STMicroelectronics N.V. Form 20-F Summary
Business context and reporting period
STMicroelectronics N.V. is a Netherlands-incorporated global semiconductor manufacturer and integrated device maker serving automotive, industrial, personal electronics, communications equipment, computers and peripherals. The filing is the audited annual report for the fiscal year ended December 31, 2023, prepared under U.S. GAAP. It also presents unaudited fourth-quarter 2023 results for the quarter ended December 31, 2023.
As of December 31, 2023, the company had 902.8 million common shares outstanding and operated three reportable segments: Automotive and Discrete Group (ADG), Analog, MEMS and Sensors (AMS), and Microcontrollers and Digital ICs Group (MDG).
Key financial metrics
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Net revenues | $17.286 billion | $16.128 billion | +7.2% |
| Gross profit | $8.287 billion | $7.635 billion | +8.5% |
| Gross margin | 47.9% | 47.3% | +60 bps |
| Operating income | $4.611 billion | $4.439 billion | +3.9% |
| Operating margin | 26.7% | 27.5% | -80 bps |
| Net income attributable to parent | $4.211 billion | $3.960 billion | +6.3% |
| Diluted EPS | $4.46 | $4.19 | +6.4% |
| Operating cash flow | $5.992 billion | $5.202 billion | +15.2% |
| Free cash flow | $1.774 billion | $1.591 billion | +11.5% |
| Net capital expenditures | $4.111 billion | $3.524 billion | +16.7% |
FY 2023 operating expenses increased 11.2% to $3.731 billion, primarily due to higher labor costs and increased research and development activity. R&D expense was $2.100 billion, or 12.2% of net revenues. Net interest income increased to $171 million from $58 million, mainly because of higher returns on cash and investments.
| Balance-sheet metric at December 31 | 2023 | 2022 |
|---|---|---|
| Cash and cash equivalents | $3.222 billion | $3.258 billion |
| Short-term deposits | $1.226 billion | $0.581 billion |
| Marketable securities | $1.635 billion | $0.679 billion |
| Total liquidity | $6.083 billion | $4.518 billion |
| Total financial debt | $2.927 billion | $2.717 billion |
| Net financial position | $3.156 billion net cash | $1.801 billion net cash |
| Debt-to-equity ratio | 0.17 | 0.21 |
| Total assets | $24.453 billion | $19.982 billion |
Financing included $1.496 billion of 2020 senior unsecured convertible bonds, $1.366 billion of bank loans and $65 million of finance leases. The company had $1.030 billion of unused committed medium-term credit facilities. Debt maturities include $962 million in 2025 and $947 million in 2027 at principal amount.
Fourth-quarter 2023 performance
| Metric | Q4 2023 | Q3 2023 | Q4 2022 |
|---|---|---|---|
| Net revenues | $4.282 billion | $4.431 billion | $4.424 billion |
| Gross profit | $1.949 billion | $2.109 billion | $2.102 billion |
| Gross margin | 45.5% | 47.6% | 47.5% |
| Operating income | $1.023 billion | $1.241 billion | $1.287 billion |
| Operating margin | 23.9% | 28.0% | 29.1% |
| Net income attributable to parent | $1.076 billion | $1.090 billion | $1.248 billion |
| Diluted EPS | $1.14 | $1.16 | $1.32 |
Q4 revenue declined 3.4% sequentially and 3.2% year over year, primarily because of lower volumes. ADG revenue increased 1.7% sequentially and 21.5% year over year, while AMS was substantially flat sequentially but declined 25.8% year over year. MDG revenue decreased 13.3% sequentially and 11.5% year over year.
Q4 gross margin declined because of less favorable product mix, negative pricing effects, higher unused-capacity charges, higher manufacturing input costs and adverse currency effects net of hedging. Operating expenses rose 10.2% year over year to $937 million. Q4 net income included a one-time tax benefit of $191 million.
Material changes versus the prior comparable period
- FY 2023 revenue growth was driven by approximately 19% higher average selling prices, reflecting product mix and pricing, partly offset by a 12% volume decline.
- ADG revenue increased 31.5% to $7.848 billion, supported by higher pricing and product mix, while AMS revenue decreased 18.7% to $3.991 billion. MDG revenue increased 3.9% to $5.431 billion.
- Operating income improved despite lower operating margin because higher revenue and gross profit more than offset higher operating expenses.