of our customers by servicing their orders, while also supporting the creation of product demand and business development. Most of our sales to distributors are made under specific agreements allowing for price protection and stock rotation for unsold merchandise. Sales representatives, on the other hand, generally do not offer products that compete directly with our products, but may carry complementary items manufactured by others.
2.6. Research & Development
We believe that market driven R&D based on leading-edge products and technologies is critical to our success. We devote significant effort to R&D because we believe such investment can be leveraged into competitive advantages: about 18% of our employees work in R&D on product design/development and technology and, in 2023, we spent approximately 10.1% of our total revenues on R&D expenses.
New developments in semiconductor technology can make end products significantly cheaper, smaller, faster, more reliable and embedded than their predecessors, with differentiated functionalities. They can enable significant value creation opportunities with their timely appearance on the market. Our innovations in semiconductor technology as well as in hardware and software contribute to the creation of successful products that generate value for us and our customers. Our complete design platforms, including a large selection of intellectual property (“IP”) and silicon-proven models and design rules, enable the fast development of products designed to meet customer expectations in terms of reliability, quality, competitiveness in price and time-to-market. Through our R&D efforts, we contribute to making our customers’ products more efficient, more appealing, more reliable and safer.
Our technology R&D strategy is based on the development of differentiated technologies, allowing for a unique offer in terms of new products and enabling new applications opportunities. We draw on a rich pool of chip fabrication technologies, including advanced CMOS, FD-SOI, RF-SOI, optical sensing, embedded nonvolatile memories, mixed-signal, analog, MEMS, smart power, SiC and GaN processes. This is well embedded in our strong packaging technologies portfolio such as high pin count BGA, wafer level packaging, highly integrated sensor packages and leadframe package power products. We combine both front-end and back-end manufacturing and technology R&D under the same organization to ensure a smooth flow of information between our R&D and manufacturing organizations. We leverage significant synergies and shared activities between our product groups to cross-fertilize them. We also use silicon foundries, especially for advanced CMOS beyond the 18 nm node that we do not plan to manufacture nor develop internally.
We have advanced R&D and innovation centers which offer us a significant advantage in quickly and cost effectively introducing products. Furthermore, we have established a strong culture of partnerships and through the years have created a network of strategic collaborations with key customers, suppliers, competitors, and leading universities and research institutes around the world. We also play leadership roles in numerous projects running under the Information Society Technologies programs of the European Union (“EU”). We also participate in certain R&D programs established by the EU, individual countries and local authorities in Europe (primarily in France and Italy).
We currently own approximately 20,000 patents and pending patent applications.




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3.    Report of the Managing Board
In accordance with Dutch law, our management is entrusted to our Managing Board under the supervision of our Supervisory Board. Under our articles of association (“Articles of Association”), the sole member of our Managing Board is appointed for a three-year term at our annual general meeting of shareholders (“AGM”), by a simple majority of the votes cast, provided quorum conditions are met, upon a non-binding proposal by our Supervisory Board, which term may be renewed one or more times. Mr. Jean-Marc Chery was reappointed on May 27, 2021, as sole member of our Managing Board with the function of President and Chief Executive Officer, for a three-year term expiring at our 2024 AGM. Our Supervisory Board announced on September 19, 2023, that it will propose the reappointment of Mr. Jean-Marc Chery as sole member of the Managing Board, President and Chief Executive Officer for another three-year term for shareholder approval at the 2024 AGM. We continue to review and strengthen the succession planning for the Managing Board to ensure business continuity, taking into account, amongst others, the rapidly changing technological, social, economic and regulatory developments in our industry.
3.1. Statement of the sole member of our Managing Board
The sole member of our Managing Board hereby declares that, to the best of his knowledge, the statutory financial statements as of December 31, 2023, and for the year then ended, prepared under Title 9 of Book 2 of the Dutch Civil Code and in accordance with IFRS as adopted by the EU, provide a true and fair view of the assets, liabilities, financial position and profit or loss of STMicroelectronics N.V. and the undertakings included in the consolidation taken as a whole. Furthermore, the sole member of our Managing Board hereby also declares that the report of the Managing Board includes a true and fair view concerning the statement of financial position as of December 31, 2023. The report of the Managing Board also includes the development and performance of STMicroelectronics N.V. and the undertakings included in the consolidation taken as a whole, together with the principal risk and uncertainties they face.
Jean-Marc Chery,
Sole member of our Managing Board,
President and Chief Executive Officer

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3.2. Business overview & performance
3.2.1. Results highlights for the year 2023
Our total available market is defined as “TAM”, while our serviceable available market is defined as “SAM” and represents the market for products sold by us (i.e., TAM excluding major devices such as microprocessors, DRAM and flash-memories, optoelectronics devices other than optical sensors, video processing and wireless application specific market products, such as baseband and application processors).
Based on industry data published by World Semiconductor Trade Statistics (“WSTS”), semiconductor industry revenues in 2023 decreased on a year-over-year basis by approximately 8% for the TAM and increased by approximately 4% for the SAM, to reach approximately $527 billion and $295 billion, respectively.
Full year 2023 total revenues increased 7.2% to $17.29 billion, as a result of an increase in average selling prices, driven by a favorable product mix, partially offset by a decrease in volumes. Gross margin increased 40 basis points, to 45.9%, principally driven by higher revenues, partially offset by higher manufacturing costs and unused capacity charges. Operating margin was 26.7% in 2023.
Our 2023 gross margin increased 40 basis points to 45.9% from 45.5% in 2022, principally driven by the positive impact of the combination of product mix and pricing, partially offset by higher input manufacturing costs and unused capacity charges.
Our operating expenses, comprised of aggregated selling, general & administrative (“SG&A”) and research & development expenses ("R&D"), amounted to $3,388 million in 2023, increasing from $2,913 million in the prior year, mainly due to increased cost of labor and higher levels of activity, primarily in R&D programs, partially offset by positive currency effects.
Other income and expenses, net, was $67 million in 2023 compared to $116 million in 2022, decreasing mainly due to higher start-up costs primarily for our new 300mm fab in Agrate, Italy, partially offset by higher income from public funding.
Operating profit in 2023 increased to $4,610 million compared to $4,534 million in 2022 mainly driven by the combining effect of higher revenues and improved gross margin profitability, partially offset by higher operating expenses.
Combined finance income and costs resulted in a net loss of $95 million, compared to a net income of $312 million in 2022, and reflect in both years the International Financial Reporting Standards (“IFRS”) accounting of our convertible bonds. The 2023 amount included a loss of $249 million for the fair value adjustment of the embedded bondholders’ conversion options on outstanding convertible bonds (compared to a gain of $276 million in 2022).
Full year 2023 net profit was $3,985 million or $4.38 diluted earnings per share, compared to net profit of $4,323 million, or $4.74 diluted earnings per share for the full year 2022.
Capital expenditure payments, net of proceeds from sales, capital grants and other contributions were $4,111 million during the full year 2023 compared to $3,524 million during the full year 2022.
During 2023, our net cash decreased by $36 million, with net cash from operating activities reaching $6.37 billion. During 2023, we paid $346 million for the repurchase of ordinary shares, $223 million of cash dividends to our shareholders, and $169 million for long-term debt repayment, partially offset by $329 million proceeds from the drawdown of our credit facility with European Investment Bank (“EIB”) signed in 2022.
Our free cash flow and net financial position are described in Section 3.2.5.
3.2.2. Business overview
We are a global semiconductor company that designs, develops, manufactures and markets a broad range of products used in a wide variety of applications for the four end-markets we address: automotive, industrial, personal electronics and communications equipment, computers and peripherals. For the automotive and industrial markets we address a wide customer base, particularly in industrial, with a broad and deep product portfolio. In personal electronics and communications equipment, computers and peripherals we have a selective

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approach both in terms of the customers we serve, as well as in the technologies and products we offer, while leveraging our broad portfolio to address high-volume applications.
Further information on our business model is included in chapter 2 above and sections 3.2.2.1. et seq. below.
3.2.2.1.        Strategy
We have over 50,000 creators and makers of semiconductor technologies mastering the semiconductor supply chain with state-of-the-art manufacturing facilities. As an integrated device manufacturer, we work with more than 200,000 customers and thousands of partners to design and build products, solutions, and ecosystems that address their challenges and opportunities, and the need to support a more sustainable world. Our technologies enable smarter mobility, more efficient power and energy management, and the wide-scale deployment of cloud-connected autonomous things. We are committed to achieving our goal to become carbon neutral on scope 1 and scope 2 and partially on scope 3 by 2027.
Our strategy focuses on long-term value creation for the Company and its affiliated enterprises and takes into account the short-, medium- and longer-term evolution of the markets we serve and the environment and opportunities we see. It stems from key long-term enablers: Smart Mobility, where we provide innovative solutions to help car manufacturers make driving safer, greener and more connected; Power & Energy: our technology and solutions enable industries to increase energy efficiency and support the use of renewable energy and cloud-connected autonomous things, which transform our lives and the objects we use with smart, connected devices for personal, business and industrial applications.
We are focused on application areas which are expected to experience solid growth rates driven by broad, long-term trends in electronic systems. These trends require enablers such as autonomous systems, robotics, securely connected machines and personal devices, digitalization and electrification of automobiles and infrastructure, advanced communications equipment and networks and more power efficient systems. These enablers drive in turn the demand for the electronic components we develop and manufacture.
3.2.2.2.        Employees
The tables below set forth the breakdown of employees by geographic area and category of main activity for the past two years.
20232022
France11,958 11,953
Italy12,561 12,037 
Rest of Europe1,198 1,128 
Americas828 789 
Mediterranean (Malta, Morocco, Tunisia)5,923 5,634 
Asia18,855 19,829 
Total51,323 51,370 

20232022
Research and Development9,426 9,036 
Marketing and Sales2,671 2,573 
Manufacturing32,822 33,690 
Administration and General Services3,038 2,787 
Product Group Functions3,366 3,284 
Total51,323 51,370 


Our future success will partly depend on our ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and management personnel, as well as on our ability to timely adapt the size and/or profile of our personnel to changing industry needs. Unions are represented at almost all of our manufacturing facilities and at several of our R&D sites. We use temporarily employees if required during

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production spikes and, in Europe, during summer vacation. We have not experienced any significant strikes or work stoppages in recent years.
3.2.2.3.        Alliances with Customers and Industry Partnerships
We believe that customer alliances and industry partnerships are critical to our success in the semiconductor market. Customer alliances provide us with valuable systems and application know-how and access to markets for key products, while enabling our customers to gain access to our process technologies and manufacturing infrastructure. We are actively working to expand the number of our customer alliances, targeting key global OEMs as well as emerging, innovative customers and partners around the globe.
From time to time we collaborate with other semiconductor industry companies, research organizations, universities, customers, experts and suppliers to further our R&D efforts. Such collaboration provides us with a number of important benefits, including acquisition of technical know-how, access to additional production capacities, sharing of costs and reductions in our own capital requirements.
3.2.2.4.        Customers and Applications
We design, develop, manufacture and market thousands of products which we sell to over 200,000 customers. We emphasize a broad and balanced product portfolio, in the applications and regional markets we serve, which helps foster closer, strategic relationships with customers. Our major customers include Apple, Bosch, Continental, HP, Huawei, Hyundai Motor, Mobileye, Samsung, SpaceX and Tesla. This broad product breadth provides opportunities to enable application solutions and to supply such customers’ requirements for all their product and technology needs. We also sell our products through our distribution channel.
In Automotive, we have identified a significant evolution of the relationship with customers. Historically, semiconductor companies addressed the needs of carmakers mostly through tier-1 and/or tier-2 automotive industry suppliers with whom we work closely. In recent years there has been an accelerated transformation of the automotive industry driven by the electrification and the digitalization of vehicles, significantly increasing the amount and complexity of semiconductor products in vehicles. As a result, and following further from the supply chain challenges which arose during and after the COVID-19 pandemic, carmakers are taking a more direct role in the decision making and control of both the semiconductor strategy and supply for their vehicles. Carmakers now have a more direct relationship with companies such as ours, notably playing a more active role in defining the specific solutions they require, as well as in certain instances engaging in direct co-operation agreements, including multi-year agreements to secure capacity corridors. We are committed to playing a major role in these new business models and we see multiple opportunities for co-operation with carmakers in this area, while also continuing to build on our co-operation with tier-1 and tier-2 automotive industry suppliers.
3.2.2.5.        Sales, Marketing and Distribution
Our sales and marketing is organized by a combination of regional and key account coverage with the primary objective of accelerating sales growth and gaining market share. Emphasis is placed on strengthening the development of our global and major local accounts; boosting demand creation through an enhanced focus on geographical and key account coverage with strong technical and application expertise, supported in the mass market by our distribution channel and local initiatives; and establishing regional sales and marketing teams that are fully aligned with our strategic end-markets: automotive, industrial, personal electronics and communications equipment, computers and peripherals.
We have four regional sales organizations reporting to a global head of Sales & Marketing: Americas, APeC (Asia Pacific excluding China), China and EMEA (Europe, Middle-East and Africa). Our regional sales organizations have a similar structure to enhance global coordination and go-to-market activities. The sales and marketing teams are strongly focused on profitable revenue growth and business performance as well as on fostering demand creation, expanding the customer base, maximizing market share, developing new product-roadmaps and providing the best technical and application support in the field for our customers. The sales and marketing activities are supported by sales engineers, system marketing, product marketing, application labs, competence centers, field application engineers and quality engineers.

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In the first quarter of 2024, we announced that we will complement the existing Sales & Marketing organization by implementing a new application-specific marketing organization by segment, offering customers end-to-end system solutions based on our product and technology portfolio, covering the following four end markets:
Automotive;
Industrial Power and Energy;
Industrial Automation, IoT and AI; and
Personal Electronics, Communication Equipment and Computer Peripherals.
The current regional Sales & Marketing organization will remain unchanged.
We engage distributors and sales representatives to distribute and promote our products around the world. Typically, distributors handle a wide variety of products, including those that compete with ours. Our distributors have a dual role, in that they assist in fulfilling the demand of our customers by servicing their orders, while also supporting the creation of product demand and business development. Most of our sales to distributors are made under specific agreements allowing for price protection and stock rotation for unsold merchandise. Sales representatives, on the other hand, generally do not offer products that compete directly with our products, but may carry complementary items manufactured by others.
At the request of certain customers, we also sell and deliver our products to electronics manufacturing services companies, which, on a contractual basis with our customers, incorporate our products into the application specific products they manufacture for our customers. We also sell products to original design manufacturers (“ODM”). ODMs manufacture products for our customers much like electronics manufacturing services companies do, but they also design applications for our customers, and in doing so themselves select the products and suppliers that they wish to purchase from.
In furtherance of our strong commitment to quality, our sales organizations include personnel dedicated to close monitoring and resolution of quality-related issues.
3.2.2.6.        Research and Development
We believe that market driven R&D based on leading-edge products and technologies is critical to our success. We devote significant effort to R&D because we believe such investment can be leveraged into competitive advantages: about 18% of our employees work in R&D on product design/development and technology and, in 2023, we spent approximately 10.1% of our total revenues on R&D expenses.
New developments in semiconductor technology can make end products significantly cheaper, smaller, faster, more reliable and embedded than their predecessors, with differentiated functionalities. They can enable significant value creation opportunities with their timely appearance on the market. Our innovations in semiconductor technology as well as in hardware and software contribute to the creation of successful products that generate value for us and our customers. Our complete design platforms, including a large selection of IP and silicon-proven models and design rules, enable the fast development of products designed to meet customer expectations in terms of reliability, quality, competitiveness in price and time-to-market. Through our R&D efforts, we contribute to making our customers’ products more efficient, more appealing, more reliable and safer.
Our technology R&D strategy is based on the development of differentiated technologies, allowing for a unique offer in terms of new products and enabling new applications opportunities. We draw on a rich pool of chip fabrication technologies, including advanced CMOS, FD-SOI, RF-SOI, optical sensing, embedded nonvolatile memories, mixed-signal, analog, MEMS, smart power SiC and GaN processes. This is well embedded in our strong packaging technologies portfolio such as high pin count BGA, wafer level packaging, highly integrated sensor packages and leadframe package power products. We combine both front-end and back-end manufacturing and technology R&D under the same organization to ensure a smooth flow of information between our R&D and manufacturing organizations. We leverage significant synergies and shared activities between our product groups to cross-fertilize them. We also use silicon foundries, especially for advanced CMOS beyond the 18-nm node that we do not plan to manufacture nor develop internally.

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We have advanced R&D and innovation centers which offer us a significant advantage in quickly and cost effectively introducing products. Furthermore, we have established a strong culture of partnerships and through the years have created a network of strategic collaborations with key customers, suppliers, competitors, and leading universities and research institutes around the world. We also play leadership roles in numerous projects running under the EU’s Information Society Technologies programs. We also participate in certain R&D programs established by the EU, individual countries and local authorities in Europe (primarily in France and Italy).
The total amount of our R&D expenses was $1,750 million and $1,485 million in 2023 and 2022, respectively, while the total amount of R&D expenses capitalized amounted to $361 million and $362 million in 2023 and 2022, respectively.
3.2.2.7.        Property, Plants and Equipment
We are an integrated device manufacturer with the ability to control and optimize the value chain, from semiconductor process development, chip design, testing and validation, wafer fabrication, to assembly, testing, and delivery to our customers. At our Company, manufacturing is based on our owned and operated facilities in EMEA and in Asia, complemented by outsourcing in both front-end and back-end processes. This enables us to provide customers with an independent, flexible and robust manufacturing and supply chain, which aids in our success. In addition, our proprietary semiconductor process technologies highlighted above enable product differentiation. We believe that the combination of these two aspects represent a differentiating factor for our Company as compared to fabless semiconductor companies and semiconductor foundries.
We currently operate 14 main manufacturing sites around the world.
At December 31, 2023, our front-end facilities had a total maximum capacity of approximately 140,000 wafer starts per week (200mm equivalent). The number of wafer starts per week varies from facility to facility and from period to period as a result of changes in product mix.
We own all of our manufacturing facilities, but certain facilities (Muar, Malaysia; Shenzhen, China; Kirkop, Malta; Toa Payoh and Ang Mo Kio, Singapore) are built on land subject to long-term leases.
We have historically subcontracted a portion of total manufacturing volumes to external suppliers. In 2023, we subcontracted approximately 20% of the value of our total silicon production to external foundries. Our plan is to continue sourcing silicon from external foundries to give us flexibility in supporting our growth.
At December 31, 2023, we had approximately $1,899 million in outstanding orders for purchases of equipment (certain of which are subject to cancellation or amendment in accordance with their terms) and other assets for delivery in 2024. In 2023, our capital expenditure payments, net of proceeds from sales, capital grants and other contributions, was $4,111 million compared to $3,524 million in 2022. In the 2021-2023 period the ratio of capital expenditure payments, net of proceeds from sales, capital grants and other contributions to net revenues was about 20%.
3.2.2.8.        Intellectual Property
Our success depends in part on our ability to obtain patents, licenses and other IP rights to protect our proprietary technologies and processes. IP rights that apply to our various products include patents, copyrights, trade secrets, trademarks and mask work rights. We currently own approximately 20,000 patents and pending patent applications.
We believe that our IP represents valuable assets. We rely on various IP laws, confidentiality procedures and contractual provisions to protect our IP assets and enforce our IP rights. To optimize the value of our IP assets, we have engaged in licensing our design technology and other IP, including patents, when consistent with our competitive position and our customers’ interests. We have also entered into broad-scope cross-licenses and other agreements which enable us to design, manufacture and sell semiconductor products using the IP rights of third parties and/or operating within the scope of IP rights owned by third parties.
From time to time, we are involved in IP litigation and infringement claims. Regardless of the validity or the successful assertion of such claims, we may incur significant costs with respect to the defense thereof, which could have a material adverse effect on our results of operations, cash flow or financial condition.

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3.2.2.9.        Backlog
Our sales are made primarily pursuant to standard purchase orders that are generally booked from one to eighteen months in advance of delivery. Quantities actually purchased by customers, as well as prices, are subject to variations between booking and delivery and, in some cases, to cancellation due to changes in customer needs or industry conditions. During periods of economic slowdown and/or industry overcapacity and/or declining selling prices, customer orders are not generally made far in advance of the scheduled shipment date. Such reduced lead time can diminish management’s ability to forecast production levels and revenues. When the economy rebounds, our customers may strongly increase their demands, which can result in capacity constraints due to a time lag when matching manufacturing capacity with such demand.
In addition, our sales are affected by seasonality, with the first half generally showing lowest revenue levels in the year, and the third or fourth quarter historically generating higher amounts of revenues partly as a result of the seasonal dynamics for smartphone applications dynamics.
We also sell certain products to key customers pursuant to frame contracts. Frame contracts are annual contracts with customers setting forth quantities and prices on specific products that may be ordered in the future. These contracts allow us to schedule production capacity in advance and allow customers to manage their inventory levels consistent with just-in-time principles while shortening the cycle times required to produce ordered products. Orders under frame contracts are also subject to a high degree of volatility, because they reflect expected market conditions which may or may not materialize. Thus, they are subject to risks of price reduction, order cancellation and modifications as to quantities actually ordered resulting in inventory build-ups.
Furthermore, developing industry trends, including customers’ use of outsourcing and their deployment of new and revised supply chain models, may reduce our ability to forecast changes in customer demand and may increase our financial requirements in terms of capital expenditures and inventory levels.
We entered 2023 with a backlog higher than we had entering 2022. For 2024, we entered the year with a backlog lower than what we had entering 2023.
3.2.2.10.        Competition
Markets for our products are intensely competitive. We compete with major international semiconductor companies and while only a few companies compete with us in all of our product lines, we face significant competition from each of them. Smaller niche companies are also increasing their participation in the semiconductor market, and semiconductor foundry companies have expanded significantly, particularly in Asia. Competitors include manufacturers of standard semiconductors, ASICs and fully customized ICs, including both chip and board-level products, as well as customers who develop their own IC products and foundry operations. Some of our competitors are also our customers or suppliers. We compete in different product lines to various degrees on the basis of price, technical performance, product features, product system compatibility, customized design, availability, quality and sales and technical support. In particular, standard products may involve greater risk of competitive pricing, inventory imbalances and severe market fluctuations than differentiated products. Our ability to compete successfully depends on factors both within and outside our control, including successful and timely development of new products and manufacturing processes, product performance and quality, manufacturing yields and product availability, customer service, pricing, industry trends and general economic trends.
The semiconductor industry is characterized by the high costs associated with developing marketable products and manufacturing technologies as well as high levels of investment in production capabilities. As a result, the semiconductor industry has experienced, and is expected to continue to experience, significant vertical and horizontal consolidation among our suppliers, competitors and customers, which could lead to erosion of our market share, impact our capacity to compete and require us to restructure our operations.
3.2.2.11.        Public Funding
We receive public funding mainly from EU member states (including France, Italy and Malta). Such funding is generally provided to encourage R&D activities, enhance building capacities, industrialization and national, regional and local economic development. On September 21, 2023, the European Chips Act entered into force. The regulation, mobilizing more than €43 billion of public and private investments, is designed to bolster Europe’s

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competitiveness and resilience in semiconductor technologies and applications, help achieve both the digital and green transition and has, amongst others, the objective of supporting technological capacity building and innovation in the European Union by bridging the gap between the European Union's advanced research and innovation capabilities and their industrial exploitation.
Public funding in Europe is also generally available to all companies, having R&D operations in Europe, regardless of their ownership structure or country of incorporation. The conditions for the receipt of government funding may include eligibility restrictions, approval by EU authorities, annual budget appropriations, compliance with EU regulations, royalties or contingent return provisions as well as specifications regarding objectives and results. The approval process for such funding may last up to several years. Certain specific contracts require compliance with extensive regulatory requirements and set forth certain conditions relating to the funded programs. There could be penalties if these objectives are not fulfilled. Other contracts contain penalties for late deliveries or for breach of contract, which may result in repayment obligations.
Further, some grants may be subject to a financial return based on future cumulative sales over a certain period. Our funding programs are classified under four general categories: funding for research, development and innovation activities (“RDI”), funding for First Industrial Deployment (“FID”) activities and capital investment for pilot lines. We also benefit from tax credits for R&D activities in several countries which are generally available to all companies.
The main programs in which we are involved include: (i) Important Project of Common European Interest (“IPCEI”) which combines RDI as well as FID activities; (ii) Key Digital Technologies Initiative (“KDT”, formerly Electronic Components and Systems for European Leadership), which combines all electronics related R&D activities and is operated by joint undertakings formed by the EU, certain member states and industry; (iii) EU R&D projects within Horizon Europe (the EU's research and innovation framework); and (iv) national or regional programs for R&D and for industrialization in the electronics industries involving many companies and laboratories. The pan- European programs cover a period of several years, while national or regional programs in France and Italy are subject mostly to annual budget appropriation.
In December 2018, the European Commission announced the approval of the IPCEI, a Pan-European project initiated to foster research and innovation in microelectronics to be funded by Germany, France, Italy, the U.K. and Austria.
In our combined role as beneficiary of the IPCEI on Microelectronics, we have been allocated an overall funding budget of €340 million for the period 2018-2022 in France (locally referenced as Nano2022) which was linked to technical objectives and associated achievements, and approximately €720 million for the period 2018-2024 in Italy. The IPCEI program is highly strengthening our leadership in key technologies. It contributes to anticipating, accelerating, and securing our technological developments. The IPCEI also has wide ranging, pan-European benefits on the microelectronics ecosystem from education to downstream industries.
In December 2021, we submitted a new IPCEI program, titled IPCEI on Microelectronics and Communication Technologies (“IPCEI – ME/CT”). This new pan-European project was initiated to foster research and innovation and kick-start the first industrialization of microelectronics. It involves ST in France (2022-2026), Italy (2023-2027) and Malta (2021-2025), as well as around 65 other companies across 16 European countries. In 2023 we recognized grants of €135 million related to our participation in IPCEI in Italy, €120 million related to our participation in IPCEI, KDT and other national and European programs in France and $9 million related to our participation in IPCEI in Malta.
In addition to public funding through IPCEI programs, in October 2022, the European Commission approved, under EU State Aid Rules, a support up to €292.5 million through the Italian Recovery and Resilience Plan for the construction of a new integrated SiC substrate manufacturing facility in Catania, Italy.
On April 28, 2023, the European Commission approved, under EU State Aid Rules, a French aid measure to support the Company and GlobalFoundries in the construction and operation of a front-end semiconductor production facility in Crolles, France. This project represents an overall projected cost of €7.5 billion for capital expenditure, maintenance and ancillary costs. The new facility will benefit from significant financial support of up to roughly €2.9 billion from France. These projects have been recognized as “first-of-a-kind” facilities in Europe in line with the ambitions and objectives of the European Chips Act.

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3.2.2.12.        Suppliers
We use three primary critical types of suppliers in our business: (i) equipment suppliers, (ii) material suppliers and (iii) external silicon foundries and back-end subcontractors. We also purchase third-party licensed technology from a limited number of providers.
In the front-end process, we use steppers, scanners, tracking equipment, strippers, chemo-mechanical polishing equipment, cleaners, inspection equipment, etchers, physical and chemical vapor-deposition equipment, implanters, furnaces, testers, probers and other specialized equipment. The manufacturing tools that we use in the back-end process include bonders, burn-in ovens, testers and other specialized equipment. The quality and technology of equipment used in the IC manufacturing process defines the limits of our technology. Demand for increasingly smaller chip structures means that semiconductor producers must quickly incorporate the latest advances in process technology to remain competitive. Advances in process technology cannot occur without commensurate advances in equipment technology, and equipment costs tend to increase as the equipment becomes more sophisticated.
Our manufacturing processes consume significant amounts of energy and use many materials, including silicon and SiC, GaN and glass wafers, lead frames, mold compound, ceramic packages and chemicals, gases and water. The prices of energy, such as electricity and natural gas, and many of these materials are volatile due to the specificity of the market, and other factors including geopolitics. We have therefore adopted a “multiple sourcing strategy” designed to minimize the impact of price increases. The same strategy applies to supplies for the materials used by us to avoid potential material disruption of essential materials and to ensure the continuity of energy supply. Our “multiple sourcing strategy”, our financial risk monitoring as well as the robustness of our supply chain and strong partnership with suppliers are intended to mitigate these risks.
Finally, we also use external subcontractors to outsource wafer manufacturing and assembly and testing of finished products.
3.2.3. Key announcements
On January 10, 2024 we announced the Product Group Reorganization (as defined above).
On December 6, 2023, we announced the ST Edge AI Suite, a free-to-use integrated set of software tools to complement ST hardware.
On November 24, 2023, we signed a fifteen-year power purchase agreement with ERG for the supply of renewable energy to our operations in Italy over the 2024-2038 timeframe, in part to achieve our goal to become carbon neutral by 2027 on scope 1 and 2 and partially scope 3.
On September 19, 2023, we announced the decision of our Supervisory Board to propose that Mr. Jean-Marc Chery be reappointed for a three-year mandate as the sole member of the Managing Board, our President and Chief Executive Officer, for shareholder approval at the 2024 AGM.
On August 23, 2023, we published our IFRS 2023 Semi Annual Accounts for the six-month period ended July 1, 2023 on our website and filed them with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) (“AFM”).
On June 20, 2023, we signed an agreement with Airbus to cooperate on power electronics research & development to support more efficient and lighter power electronics, essential for future hybrid-powered aircraft and full-electric urban air vehicles.
On June 7, 2023, we signed an agreement with Sanan Optoelectronics to create a new 200mm silicon carbide device manufacturing joint venture in Chongqing, China (“SST JV”).
On June 5, 2023, we announced the finalization of our agreement with GlobalFoundries Inc. to create a new, jointly-operated, high-volume semiconductor manufacturing facility in Crolles, France.

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On May 24, 2023, we announced that the members of our Supervisory Board appointed Mr. Nicolas Dufourcq as the Chairman and Mr. Maurizio Tamagnini as the Vice-Chairman of the Supervisory Board, respectively, for a three-year term to expire at the end of the 2026 AGM.
On May 24, 2023, we held our AGM in Amsterdam, the Netherlands. The proposed resolutions, all approved by the shareholders, were:
The adoption of the Company's Statutory Annual Accounts for the year ended December 31, 2022, prepared in accordance with International Financial Reporting Standards (IFRS-EU) and filed with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) on March 23, 2023;
The distribution of a cash dividend of $0.24 per outstanding share of the Company’s common stock to be distributed in quarterly installments of $0.06 in each of the second, third and fourth quarters of 2023 and first quarter of 2024;
The reappointment of Mr. Frédéric Sanchez and Mr. Maurizio Tamagnini, as members of the Supervisory Board for a three-year term to expire at the end of the 2026 AGM;
The reappointment of Ms. Ana de Pro Gonzalo, as member of the Supervisory Board, for a two-year term expiring at the end of the 2025 AGM;
The reappointment of Mr. Yann Delabrière, as member of the Supervisory Board, for a one-year term expiring at the end of the 2024 AGM;
The appointment of Mr. Paolo Visca, as member of the Supervisory Board, for a three-year term expiring at the 2026 AGM, in replacement of Mr. Alessandro Rivera whose mandate expired at the end of the 2023 AGM;
The appointment of Ms. Hélène Vletter-van Dort, as member of the Supervisory Board, for a two-year term expiring at the end of the 2025 AGM, in replacement of Ms. Heleen Kersten whose mandate expired at the end of the 2023 AGM;
The approval of the stock-based portion of the compensation of the President and CEO;
The authorization to the Managing Board, until the end of the 2024 AGM, to repurchase shares, subject to the approval of the Supervisory Board;
The delegation to the Supervisory Board of the authority to issue new common shares, to grant rights to subscribe for such shares, and to limit and/or exclude existing shareholders’ pre-emptive rights on common shares, until the end of the 2024 AGM;
The discharge of the sole member of the Managing Board; and
The discharge of the members of the Supervisory Board.
On April 20, 2023, we announced the publication of our 26th sustainability report detailing our 2022 performance.
On April 13, 2023, we signed a multi-year supply agreement with ZF for the supply of our silicon carbide devices.

3.2.4. Financial outlook: Capital investment
Our policy is to modulate our capital spending according to the evolution of the semiconductor market. For 2024, we plan to invest about $2.5 billion in net capital expenditures.
A large portion of capital expenditures will be devoted to support our strategic programs, selected capacity additions and mix change in our manufacturing footprint, in particular for our wafer fabs:
the increase capacity for silicon carbide products in our Catania and Singapore fabs;
the ramp-up of a new integrated silicon carbide substrate manufacturing facility in Catania for the production in volume of 150mm, moving to 200mm, silicon carbide epitaxial substrates;

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the creation of new 200mm silicon carbide device manufacturing joint venture with Sanan Optoelectronics in Chongqing, China;
the ramp-up of our new 300mm wafer fab in Agrate, Italy, to support mixed signal technologies and then phase-in smart power technologies and embedded-non-volatile memory at a later stage;
digital 300mm in Crolles, France, to extend the cleanroom and support production ramp-up on our main runner technologies;and,
certain selected programs of capacity growth in some of our most advanced 200mm fabs, including the analog 200mm fab in Singapore.
The most important 2024 capital investments for our back-end facilities will be: (i) capacity growth on certain package families, including PLP / Direct Copper Interconnect technology and automotive related packages, (ii) the new generation of Intelligent Power Modules for Automotive and Industrial applications, and (iii) specific investments in innovative assembly processes and test operations.
The remaining part of our capital investment plan covers the overall maintenance and efficiency improvements of our manufacturing operations and infrastructure, R&D activities, laboratories as well as the execution of our carbon neutrality programs.
Capital expenditures are net of proceeds from sales, capital grants and other contributions.
We will continue to invest to support revenues growth and new products introduction, taking into consideration factors such as trends in the semiconductor industry, capacity utilization and our goal to become carbon neutral by 2027 on scope 1 and 2, and partially scope 3. We expect to need significant financial resources in the coming years for capital expenditures and for our investments in manufacturing and R&D. We plan to fund our capital requirements with cash provided by operating activities, available funds and support from third parties, and may have recourse to borrowings under available credit lines and, to the extent necessary or attractive based on market conditions prevailing at the time, the issuance of debt, convertible bonds or additional equity securities. A substantial deterioration of our economic results, and consequently of our profitability, could generate a deterioration of the cash generated by our operating activities. Therefore, there can be no assurance that, in future periods, we will generate the same level of cash as in prior years to fund our capital expenditure plans for expanding/upgrading our production facilities, our working capital requirements, our R&D and manufacturing costs.
We believe that we have the financial resources needed to meet our currently projected business requirements for the next twelve months, including capital expenditures for our manufacturing activities, working capital requirements, approved dividend payments, share buy-backs as part of our current repurchase program and the repayment of our debt in line with maturity dates.
We will drive the Group based on a plan for 2024 revenues in the range of $15.9 billion to $16.9 billion.
3.2.5. Liquidity and financial position
We maintain an adequate cash position and a low debt-to-equity ratio to provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.
During 2023, our net cash decreased by 36 million. The components of the net cash decrease for 2023 and the comparable period are set forth below:
In millions of U.S. dollars20232022
Net cash from operating activities6,366 5,579 
Net cash used in investing activities(6,127)(4,979)
Net cash used in financing activities(280)(556)
Effect of change in exchange rates(11)
Net cash increase (decrease)(36)33 


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Net cash from operating activities
Net cash from operating activities is the sum of (i) net profit adjusted for non-cash items and (ii) changes in net working capital. The net cash from operating activities in 2023 was $6,366 million, increasing compared to $5,579 million in the prior year, mainly due to higher net profit adjusted for non-cash items.
Net cash used in investing activities
Investing activities used $6,127 million of cash in 2023, mainly due to increased payments for purchase of tangible assets, net of proceeds from sales, capital grants and other contributions, for a total of $4,111 million, higher purchases of marketable securities for a total of $1,653 million, net investments in short-term deposits of $645 million, and investment in intangible assets of $458 million, of which the largest part is related to the capitalization of development costs, partially offset by proceeds from marketable securities for a total of $750 million. Capital investments for the year 2023 included (i) investments in advanced wafer fabs, such as the 300mm fab in Crolles, France and the 300mm fab in Agrate, Italy; (ii) SiC activities, primarily in Singapore and Catania, Italy; and (iii) in selected programs of capacity growth in other front-end and back-end activities.
Net cash used in financing activities
Net cash used in financing activities was $280 million for 2023, compared to $556 million in 2022, and consisted mainly of $346 million repurchase of common stock, $223 million of dividends paid to our shareholders and $169 million repayment of long-term debt, partially offset by $329 million of proceeds from a new drawdown of our existing credit facility with EIB.
Free cash flow (non-GAAP measure)
Our Free Cash Flow is derived from our U.S. GAAP Consolidated Statements of Cash Flows, which differs from our Consolidated Statements of Cash Flows under IFRS. Free Cash Flow, a non-GAAP measure, is defined as (i) net cash from operating activities plus, (ii) net cash used in investing activities, excluding payment for purchase of (and proceeds from matured) marketable securities, and net investments in (and proceeds from) short-term deposits, which are considered as temporary financial investments. This definition ultimately results in net cash from operating activities plus payment for purchases (and proceeds from sale) of tangible, intangible and financial assets, proceeds from capital grants and other contributions, and net cash paid upon acquisition for business combinations, if any.

We believe Free Cash Flow, a non-GAAP measure, provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operations. Free Cash Flow is a non-GAAP measure and does not represent total cash flow since it does not include the cash flows from, or used in, financing activities. Free Cash Flow reconciles with the total cash flow and the net cash increase (decrease) by including the payment for purchase of (and proceeds from matured) marketable securities and net investments in (and proceeds from) short-term deposits, the net cash from (used in) financing activities and the effect of changes in exchange rates. Our definition of Free Cash Flow may differ from definitions used by other companies. Our Free Cash Flow derived from our U.S. GAAP Consolidated Statements of Cash Flows; a reconciliation from the Consolidated Statements of Cash Flows as reported under IFRS is provided in the table below:

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In millions of U.S. dollarsDecember 31,
2023
December 31,
2022
Net cash from operating activities as reported under IFRS6,366 5,579 
Excluding U.S. GAAP/IFRS presentation differences:
         Payment for withholding tax on vested shares54 44 
         Payment for lease liabilities(67)(58)
Net cash from operating activities adjusted under IFRS6,353 5,565 
Payment for purchase of tangible assets, net of proceeds from sale, and proceeds from capital grants and other contributions(4,111)(3,524)
Payment for purchase of intangible assets, net of proceeds from sale(458)(450)
Payment for purchase, net of proceeds from sale, of financial assets(10)— 
Free Cash Flow (non-GAAP measure)1,774 1,591 

Our Free Cash Flow was $1,774 million in 2023, compared to $1,591 million in 2022.

Net Financial Position and Adjusted Net Financial Position (non-GAAP measure)
Our Net Financial Position represents the difference between our total liquidity and our total financial debt. Our total liquidity includes cash and cash equivalents, short-term deposits and quoted debt securities, and our total financial debt includes interest-bearing loans and borrowings, including current portion, as represented in our consolidated statement of financial position. Adjusted Net Financial Position represents net financial position less advances from capital grants, to represent the effect on total liquidity of advances received on capital grants for which capital expenditures have not been incurred yet. Prior periods are not impacted. Net Financial Position and Adjusted Net Financial Position are a non-GAAP measure, but we believe they provide useful information for investors and management because they give evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents, restricted cash, if any, short-term deposits and quoted debt securities and the total level of our financial indebtedness. Our definition of Net Financial Position may differ from definitions used by other companies and therefore comparability may be limited. Our Net Financial Position and Adjusted Net Financial Position are derived from our U.S. GAAP Consolidated Balance Sheets, which differs from the Consolidated Statements of Financial Position under IFRS. A reconciliation with the Consolidated Statements of Financial Position under IFRS is provided in the table below:
In millions of U.S. dollarsDecember 31,
2023
December 31,
2022
Cash and cash equivalents3,222 3,258 
Short-term deposits1,226 581 
Government bonds issued by the U.S. Treasury1,635 679 
Total liquidity6,083 4,518 
Funding program loans from European Investment Bank(1,077)(827)
Credit Facility from CDP(284)(334)
Dual tranche senior unsecured convertible bonds(1,432)(1,407)
Other funding programs loans(6)(4)
Total financial debt, as reported under IFRS(2,799)(2,572)
    Difference in dual-trench senior convertible debt amortized cost(64)(88)
    Difference in the presentation of finance lease(64)(57)
Total U.S. GAAP/IFRS differences (128)(145)
Total financial debt, as reported under US GAAP(2,927)(2,717)
Net Financial Position (non-GAAP measure)3,156 1,801 
Advances from capital grants(152)— 
Adjusted Net Financial Position (non-GAAP measure)3,004 1,801 


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Our Net Financial Position as of December 31, 2023, was a net cash position of $3,156 million, increasing compared to a net cash position of $1,801 million as of December 31, 2022.
As of December 31, 2023, our financial debt as reported under IFRS was $2,799 million, composed of (i) $1,640 million of current portion of long-term debt and (ii) $1,159 million of long-term debt. The breakdown of our total financial debt included: (i) $1,432 million in senior unsecured convertible bonds issued in 2020, (ii) $1,077 million in European Investment Bank loans (the “EIB Loans”), (iii) $284 million in CDP SpA loans (the “CDP SpA Loans”) and (iv) $6 million in loans from other funding programs.
The EIB Loans are comprised of three long-term amortizing credit facilities as part of our public funding programs. The first, signed in August 2017, is a €500 million loan, in relation to R&D and capital expenditures in the European Union for the years 2017 and 2018. The entire amount was fully drawn in Euros, corresponding to $346 million outstanding as of December 31, 2023. The second one, signed in 2020, is a €500 million credit facility agreement with EIB to support R&D and capital expenditure programs in Italy and France. The amount was fully drawn in Euros representing $442 million outstanding as of December 31, 2023. In 2022, the Company signed a third long-term amortizing credit facility with EIB of €600 million, out of which, €300 million was withdrawn representing $332 million outstanding as December 31, 2023. In January 2024, an amount of $300 million was withdrawn under this credit facility.
The CDP SpA Loans are comprised of two long-term credit facilities. The first, signed in 2021, is a €150 million loan, fully drawn in Euros, of which $97 million were outstanding as of December 31, 2023. The second one, signed in 2023, is a €200 million loan, fully drawn in Euros, of which $187 million was outstanding as of December 31, 2023.
On August 4, 2020, we issued $1.5 billion offering of senior unsecured convertible bonds (Tranche A for $750 million and Tranche B for $750 million), due 2025 and 2027, respectively. Tranche A bonds were issued at 105.8% as zero-coupon bonds and Tranche B bonds were issued at 104.5% as zero-coupon bonds. The conversion price at issuance was $43.62 for Tranche A equivalent to a 47.5% conversion premium and $45.10 for Tranche B, equivalent to a 52.5% conversion premium. These conversion features correspond to an equivalent of 4,585 shares per each Tranche A bond $200,000 par value and an equivalent of 4,435 shares per each Tranche B bond $200,000 par value. The bonds are convertible by the bondholders or are callable by us following contractual terms and schedule, if certain conditions are satisfied, on a net-share settlement basis, except if we elect a full-cash or full-share conversion as an alternative settlement. The net proceeds from the bond offering were $1,567 million, after deducting issuance costs.
Our long-term debt contains standard conditions but does not impose minimum financial ratios. We had unutilized committed medium-term credit facilities with core relationship banks totaling $1,030 million as of December 31, 2023.
Our current ratings with two major rating agencies that report on us on a solicited basis, are as follows: Standard & Poor’s (“S&P”): “BBB+” with stable outlook; Moody’s Investors Service (“Moody’s”): “Baa1” with positive outlook.
3.2.6. Financial risk management
We are exposed to changes in financial market conditions in the normal course of business due to our operations in different foreign currencies and our ongoing investing and financing activities. Our activities expose us to a variety of financial risks: market risk (including foreign exchange risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We use derivative financial instruments to hedge certain risk exposures.
Financial risk management is carried out by a central treasury department (“Corporate Treasury”). Additionally, a treasury committee, chaired by our Chief Financial Officer, steers treasury activities and ensures compliance with corporate policies. Treasury activities are thus regulated by our policies, which define procedures, objectives and controls. The policies focus on managing financial risk in terms of exposure to market risk, credit risk and liquidity risk. Treasury controls are subject to internal audits. Most treasury activities are centralized, with any local treasury activities subject to oversight from Corporate Treasury. Corporate Treasury identifies, evaluates and hedges financial risks in close cooperation with our subsidiaries. It provides written principles for overall risk management,

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as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, price risk, credit risk, use of derivative financial instruments, and investments of excess liquidity.
The majority of cash and cash equivalents is held in U.S. dollars and Euros and is placed with financial institutions rated at least a single “A” long-term rating from two of the major rating agencies, meaning at least A3 from Moody’s and A- from S&P or Fitch ratings, or better. These ratings are closely and continuously monitored in order to manage exposure to the counterparty’s risk. Hedging transactions are performed only to hedge exposures deriving from operating, investing and financing activities conducted in the normal course of business.
Foreign exchange risk
We conduct our business on a global basis in various major international currencies. As a result, we are exposed to adverse movements in foreign currency exchange rates, primarily with respect to the Euro. Foreign exchange risk mainly arises from recognized assets and liabilities at our subsidiaries and future commercial transactions.
Cash flow and fair value interest rate risk
Our interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose us to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk.
Credit risk
We select banks and/or financial institutions that operate with the Company based on the criteria of long-term rating from at least two major Rating Agencies and keeping a maximum outstanding amount per instrument with each bank not to exceed 20% of the total. For derivative financial instruments, management has established limits so that, at any time, the fair value of contracts outstanding is not concentrated with any individual counterparty.
We monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. If certain customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, considering its financial position, past experience and other factors. The utilization of credit limits is regularly monitored. Sales to customers are primarily settled in cash, which mitigates credit risk. As of December 31, 2023 and 2022, no customer represented more than 10% of total trade accounts receivable. Any remaining concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many geographic areas.
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash and cash equivalents, short-term deposits and marketable securities, the availability of funding from committed credit facilities and the ability to close out market positions. Our objective is to maintain a sufficient cash position and a low debt-to-equity ratio, which ensures adequate financial flexibility. Our liquidity management policy is to finance our investments with net cash from operating activities.
Management monitors rolling forecasts of our liquidity reserve based on expected cash flows.
3.3. Risk management and Internal control
3.3.1. Risk Management
3.3.1.1.        Our Risk Management approach
As a company operating globally in the semiconductor market, we are exposed to risks, particularly in the current environment of increased volatility, uncertainty, complexity and ambiguity. For a description of our risk factors, please refer to section 3.3.1.2. (Risk factors). Our embedded approach to enterprise risk management (“ERM”) is formalized in a specific policy and is aligned with ISO 31000 (Risk Management). This enables us to:
set and enable our Company strategy, manage our performance, and capitalize on opportunities; and
systematically identify, evaluate and treat specific risk scenarios.
Our ERM improvement roadmap includes, in particular, deploying our risk framework which is based on the following principles:

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taking into consideration the interests of our stakeholders;
addressing uncertainty explicitly;
pragmatic and tailored to us;
integral part of our processes and decision-making;
proactive, structured, dynamic, iterative and responsive to change; and
based on the best available information.

Our risk framework is described in the following chart:
RISK FRAMEWORK

https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-riskmanagementa.jpg

The maturity of our overall risk framework design and implementation is periodically audited by a leading independent organization. This was last performed in 2022, confirming a significant improvement in maturity compared to the previous such audit performed in 2017.
Our overall risk approach is managed by our Chief Audit & Risk Executive, Mr. Franck Freymond, under the direct responsibility of our Managing Board and the oversight of our Supervisory Board. The scope of this oversight role is detailed in our Supervisory Board charter.
Our risk governance is described in the following chart:

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RISK GOVERNANCE
https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-image2a.jpg


3.3.1.2.        Risk Factors
Below is a list of the main risk factors we believe are related to the semiconductor industry and specifically related to our operations, which may affect our results and performance and the ability of our management to predict the future of our Company:
Summary of Risk Factors
Risks Related to the Semiconductor Industry which Impact Us
We, and the semiconductor industry as a whole, may be impacted by changes in, or uncertainty about, global, regional and local economic, political, legal, regulatory and social environments as well as climate change.
The semiconductor industry is cyclical and downturns in the semiconductor industry can negatively affect our results of operations and financial condition.
Epidemics or pandemics may impact the global economy and could also adversely affect our business, financial condition and results of operations.
We may not be able to match our production capacity to demand.
Competition in the semiconductor industry is intense, and we may not be able to compete successfully if our product design technologies, process technologies and products do not meet market requirements. Furthermore, the competitive environment of the industry has resulted, and is expected to continue to result, in vertical and horizontal consolidation among our suppliers, competitors and customers, which may lead to erosion of our market share, impact our ability to compete and require us to restructure our operations.
Risks Related to Our Operations
Our high fixed costs could adversely impact our results.

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Our capital needs are high compared to those competitors who do not manufacture their own products and we may need additional funding in the coming years to finance our investments, to purchase other companies or technologies developed by third parties or to refinance our maturing indebtedness.
Our operating results depend on our ability to obtain quality supplies on commercially reasonable terms. As we depend on a limited number of suppliers for materials, equipment and technology, we may experience supply disruptions if suppliers interrupt supply, increase prices or experience material adverse changes in their financial condition.
Our financial results can be affected by fluctuations in exchange rates, principally in the value of the U.S. dollar.
Our operating results may vary significantly from quarter to quarter and annually and may also differ significantly from our expectations or guidance.
If our external silicon foundries or back-end subcontractors fail to perform, this could adversely affect our business prospects, financial condition and results of operations.
Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities, disruptions or inefficient implementation of production changes or interruptions that can significantly increase our costs and delay product shipments to our customers.
We may experience quality problems from time to time that can result in decreased sales and operating margin and product liability or warranty claims.
Disruptions in our relationships with any one of our key customers or distributors, and/or material changes in their strategy or financial condition or business prospects, could adversely affect our results of operations.
We may experience delays in delivering our product and technology roadmaps as well as transformation initiatives.
Our computer systems, including hardware, software, information and cloud-based initiatives, are subject to attempted security breaches and other cybersecurity threats, which, if successful, could adversely impact our business.
We may be subject to theft, loss, or misuse of personal data about our employees, customers, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings.
Our business is dependent in large part on continued growth in the industries and segments into which our products are sold and on our ability to retain existing customers and attract new ones. A market decline in any of these industries, our inability to retain and attract customers, or customer demand for our products which differs from our projections, could have a material adverse effect on our results of operations.
Market dynamics have driven, and continue to drive us, to a strategic repositioning.
We depend on collaboration with other semiconductor industry companies, research organizations, universities, customers and suppliers to further our R&D efforts, and our business and prospects could be materially adversely affected by the failure or termination of such alliances
We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others.
We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules, new or revised legislation or the outcome of tax assessments and audits could cause a material adverse effect on our results.
We receive public funding, and a reduction in the amount available to us or demands for repayment could increase our costs and impact our results of operations.

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Some of our production processes and materials are environmentally sensitive, which could expose us to liability and increase our costs due to environmental, health and safety laws and regulations or because of damage to the environment.
Climate change and related sustainability regulations and initiatives, including our commitment to become carbon neutral by 2027 on scope 1 and 2 and partially scope 3, could place additional burden on us and our operations.
Loss of key employees and the inability to continuously recruit and retain qualified employees could hurt our competitive position.
The interests of our controlling shareholder, which is in turn indirectly controlled by the French and Italian governments, may conflict with other investors’ interests. In addition, our controlling shareholder may sell our existing common shares or issue financial instruments exchangeable into our common shares at any time.
Our shareholder structure and our preference shares may deter a change of control.
Any decision to reduce or discontinue paying cash dividends to our shareholders could adversely impact the market price of our common shares.
We are required to prepare financial statements under IFRS and we also prepare Consolidated Financial Statements under U.S. GAAP, and such dual reporting may impair the clarity of our financial reporting.
There are inherent limitations on the effectiveness of our controls.
Because we are subject to the corporate law of The Netherlands, U.S. investors might have more difficulty protecting their interests in a court of law or otherwise than if we were a U.S. company.

Risks Related to the Semiconductor Industry which Impact Us
We, and the semiconductor industry as a whole, may be impacted by changes in, or uncertainty about, global, regional and local economic, political, legal, regulatory and social environments as well as climate change.
Changes in, and uncertainty about, economic, political, legal, regulatory and social conditions pose a risk as consumers and businesses may postpone spending in response to factors such as curtailment of trade and other business restrictions, financial market volatility, interest rate fluctuations, recessions, shifts in inflationary and deflationary expectations, lower capital and productivity growth, unemployment, negative news, declines in income or asset values and/or other factors. Such global, regional and local conditions could have a material adverse effect on customer and end-market demand for our products, thus materially adversely affecting our business and financial condition.
Geopolitical conflicts have resulted in certain countries imposing sanctions. Further consequences of such conflicts could include a risk of further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macro-economic conditions, currency exchange rates and financial markets. This could lead to disruption to international commerce and the global economy, and could have a negative effect on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes, logistics restrictions and export control law restrictions. We may also experience a shortage of certain semiconductor components and delays in shipments due to supply chain disruptions caused by geopolitical conflicts, and sales of our products may be negatively impacted by geopolitical conflicts, both directly and indirectly through a reduction of sales or production by our customers in or to affected areas or otherwise.
The institution of trade tariffs globally, as well as the threat thereof, could negatively impact economic conditions, which could have negative repercussions for our business. In particular, trade protection and national security policies of the U.S. and Chinese governments, including tariffs, trade restrictions, export restrictions and the placing of companies on restricted entity lists, have and may continue to limit or prevent us from transacting business with certain of our Chinese customers or suppliers; limit, prevent or discourage certain of our Chinese customers or suppliers from transacting business with us; or make it more expensive to do so. If disputes were to arise under any of our agreements with other parties conducting business in China, the resolution of such dispute

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may be subject to the exercise of discretion by the Chinese government, or agencies of the Chinese government, which may have a material adverse effect on our business. In addition, we could face increased competition as a result of China's programs to promote a domestic semiconductor industry and supply chains (including the Made in China 2025 campaign).
Trade policy changes could trigger retaliatory actions by affected countries, which could have a negative impact on our ability to do business in affected countries or lead to reduced purchases of our products by foreign customers, leading to increased costs of components contained in our products, increased manufacturing costs of our products, currency exchange rate volatility, and higher prices for our products in foreign markets. Further, protectionist measures, laws or governmental policies may encourage our customers to relocate their manufacturing capacity or supply chain to their own respective countries or other countries, or require their respective contractors, subcontractors and relevant agents to do so, which could impair our ability to sustain our current level of productivity and manufacturing efficiency.
We, and the semiconductor industry as a whole, face greater risks due to the international nature of the semiconductor business, including in the countries where we, our customers or our suppliers operate, such as:
instability of foreign governments, including the threat of war, military conflict, civil unrest, regime changes, mass migration and terrorist attacks;
natural events such as severe weather, earthquakes and tsunamis, or the effects of climate change;
epidemics or pandemics such as disease outbreaks and other health related issues;
changes in, or uncertainty about, laws, regulations (including executive orders) and policies affecting trade and investment, including following Brexit and including through the imposition of trade and travel restrictions, government sanctions, local practices which favor local companies and constraints on investment;
complex and varying government regulations and legal standards, particularly with respect to export control regulations and restrictions, customs and tax requirements, data privacy, IP and anti-corruption;
differing practices of regulatory, tax, judicial and administrative bodies, including with regards to the interpretation of laws, governmental approvals, permits and licenses;
water availability, usage and consumption levels, as well as recycling and discharge practices; and
labor and human rights, especially in international supply chains.
The semiconductor industry is cyclical and downturns in the semiconductor industry can negatively affect our results of operations and financial condition.
The semiconductor industry is cyclical and has been subject to significant downturns from time to time, as a result of global economic conditions, as well as industry-specific factors, such as built-in excess capacity, fluctuations in product supply, product obsolescence and changes in end-customer preferences.
Downturns are typically characterized by reduction in overall demand, accelerated erosion of selling prices, reduced revenues and high inventory levels, any of which could result in a significant deterioration of our results of operations. Such macro-economic trends typically relate to the semiconductor industry as a whole rather than to the individual semiconductor markets to which we sell our products. To the extent that industry downturns are concurrent with the timing of new increases in production capacity or introduction of new advanced technologies in our industry, the negative effects on our business from such industry downturns may also be more severe. We have experienced revenue volatility and market downturns in the past and expect to experience them in the future, which could have a material adverse impact on our results of operations and financial condition.
The recent increase in inflation rates in the markets in which we operate may lead us to experience higher costs related to labor, energy, water, transportation, wafer and other raw materials costs from suppliers. Our suppliers may raise their prices, and in the competitive markets in which we operate, we may not be able to make corresponding price increases to preserve our gross margins and profitability due to market conditions and competitive dynamics. Additionally, any such increase in prices may not be accepted by our customers.

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Epidemics or pandemics may impact the global economy and could also adversely affect our business, financial condition and results of operations.
Epidemics or pandemics may result in authorities imposing, and businesses and individuals implementing, numerous measures to try to contain the virus, including travel bans and restrictions, shelter-in-place and stay-at-home orders, quarantines and social distancing guidelines. This may negatively impact the ability of our suppliers to deliver on their commitments to us, our ability to ship our products to our customers and general consumer demand for our products may be negatively impacted by the pandemic and/or government responses thereto.
Many of our products and services are considered to be essential under national and local guidelines. As such, during the COVID-19 pandemic, we generally continued to operate in each of the jurisdictions where we were present. However, certain of our facilities were not able to operate at optimal capacity and any future similarly restrictive measures may have a negative impact on our operations, supply chain and transportation networks, and our products and services may not be considered to be essential in the future. In addition, our customers and suppliers may experience disruptions in their operations and supply chains, which could result in delayed, reduced, or cancelled orders, or collection risks, and which may adversely affect our results of operations and financial condition.
During an epidemic or pandemic, governments may look to re-direct resources and implement austerity measures in the future to balance public finances, which could result in reduced economic activity. Any resulting economic downturn could reduce overall demand for our products, accelerate the erosion of selling prices, lead to reduced revenues and higher inventory levels, any of which could result in a significant deterioration of our results of operations and financial condition.
An epidemic or pandemic may also lead to increased disruption and volatility in capital markets and credit markets. Unanticipated consequences of an epidemic or pandemic and resulting economic uncertainty could adversely affect our liquidity and capital resources in the future.
We may not be able to match our production capacity to demand.
As a result of the cyclicality and volatility of the semiconductor industry, it is difficult to predict future developments in the markets we serve, and, in turn, to estimate requirements for production capacity. If our markets, start-up or ramp-ups in manufacturing operations are not efficiently executed, major customers or certain product designs or technologies do not perform as well as we have anticipated, demand is impacted by factors outside of our or our customers’ control, or if there is otherwise any future excess capacity by us or other semiconductor manufacturers, we risk unused capacity charges, price erosion, write-offs of inventories and losses on products that may adversely impact our operating results, and we could be required to undertake restructuring and transformation measures that may involve significant charges to our earnings. Furthermore, during certain periods, the global supply of semiconductor industry fabrication capacity may not be sufficient to meet the demand for semiconductor products. We may also experience increased demand in certain market segments and product technologies and any future shortage of our capacity and the capacity of our sub-contractors may lead to an increase in the lead times of our delivery to customers, us being required to enter into agreements with our suppliers with onerous terms such as take-or-pay arrangements, or us being unable to service some of our customers, which may result in adverse effects on our customer relationships and in liability claims. Further, as a result of this supply imbalance, the industry in general may experience a high level of profitability and gross margins, which may not be sustainable over the long-term.
Competition in the semiconductor industry is intense, and we may not be able to compete successfully if our product design technologies, process technologies and products do not meet market requirements. Furthermore, the competitive environment of the industry has resulted, and is expected to continue to result, in vertical and horizontal consolidation among our suppliers, competitors and customers, which may lead to erosion of our market share, impact our ability to compete and require us to restructure our operations.
We compete in different product lines to various degrees on certain characteristics, for example, price, technical performance, product features, product design, product availability, process technology, manufacturing capabilities and sales and technical support. Given the intense competition in the semiconductor industry, if our products do not meet market requirements based on any of these characteristics, our business, financial condition and results of operations could be materially adversely affected. Our competitors may have a stronger presence in

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key markets and geographic regions, greater name recognition, larger customer bases, greater government support and greater financial, research and development, sales and marketing, manufacturing, distribution, technical and other resources than we do. These competitors may be able to adapt more quickly to changes in the business environment, to new or emerging technologies and to changes in customer requirements.
The semiconductor industry is intensely competitive and characterized by the high costs associated with developing marketable products and manufacturing technologies as well as high levels of investment in production capabilities. As a result, the semiconductor industry has experienced, and is expected to continue to experience, significant vertical and horizontal consolidation among our suppliers, competitors and customers. Consolidation in the semiconductor industry could erode our market share, negatively impact our ability to compete and require us to increase our R&D effort, engage in mergers and acquisitions and/or restructure our operations.
Risks Related to Our Operations
Our high fixed costs could adversely impact our results.
Our operations are characterized by high fixed or other costs which are difficult to reduce, including costs related to manufacturing, particularly as we operate our own manufacturing facilities, and the employment of our highly skilled workforce. When demand for our products decreases, competition increases or we fail to forecast demand accurately, we may be driven to reduce prices and we may not always be able to decrease our total costs in line with resulting revenue declines. As a result, the costs associated with our operations may not be fully absorbed, leading to unused capacity charges, higher average unit costs and lower gross margins, adversely impacting our results.
Our capital needs are high compared to those competitors who do not manufacture their own products and we may need additional funding in the coming years to finance our investments, to purchase other companies or technologies developed by third parties or to refinance our maturing indebtedness.
As a result of our choice to maintain control of a large portion of our manufacturing technologies and capabilities, we may require significant capital expenditure to maintain or upgrade our facilities if our facilities become inadequate in terms of capacity, flexibility and location. We monitor our capital expenditures taking into consideration factors such as trends in the semiconductor market, customer requirements and capacity utilization. These capital expenditures may increase in the future if we decide to upgrade or expand the capacity of our manufacturing facilities, purchase or build new facilities or increase investments supporting key strategic initiatives. For instance, we may be unable to successfully develop, maintain and operate large infrastructure projects. Such increased capital expenditures associated with large infrastructure projects and strategic initiatives might not achieve profitability or we may be unable to utilize infrastructure projects to full capacity. There can also be no assurance that future market demand and products required by our customers will meet our expectations. We also may need to invest in other companies, in IP and/or in technology developed either by us or by third parties to maintain or improve our position in the market or to reinforce our existing business. Failure to invest appropriately and in a timely manner or to successfully integrate any recent or future business acquisitions may prevent us from achieving the anticipated benefits and could have a material adverse effect on our business and results of operations.
The foregoing may require us to secure additional financing, including through the issuance of debt, equity or both. The timing and the size of any new share or bond offering would depend upon market conditions as well as a variety of other factors. In addition, the capital markets may from time to time offer terms of financing that are particularly favorable. We cannot exclude that we may access the capital markets opportunistically to take advantage of market conditions. Any such transaction or any announcement concerning such a transaction could materially impact the market price of our common shares. If we are unable to access capital on acceptable terms, this may adversely affect our business and results of operations.
Our operating results depend on our ability to obtain quality supplies on commercially reasonable terms. As we depend on a limited number of suppliers for materials, equipment and technology, we may experience supply disruptions if suppliers interrupt supply, increase prices or experience material adverse changes in their financial condition.

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Our ability to meet our customers’ demand to manufacture our products depends upon obtaining adequate supplies of quality materials on a timely basis and on commercially reasonable terms. Certain materials are available from a limited number of suppliers or only from a limited number of suppliers in a particular region. We purchase certain materials whose prices on the world markets have fluctuated significantly in the past and may fluctuate significantly in the future. Although supplies for most of the materials we currently use are adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. For instance, epidemics or pandemics could cause disruptions from the temporary closure of suppliers’ facilities or delays and reduced export or shipment of various materials. Geopolitical conflicts could also disrupt supply chains and cause shortages of certain semiconductor components and corresponding delays in shipments. Any such shortage may impact different geographical markets disproportionately, leading to shortages or unavailability of supplies in specific areas and higher transportation costs. In addition, the costs of certain materials may increase due to recent inflationary rates and market pressures and we may not be able to pass on such cost increases to our customers.
We also purchase semiconductor manufacturing equipment and third-party licensed technology from a limited number of suppliers and providers and, because such equipment and technology are complex, it is difficult to replace one supplier or provider with another or to substitute one piece of equipment or type of technology for another. In addition, suppliers and providers may extend lead times, limit our supply, increase prices or change contractual terms related to certain manufacturing equipment and third-party licensed technology, any of which could adversely affect our results. Furthermore, suppliers and technology providers tend to focus their investments on providing the most technologically advanced equipment, materials and technology and may not be able to address our requirements for equipment, materials or technology of older generations. Although we work closely with our suppliers and providers to avoid such shortages, there can be no assurance that we will not encounter these problems in the future.
Consolidation among our suppliers or vertical integration among our competitors may limit our ability to obtain sufficient quantities of materials, equipment and/or technology on commercially reasonable terms and engage in mergers and acquisitions. In certain instances, we may be required to enter into agreements with our suppliers with onerous terms, such as take-or-pay arrangements. If we are unable to obtain supplies of materials, equipment or technology in a timely manner or at all, or if such materials, equipment or technology prove inadequate or too costly, our results of operations could be adversely affected.
Our financial results can be affected by fluctuations in exchange rates, principally in the value of the U.S. dollar.
Currency exchange rate fluctuations affect our results of operations because our reporting currency is the U.S. dollar, in which we receive the major portion of our revenues, while, more importantly, we incur a limited portion of our revenue and a significantly higher portion of our costs in currencies other than the U.S. dollar. A significant variation of the value of the U.S. dollar against the principal currencies that have a material impact on us (primarily the Euro, but also certain other currencies of countries where we have operations, such as the Singapore dollar) could result in a favorable impact, net of hedging, on our net income in the case of an appreciation of the U.S. dollar, or a negative impact, net of hedging, on our net income if the U.S. dollar depreciates relative to these currencies, in particular with respect to the Euro.
In order to reduce the exposure of our financial results to the fluctuations in exchange rates, our principal strategy has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of purchases from our suppliers denominated in U.S. dollars and to reduce the weight of the other costs, including depreciation, denominated in Euros and in other currencies. In order to further reduce our exposure to U.S. dollar exchange rate fluctuations, we have hedged certain line items on our consolidated statements of income, in particular with respect to a portion of the cost of sales, the majority of the R&D expenses and certain SG&A expenses located in the Euro zone. We also hedge certain manufacturing costs, included within the cost of sales, denominated in Singapore dollars. There can be no assurance that our hedging transactions will prevent us from incurring higher Euro-denominated manufacturing costs and/or operating expenses when translated into our U.S. dollar-based accounts.
Our operating results may vary significantly from quarter to quarter and annually and may also differ significantly from our expectations or guidance.

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Our operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability or lead to significant variability of our operating results from one period to the next. These factors include changes in demand from our key customers, capital requirements, inventory management, availability of funding, competition, new product developments, start of adoption of our new products by customers, technological changes, manufacturing or supplier issues and effective tax rates. In addition, in periods of industry overcapacity or when our key customers encounter difficulties in their end-markets or product ramps, orders are more exposed to cancellations, reductions, price renegotiation or postponements, which in turn reduce our ability to forecast the next quarter or full year production levels, revenues and margins. As a result, we may not meet our financial targets, which could in turn have an impact on our reputation or brand. For these reasons and others that we may not yet have identified, our revenues and operating results may differ materially from our expectations or guidance as visibility is reduced.
If our external silicon foundries or back-end subcontractors fail to perform, this could adversely affect our business prospects, financial condition and results of operations.
We currently use external silicon foundries and back-end subcontractors for a portion of our manufacturing activities. Any limitation on the ability of our external silicon foundries and back-end subcontractors to satisfy our demand may cause our results of operations and ability to satisfy the demand of our customers to suffer. Likewise, if we are unable to meet our commitments to silicon foundries and back-end subcontractors, our results of operations could suffer. Prices for these services also vary depending on capacity utilization rates at our external silicon foundries and back-end subcontractors, quantities demanded and product and process technology. Such outsourcing costs can vary materially and, in cases of industry shortages, they can increase significantly, negatively impacting our business prospects, financial condition and results of operations.
Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities, disruptions or inefficient implementation of production changes or interruptions that can significantly increase our costs and delay product shipments to our customers.
Our manufacturing processes are highly complex, require advanced and increasingly costly equipment and are continuously modified or maintained in an effort to improve yields and product performance and lower the cost of production.
Furthermore, impurities or other difficulties in the manufacturing process can lower yields, interrupt production or result in scrap. As system complexity and production changes have increased and sub-micron technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. We have from time to time experienced bottlenecks and production difficulties that have caused delivery delays and quality control problems. There can be no assurance that we will not experience bottlenecks or production, transition or other difficulties in the future.
In addition, we are exposed to risks related to interruptions of our manufacturing processes. If any of our property or equipment is damaged or otherwise rendered unusable or inoperable due to accident, cyberattack or otherwise this could result in interruptions which could have a material adverse effect on our business, financial condition and results of operations.
We may experience quality problems from time to time that can result in decreased sales and operating margin and product liability or warranty claims.
We sell complex products that may not in each case comply with specifications or customer requirements, or may contain design or manufacturing defects, that could cause personal injury, property damage or security risks that could be exploited by unauthorized third parties hacking, corrupting or otherwise obtaining access to our products, including the software loaded thereon by us, our suppliers or our customers. Although our general practice is to contractually limit our liability to the repair, replacement or refund of defective products, we occasionally agree to contractual terms with key customers in which we provide extended warranties and accordingly we may face product liability, warranty, delivery failure, and/or other claims relating to our products that could result in significant expenses relating to compensation payments, product recalls or other actions related to such extended warranties and/or to maintain good customer relationships, which could result in decreased sales and operating margin and other material adverse effects on our business. Costs or payments we may make in connection with warranty and other claims or product recalls may adversely affect our results of operations. There can be no

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assurance that we will be successful in maintaining our relationships with customers with whom we incur quality problems. Furthermore, if litigation occurs we could incur significant costs and liabilities to defend ourselves against such claims. The industry has experienced a rise in premiums and deductibles with regards to insurance policies. These may continue to increase and insurance coverage may also correspondingly decrease. If litigation occurs and damages are awarded against us, there can be no assurance that our insurance policies will be available or adequate to protect us against such claims.
Disruptions in our relationships with any one of our key customers or distributors, and/or material changes in their strategy or financial condition or business prospects, could adversely affect our results of operations.
A substantial portion of our sales is derived from a limited number of customers and distributors. There can be no assurance that our customers or distributors will continue to book the same level of sales with us that they have in the past, will continue to succeed in the markets they serve and will not purchase competing products over our products. Many of our key customers and distributors operate in cyclical businesses that are also highly competitive, and their own market positions may vary considerably. In recent years, some of our customers have vertically integrated their businesses. Such vertical integrations may impact our business. Our relationships with the newly formed entities could be either reinforced or jeopardized by the integration. If we are unable to maintain or increase our market share with our key customers or distributors, or if they were to increase product returns or fail to meet payment obligations, our results of operations could be materially adversely affected. Certain of our products are customized to our customers’ specifications. If customers do not purchase products made specifically for them, we may not be able to recover a cancellation fee from our customers or resell such products to other customers. In addition, the occurrence of epidemic or pandemic outbreaks could affect our customers. The geographic spread of epidemics or pandemics may be difficult to predict and adverse public health impacts on our customers could negatively affect our results.
We may experience delays in delivering our product and technology roadmaps as well as transformation initiatives.
Our industry adapts to technological advancements and it is likely that new products, equipment, processes and service methods, including transformation initiatives related to digitalization, are in the process of being implemented. Any failure by us to manage our data governance processes could undermine our initiatives related to digitalization and any failure by us to react to changes or advances in existing technologies and processes as we develop and invest in our product, technology and transformation roadmaps could materially delay the introduction of new solutions. If we are not able to execute on these roadmaps on a timely basis or at an acceptable cost this could result in loss of competitiveness of our solutions, decreased revenue and a loss of market share.
Our computer systems, including hardware, software, information and cloud-based initiatives, are subject to attempted security breaches and other cybersecurity threats, which, if successful, could adversely impact our business.
We have, from time to time, detected and experienced attempts by others to gain unauthorized access to our computer systems and networks. The reliability and security of our information technology infrastructure and software, including our artificial intelligence ("AI") technology, and our ability to expand and continually update technologies, including to transition to cloud-based technologies, in response to our changing needs is critical to our business. In the current environment, there are numerous and evolving risks to cybersecurity, including criminal hackers, state-sponsored intrusions, terrorism, industrial espionage, employee malfeasance, vandalism and human or technological error. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and those of our customers, suppliers, partners and providers of third-party licensed technology, and some of those attempts may be successful. Such breaches could result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction of our, our customer, or other third-party data or systems, theft of our trade secrets and other sensitive or confidential data, including personal information and IP, system disruptions, and denial of service.
The attempts to breach our systems, including our cloud-based systems, and to gain unauthorized access to our information technology systems are becoming increasingly more sophisticated. These attempts may include covertly introducing malware into our computers, including those in our manufacturing operations, and

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impersonating unauthorized users, among others. For instance, employees and former employees, in particular former employees who become employees of our competitors or customers, may misappropriate, use, publish or provide to our competitors or customers our IP and/or proprietary or confidential business information. Also, third parties may attempt to register domain names similar to our brands or website, which could cause confusion and divert online customers away from our products. In the event of such breaches, we, our customers or other third parties could be exposed to potential liability, litigation, and regulatory action, as well as the loss of existing or potential customers, damage to our reputation, and other financial loss and such breaches could also result in losing existing or potential customers in connection with any actual or perceived security vulnerabilities in our systems. In addition, the cost and operational consequences of responding to breaches and implementing remediation measures could be significant. As these threats continue to develop and grow, we have been adapting and strengthening our security measures.
As a result of work-from-home policies that we have undertaken, there has been additional reliance placed on our IT systems and resources. The resulting reliance on these resources, and the added need to communicate by electronic means, could increase our risk of cybersecurity incidents.
Geopolitical instability has been associated with an increase in cybersecurity incidents. This may result in a higher likelihood that we may experience direct or collateral consequences from cybersecurity conflicts between nation-states or other politically motivated actors targeting critical technology infrastructure.
U.S. and foreign regulators have increased their focus on cybersecurity vulnerabilities and risks, and customers and service providers are increasingly demanding more rigorous contractual certification and audit provisions regarding cybersecurity and data governance. This may result in an increase of our overall compliance burden due to increasingly onerous obligations and leading to significant expense. There may also be shorter deadlines in which to notify the authorities of data breaches and ever-increasing fines and penalties for businesses that fail to respond swiftly and appropriately to cyberattacks. Any failure to comply could also result in proceedings against us by regulatory authorities or other third parties.
We continue to increase the resources we allocate to implementing, maintaining and/or updating security systems to protect data and infrastructure and to raising security awareness among those having access to our systems. However, these security measures cannot provide absolute security and there can be no assurance that our employee training, operational, and other technical security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations.
We regularly evaluate our IT systems and business continuity plan to make enhancements and periodically implement new or upgraded systems, including the transition and migration of our data systems to cloud-based platforms and critical system migration. Any delay in the implementation of, or disruption in the transition to different systems could adversely affect our ability to record and report financial and management information on a timely and accurate basis and could impact our operations and financial position. In addition, a miscalculation of the level of investment needed to ensure our technology solutions are current and up-to-date as technology advances and evolves could result in disruptions in our business should the software, hardware or maintenance of such items become out-of-date or obsolete and the costs of upgrading our cybersecurity systems and remediating damages could be substantial.
We may also be adversely affected by security breaches related to our equipment providers and providers of IT services or third-party licensed technology. As a global enterprise, we could also be impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, data privacy and data protection. Additionally, cyberattacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to us, our customers, or other third-party operations or services, financial loss, potential liability, damage to our reputation and could also affect our relationships with our customers, suppliers and partners. See section 3.3.1.4 (Illustrative risk management measure - protection against cyber threats).
We may be subject to theft, loss, or misuse of personal data about our employees, customers, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings.

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The theft, loss, or misuse of personal data processed by us could result in significantly increased security costs or costs related to defending legal claims.
Further, with increasing digitalization, data privacy-related legislations are rapidly evolving around the globe which may have a negative impact on our business if interpreted or implemented in a manner that is inconsistent from country to country and inconsistent with the current policies and practices of our customers or business partners. We may also have to change the manner in which we contract with our business partners, store and transfer information and otherwise conduct our business, which could increase our costs and reduce our revenues.
Our business is dependent in large part on continued growth in the industries and segments into which our products are sold and on our ability to retain existing customers and attract new ones. A market decline in any of these industries, our inability to retain and attract customers, or customer demand for our products which differs from our projections, could have a material adverse effect on our results of operations.
The demand for our products depends significantly on the demand for our customers’ end products. Growth of demand in the industries and segments into which our products are sold fluctuates significantly and is driven by a variety of factors, including consumer spending, consumer preferences, the development and acceptance of new technologies and prevailing economic conditions. Changes in our customers’ markets and in our customers’ respective shares in such markets could result in slower growth and a decline in demand for our products. In addition, if projected industry growth rates do not materialize as forecasted, our spending on process and product development ahead of market acceptance could have a material adverse effect on our business, financial condition and results of operations.
Our business is dependent upon our ability to retain existing customers. In 2023 our largest customer, Apple, accounted for 12.3% of our total revenues. While we do not believe to be dependent on any one customer or group of customers, the loss of key customers or important sockets at key customers could have an adverse effect on our results of operations and financial condition.
Our existing customers’ product strategy may change from time to time and/or product specifications may change on short-time product life cycles and we have no certainty that our business, financial position and results of operations will not be affected. Our business is also dependent upon our ability to attract new customers. There can be no assurance that we will be successful in attracting and retaining new customers, or in adequately projecting customer demand for our products. Our failure to do so could materially adversely affect our business, financial condition and results of operations.
Market dynamics have driven, and continue to drive us, to a strategic repositioning.
In recent years, we have undertaken several initiatives to reposition our business. Our strategies to improve our results of operations and financial condition have led us, and may in the future lead us, to acquire businesses that we believe to be complementary to our own, to divest ourselves of or wind down activities that we believe do not serve our longer term business plans, or to enter into partnerships or joint ventures to enter into or strengthen our position in certain markets and increase our scale of operations. Our potential acquisition strategies depend in part on our ability to identify suitable acquisition targets, finance their acquisition, obtain approval by our shareholders and obtain required regulatory and other approvals. Our potential divestiture strategies depend in part on our ability to compete and to identify the activities in which we should no longer engage, obtain the relevant approvals pursuant to our governance process and then determine and execute appropriate methods to divest of them. Our actual or potential partnerships and joint venture strategies depend in part on our ability to execute sales and operations plans alongside our partner or joint venture.
We are constantly monitoring our product portfolio and cannot exclude that additional steps in this repositioning process may be required. Furthermore, we cannot assure that any strategic repositioning of our business, including executed and possible future acquisitions, dispositions or partnerships and joint ventures, will be successful and will not result in impairment, restructuring charges and other related closure costs.
Acquisitions, divestitures, partnerships and joint ventures involve a number of risks that could adversely affect our operating results and financial condition, including, in respect of acquisitions and divestitures, the inability for us to successfully integrate businesses or teams that we acquire with our culture and strategies on a timely basis or at all, and the potential requirement for us to record charges related to the goodwill or other long-term assets

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associated with the acquired businesses. There can be no assurance that we will be able to achieve the full scope of the benefits we expect from a particular acquisition, divestiture, partnership, joint venture or investment. Our business, financial condition and results of operations may suffer if we fail to coordinate our resources effectively to manage both our existing businesses and any acquired businesses. In addition, the financing of future acquisitions, divestitures, partnerships or joint ventures may negatively impact our financial position, including our ability to pay a dividend and/or repurchase our shares, and our credit rating and we could be required to raise additional funding.
Other risks associated with acquisitions include the assumption of potential liabilities, disclosed or undisclosed, associated with the business acquired, which liabilities may exceed the amount of indemnification available from the seller, potential inaccuracies in the financials of the business acquired, and our ability to retain customers of an acquired entity, its business or industrialize an acquired process or technology. Identified risks associated with divestitures include loss of activities and technologies that may have complemented our remaining businesses or operations and loss of important services provided by key employees that are assigned to divested activities.
We depend on collaboration with other semiconductor industry companies, research organizations, universities, customers and suppliers to further our R&D efforts, and our business and prospects could be materially adversely affected by the failure or termination of such alliances.
Our success depends on our ability to introduce innovative new products and technologies to the marketplace on a timely basis. In light of the high levels of investment required for R&D activities, we depend in certain instances on collaborations with other semiconductor industry companies, research organizations, universities, customers and suppliers to develop or access new technologies.
Such collaboration provides us with a number of important benefits, including the sharing of costs, reductions in our own capital requirements, acquisitions of technical know-how and access to additional production capacities. However, there can be no assurance that our collaboration efforts will be successful and allow us to develop and access new technologies in due time, in a cost-effective manner and/or to meet customer demands. If a particular collaboration terminates before our intended goals are accomplished we may incur additional unforeseen costs, and our business and prospects could be adversely affected. Furthermore, if we are unable to develop or otherwise access new technologies, whether independently or in collaboration with another industry participant, we may fail to keep pace with the rapid technology advances in the semiconductor industry, our participation in the overall semiconductor industry may decrease and we may also lose market share.
We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others.
We depend on patents and other IP rights to protect our products and our manufacturing processes against misappropriation by others. The process of seeking patent protection can be long and expensive, and there can be no assurance that we will receive patents from currently pending or future applications. Even if patents are issued, they may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage. In addition, effective IP protection may be unavailable or limited in some countries. Our ability to enforce one or more of our patents could be adversely affected by changes in patent laws, laws in certain foreign jurisdictions that may not effectively protect our IP rights or by ineffective enforcement of laws in such jurisdictions. Competitors may also develop technologies that are protected by patents and other IP and therefore either be unavailable to us or be made available to us subject to adverse terms and conditions. We have in the past used our patent portfolio to negotiate broad patent cross-licenses with many of our competitors enabling us to design, manufacture and sell semiconductor products, without concern of infringing patents held by such competitors. We may not in the future be able to obtain such licenses or other rights to protect necessary IP on favorable terms for the conduct of our business, and such failure may adversely impact our results of operations. Such cross-license agreements expire from time to time and there is no assurance that we can or we will extend them.
We have from time to time received, and may in the future receive, communications alleging possible infringement of third-party patents and other IP rights. Some of those claims are made by so-called non-practicing entities against which we are unable to assert our own patent portfolio to lever licensing terms and conditions. Competitors with whom we do not have patent cross-license agreements may also develop technologies that are protected by patents and other IP rights and which may be unavailable to us or only made available on unfavorable

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terms and conditions. We may therefore become involved in costly litigation brought against us regarding patents and other IP rights. IP litigation may also involve our customers who in turn may seek indemnification from us should we not prevail and/or who may decide to curtail their orders for those of our products over which claims have been asserted. Such lawsuits may therefore have a material adverse effect on our business. We may be forced to stop producing substantially all or some of our products or to license the underlying technology upon economically unfavorable terms and conditions or we may be required to pay damages for the prior use of third-party IP and/or face an injunction.
The outcome of IP litigation is inherently uncertain and may divert the efforts and attention of our management and other specialized technical personnel. Such litigation can result in significant costs and, if not resolved in our favor, could materially and adversely affect our business, financial condition and results of operations.
We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules, new or revised legislation or the outcome of tax assessments and audits could cause a material adverse effect on our results.
We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules, new or revised legislation or the outcome of tax assessments and audits could have a material adverse effect on our results.
In 2021, the Organization for Economic Cooperation and Development (OECD) and the G20 Inclusive Framework on base erosion and profit shifting (BEPS) agreed to a two-pillar solution to address the tax challenges arising from the digitalization of the economy. Pillar I is a set of proposals to revisit tax allocation rules in a changed economy. The intention is that a portion of a multinationals' residual profit is taxed in the jurisdiction where revenue is sourced.
Pillar II enforces a global minimum corporate income tax at an effective rate of 15% for large multinationals. On December 20, 2021 the OECD published the Global Anti-Base Erosion Model Rules ("GloBe Rules") for Pillar II. On December 22, 2021, the European Commission published a legislative proposal for Pillar II (the "EU Pillar II Directive").
On December 15, 2022, the Council of the European Union formally adopted the EU Pillar II Directive. The EU Pillar II Directive aims at consistently implementing among all 27 member states the GloBe Rules. EU Member States will have to transpose the EU Pillar II Directive into their national laws and will have to apply the Pillar II measures in respect of the fiscal years beginning on or after December 31, 2023. The Netherlands have transposed the EU Pillar II Directive into its national legislation with effect from December 31, 2023 pursuant to the Dutch Minimum Tax Act 2024 (Wet minimumbelasting 2024).
The tax impact of the Pillar I and Pillar II rules is monitored to determine the potential effect on our results and to ensure compliance when the legislation is effective. The impact on the Company's tax position will depend on the changes in the level of tax results within various local jurisdiction and the potential adoption of the legislation in the jurisdiction where the Company operates in 2024. Therefore no quantitative tax impact on the Company's tax position is provided as per December 31, 2023.
Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimated tax provisions due to new events. We currently receive certain tax benefits or benefit from net operating losses cumulated in prior years in some countries, and these benefits may not be available in the future due to changes in the local jurisdictions or credits on net operating losses being no longer available due to either full utilization or expiration of the statute of limitations in such jurisdictions. As a result, our effective tax rate could increase and/or our benefits from carrying forward net operating losses could affect our deferred tax assets in certain countries in the coming years. In addition, the acquisition or divestiture of businesses in certain jurisdictions could materially affect our effective tax rate.
We evaluate our deferred tax asset position and the need for a valuation allowance on a regular basis. The ultimate realization of deferred tax assets is dependent upon, among other things, our ability to generate future taxable income that is sufficient to utilize in certain jurisdictions loss carry-forwards or tax credits before their expiration or our ability to implement prudent and feasible tax optimization strategies. The recorded amount of total deferred tax assets could be reduced, which could have a material adverse effect on our results of operations

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and financial position, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of a change in business condition or in management’s plans or due to other factors, such as changes in tax laws and regulations.
We are subject to the possibility of loss contingencies arising out of tax claims, assessment of uncertain tax positions and provisions for specifically identified income tax exposures. We are also subject to tax audits in certain jurisdictions. There can be no assurance that we will be successful in resolving potential tax claims that result from these audits, which could result in material adjustments in our tax positions. We record provisions on the basis of the best current understanding; however, we could be required to record additional provisions in future periods for amounts that cannot currently be assessed. Our failure to do so and/or the need to increase our provisions for such claims could have a material adverse effect on our results of operations and our financial position.
Our operating results can vary significantly due to impairment of goodwill, other intangible assets and equity investments booked pursuant to acquisitions and the timeframe required to foster and realize synergies thereof, joint venture agreements and the purchase of technologies and licenses from third parties, as well as to impairment of tangible assets due to changes in the business environment. Because the market for our products is characterized by rapidly changing technologies, significant changes in the semiconductor industry, and the potential failure of our business initiatives, our future cash flows may not support the value of goodwill, tangible assets and other intangibles registered in our consolidated balance sheets.
We receive public funding, and a reduction in the amount available to us or demands for repayment could increase our costs and impact our results of operations.
We have in the past obtained public funding, primarily to support our proprietary R&D for technology investments and investments in cooperative R&D ventures, and expect to obtain public funding in the future, mainly from EU member states (including France, Italy and Malta). The public funding we receive is subject to periodic review by the relevant authorities and there can be no assurance that we will continue to benefit from such programs at current levels or that sufficient alternative funding will be available if we lose such support. If any of the public funding programs we participate in are curtailed or discontinued and we do not reduce the relevant R&D or other costs, this could have a material adverse effect on our business. Furthermore, to receive public funding, we enter into agreements which require compliance with extensive regulatory requirements and set forth certain conditions relating to the funded programs. If we fail to meet the regulatory requirements or applicable conditions, we may, under certain circumstances, be required to refund previously received amounts, which could have a material adverse effect on our results of operations. If there are changes in the public funding we receive this could increase the net costs for us to, amongst others, continue investing in R&D at current levels and could result in a material adverse effect on our results of operations.
A change in the landscape in public funding may also affect our business. For example, the European Chips Act which entered into force on September 21, 2023 and is designed to bolster Europe’s competitiveness and resilience in semiconductor technologies and applications and any similar proposals in other regions, may provide public funding towards manufacturing activities of semiconductors. It is yet to be seen whether this would impact the amount of public funding currently available to us for our R&D or other investments and ventures, but any reduction in said funding will result in a material adverse effect on our results of operations. Further, this may result in new or existing competitors benefiting from such funding and could also have an impact on the competitive landscape in our industry.
Some of our production processes and materials are environmentally sensitive, which could expose us to liability and increase our costs due to environmental, health and safety laws and regulations or because of damage to the environment.
We are subject to various laws and regulations, as well as increasing focus from our stakeholders regarding environmental, health and safety matters, including the use, storage, discharge and disposal of chemicals, gases and other hazardous substances used in our operations. Addressing such focus from stakeholders, as well as compliance with such laws and regulations could adversely affect our manufacturing costs or product sales by requiring us to acquire costly equipment, materials or greenhouse gas allowances, or to incur other significant expenses in adapting our manufacturing processes or waste and emission disposal processes. Furthermore, environmental claims or our failure to comply with present or future regulations could result in the assessment of

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damages or imposition of fines against us, suspension of production or a cessation of operations. Failure by us to control the use of, or adequately restrict the discharge of, chemicals or hazardous substances could subject us to future liabilities.
Climate change and related sustainability regulations and initiatives, including our commitment to become carbon neutral by 2027 on scope 1 and 2 and partially scope 3, could place additional burden on us and our operations.
As climate change issues become more pronounced, we may correspondingly face increased regulation and also expectations from our stakeholders to take actions beyond existing regulatory requirements to minimize our impact on the environment and mitigate climate change related effects. The semiconductor manufacturing process has historically contributed to direct greenhouse gas emissions by utilizing perfluorocarbons, which may lead to new or increased regulation of such compounds. In order to address such regulation, we may be required to adapt our production processes or purchase additional equipment or carbon offsets, leading to increased costs. As of the end of 2023, we are on track towards our goal to become carbon neutral by 2027 on scope 1 and 2 and partially scope 3, which includes two specific targets: compliance with the 1.5°C scenario defined at the Paris COP21 by 2025, implying a 50% reduction of direct and indirect greenhouse gas emissions compared to 2018, and the sourcing of 100% renewable energy by 2027.
To meet these additional requirements, we will need to continue to deploy additional equipment, introduce process changes, utilize alternative suppliers and materials, and take other similar actions, some or all of which may require us to incur additional costs which could result in a material adverse effect on our results of operations and our financial condition. In addition, if we fail to meet these expectations, or foster additional sustainability initiatives, we may experience reputational risk which could impact our ability to attract and retain customers, employees, and investors.
Further, our sites, as well as those of our partners along the supply chain, may be exposed to changing and/or increasing physical risks resulting from climate change that are either chronic (induced by longer-term shifts in climate patterns, such as sea level rise or constraints in the availability of water, changing temperature, wind or precipitation patterns) or acute (event-driven such as cyclones, hurricanes or heat waves). In the context of the transition to a lower-carbon economy, we will likely be exposed to further policy, legal, technology, and market transition risks. We have already seen further policy developments in this area in the form of Regulation (EU) 2020/852 of the European Parliament and of the Council of June 18, 2020 on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 (the “EU Taxonomy Regulation”), which entered into force on July 12, 2020. As a result of the EU Taxonomy Regulation, we must disclose information on how and to what extent our activities are associated with economic activities that qualify as environmentally sustainable.
Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (the “CSRD”), which entered into force on January 5, 2023 and which will apply to our reporting as of financial year 2024, strengthens the rules regarding social and environmental information that is required to be reported. The CSRD seeks to provide investors and other stakeholders with access to the information they need to assess investment risks arising from climate change and other sustainability topics. The CSRD further makes it mandatory for us to have an audit of the sustainability information that we report on. If our disclosure metrics relating to climate change and other sustainability topics are lower than those of our peers in the industry, this may lead to reputational risk which may lead to onward financial repercussions such as a decrease in share price or difficulty in raising capital.
Loss of key employees and the inability to continuously recruit and retain qualified employees could hurt our competitive position.
Our success depends to a significant extent upon our key executives and R&D, engineering, marketing, sales, manufacturing, support and other personnel. Our success also depends upon our ability to continue to identify, attract, retain and motivate highly trained and skilled engineering, technical and professional personnel in a competitive recruitment environment, as well our ability to ensure the smooth succession and continuity of

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business with newly hired and promoted personnel. For instance, in highly specialized areas, it may become more difficult to retain employees.
Our employee hiring and retention also depend on our ability to build and maintain a diverse and inclusive workplace culture and be viewed as an employer of choice. We intend to continue to devote significant resources to recruit, train and retain qualified employees, however, we may not be able to attract, obtain and retain these employees, which may affect our growth in future years and the loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on us.
The interests of our controlling shareholder, which is in turn indirectly controlled by the French and Italian governments, may conflict with other investors’ interests. In addition, our controlling shareholder may sell our existing common shares or issue financial instruments exchangeable into our common shares at any time.
We understand that as of December 31, 2023, STMicroelectronics Holding N.V. (“ST Holding”), owned 250,704,754 shares, or approximately 27.5%, of our issued common shares. ST Holding may therefore be in a position to effectively control the outcome of decisions submitted to the vote at our shareholders’ meetings, including but not limited to the appointment of the members of our Managing and Supervisory Boards.
We have been informed that ST Holding’s shareholders, each of which is ultimately controlled by the French or Italian government, are party to a shareholders agreement (the “STH Shareholders Agreement”), which governs relations between them. We are not a party to the STH Shareholders Agreement. The STH Shareholders Agreement includes provisions requiring the unanimous approval by the shareholders of ST Holding before ST Holding can vote its shares in our share capital, which may give rise to a conflict of interest between our interests and investors’ interests, on the one hand, and the (political) interests of ST Holding’s shareholders, on the other hand. Our ability to issue new shares or other securities giving access to our shares may be limited by ST Holding’s desire to maintain its shareholding at a certain level and our ability to buy back shares may be limited by ST Holding due to a Dutch law requiring one or more shareholders acquiring 30% or more of our voting rights to launch a tender offer for our outstanding shares.
The STH Shareholders Agreement also permits our respective French and Italian indirect shareholders to direct ST Holding to dispose of its stake in us at any time, thereby reducing the current level of their respective indirect interests in our common shares. Sales of our common shares or the issuance of financial instruments exchangeable into our common shares or any announcements concerning a potential sale by ST Holding could materially impact the market price of our common shares depending on the timing and size of such sale, market conditions as well as a variety of other factors.
Our shareholder structure and our preference shares may deter a change of control.
We have an option agreement in place with an independent foundation, whereby the foundation can acquire preference shares in the event of actions which the board of the independent foundation determines would be contrary to our interests, our shareholders and our other stakeholders and which in the event of a creeping acquisition or offer for our common shares are not supported by our Managing Board and Supervisory Board. In addition, our shareholders have authorized us to issue additional capital within the limits of the authorization by our Annual General Meeting of Shareholders (“AGM”), subject to the requirements of our Articles of Association, without the need to seek a specific shareholder resolution for each capital increase. Accordingly, an issue of preference shares or new shares may make it more difficult for a shareholder to obtain control over our general meeting of shareholders. These anti-takeover provisions could substantially impede the ability of our shareholders to benefit from a change in control and, as a result, may materially adversely affect the market price of our ordinary shares and our investors’ ability to realize any potential change of control premium.
Any decision to reduce or discontinue paying cash dividends to our shareholders could adversely impact the market price of our common shares.
On an annual basis, our Supervisory Board, upon the proposal of the Managing Board, may propose the distribution of a cash dividend to the general meeting of shareholders. Any reduction or discontinuance by us of the payment of cash dividends at historical levels could cause the market price of our common shares to decline.

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We are required to prepare financial statements under IFRS and we also prepare Consolidated Financial Statements under U.S. GAAP, and such dual reporting may impair the clarity of our financial reporting.
We use U.S. GAAP as our primary set of reporting standards. Applying U.S. GAAP in our financial reporting is designed to ensure the comparability of our results to those of our competitors, as well as the continuity of our reporting, thereby providing our stakeholders and potential investors with a clear understanding of our financial performance. As we are incorporated in The Netherlands and our shares are listed in Europe on Euronext Paris and on the Borsa Italiana, we are subject to EU regulations requiring us to also report our results of operations and financial statements using IFRS.
As a result of the obligation to report our financial statements under IFRS, we prepare our results of operations using both U.S. GAAP and IFRS, which are currently not consistent. Such dual reporting can materially increase the complexity of our financial communications. Our financial position and results of operations reported in accordance with IFRS will differ from our financial position and results of operations reported in accordance with U.S. GAAP, which could give rise to confusion in the marketplace.
There are inherent limitations on the effectiveness of our controls.
There can be no assurance that a system of internal control over financial reporting, including one determined to be effective, will prevent or detect all misstatements. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance regarding financial statement preparation and presentation. Projections of the results of any evaluation of the effectiveness of internal control over financial reporting into future periods are subject to inherent risk. The relevant controls may become inadequate due to changes in circumstances or the degree of compliance with the underlying policies or procedures may deteriorate.
Because we are subject to the corporate law of The Netherlands, U.S. investors might have more difficulty protecting their interests in a court of law or otherwise than if we were a U.S. company.
Our corporate affairs are governed by our Articles of Association and by the laws governing corporations incorporated in The Netherlands. The rights of our investors and the responsibilities of members of our Managing and Supervisory Boards under Dutch law are not as clearly established as under the rules of some U.S. jurisdictions. Therefore, U.S. investors may have more difficulty in protecting their interests in the face of actions by our management, members of our Managing and Supervisory Boards or our controlling shareholders than U.S. investors would have if we were incorporated in the United States.
Our executive offices and a substantial portion of our assets are located outside the United States. In addition, ST Holding and most members of our Managing and Supervisory Boards are residents of jurisdictions other than the United States. As a result, it may be difficult or impossible for shareholders to effect service within the United States upon us, ST Holding, or members of our Managing or Supervisory Boards. It may also be difficult or impossible for shareholders to enforce outside the United States judgments obtained against such persons in U.S. courts, or to enforce in U.S. courts judgments obtained against such persons in courts in jurisdictions outside the United States. This could be true in any legal action, including actions predicated upon the civil liability provisions of U.S. securities laws. In addition, it may be difficult or impossible for shareholders to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon U.S. securities laws.
We have been advised by Dutch counsel that the United States and The Netherlands do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. With respect to choice of court agreements in civil or commercial matters, it is noted that the Hague Convention on Choice of Court Agreements entered into force in The Netherlands, but has not entered into force in the United States. As a consequence, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws of the United States, will not be enforceable in The Netherlands. However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in The Netherlands, such party may submit to The Netherlands court the final judgment that has been rendered in the United States. If The Netherlands court finds that the jurisdiction of the federal or state court in the United States has been based on grounds that are internationally acceptable and that proper legal procedures that are in accordance with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging) have been observed, the court in The Netherlands would, under current practice, in principle give binding effect to the final

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judgment that has been rendered in the United States unless such judgment contradicts The Netherlands’ public policy and provided that the judgment by the foreign court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for acknowledgment in The Netherlands. Even if such a foreign judgment is given binding effect, a claim based thereon may, however, still be rejected if the foreign judgment is not or no longer formally enforceable.
3.3.1.3.        Managing risk according to our risk appetite strategy
Risk management activities are governed by our risk appetite strategy, which is discussed annually at the Supervisory Board and Audit Committee levels.
We determine the amount of risk we are willing to pursue or retain, depending on associated expected rewards, opportunities, and costs.
Our risk appetite strategy depends on the nature of risks. As an illustration, we strive to reduce residual exposure to a level as low as reasonably practicable for the following risk categories:
corporate governance;
product quality;
operations resilience (internal events);
protection of IP and other sensitive information;
people, health & safety;
compliance with environmental regulations and commitments;
adherence to our Code of Conduct and complying with applicable laws & regulations; and
protection against cyber threats.


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ERM PROCESS



The embedded ERM process takes a holistic view, combining both company-wide top-down and bottom-up perspectives, to ensure that specific risk scenarios are addressed at the right level. The process is implemented as described in the following chart:
https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-chartrisksr002.jpg

During 2023, we refreshed our Company risk assessment with the executive management team. The output from this exercise was a risk map linked to our strategic objectives, including nine redefined ‘priority 1’ risk areas.
Risk owners (members of our Senior Management, which consists of our Executive Committee and Executive Vice Presidents as described in section 5.4. (Managing Board)) were appointed for each priority risk area to develop risk response plans, adapt to changing external conditions and enhance monitoring capabilities. The risk response plans are regularly reviewed by our Executive Committee and periodically discussed with the Audit Committee of the Supervisory Board.
Each of our organizational units completes its own risk assessment. This includes marketing and sales regions, product groups, manufacturing and technology, and corporate functions. In addition, we implemented further risk assessments on large company programs, including transformation programs.
3.3.1.4.        Illustrative risk management measures
Corporate governance
Our commitment to the good principles of corporate governance is outlined in section 5.1. (Commitment to the principles of good corporate governance). The Supervisory Board and its committees, and the Managing Board, through their structures, charters and activities ensure proper corporate governance as described in chapter 5 (Corporate Governance).


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Product quality
Quality is a key value and priority for us. Our vision is to elevate ST to the highest level of quality as an asset for our customers. We can achieve a high level of quality because our employees and management are committed to quality, focused on customer’s targets, and improvement programs are effective.
Product Quality & Reliability (“PQR”) is organized at Company level and embedded in all our organizations. The PQR leadership team brings together quality directors from across our entire business operations (front-end and back-end manufacturing, product groups, sales regions and corporate organizations) to deploy our quality strategy and quality programs throughout the Company.
We are continuously adapting to have the necessary advanced and innovative infrastructure and organization to ensure our products meet the highest quality and reliability requirements in the markets we address.
Our quality governance is based on our quality management system, part of our enterprise management system, as documented in our quality manual. It details how we implement processes allowing to meet the highest customer and standards requirements.
We adhere to internationally recognized quality management standards. We received our first companywide ISOTS16949 certification in 2003 and this certification was renewed every three years since that time. Since 2018, we have been certified IATF 16949:2016 and ISO 9001:2015 demonstrating our robust quality governance, effective quality management system and quality compliance across the Company. In 2023, we were certified ISO SAE 21434 confirming that we established a certified management system and governance which meets and complies with the requirements of the automotive industry in the field of cyber security process management within product development phases.
Operations resilience
We have extended our risk approach to encompass a dedicated resilience management system (“RMS”), including both business continuity and crisis management, and addressing the following dimensions:
continuity of the main sites;
manufacturing flexibility across internal and/or external sites;
continuity of full supply chain including third parties;
managing the business continuity and crisis communication to clients and other stakeholders; and
improving company-wide capability to respond to crises.

In 2023, as per our multi-year improvement roadmap, we further embedded RMS in our main sites and selected organizational units, leveraging our corporate resilience competence center and a global network of resilience champions. We deployed incremental improvements to our RMS (fully aligned methodologies and toolkits across ERM, resilience, business continuity and crisis management). It provides a consistent methodology to address potential business disruptions of our resources, such as:
site unavailability;
people unavailability;
IT system disruptions (e.g. cyber-attacks); and
critical sourcing and logistics/transportation disruptions.
As such, we address scenarios that may affect our supply chain and operations such as pandemics, natural hazards (such as earthquakes, floods, snowstorms, volcanic eruptions or tsunamis), industrial accidents (such as fires and explosions), facilities/energy interruptions and major impacts related to human activities (such as geo-political tensions, terrorism or strikes).
In 2023, we continued to enhance a company-specific methodology underpinning a global dashboard: a range of relevant indicators based on internal or external standards, covering dimensions such as exposure to natural hazards, loss prevention characteristics, facilities robustness, equipment modernization and redundancy, IT

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infrastructure quality and cyber protection. For every significant site, those indicators are compiled in our “site resilience index”, which is updated on a quarterly basis. Annually, site management teams prepare and update a site improvement plan accordingly.
We have been ISO 22301 (Security and Resilience) certified since 2016. Throughout 2023, our continuous improvements have been subjected to both internal audits and external surveillance audits from the certification body.

In addition, in 2023, an additional independent audit was completed focusing on the maturity assessment of the design and implementation of our resilience framework, confirming its current level of maturity.

Protection of IP and other sensitive information
We have processes and procedures in place to protect our IP and other sensitive information. This includes a dedicated team of global patent attorneys and patent engineers who harvest and collect inventions generated through our R&D efforts, chair and manage patent committees to determine patent filing strategies and oversee the filing and issuance of our approximately 20,000 patents and patent applications around the world. As part of this process, we offer incentive awards to our inventor community to help ensure their active and on-going participation in protecting this innovation. The patent committees also regularly make decisions on which inventions are better maintained as our confidential or sensitive information. For any information which we deem as confidential or sensitive, we have processes and procedures which restrict any disclosure of such information to any third-party without having in place appropriate measures such as a non-disclosure agreement. We further secure our IP and sensitive information through the administration of our corporate IT security policies and procedures.
People, health & safety
We listen to feedback from customers, investors, partners, employees and management before identifying, prioritizing and managing our environmental, health and safety (“EHS”) risks. Based on feedback from all stakeholders, we maintain a regular materiality exercise on all related topics and update our sustainability strategy accordingly. For each sustainability domain, we define precise ambitions and long-term goals, and deploy the relevant programs to manage the related risks.
We have a Company sustainability council that reviews the progress of these programs and related key performance indicators (“KPIs”) together with our stakeholders’ continuous feedback. EHS risks are reviewed annually through our ERM and business continuity processes. All our plants run their own EHS specific risk analyses and follow-up both on Company and local programs.
Our aim is to prevent employee and environmental risks, including social, chemicals, fire, ergonomics, mechanical, handling, radiation, movements and work at height, nanomaterials, wastes, water or air emission. We take a precautionary approach when assessing new processes, chemicals and products, as set out in principle 15 of the Rio Declaration.
We constantly review our policies and rules, deploy certified management systems such as ISO45001, reinforce our culture, strengthen job hazard analysis and training plans, deploy industry standards such as Responsible Business Alliance (“RBA”), and audit all of our sites. Our EHS performance and management systems are regularly evaluated and certified through internal and third-party audits. Moreover, to limit any risks related to our license to operate, we have a three-year program to conduct third-party EHS legal compliance audits. This program covers 41 sites, including all our manufacturing sites, all our sites with more than 100 employees and some smaller sites and warehouses.
We promote and recognize shared vigilance and drive continuous improvements in behaviors. Everywhere we practice early detection of hazards, unsafe acts and conditions. We systematically implement adequate actions to address weak points and avoid recurrence of near misses. We share all data transparently and adapt our prevention and practices to the highest standards.

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Compliance with environmental regulations and commitments
Our approach to managing our Company in an environmentally responsible way is outlined in section 3.4.1. (Environmental matters) and in section 3.4.6. (EU Taxonomy Regulation).
Adherence to our Code of Conduct and complying with applicable laws & regulations
We believe that conducting our business with the highest standard of integrity is essential to our long term success, and that compliance and ethics is everyone’s job and responsibility.
Our Code of Conduct is all about our values and the principles contained therein, which are shared throughout the Company, are the top level reference for guiding our behavior, decision making and activities. Our values are:
Integrity: we conduct our business with the highest ethical standards, honor our commitments, deliver on our promises, are loyal and fair, and stand up for what is right.
People: we behave with openness, trust and simplicity; we are ready to share our knowledge, encourage everyone’s contribution, develop our people through empowerment, teamwork and training; each one of us is committed and personally involved in the continuous improvement process.
Excellence: we strive for quality and customer satisfaction and create value for all our partners; we are flexible, encourage innovation, develop our competences, seek responsibility and are accountable for our actions; we act with discipline, base our decisions on facts, and focus on the priorities.
In 2023, we continued to push forward and refreshed our compliance & ethics awareness and communication campaign (branded “Building Trust Together”), focusing on the importance of integrity and ethical conduct. This initiative establishes clear expectations throughout the Company and invites all employees to speak up without fear of retaliation.
We use a variety of tools to engage with employees, managers and third parties, such as: face-to-face and town-hall meetings, e-learning modules, dedicated intranet webpage, articles, posters, targeted emails and short videos (available in 10 languages). We have also developed a dedicated mobile application, our ST Integrity App, which we use to provide our employees with quick and easy access to important and useful information, push notifications, fun quizzes, training materials, and a link to our ethics hotline and other useful contact information.
We have a zero-tolerance approach to bribery and corruption, regardless of the identity or position of the originator or recipient of any bribe. It is also strictly forbidden for anybody to use Company funds or assets to make a political contribution.
Our Code of Conduct and Anti-Bribery and Corruption policy, which are available in the corporate governance section of our website at investors.st.com, provide clear definitions regarding instances of bribery and corruption, and include detailed descriptions of the Company’s rules for engaging with third-parties. They also explain how to report actual or suspected violations and outline the potential disciplinary actions and legal consequences of any non-compliance.
We encourage everyone, including external business partners, to express, in good faith, any concerns they might have regarding possible violations of our Code of Conduct, the Company’s policies, or the law. Managers are accountable for maintaining a working atmosphere where employees are comfortable about speaking up and expressing their concerns freely.
Our Speak Up Policy is communicated to all employees through, inter alia, our Code of Conduct, dedicated intranet web page and our ST Integrity App. In addition to Company reporting channels, we have an independent multilingual ethics hotline.
We apply a high standard of confidentiality when handling reports of misconduct (received either through management or through the ethics hotline) to ensure that no employee who reports a concern in good faith suffers retaliation in the form of harassment, adverse employment or career consequences.



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Protection against cyber threats
Cybersecurity risk management is an integral part of the overarching risk framework and seeks to identify and address fast-evolving cybersecurity threats. The management of cybersecurity risks are governed by the Executive Committee and receives regular oversight from the Audit Committee as a standing item.
We have a specialized Information Security team within the wider Digital Transformation and Information Technology team of the Company. The Information Security team covers the following:
program definition and steering;
framework, which include third-party security;
awareness and training campaigns;
architecture and engineering;
business applications;
R&D solutions;
manufacturing and industrial solutions;
IT infrastructures;
information security operations (risk-based vulnerability management, privileged access management);
and
detection and reactions to information security incidents, as part of the wider crisis management process.
In particular, within our Information Security team, the Cyber Security Incident Response Team monitor on a continuous basis the evolving cyber threats, and detect and analyze incidents. Based on their initial assessments, any significant risk is escalated and would, if required, trigger the assembly of a Corporate Crisis Team ("CCT"). This CCT would lead the Company response (e.g. containment, forensic investigation, system restoration, and any associated business impact). The CCT would periodically inform the Executive Committee of any developments, and the Executive Committee would in-turn keep the Audit Committee and Supervisory Board informed.
In addition, we have recently created a Third-Party Management function within our procurement department, which will take into consideration cybersecurity risks in the overall management of third parties.
In 2023, an audit by a leading independent organization was completed, focussing on a dedicated review of our cyber crisis playbook.
We have also been certified ISO SAE 21434 (Road Vehicles – Cybersecurity Engineering) since 2022 confirming that we established a certified management system and governance which meets and complies with the requirements of the automotive industry in the field of cyber security process management within product development phases.

3.3.1.5.        Risks having had a significant financial impact during 2023
In 2023, no single risk event had a negative material impact on the Company’s financial results.

3.3.2. Internal Control
Our Managing Board is responsible for ensuring that we comply with all applicable legislation and regulations. As such, under the guidance of our Chief Financial Officer, we have established and implemented internal financial risk management and control systems. These controls and procedures are based on identified risk factors that could potentially influence our operations and financial objectives and contain a system of monitoring, reporting and operational reviews.
We regularly evaluate the effectiveness of our internal controls and procedures and correspondingly advise our Audit Committee on the results of such evaluations, any changes to such internal controls and procedures, as well

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as any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to affect our ability to record, process or summarize and report financial information to our auditors and to our Audit Committee. Likewise, any fraud, whether or not material, that involves management, or other employees who have a significant role in our internal control over financial reporting, are disclosed to our external auditors and to our Audit Committee, which informs our Supervisory Board.
We have established policies and procedures which set forth principles, business rules of behavior and conduct which are considered to be consistent with proper business management, in line with our mission and strategic objectives, such as our Code of Conduct.
We have adopted policies and procedures to describe the operational flow of actions to perform a task or activity, or to implement a policy within a given functional field. We have a large number of standard operating procedures which cover a wide range of activities such as approvals, authorizations, verifications, reconciliations, review of operating performance, security of assets and segregation of duties, which are deployed throughout the Company.
Our internal audit organization ("Corporate Audit") is independent of our management. Its primary objective is to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insights.
Internal audit plans are developed by Corporate Audit and apply a risk-based approach. They are reviewed annually by our Audit Committee and approved by our Supervisory Board. Each year, the internal audit plan includes audit assignments covering a variety of organizational units, processes and risks.
Corporate Audit performs its activities in accordance with the International Standards for the Professional Practice of Internal Auditing, published by the Institute of Internal Auditors.
Based on the information included in this section 3.3. (Risk Management and Internal Control) and the outcome of the aforementioned measures, the Managing Board states that to the best of its knowledge: (i) the internal risk management and control systems in place provide a reasonable assurance that the Company’s financial reporting does not include any errors of material importance as of and for the 2023 financial year; (ii) in relation to the Company’s financial reporting these systems operated effectively during 2023; (iii) it is justified that the financial reporting is prepared on a going concern basis; and (iv) the report states those material risks and uncertainties that are relevant to the expectation of the Company’s continuity for the period of twelve months after the preparation of the report.
Our internal risk management and control systems, including the structure and operation thereof, were discussed and evaluated on several occasions with our Audit Committee, and also discussed by our Supervisory Board, during 2023 (in accordance with best practice provision 1.4.1 of the Dutch Corporate Governance Code).

3.4. Sustainability
Sustainability has been a guiding principle at ST for 30 years. We believe that our commitment to a sustainable culture is good for people, the planet, business, and society at large. Our ambition is to create sustainable technology in a sustainable way for a sustainable world, providing long-term value for all our stakeholders.
Sustainability is embedded in all our activities. We implement programs to manage our impacts, opportunities, and risks at each step of our value chain. We create technologies that enable responsible applications for safer, greener and smarter living. We put people first, prioritize health and safety, well-being, human rights and community empowerment. We are committed to minimizing our impact on the environment by reducing our emissions and energy consumption as well as addressing water and waste related challenges. Our goal is to conduct business in a responsible way, while creating profitable growth, managing risks and meeting stakeholder expectations. Our full approach is detailed in our sustainability charter (available on www.st.com/SustainabilityCharter).
At the heart of our strategy is a strong focus on identifying topics that matter to our business and stakeholders. We carry out a materiality exercise every year, including a review with our main stakeholders. These assessments allow us to prioritize and focus on the relevant topics and address these in our strategy, programs and objectives.

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As in previous years, the most material topics identified in 2023 were: health and safety, greenhouse gas emissions, water efficiency, ethics, and labor and human rights. In addition, we continued to focus on important topics including energy efficiency, water recycling, waste recycling, talent attraction and engagement, diversity, equity and inclusion as well as corporate social responsibility in our supply chain. For each material topic, we define a specific ambition and a long-term goal.
We are included in several sustainability indices, such as Dow Jones Sustainability Index World and Europe, FTSE4Good, EuroNext VIGEO Europe 120, Eurozone 120 and Benelux 120, CAC 40 ESG, MIB ESG, ISS ESG Corporate Rating, Vérité40 and Bloomberg Gender Equality index. As of 2023, we received an MSCI ESG Rating of AAA1. We received an A- score for CDP Water security and an A- score for CDP Climate Change. In addition, as a full member of the RBA, we participate in the collective efforts of the industry to find solutions to global sustainability challenges.
We have been a signatory of the UN Global Compact since 2000. Our sustainability programs are aligned with its ten principles and contribute to 11 of the 17 UN Sustainable Development Goals (“SDG”), as referenced in the table below.
1 The use by ST of any MSCI ESG RESEARCH LLC or its affiliates (“MSCI”) data, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsement, recommendation, or promotion of ST by MSCI. MSCI services and data are the property of MSCI or its information providers and are provided ‘as-is’ and without warranty. MSCI names and logos are trademarks or service marks of MSCI.

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UN Sustainable Development GoalsST sustainability programs
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm3a.jpg
SDG 3 - Good health and well-beingHealth and safety
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm4a.jpg
SDG 4 - Ensure inclusive and quality education for all and promote lifelong learningTalent attraction and engagement
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm5a.jpg
SDG 5 - Achieve gender equality and empower all women and girlsDiversity, equity and inclusion
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm6a.jpg
SDG 6 - Clean water and sanitationWater
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm7a.jpg
SDG 7 - Ensure access to affordable, reliable, sustainable and modern energy for allEnergy and climate change
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm8a.jpg
SDG 8 - Promote inclusive and sustainable economic growth, employment and decent work for allLabor and human rights
Responsible supply chain
Health and safety
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm9a.jpg
SDG 9 - Build resilient infrastructure, promote sustainable industrialization and foster innovationInnovation
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm10a.jpg
SDG 10 - Reduce inequality within and among countriesDiversity, equity and inclusion
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm12a.jpg
SDG 12 - Ensure sustainable consumption and production patternsWaste and chemicals
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm13a.jpg
SDG 13 - Take urgent action to combat climate change and its impactsEnergy and climate change
   https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-stm17a.jpg
SDG 17 - Revitalize the global partnership for sustainable development – multi-stakeholder partnershipsLabor and human rights
During the preparation of this annual report we took note of the guidance on reporting over financial year 2023 issued by the regulator, focussed, amongst others, on the inclusion of further disclosure on various sustainability topics. Although it is our practice to adhere to such guidance as much as possible, for financial year 2023 we have decided to keep our reporting on sustainability topics consistent with prior years, since we are currently extensively preparing to issue an integrated report over financial year 2024, in which this further sustainability disclosure will be included

3.4.1. Environmental Matters
We are committed to managing our business operations in an environmentally responsible way. Consistent with our sustainability approach, we have established proactive environmental policies with respect to the handling of chemicals, emissions, waste disposals and other substances of concern from our manufacturing operations.

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3.4.1.1. Our environmental policy
Our environmental policy (available on www.st.com) describes how we prevent pollution, reduce consumption of natural resources, reduce waste, and minimize impacts from our manufacturing operations. Our environmental policy is in line with international and local regulations and is supported by our sustainability charter.
Our corporate environmental team is responsible for developing environmental programs and procedures. These are then implemented and executed at an operational level by dedicated environmental teams at each site.
Environmental management system 
Our environmental management system is aligned with international standards. Almost all our manufacturing sites are ISO 14001, ISO 50001, ISO 14064 certified and Eco-Management and Audit Scheme (“EMAS”) validated. Our performance and management system is evaluated annually through third-party surveillance audits, and our certifications are renewed every three years. In 2023, we performed a number of audits and all our sites maintained their certifications. Furthermore, to support our culture of continuous improvement, we also conduct internal audits on a three-year basis.
Environment, health and safety legal compliance
To assess the compliance status of our sites and limit any risks related to our license to operate, we have a three-year program to conduct third-party EHS legal compliance audits. This program covers 41 sites, including all our manufacturing sites, all our sites with more than 100 employees and some smaller sites and warehouses. In 2023 we started a new three-year cycle and 3 sites were audited under this legal compliance audit program. We believe that in 2023 our activities complied with then-applicable environmental regulations in all material respects. We regularly engage external consultants to audit all of our environmental activities and create or update environmental management teams, information systems and trainings. We also regularly review and update environmental procedures for our processes. In 2023, there were no material environmental claims made against us.
Monitoring performance 
We evaluate our overall environmental performance by monitoring multiple indicators, such as resource consumption, waste, and air emissions.
All environmental data within the Company is regularly (monthly, quarterly, and annually) collected in our internal central environmental database and reported to all management levels. Tracking the progress of each indicator allows our various sites and organizations to continually adjust and improve their performance. Unless otherwise stated, our environmental data, reported in this section 3.4., covers our 11 largest manufacturing sites.
3.4.1.2. Energy and Climate Change
At the end of 2020, we announced our commitment to become carbon neutral on scope 1 and scope 2 and partially on scope 3 by 2027. This commitment is part of our response to the global climate challenge and reflects our ambition to reduce the impact of our activities on the environment.
Our carbon neutrality program includes:
a comprehensive roadmap covering the reduction of direct and indirect emissions, including product transportation, business travel, and employee commuting; 
the sourcing of 100% renewable energy by 2027; and 
an intermediate milestone, to be achieved by 2025, with full compliance to the 1.5°C scenario defined at the Paris COP21, endorsed by the Science Based Targets Initiative (SBTi). Our intermediate milestone is to reduce by 50% our direct (scope 1) and indirect (scope 2) emissions by 2025 compared to 2018 and to source 80% of renewable energy by 2025. 
Our comprehensive roadmap includes:
reduction of direct emissions of greenhouse gases (scope 1), mainly through investment in equipment to burn the gases (PFCs) remaining after manufacturing;

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reduction of overall energy consumption (scope 2), by improving energy efficiency, sourcing renewable energy and saving 150GWh from 2018 to 2027;
reduction of emissions from product transportation, business travel, and employee commuting (part of scope 3); and
offsetting of the remaining emissions through the identification and implementation of the most credible and relevant carbon avoidance and sequestration programs. Our current environmental programs and data do not include carbon offsetting projects which will form the final part of our carbon neutrality program.
We measure, manage, and report our direct and indirect emissions in accordance with Scopes 1, 2, and partly 3 of the greenhouse gas protocol.
The graph below highlights the breakdown of our greenhouse gas emissions for scopes 1, 2 and part of scope 3.

https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-ghgemissionsrepartition002a.jpg

In 2023, we continued our progress towards carbon neutrality and, although there was an increase in our scope 1 and part of scope 3 emissions (the reasons for which are explained further below), we decreased our global greenhouse gas emissions, as detailed in the table below:
Summary of net CO2 equivalent emissions (KTons)(1)
20232022202120202019
Direct emissions scope 1
514(2)
504481486557
Indirect emissions (purchased electricity) scope 2 market-based (3)
272358473564702
Other indirect emissions (transportation(4)) part of scope 3
120(5)
1119086143
Total emissions9069721,0441,1371,402
(1)The sums may not add up due to rounding of the figures.
(2)2019 refinement to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories used starting in 2023.
(3)Market-based calculation method according to the greenhouse gas protocol standard, includes renewable electricity purchases. Location-based emissions calculated in accordance with the greenhouse gas protocol standard = 902 KTons of net CO2 equivalent for 2023.
(4)The transportation emissions value is a global estimate of employee transportation and transportation of goods.
(5)Increase of post-pandemic business travel and increase of production resulting in increased goods transportation.


Our comprehensive program
(i)Reducing our direct emissions
The use of perfluorinated compounds (“PFC”) in the manufacture of semiconductors accounts for a significant share of our direct air emissions, as defined by scope 1 of the greenhouse gas protocol. It is therefore a central part

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of our environmental strategy to reduce their use and ensure they are treated appropriately before being released into the atmosphere. In 2023, we installed and activated 53 new PFC abatement systems in several of our sites.

In 2023, we updated our methodology to calculate our GHG emissions from PFC usage, in line with the 2019 refinement to the IPCC Guidelines for National Greenhouse Gas Inventories to align with the World Semiconductor Council’s recommendation of May 2023. This updated calculation methodology and an increase in production, have resulted in a 2% increase in our scope 1 direct emissions reported in absolute values. This updated methodology also explains why our PFC emissions per unit of production remained stable despite the installation of new PFC abatement systems.
2023(1)
2022202120202019
PFC emissions
Per unit of production - normalized values
5454567480
Baseline 100 in 2016.
(1) 2019 refinement to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories used starting in 2023.
(ii)Reducing energy consumption 
In 2023, our energy consumption increased (per unit of production) compared to 2022. This was due to an increase in the use of advanced manufacturing technologies, some of which have a higher environmental impact in the manufacturing phase, but the devices are designed to consume less energy in the end application. Despite this, we achieved a 17% decrease vs 2016, contributing to our 2025 goal of 20% decrease compared to 2016.
20232022202120202019
Consumption of energy
Per unit of production - normalized values
8380819986
Baseline 100 in 2016.
All our manufacturing sites continue to develop initiatives to optimize their energy consumption, such as increasing efficiency in the production process, updating and renewing manufacturing equipment and installing energy efficient lighting.
(iii)Increasing our use of renewable electricity 
Renewable sources provided 71% of the electricity we purchased in 2023, compared to 62% in 2022. This is in line with our 2027 target to source 100% renewable electricity. This was mainly due to the purchasing of more renewable electricity certificates. Solar and wind power purchase agreements also play a major role in our transition to 100% renewable electricity by 2027. In 2023, we signed a 15-year power purchase agreement with ERG for the renewable energy to our sites in Italy.
The below table shows our renewable electricity purchased over the past 5 years:
20232022202120202019
Renewable electricity (%) / total electricity purchased
71%
62%51%43%30%
Covers our 11 main manufacturing sites, plus Rennes back-end, Castelletto and Grenoble.
Addressing climate-related risks 
Since 2020, when we declared our support for the Taskforce on Climate-related Financial Disclosure (“TCFD”), we have been working towards implementing TCFD recommendations.
We adopt a double perspective when considering climate-related risks: 
impact of our activities on the environment and people, and 
impact of climate change on our activities. 

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In 2023, we continued to work to address physical risks resulting from climate change that are either chronic (induced by longer-term shifts in climate patterns) or acute (event-driven) in a way that is consistent with the TCFD and the EU Green Deal classification, as illustrated in the following chart.
https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-image_16a.jpg
In 2023, we commissioned an update of the science-based study from an expert third-party to assess the current and future climate risks on our 155 most critical locations (including all our main sites and those of our key manufacturing and logistics partners in our supply chain, located in 25 countries). To guide our adaptation efforts, the analysis was based on two climate change scenarios defined by the United Nations Intergovernmental Panel on Climate Change (IPCC):
SSP2-4.5 (mid-century warming of 1.6 to 2.5°C, end of century warming of 2.1 to 3.5°C versus pre-industrial era)
SSP5-8.5 (mid-century warming of 1.9 to 3°C, end of century warming of 3.3 to 5.7°C versus pre-industrial era)
For each scenario and for each of the 155 locations, climate projections on 2030 and 2050 time horizons show likely evolutions across a range of indicators based on the European Taxonomy classification of climate-related hazards, including:
cyclonic and non cyclonic wind gusts;
coastal and riverine floods;
number of very heavy precipitation days;
freezing conditions such as cold wave duration, number of frost days, or percentage of very cold days;
extreme heat conditions, including heatwave duration and percentage of very warm days;
drought including dry wave duration and water stress; and
landslides, mud flows, rock falls.
A study commissioned in 2021 (referenced below) from a different expert third-party, an environmental consultancy, has been a valuable resource to help us understand the characteristics and impact of water scarcity and our carbon footprint .

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In addition to these global analyses, site-specific studies on natural hazards are also conducted where necessary due to local conditions.
Overall, the purpose of these different climate-related analyses is to feed our site-level business interruption risk assessments and business impact analyses, as well as our site resilience index. Ultimately, they feed into our regularly updated improvement, adaptation and mitigation plans addressing environmental and resilience issues in the medium to long-term.
We are proactively addressing the transition to a lower-carbon economy. In this context, we are in the process of further identifying and assessing policy, legal, technology, and market transition risks, across the short, medium and long-term, as per the TCFD provisions. Simultaneously, we are actively investing in developing and launching new products to help our customers implement new energy saving applications, transforming risk into opportunity, as further described in section 3.4.6. (EU Taxonomy Regulation) below.
3.4.1.3. Water
We have a holistic water strategy, and our management approach includes water stress assessments, conservation programs, water efficiency, and wastewater treatment. To support this, we also consider our energy supply and aim to select the most water-efficient energy sources.
The graph below describes our typical water cycle.

https://cdn.kscope.io/38e10bbf428219443253eefd8ff116b1-water_cyclea.jpg

Our Global Water Policy is available on www.st.com. It reflects, among others, our commitments and approach to managing water within our operations as well as our positive contribution to society and the planet. The policy is based on four key principles:
demonstrating water conservation leadership;
managing water risks and opportunities;
enabling solutions for the world; and
engaging with stakeholders.

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It is our ambition to increase the water resilience of our sites and implement mitigation strategies to minimize risks related to water availability and biodiversity. This process includes reviewing our energy supply to select the most water-efficient energy sources.
We aim to minimize any impact from our operations on local communities through careful management and committed partnerships; and create value by providing responsible products and technologies. Our long-term goal is to implement solutions that protect water resources, and deliver long-term societal value, especially in water-stressed areas.
Assessing and monitoring our impact
A reliable water supply is essential for manufacturing semiconductors. All our sites manage their water-related risks, according to their needs and water availability. Each site monitors the volume of water it uses and complies with local regulations. We engage in regular discussions with local stakeholders and implement solutions to reduce water extraction and consumption. As in 2022, in 2023, 87% of the water used throughout our operations came from municipal water supplies, with 13% coming from groundwater.
Assessing water-related risks
In 2021, we conducted a water assessment to evaluate our global water footprint and identify water stress areas, water-related risks of our operations, as well as our impact on local communities. Using the lifecycle assessment approach, we evaluated our direct and indirect impacts. Using the Water Risk Filter 5.0 methodology, we also identified that most of our manufacturing sites are at medium risk for operational and external risks, water quality and scarcity. In 2022, we went a step further, evaluating each of our manufacturing sites to assess relevant risks and formalize water saving action plans. As a result, all sites defined remedial actions. In 2023 we conducted a detailed review of the environmental impact assessments of our manufacturing sites to verify compliance with current legislation and identify potential areas of improvement. Our approach to sustainable use and protection of water and marine resources is also reflected in section 3.4.6. (EU Taxonomy Regulation, specifically the section Do no significant harm (DNSH).
Reducing our water use 
(i)Water efficiency 
We aim to reduce our water use by continuously improving water efficiency across our operations. In 2023, our water consumption increased (per unit of production) compared to 2022. The increase was due to an increase in the use of advanced manufacturing technologies, some of which have a higher environmental impact in the manufacturing phase, but the devices are designed to have a positive environmental impact in their use phase. Despite this, in 2023, we reduced our water consumption by 10% per unit of production compared to 2016. Our 2025 goal is to improve our water efficiency by 20% compared to 2016. We recognize that further efforts will be necessary to meet this target and we are implementing the action plans identified for each site. Examples of actions being taken are: (i) recycling of waste water to manufacture softened water and ultra-pure water, reducing the use of municipal water for industrial purposes; (ii) drainpipe replacement, drain hose segregation, and the use of recycled water for the cooling tower instead of fresh water and (iii) installation of smart water metering systems to identify and mitigate water consumption inefficiencies and detect leaks and water wastage.
20232022202120202019
Consumption of water
Per unit of production - normalized values
90888910691
Baseline 100 in 2016.
(ii)Water recycling
In 2023, our water recycling rate was 42%, the same level as in 2022. Further efforts are needed to reach our annual goal to recycle at least 50% of water used each year. We have identified our sites where we need to accelerate actions to drive us to our goal.

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Water recycling rate20232022202120202019
Water reused, sent for recycling, or recovered42%42%40%41%41%
One of our main approaches to overall water conservation is to reuse and recycle. However, as we use ultrapure water in our processes, it is not always possible to reuse processed water. Although water can be treated and recycled into ultrapure water, it is more often reused to cover facility needs, such as cooling towers, scrubbers and thermal processing units.
3.4.1.4. Waste
Our waste management strategy is based on the proper classification, separation and safe disposal of waste. It is driven by both local regulations and Company policy, with our sites being expected to respect the most stringent of these requirements. Wherever possible, we give priority to reduction, reuse, recycling and recovery over incineration and landfill. We strive for zero waste and promote a circular economy. Our approach to recycling waste is also further reflected in section 3.4.6. (EU Taxonomy Regulation, specifically the section Do no significant harm (DNSH) - Circular Economy).
In 2023, 96% of the waste generated by our operations was either reused, recovered, or sent for recycling, one percentage point higher than in 2022, in line with our 2025 goal to reach a recycling rate of 95%.
Waste recycling rate
2023
2022202120202019
Waste reused, sent for recycling, or recovered
96%
95%90%88%94%
3.4.2. Labor and Human rights
Labor and human rights are at the core of our history and culture. We continuously monitor and update due diligence programs to identify, prevent, mitigate, and remediate labor and human rights risks, both within our operations and throughout our supply chain. Our programs are established to ensure that all our employees are treated with respect and dignity. We enforce advanced standards and apply a holistic due diligence process covering nine core human rights principles: freely chosen employment, prevention of underage labor and protection of young workers, fair organization of working time, fair wages and benefits, fair treatment and anti-harassment, non-discrimination, freedom of association, fair working conditions and employee well-being, and privacy of personal information.
The main management systems and programs we use to monitor, control and improve labor conditions in our operations are:
a corporate Labor and Human Rights policy deployed throughout our operations (available on www.st.com) aligned with the nine core principles described above;
an internal audit program on labor and human rights, targeting our manufacturing sites, allocating priorities with timely and adequate corrective follow-up actions; and
RBA human rights self-assessments at all our major sites and third-party RBA audits at our 11 largest manufacturing sites.
We run internal audits on labor and human rights at our major sites. In 2023, we conducted two labor and human rights internal audits. The areas of improvement identified were related to management systems and to labor issues such as working hours, overtime rates, days off, and housing standards.
All major production and design sites are required to answer the RBA risk self-assessment on an annual basis, covering 89% of our employees. In 2023, the sites scored from 73.7 to 97/100.
We also run third-party RBA Validated Assessment Program (“VAP”) audits at our 11 largest manufacturing sites, covering more than 80% of our employees. These audits highlight any gaps at the sites, help to identify areas that

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require improvement, and strengthen the local social responsibility culture. In 2023, five of our manufacturing sites obtained RBA Platinum recognition with full compliance (200/200) during their initial audit. With this recognition as per December 31 2023, nine of our largest manufacturing sites had a RBA Platinum recognition, one a RBA Gold recognition and one a RBA Silver recognition. As a result, we consider that 10 out of 11 or our largest manufacturing sites achieved recognition as defined in our 2025 goal - 100% of largest manufacturing sites with external recognition. Our 2023 RBA audit average score exceeds the industry average by 55 points in initial audits and by 6 points in closure audits.
The table below shows an overview of VAP audits performed and their results over the past 5 years.

RBA VAP(1) audit score (score out of 200)
2023
2022202120202019
Number of initial audits
6
5653
ST average score (initial audit)(2)
199
173155186176
Comparison ST vs electronic industry average
+55
+29+10+45+47
Number of closure audits
1
5645
ST average score (closure audit)(2)
187
200198198183
Comparison ST vs electronic industry average
+6
+19+20+22+13
(1)VAP: Validated Assessment Program.
(2)Full mark = 200/200
 

In 2023, the preventive and corrective actions implemented in our operations are described in the table below.


Description
Actions implemented
Risk assessment
Update of internal documentation to encompass regular updates and assessment of labor and human rights risks.
Reporting of violations and promise of non-retaliation
Enhanced communication on grievance mechanisms, including posters, roundtables, and informative sessions, including with supervisors.
Design of checks, including post-meeting questionnaires to verify the effectiveness of the communication channels implemented.
Prevention of underage (child labor) and protection of young workers
Update of local policies and implementation and check of procedures to ensure full overview and verification of all workers’ ages before entering the premises.
Awareness on RBA standard and worker’s rights
Design and implementation of tools to communicate and address questions from employees on social responsibility standards.
To improve our overall performance, we regularly train our community and we encourage best practice sharing between the sites.

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We aim to improve workers’ awareness of their labor rights and to amplify workers’ voices to improve working conditions and mitigate issues that contribute to forced labor. Our Code of Conduct and related ‘speak up’ culture ensures employees are aware of how to raise grievances. Our approach to labor and human rights is also further reflected in section 3.4.6. (EU Taxonomy Regulation, specifically the section Minimum Safeguards).
3.4.3. Anti-bribery and corruption matters
We conduct our business with the highest standards of integrity and believe this is essential for our long-term success. At ST, compliance and ethics are everyone’s job and everyone’s responsibility. We have a zero-tolerance approach to bribery and corruption, regardless of the identity or position of the originator or recipient of any bribe. It is also strictly forbidden for anybody to use Company funds or assets to make a political contribution. Our Code of Conduct and Anti-Bribery and Corruption policy, which are available in the corporate governance section of our website at investors.st.com/corporate-governance and https://investors.st.com/corporate-governance/compliance-ethics-privacy, respectively, provide clear definitions regarding instances of bribery and corruption, and include detailed descriptions of the Company’s rules for engaging with third-parties. They also explain how to report actual or suspected violations and outline the potential disciplinary actions and legal consequences of non-compliance. Risks of non-compliance with our Code of Conduct and Anti-bribery and Corruption policy and relevant mitigation actions are further described above in sections 3.3.1.2 (Risk factors) and 3.3.1.3. (Managing risk according to our risk appetite strategy).
Any actual, potential or suspected violations of our Anti-Bribery and Corruption policy and all requests for bribes must be reported without delay. Such reports must be made in accordance with our Speak Up Policy, as further described in section 3.3.1.4. (Illustrative risk management measures, more specifically the paragraph Adherence to our Code of Conduct and complying with applicable laws and regulations). Records of all reports that have been made within our Company, are kept by either the Chief Audit and Risk Executive or the Chief Compliance & Ethics Officer. If any situation of bribery or corruption is identified, it is investigated and reported to our Audit Committee. Any violation of our Anti-Bribery and Corruption policy will be deemed a serious violation of our principles and will lead to disciplinary actions including and up to termination of the relationship with us.
Our approach to anti-corruption and bribery matters is also further reflected in section 3.4.6. (EU Taxonomy Regulation, specifically the section Minimum Safeguards).
The below table sets forth an overview of concerns reported through our ethics hotline in 2023 and 2022(1):

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Ethics Hotline Reports
2023
2022
Number of cases
337
102
Number of cases under review as of January 1st
17
7
Number of cases reported during the year
320
95
Number of cases per category
       Asset misappropriation
24
3
Bribery & corruption
11
9
Conflict of interest
7
2
       Fraudulent statements
0
0
Harassment and other behavioral issues
187
66
Environment, health & safety issues
5
2
Data privacy
0
0
Cyber security
9
0
Insider trading
0
0
Other grievance
94
20
Cases closed after a preliminary assessment or formal investigation
260
85
        Number of confirmed external misconduct cases
4
5
                  which led to termination of contracts with business partners
0
4
        Number of confirmed internal misconduct cases
71
29
                  which led to employees being dismissed or disciplined(2)
51
28
Cases still open at year end
77
17
Number litigations or investigations conducted by authorities regarding corruption against us or our employees
0
0
(1)We included locally reported cases, in addition to cases reported at corporate level.
(2) After follow-up actions, including coaching, training and awareness sessions, which are not considered disciplined measures.

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3.4.4. Social and employee matters
3.4.4.1. Health and safety
Health and safety is a constant priority for us. We protect the health and safety of our employees and contractors by providing a safe working environment aiming to prevent work related injuries and illnesses. We offer access to healthcare and believe it is essential to invest in the well-being of our people to create a positive and productive workforce. These values are shared and reinforced across all our sites.
We have implemented a robust health and safety management system throughout our Company. Our main manufacturing sites are ISO 45001 certified.
Our performance and management systems are evaluated annually through third-party surveillance audits and certifications are renewed every 3 years. All sites follow our corporate occupational health and safety policy (available on our website www.st.com), which aims to establish and maintain health and safety best practices.
In 2023, we audited nine sites as part of our internal corporate EHS audit program that aims to assess a site’s performance and practices against EHS objectives, programs, and procedures.
We continually strengthen our safety culture by re-enforcing safe behaviors and working conditions through visits, training, audits, best practice sharing and communication. We encourage the reporting and investigation of near-misses, hazards, and unsafe behaviors and conditions as part of our proactive approach.
We align our safety programs with industry risks, with a priority on preventing employees’ potential exposure to hazards such as chemicals, fire, radiation and nanomaterials; movements and work at height; and mechanical, handling and ergonomic risks.
In 2023, we maintained our safety performance through collective efforts across our sites, with a recordable case rate (injuries) for our employees of 0.10, better than our target of 0.13.
2023
2022202120202019
Employee recordable case rate - injuries
0.10
0.100.120.140.16
Per 100 employees per year as defined by OSHA-US regulation.

The total recordable rate which includes our employees' and contractors’ injuries and occupational diseases was 0.14, 0.02 points higher than in 2022, but nevertheless in line with our 2025 goal of less than 0.15. The table below shows the total recordable rate as of 2021, when we started to monitor this rate.
2023
20222021
Total recordable case rate for employees and contractors – injuries and illnesses
0.14
0.12
0.15
Per 100 employees per year as defined by OSHA-US regulation.
We believe in helping our employees to adopt healthy lifestyles because we know good health is the foundation of a fulfilling and productive life. Our health plan provides our employees with a high level of medical care, including regular medical check-ups, vaccinations and prevention screening.
Employee well-being and high-quality working conditions are a priority for us. In 2020, we partnered with an external healthcare platform which provides 24/7 access to dedicated confidential assistance. Nearly 16,000 connections to the platform have been registered since it opened in 2020. A network of over 300 psychologists and other specialists is also available to employees and their families.
3.4.4.2. Attraction and engagement
Recruiting and retaining the best talent is a critical cornerstone to supporting and sustaining our business growth ambitions. It enables us to address staffing challenges such as the competitive labor market, the size of the labor

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pool, skill shortages and the need to rejuvenate our workforce by recruiting young talent. In 2023, we have continued to improve employee experience through an effective strategic end to end talent management, boosted by internal mobility and development opportunities. We also continued to build strategic partnerships with universities and engineering schools throughout the world to ensure a regular flow of candidates, while also establishing education pathways to respond to our specific competence needs.
Our 2023 employee survey consisted of 75 questions covering key categories, including engagement, organizational agility, quality, and customer focus. The global participation rate was 87% of employees and the overall engagement index was 86%. This is an increase of 3 points on 2021 (when our last full engagement survey was conducted), and one point above the Global High Performance1 Benchmark (75th percentile score).

Employee survey – engagement rate (%)
2023
2022 (1)
202120202019
Overall participation rate
87
67898990
Individual engagement index
86
86838279
(1)     In 2022 we did not run a full engagement survey, but rather a focus survey on diversity, equity and inclusion.

3.4.4.3. Diversity, Equity and Inclusion
We are a global company with a presence in more than 40 countries and we offer a diverse working environment. We have more than 50,000 employees with more than 120 nationalities working together as one team. We believe that diversity, equity and inclusion enable innovation and stakeholder engagement, as well as personal and company growth. We have zero-tolerance for discrimination of any kind and are committed to building a diverse workforce throughout our organization, including but not limited to, nationality, age, gender, disability, ethnic origin, and personal beliefs.
Diversity, equity and inclusion, is an important pillar of our employer value proposition. It is prominent in all our employer branding campaigns and is a tracked indicator in all our recruitment worldwide. Our aim is to overcome stereotypes by continually reinforcing an inclusive mindset that recognizes the value and richness of a diverse workforce. To help us achieve this, we provide diversity and inclusion training for our employees. In 2023, over 8,000 employees completed the diversity, equity and inclusion e-learning course.
3.4.4.4. Gender balance
On January 1, 2022, the Dutch Gender Balance Act (Wet evenwichtige man-vrouw verhouding, “GBA”) promoting gender diversity within the management of large companies entered into force. Pursuant to the GBA, below we report on (i) the current composition of our Supervisory Board, Managing Board and our Senior Management (as defined in chapter 5. Managing Board) in number of men and women, (ii) the gender diversity target that we have set for our Supervisory Board and our Senior Management, (iii) our action plan to reach these gender diversity targets; (iv) the results of our efforts in meeting the set gender diversity targets. For the purpose of reporting under the GBA, we consider our Senior Management to be our sub-top as referenced in the GBA.
We operate in an industry in which women are traditionally under-represented, and it is a priority for us to attract, retain and grow our female talent pool. We aim to encourage girls to choose technical studies at an early stage in their education, helping us to address the shortage of women in technical positions. In 2023 we continued to promote diversity in STEM (Science, Technology, Engineering and Mathematics) functions. We organized local initiatives that raise awareness among people about the importance of STEM related subjects.
Composition of our Supervisory Board, Managing Board and Senior Management indicated in number of men and women
On December 31, 2023, our Managing Board consisted of one male, Mr. Jean-Marc Chery, the sole member of our Managing Board, our President and Chief Executive Officer.

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On December 31, 2023, our Supervisory Board consisted of 9 members, of which 4 female (44%) and 5 male (56%). Please refer to section 4.1. (Composition of the Supervisory Board) for further details on the composition of our Supervisory Board.
On December 31, 2023, our Senior Management consisted of 31 members, of which 3 female (10%) and 28 male (90%). More specifically, on December 31, 2023, our Executive Committee consisted of 9 members, of which 1 female (11%) and 8 male (89%), and our Executive Vice Presidents as a group consisted of 22 members, of which 2 female (9%) and 20 male (91%). Please refer to section 5.4. (Managing Board) for further details on the composition of our Senior Management.
Gender diversity target for our Supervisory Board, Managing Board and Senior Management
Gender diversity target Managing Board. Our Managing Board has historically consisted of one person, therefore we have not set a gender diversity target for our Managing Board.
Gender diversity target Supervisory Board. As stated in our gender diversity policy for our Supervisory Board, the gender diversity target for our Supervisory Board is that at least 30% of its members is male and at least 30% is female. On December 31, 2023, our target was exceeded for both the male and female members of our Supervisory Board as mentioned above.
Gender diversity target Senior Management. Our gender diversity target for our Senior Management is that at least 20% is female and at least 20% is male by 2025, to ensure a more balanced ratio of male and female members within our Senior Management. The same target applies respectively to our Executive Committee, and to our Executive Vice Presidents as a group.
Gender diversity action plan
Managing Board. We do not have a gender diversity action plan in place for our Managing Board as our Managing Board consists of one member and this practice is expected to continue in the coming years, and we have subsequently not set a gender diversity target for our Managing Board.
Supervisory Board. No specific gender diversity action plan is in place for our Supervisory Board as in its current composition our gender diversity targets for our Supervisory Board are met and even exceeded.
Senior Management. We have implemented a gender diversity action plan to achieve the above mentioned gender diversity target for a more balanced ratio of male and female members in our Senior Management. This plan is applied respectively to our Executive Committee and to our Executive Vice Presidents as a group.
We are committed to strengthening the role of women in building the future of our Company and have therefore accelerated the relevant programs aimed at increasing the proportion of women in management roles. Programs such as the Women in Leadership ("WIL") and Advanced Women in Leadership ("AWIL") programs play a key role in preparing the pipeline of women in management roles within our Company to ultimately reach the above mentioned gender diversity target in our Senior Management, in our Executive Committee and in our Executive Vice Presidents as a group.
The WIL program launched in 2015 for junior and middle management aims to prepare the next generation of female leaders. The AWIL program, launched in 2021 is aimed at senior female managers and directors to identify their leadership style and increase their visibility and recognition within our Company. Both programs consist of training, coaching and mentoring.
Furthermore, we are committed to continuing our efforts to ensure that 30% of recruits in executive positions are women.
Results
Supervisory Board. With regard to our Supervisory Board, the gender diversity target of at least 30% male and at least 30% female has been exceeded.
Senior Management. With regard to our Senior Management, in 2023, we exceeded our target of 30% on all exempt hiring which increased our women managerial talent pool. Our WIL and AWIL programs accelerate the development of women for leadership positions in our Company. We continue to make progress in women

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representation at all management levels, and thus are confident to reach our gender diversity target for our Senior Management by 2025. 
Due to a shortage of women in our executive talent pool, the female representation within our Senior Management remained unchanged compared to December 31, 2022. More specifically per December 31, 2023: (i) the female representation in our Senior Management remained 10%; (ii) the female representation in our Executive Committee remained 11% and (iii) the female representation in our Executive Vice Presidents as a group remained 9%.
We remain committed to increasing the representation of women in executive levels, both by increasing the internal pool and building an external one with sourcing partners. 
Women in our management
At the end of 2023 35% of our global workforce consisted of women. Strengthening the role of women in building our future is one of our ongoing objectives. Our target for 2025 is to increase the percentage of women at all management levels to 20%. As shown in the table below, we continue making progress.

Women in management (%)20232022202120202019
Junior managers
27
27
26
25
24
Experienced managers
21
20201918
Directors and senior managers
16
15141313
Executives (total)
14
1310109
of which belong to the Executive committee and Executive Vice President group
10
91244
Total women in management position (%)
20
19181717
Women in the Supervisory Board
44
44444444
3.4.5. Corporate social responsibility in our supply chain
As a multinational company with a complex supply chain, our corporate social responsibility goes beyond our own operations and includes a review of our suppliers and subcontractors. We are committed to partnering only with suppliers who share our values of respecting people and the environment. We increasingly raise the corporate social responsibility standards expected from them and reinforce our internal capacity to address and remediate any adverse impact identified. 
To identify, manage, prevent, and mitigate sustainability risks, we conduct regular risk assessment of our supply chain during the life cycle of our business relationship. 
We assess risks prior to on-boarding suppliers. In 2023, 100% of our new material suppliers were assessed for sustainability risks, including, amongst others, risks on forced labor, occupational health and safety and the environment. We conduct an annual risk assessment of our tier one suppliers based on specific risk criteria. These include supplier activity risks and supplier location risks extracted from a supply chain intelligence platform. We refine the process according to spend and the regular presence of suppliers on site.   
When specific risks, such as forced labor, are identified in our upstream supply chain, we extend our due diligence to sub-tier suppliers.

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Once on-boarded, suppliers must declare that they have read and understood our business ethics and corporate responsibility statement and that they agree to comply with the latest version of the RBA code of conduct and to deploy the code to their own supply chain. In addition to this, we require our high-risk suppliers to go through a three-step process: 
Commitment letter: suppliers sign a supply chain responsibility commitment letter, agreeing to comply with the RBA code of conduct, to complete self-assessment questionnaires and accept second or third-party audits;
Self-assessment questionnaire: suppliers complete an RBA risk self-assessment (SAQ); and
Audit and follow-up: suppliers receive a third-party RBA VAP audit, or a second-party RBA-based audit, to monitor and control compliance and address areas of non-compliance with corrective actions. All audited suppliers with non-conformances must put corrective actions in place. These are verified in a follow-up closing audit. 
97% of our high-risk suppliers signed the RBA commitment letter to contractually engage on RBA standards and audits.

3.4.6. EU Taxonomy
3.4.6.1    The EU Taxonomy Regulation
On July 12, 2020, EU Regulation 2020/852 of the European Parliament and of the Council of June 18, 2020 (the “EU Taxonomy Regulation”) entered into force. The EU Taxonomy Regulation establishes the basis for a classification system to determine which economic activities can be considered environmentally sustainable. The EU Taxonomy Regulation is part of the EU's overall efforts to reach the objectives of the European Green Deal, Europe's strategy towards climate neutrality in 2050. The EU Taxonomy Regulation is designed as a transparency tool to help companies and investors make sustainable investment decisions, with the overall purpose to steer financing towards more sustainable economic activities. Pursuant to the EU Taxonomy Regulation, we are required to disclose information on how and to what extent our activities qualify as environmentally sustainable. The EU Taxonomy Regulation is implemented in phases and will further develop over the coming years. Consequently, disclosure obligations under the EU Taxonomy Regulation will enter into force in multiple phases. The EU Taxonomy Regulation effective as per reporting year 2021 is recent legislation and includes additional reporting obligations for financial year 2023 as a result of changes to the EU Taxonomy Delegated Acts (as defined below) and presentation formats.
Environmental objectives
The EU Taxonomy Regulation defines overarching conditions which an economic activity must meet to be considered environmentally sustainable and focuses on six environmental objectives, being (i) climate change mitigation, (ii) climate change adaptation, (iii) the sustainable use and protection of water and marine resources, (iv) the transition to a circular economy, (v) pollution prevention and control and (vi) the protection and restoration of biodiversity and ecosystems. For these environmental objectives, several delegated acts have been issued containing technical screening criteria (“Taxonomy technical screening criteria”), which specify environmental performance requirements for the economic activities to be classified as environmentally sustainable (“EU Taxonomy Delegated Acts”).
On January 1, 2022, the EU Taxonomy Delegated Act on climate change mitigation and climate change adaptation entered into force. The EU Taxonomy Delegated Acts on the other four environmental objectives entered into force on January 1 2024, as well as the amended EU Taxonomy Delegated Acts on climate change mitigation and climate change adaptation (the "Climate Delegated Act").




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Eligibility and alignment
For financial year 2023, as a non-financial undertaking, we have to disclose information on our economic activities which are eligible (“Taxonomy-eligible”), non-eligible ("Taxonomy non-eligible") and aligned (“Taxonomy-aligned“) under the EU Taxonomy Regulation.
An economic activity can be considered Taxonomy-eligible when the economic activity is described as such in the relevant EU Taxonomy Delegated Act. To assess whether the relevant economic activity can also be considered Taxonomy-aligned, an additional evaluation must be made to identify if the overarching Taxonomy technical screening criteria are met. Economic activities that are not described in the EU Taxonomy Delegated Acts are considered Taxonomy non-eligible.
3.4.6.2    Applicability of the EU Taxonomy Regulation to ST
As a listed company the EU Taxonomy Regulation is applicable to us, and subsequently, we must disclose information on how and to what extent our economic activities are associated with economic activities that qualify as environmentally sustainable under the EU Taxonomy Regulation.
We have taken note of the developments of the EU Taxonomy Delegated Acts relating to the six environmental objectives. We notably screened all the economic activities listed in the EU Taxonomy Delegated Acts for each environmental objective. Our activities are not described in the EU Taxonomy Delegated Act on the other four environmental objectives and are not included in the additional activities added to the Climate Delegated Act. This assessment did not result in additional disclosures on economic activities included herein compared to our reporting over financial year 2022.
For financial year 2023 in relation to climate change mitigation and climate change adaptation, we hereinafter include disclosure of: (i) Taxonomy-eligible and Taxonomy-aligned economic activities, (ii) Taxonomy-eligible and Taxonomy-non-aligned economic activities, and (iii) Taxonomy non-eligible economic activities within our turnover, capital expenditure and operating expenditure. In addition for financial year 2023, in relation to the four other environmental objectives, we hereinafter include disclosure of Taxonomy non-eligible economic activities within our turnover, capital expenditure and operating expenditure.
The following disclosures pursuant to the EU Taxonomy Regulation are based on the most recent interpretations of the EU Taxonomy Regulation as published by the European Commission. Acknowledging that the EU Taxonomy Regulation is still under development and its interpretation and application is evolving, our disclosure approach under the EU Taxonomy Regulation might consequently evolve accordingly.
Environmentally sustainable activities
Under the EU Taxonomy Regulation an economic activity is considered environmentally sustainable (“EU Taxonomy-aligned”) if it meets the following conditions:
(1)provides a substantial contribution to one of the six above-mentioned environmental objectives by complying with Taxonomy technical screening criteria;
(2)does not significantly harm any of the other environmental objectives (i.e. does not support one environmental objective at the expense of progress on another environmental objective) (“DNSH”); and
(3)complies with internationally recognized minimum safeguards (e.g. OECD Guidelines for Multinational Enterprises, UN Guiding Principles on Business and Human Rights) (“MSS”).
We assessed our economic activities against the EU Taxonomy Regulation classification system in various steps, amongst others: (i) identifying the economic activities relevant for the EU Taxonomy Regulation disclosure, (ii) performing a Taxonomy-eligibility assessment based on the relevant EU Taxonomy Delegated Act, and (iii) assessing Taxonomy-alignment of the economic activities. For the disclosure of Taxonomy-eligibility and Taxonomy-alignment we assessed the proportion of our turnover, capital expenditure and operating expenditure, related to environmentally sustainable activities.


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Enabling economic activity
We believe that the semiconductor industry plays a key role as a strategic enabler of a low carbon society as well as to manage the transition towards carbon neutrality. As part of our value proposition, we aim at designing and manufacturing products that are power efficient and support our customers in developing technologies that have low carbon footprint. Low carbon applications such as electric mobility, renewable energies, smart cities, or smart building have been and remain strategic markets for us. We are a market leader in the design and manufacturing of power solutions and motor control enabling products, in which there are ample opportunities for short-term impact on greenhouse gas emissions. We are also a market leader in terms of ultra-low power ICs such as sensors or microcontrollers.
While some sectors contribute directly to climate change mitigation and climate change adaptation, we, as an intermediate product manufacturer, enable “the manufacturing of low-carbon technologies”, which activity is also covered by the EU Taxonomy Regulation classification system. Our activities which aim at contributing to climate change mitigation and climate change adaptation, are the manufacturing of electronic components that enable other sustainable economic activities and applications. The relevant EU Taxonomy Delegated Act lists economic activities that may be considered Taxonomy-eligible based on associated so-called NACE codes. For our Taxonomy-eligibility we report on NACE code 26: “Manufacture of computer, electronic and optical products”; and NACE code 26.11: “Manufacture of electronic components”. NACE code 26.11 is considered relevant for the semiconductor market as confirmed in the guidance published on the interpretation of the EU Taxonomy Regulation by the European Commission in October 2022. For financial year 2023, we therefore continue reporting under section 3.6 of the EU Taxonomy Delegated Act on Manufacture of low carbon technologies.
Our EU Taxonomy-eligibility assessment
In our Taxonomy-eligibility assessment we identified all our products, which aim at contributing substantially to climate change mitigation. These products are divided into the following four product categories: (i) products that have a low carbon manufacturing footprint compared to similar products of a previous generation, (ii) products that have low power consumption or low power loss characteristics compared to similar products manufactured by us or others, (iii) products that bring an advantage to run a low greenhouse gas emission end application or (iv) products that bring an advantage to improve efficiency of high greenhouse gas emitting end applications.
With regard to climate change adaptation, we constantly assess how our products could contribute to climate change adaption and potentially qualify under the relevant EU Taxonomy criteria. Capital expenditure related to the implementation of climate change adaptation solutions is less than 1% of our total capital expenditure as reported in Notes 7.6.10, 7.6.11 and 7.6.12 of our consolidated financial statements for the year ended December 31, 2023.
3.4.6.3    EU Taxonomy reporting – Taxonomy-eligible economic activities related to climate change mitigation
Our approach towards application of the EU Taxonomy Regulation for the relevant KPIs: turnover, capital expenditure and operating expenditure for EU Taxonomy reporting purposes is reflected below.
Turnover of Taxonomy-eligible economic activities
In our Taxonomy-eligibility assessment all our product lines have been reviewed. Products falling into one of the four product categories referenced above are considered Taxonomy-eligible and we have included the relevant turnover generated from those products in the Taxonomy turnover calculation.
This assessment resulted in a turnover of Taxonomy-eligible economic activities amounting to 40% of our total revenues reported for the financial year 2023, whereby the denominator is based on our total revenues as reported on the consolidated income statement for the year ended December 31, 2023, while the numerator is based on the total net turnover of our products considered as Taxonomy-eligible. This is to compare to 38% for the financial year 2022, following product portfolio evolution.
Capital expenditure of Taxonomy-eligible economic activities
To determine the Taxonomy-eligible portion of our capital expenditure the following has been taken into account:

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investments in our technologies, which have been directly associated with Taxonomy-eligible product lines based on our capital expenditure plan for each technology;
individual measures, such as investments for our carbon neutrality program or investments related to energy efficiency of our processes;
investments related to IP or licenses or capitalized development costs, which have been classified as Taxonomy-eligible based on the relevant product line; and
lease of buildings and equipment which have been considered as fully or partially Taxonomy-eligible.
For determining the Taxonomy-eligible portion of the capital expenditure, the denominator is determined based on the 2023 additions to property, plants and equipment (including rights of use for leased assets), intangible assets (including capitalized development costs), as reported in Notes 7.6.10, 7.6.11 and 7.6.12 of our consolidated financial statements for the year ended December 31, 2023.
Furthermore, the numerator equals the part of the capital expenditure (including IFRS 16 leases) related to assets or processes that (i) are associated with Taxonomy-eligible economic activities, (ii) are part of a capital expenditure plan to expand Taxonomy-eligible economic activity, and (iii) are individual measures enabling economic activities to become low-carbon or to lead to greenhouse gas reduction.
This results in a capital expenditure of Taxonomy-eligible economic activities amounting to 48% of our total capital expenditure for the financial year 2023, higher than the ratio published for the financial year 2022 (46%). This growth is primarily driven by a more granular and wider coverage of our investments review.
Operating expenditure of Taxonomy-eligible economic activities
For determining the operating expenditure of Taxonomy-eligible economic activities, the denominator is determined based on R&D expenses, as reported in our consolidated income statement for the year ended December 31, 2023, after deducting depreciation and amortization, certain expenses and overheads, which are not directly associated with the development of new products or technologies.
Furthermore, the numerator equals to the part of the operating expenditure included in the denominator that is any of the following: (a) related to assets or processes associated with Taxonomy-eligible economic activities, (b) part of the capital expenditure plan to expand Taxonomy-eligible economic activities. For the numerator, we reviewed each R&D project with the following approach:
each R&D project linked to a product line classified as Taxonomy-eligible resulted in Taxonomy-eligible operating expenditure; and
for the remaining R&D projects serving multiple product lines or technologies, we applied relevant allocation keys taking into account, amongst others, the above mentioned Taxonomy-eligible portion of our turnover.
This assessment results in operating expenditure of Taxonomy-eligible economic activities amounting to 47% of our total operating expenditure for the financial year 2023, compared to 35% in 2022. This growth is primarily driven by a more granular and wider coverage of our R&D projects review.
3.4.6.4    EU Taxonomy Regulation reporting – Taxonomy-aligned activities related to climate change mitigation
As mentioned above, Taxonomy-alignment implies that the economic activities comply with the following three conditions:
(i)providing a substantial contribution to one of the six environmental objectives by complying with the Taxonomy technical screening criteria;
(ii)complying with the DNSH criteria; and
(iii)complying with the minimum safeguards criteria.


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(i)Substantial contribution
Turnover of environmentally sustainable (Taxonomy-aligned) economic activities
To verify to what extent the turnover is aligned according to the Taxonomy technical screening criteria of the “Substantial contribution to climate change mitigation” from EU Taxonomy Regulation, we apply the principles of the described activity as reflected under 3.6 “Manufacture of other low carbon technologies”: “the economic activity manufactures technologies that are aimed at and demonstrate substantial life-cycle greenhouse gas emission savings compared to the best performing alternative technology/product/solution available on the market”.
In the case of semiconductors, the greenhouse gas reduction can come from both products (supply, manufacturing, end-of life) as from contributions to application impact (usage). Therefore, we have adopted a combined approach to reflect this duality. Firstly, for all our product lines classified as Taxonomy-eligible on the basis of their low power consumption characteristics or the low manufacturing footprint criteria, life-cycle greenhouse gas emissions have been calculated and compared to a previous generation of products made by us. As a result, the sales of certain products have been excluded from our turnover calculation. For the product lines classified as Taxonomy-eligible on the basis of their contribution in a low or high greenhouse gas emitting end applications, a second assessment has been performed at application level, aiming at qualifying our substantial contribution. We have considered an internal application classification to reflect the overall impact of the semi-conductor on the electricity consumption of the application, hence its implied greenhouse gas emissions. We selected the turnover of our product lines ending in applications considered, as either low greenhouse gas emitting applications (e.g. electric vehicle) or high greenhouse gas emitting but transitional applications (e.g. data center servers), on the basis of the high impact of the semiconductor in the reduction of greenhouse gas emissions during the operating lifetime of the applications.
Capital expenditure of environmentally sustainable (Taxonomy-aligned) economic activities
A similar approach as for Taxonomy-eligibility has been adopted to determine the Taxonomy-alignment of our capital expenditure and consistent with the approach defined for the Taxonomy-alignment of the turnover. Notably for the main category related to the investment in our technologies, where the investment supporting product lines aligned as per the turnover approach were included i.e. the ones bringing a key advantage to low or transitional greenhouse gas emitting end applications.
An allocation key derived from the proportion of our aligned investment was applied to building and equipment, and other capital expenditure not directly linked to a product line.
Operating expenditure of environmentally sustainable (Taxonomy-aligned) economic activities
A similar approach as for Taxonomy-eligibility has been adopted to determine the Taxonomy-alignment of operating expenditure, and consistent with the approach defined for the Taxonomy-alignment of the capital expenditure. Substantial contribution was determined by either associating the R&D project with a product line, or by applying a relevant ratio of aligned turnover.
(ii)Do No Significant Harm (DNSH)
The second pillar of our approach to Taxonomy-alignment relates to the demonstration that our economic activity does no significant harm to the other five environmental objectives included in the EU Taxonomy Regulation:
climate change adaptation;
sustainable use and protection of water and marine resources;
pollution prevention and control regarding use and presence of chemicals;
protection and restoration of biodiversity and ecosystems; and
circular economy.
For each environmental objective, we have designed templates to approach the various sub-criteria in a consistent manner across our activities. Only the pollution prevention and control regarding use and presence of chemicals’

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objective resulted in the identification of product lines which were not compliant and had a direct negative impact on the Taxonomy-aligned turnover, capital expenditure and operating expenditure KPIs.
Climate change adaptation
As mentioned in 3.4.1 section, we performed a climate risk and vulnerability assessment together with an external provider to ensure that climate projections are based on state-of-the-art science compared to two scenarios set out by the United Nations Intergovernmental Panel on Climate Change, as required under this DNSH criterion. This assessment covers all relevant ST and partner sites and features a risk analysis (projected evolution of physical risks (natural hazards)) as well as an overall vulnerability assessment (aggregated peril-score compiling the overall multi-natural-hazard exposure to future climate). Once finalized, the detailed results (with site specific areas of focus) were communicated to all relevant internal stakeholders at corporate levels. Priority sites were identified based on these results. These sites provided a preliminary view on existing climate change adaptation efforts based on their exposure and will continue working on a more detailed roadmap in terms of climate change adaptation.
The outcome of this analysis confirmed our compliance with the DNSH criterion in connection with climate change adaptation.
Sustainable use and protection of water and marine resources
We have completed an environmental assessment for all our manufacturing sites and main R&D centers and have a view at site and corporate levels on the risks associated with the preservation of the water quality and the prevention of water stress. As part of our environmental processes, we have actions plan in place to address the risks identified to ensure that deterioration is avoided.
All our manufacturing sites and several of our key sites of R&D are ISO 14001 certified for our environmental management system. Most manufacturing and R&D sites are EMAS validated.
The outcome of this analysis confirmed our compliance with the DNSH criterion in connection with sustainable use and protection of water and marine resources.
Pollution prevention and control regarding use and presence of chemicals
Managing chemical substances and materials used in our manufacturing sites is critical for protecting people, preserving the environment, and complying with legal and customer requirements. Accordingly, for all materials including chemicals and gases entering at any of our sites, a site chemical committee authorizes the use and evaluates the best management solutions, both for new processes and modification of existing processes. In addition, since 1996 we have defined our environment, health and safety regulated substances list detailing the substances, which use is prohibited and those which use is restricted to selected applications only and/or is subject to strict measures.
The review performed for the DNSH assessment was done at substance level in order to evaluate if our activities do not lead to the manufacture, placing on the market or use of the listed substances as reflected in the relevant DNSH – criteria following from the EU Taxonomy Delegated Act. For each of the requirements following from the DNSH-criteria a detailed evaluation was carried out comparing the requirements to the current situation in our manufacturing sites and subcontracted manufacturing activities. This analysis included an assessment of the manufacturing-related raw materials delivered to all our sites. For the financial year 2023, we have considered the updated Appendix of the DNSH pollution leading to an adjustment of our approach compared to the financial year 2022.
A detailed assessment was performed at product line level in order to exclude associated revenues not compliant with the Appendix C paragraphs and to enable consistency with the approach taken for turnover. Notably, exclusions were performed when substances of very high concern were above the threshold as included in Appendix C or when not in compliance with the regulations and directives mentioned in Appendix C. We used the possibility to consider compliance in case there is no technical alternative available on the market and that those substances are used under controlled conditions, only for one substance - Lead - used in our manufacturing process. ST is a member of the Die Attach5 consortium which seeks to standardize solutions for lead-free solders for attaching dies to packages during manufacturing, however at this stage Lead used in the semi-conductor industry does not have currently a suitable alternative available on the market.

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The outcome of this analysis confirmed that most of our product lines are compliant with the EU Taxonomy Regulation. However, part of our turnover was excluded notably due to the use of substances of very high concern above the mentioned threshold. Alternatives are constantly being further investigated in our manufacturing processes or products. This may result in adjustment of this assessment and related reporting in the future.
Consistent with the approach defined for the turnover, the investment supporting product lines not compliant with DNSH on pollution prevention were excluded from the Taxonomy-alignment of the capital expenditure and any R&D project linked to a product line not compliant as per the DNSH on pollution prevention was excluded from the Taxonomy-alignment of the operating expenditure.
Protection and restoration of biodiversity and ecosystems
We have completed an environmental assessment for all our manufacturing sites and main R&D centers. All the sites have put in place policies on the impact of their activities on the environment and maintain a system to monitor and manage such impact. In addition, we commissioned a specific study from an external provider to provide an assessment on the biodiversity and ecosystems in the areas close to our sites and operations. Our sites were assessed from our front-end and back-end activities, along with three R&D and design centers. To date, several initiatives have been carried out to protect biodiversity of the areas around our sites (e.g. low mowing or insect hotels). Certain sites have defined biodiversity targets and started the evaluation of the diversity of species in their vicinity.
Based on the outcome of the specific biodiversity and ecosystems study, ongoing efforts are taken at our sites to assess enhanced potential mitigation measures to further protect the environment.
The outcome of this analysis confirmed our compliance with the DNSH criterion in connection with protection and restoration of biodiversity and ecosystems.
Circular economy
We have deployed several actions to promote the reuse and use of secondary raw materials and reused components in manufactured products. Our recycling solution for silicon for example allows avoiding extraction and transportation of silicon. Furthermore, our scrap of silicon is valorised in a foundry where when added to aluminium it is then used in automotive, aeronautics and solar panel manufacturing.
Our waste management process prioritises recycling over disposal, in the manufacturing process. Action plans have been defined at site level to increase the recycling rate. These actions are verified during RBA, ISO 14001 or EMAS audits. First actions have been implemented to reduce the packaging, then the remaining waste is compressed and recycled. Several initiatives are in place, for example, some of our wafers and frame packing are returned to suppliers and reused by them, or our carton waste resulting from material packaging is sent for recycling.
Information on and traceability of substances of concern throughout the life cycle of the manufactured products are notably performed through material declaration forms. Our analysis as part of the DNSH pollution prevention also demonstrates our ability to identify the substance present in our processes or in products.
The outcome of this analysis confirmed our compliance with the DNSH criterion in connection with circular economy.
(iii)Minimum Safeguards
The last pillar of the Taxonomy-alignment assessment relates to the compliance with minimum safeguards. We have performed a detailed analysis of the following regulations: the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights. Our review also included the EU Charter of Fundamental Rights and the European Pillar of Social Rights. Our financial year 2022 analysis was reviewed and updated for financial year 2023, considering the FAQ published by the European Commission in October 2022 with additional analysis performed on Corruption, Taxation and Fair competition criteria. Our 2023 assessment also took into account the updated version of the OECD guidelines published in 2023.

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Our analysis was performed on our own operations based on internal audit (e.g. for taxation), procedures (e.g. corporate labor and human rights), programs (e.g. ST anticorruption program), policies (e.g. speak up policy) and our code of conduct in place. We also assessed our supply chain with a focus on subcontractors and high risk/strategic suppliers (according to the spend level, the nature of the activity, and the geographical location of the supplier) and other business relationships with a focus on our main customers which are RBA members. The analysis was performed and discussed with the relevant experts and senior level stakeholders within ST.
The outcome of this analysis confirmed our compliance with the minimum safeguards.



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3.4.6.5    EU Taxonomy reporting tables
Turnover
The proportion of turnover from products associated with Taxonomy-aligned economic activities reached 12% for the financial year 2023, compared to 9% in 2022. The increase is driven by the combined effects of the introduction of a threshold in the Annex C of the DNSH pollution and the wider coverage of life-cycle assessments as described in section 3.4.6.4.




































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Substantial Contribution CriteriaDNSH criteria ('Does Not Significantly Harm')
Economic ActivitiesCodeAbsolute turnoverProportion of TurnoverClimate Change MitigationClimate Change AdaptationWaterPollutionCircular EconomyBiodiversity and ecosystemsClimate Change MitigationClimate Change AdaptationWaterPollutionCircular EconomyBiodiversity and ecosystemsMinimum Safeguards
Taxo-nomy aligned
propor-tion
of total turnover,
2023
Taxo-nomy aligned
propor-tion
of turnover, 2022
Category
(enabling
activity)
Category
(transi-tional
activity)
USDm%%%%%%%Y/NY/NY/NY/NY/NY/NY/N%%ET
A. TAXONOMY-ELIGIBLE ACTIVITIES
A.1. Environmentally sustainable activities (Taxonomy-aligned)
Manufacture of other low carbon technologies2,09512%100%—%N/ELN/ELN/ELN/ELn.aYYYYYY12%9%E
Turnover of environmentally sustainable activities (Taxonomy-aligned) (A.1)2,09512%100%—%N/ELN/ELN/ELN/ELn.aYYYYYY12%9%E
A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned activities)
Manufacture of other low carbon technologies4,80028%n.aYYNYYY
Turnover of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2)4,80028%n.aYYNYYY28%29%
Total (A.1+A.2)6,89540%40%38%
B. TAXONOMY-NON-ELIGIBLE ACTIVITIES
Turnover of Taxonomy-non-eligible activities10,39160%
Total (A+B)17,286100%

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Capital expenditure
The proportion of capital expenditure (CapEx) associated with Taxonomy-aligned economic activities reached 17% for the financial year 2023, compared to 12% in 2022. This increase is primarily attributable to our strategic investments in technologies directly linked to Taxonomy-aligned product lines, as outlined in our individual technology CapEx plans.


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Substantial Contribution CriteriaDNSH criteria ('Does Not Significantly Harm')
Economic ActivitiesCode
Absolute CapEx
Proportion of CapEx
Climate Change MitigationClimate Change Adaptation*WaterPollutionCircular EconomyBiodiversity and ecosystemsClimate Change MitigationClimate Change AdaptationWaterPollutionCircular EconomyBiodiversity and ecosystemsMinimum Safeguards
Taxonomy aligned
proportion
of total CapEx,
2023
Taxonomy aligned
proportion
of CapEx,
2022
Category
(enabling
activity)
Category
(transitional
activity)
USDm%%%%%%%Y/NY/NY/NY/NY/NY/NY/N%%ET
A. TAXONOMY-ELIGIBLE ACTIVITIES
A.1. CapEx of environmentally sustainable activities (Taxonomy-aligned)
Manufacture of other low carbon technologies73317%100%0*%N/ELN/ELN/ELN/ELn.aYYYYYY17%12%E
CapEx of environmentally sustainable activities (Taxonomy-aligned) (A.1)73317%100%0%N/ELN/ELN/ELN/ELn.aYYYYYY17%12%E
A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned)
Manufacture of other low carbon technologies1,33231%n.aYYNYYY
CapEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2)1,33231%n.aYYNYYY31%34%
Total (A.1+A.2)2,06548%48%46%
B. TAXONOMY-NON-ELIGIBLE ACTIVITIES
Capex of Taxonomy-non-eligible activities2,19552%
Total (A+B)4,260100%
(*) due to rounding

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Operating expenditure
The proportion of operating expenditure (OpEx) associated with Taxonomy-aligned economic activities reached 14% for the financial year 2023, compared to 10% in 2022. As per the eligibility ratio, this growth is primarily driven by a more granular and wider coverage of our R&D projects review.


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Substantial Contribution CriteriaDNSH criteria ('Does Not Significantly Harm')
Economic ActivitiesCode
Absolute OpEx
Proportion of OpEx
Climate Change MitigationClimate Change AdaptationWaterPollutionCircular EconomyBiodiversity and ecosystemsClimate Change MitigationClimate Change AdaptationWaterPollutionCircular EconomyBiodiversity and ecosystemsMinimum Safeguards
Taxonomy aligned
proportion
of total OpEx,
2023
Taxonomy aligned
proportion
of OpEx,
2022
Category
(enabling
activity)
Category
(transitional
activity)
USDm%%%%%%%Y/NY/NY/NY/NY/NY/NY/N%%ET
A. TAXONOMY-ELIGIBLE ACTIVITIES
A.1. Environmentally sustainable activities (Taxonomy-aligned)
Manufacture of other low carbon technologies21214%100%—%N/ELN/ELN/ELN/ELn.aYYYYYY14%10%E
OpEx of environmentally sustainable activities (Taxonomy-aligned) (A.1)21214%100%—%N/ELN/ELN/ELN/ELn.aYYYYYY14%10%E
A.2 Taxonomy-Eligible but not environmentally sustainable activities (not Taxonomy-aligned activities)
Manufacture of other low carbon technologies51933%n.aYYNYYY
OpEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2)51933%n.aYYNYYY33%25%
Total (A.1+A.2)73247%47%35%
B. TAXONOMY-NON-ELIGIBLE ACTIVITIES
OpEx of Taxonomy-non-eligible activities84053%
Total (A+B)1,572100%

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3.4.6.6    Future developments
There is still currently limited guidance published on the interpretation of various elements of the EU Taxonomy Regulation. Despite the fact that we have carefully balanced our assessment and disclosures on the EU Taxonomy Regulation, taking into account the latest publications, this is only the second reporting year for the Taxonomy-alignment and can still be considered to be a transitionary year. This reporting may still differ from future disclosures as more guidance becomes available over time.
In the coming years, we will continue to report under the EU Taxonomy Regulation regarding our Taxonomy-eligible and our Taxonomy-aligned economic activities. This entails a further and continuous review of our products, do no significant harm procedures and minimum safeguards assessment. Future guidance on the EU Taxonomy Regulation could result in updated definitions and other decision-making in meeting reporting obligations that may come into force notably related to the DNSH pollution prevention and control criteria or the definition of the operating expenditure. We expect that our reporting will evolve over time as more insights will be gained on how best to comply with the EU Taxonomy Regulation.
3.4.7. Corporate Sustainability Reporting Directive
We will become subject to further sustainability related reporting requirements in the near future. Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022, amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (the "CSRD"), entered into force on January 5, 2023.
The CSRD modernizes and strengthens the rules about the social and environmental information that companies have to report. The CSRD aims to ensure that investors and other stakeholders have access to the information they need to assess investment risks arising from climate change and other sustainability topics. As of our reporting in relation to financial year 2024, the CSRD will require us to disclose information on the basis of European Sustainability Reporting Standards (“ESRS”) in our annual report. Based on the ESRS, we will be required to report on the way we operate and manage social, environmental and governance related impact, risks and opportunities. Specific metrics related to social, environmental and governance related matters will have to be disclosed according to relevant ESRS. The bulk of the required sustainability information is already present within the organization and we are is well on our way to implement the data collection and the streamlining of the integration process in accordance with the CSRD. This information will be disclosed in our Dutch Annual Report starting from financial year 2024 expected to be filed in March 2025, and audited as per the mandatory requirement.
4.    Report of the Supervisory Board
The supervision of the policies and actions of our Managing Board is entrusted to our Supervisory Board, which, in a two-tier corporate structure under Dutch law, is a separate body and fully independent from our Managing Board. In fulfilling their duties under Dutch law, our Supervisory Board members serve the best interests of ST and its business, taking into consideration the interests of all ST shareholders and other stakeholders.
Our Supervisory Board supervises and advises our Managing Board in performing its management tasks and setting the direction of our affairs and business. Among other matters our Supervisory Board supervises the structure and management of systems of internal business controls, risk management, strategy and the financial reporting process. In addition, it determines the remuneration of the sole member of the Managing Board within the remuneration policy adopted by the General Meeting of Shareholders.
The members of our Supervisory Board are carefully selected based on their combined experience, expertise, knowledge, as well as the business in which we operate. Our Supervisory Board is empowered to recommend to the general meeting of shareholders, people to be appointed as members of our Supervisory Board and our Managing Board.
In performing its duties, our Supervisory Board is advised and assisted by the following committees: the Strategic Committee, the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Sustainability Committee. The committees all report to our Supervisory Board. Only members of the Supervisory Board can be committee members.

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Our Supervisory Board has determined, based on the evaluation of an ad-hoc committee, the following independence criteria for its members: Supervisory Board members must not have any material relationship with STMicroelectronics N.V., or any of its consolidated subsidiaries, or its management. A “material relationship” can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others, but does not include a relationship with direct or indirect shareholders. As a result, we have deviated from the independence criteria as included in best practice provision 2.1.8 of the Dutch Corporate Governance Code, specifically item vii. of this best practice provision, which states that a supervisory board member is not independent if he/she (or his/her registered partner or other life companion, foster child or relative by blood or marriage up to the second degree as defined under Dutch law) is a member of the management board — or is a representative in some other way — of a legal entity which holds at least 10% of our shares, unless such entity is a member of our Group. Our independence criteria however comply with corporate governance listing standards of the New York Stock Exchange.
Our Supervisory Board also adopted specific criteria to assess the independence of its members, which can be found in Annex A to the Supervisory Board charter as available on investors.st.com/supervisoryboardcharter. On that basis, our Supervisory Board concluded that all members qualify as independent based on the criteria set forth above.
The Supervisory Board is pleased to report on its committees and its various activities in 2023.
4.1. Composition of the Supervisory Board
Our Supervisory Board advises our Managing Board and is responsible for supervising the policies pursued by our Managing Board, the manner in which the Managing Board implements the long-term value creation strategy and the general course of our affairs and business. In performing its duties, our Supervisory Board shall be guided by the interests of our Company and its business; it shall take into account the relevant interests of all stakeholders (including our shareholders). The Supervisory Board is responsible for the quality of its own performance.
Our Supervisory Board consists of such number of members as is resolved by our AGM upon a non-binding proposal of our Supervisory Board, with a minimum of six members. Decisions by our AGM concerning the number and the identity of our Supervisory Board members are taken by a simple majority of the votes cast at a meeting, provided quorum conditions are met.
Our Supervisory Board was composed of the following nine members as of December 31, 2023(1):
NamePositionYear First
Appointed
Term
Expires
NationalityGenderAge
Nicolas DufourcqChairman20152024FrenchMale60
Maurizio TamagniniVice Chairman20142026ItalianMale58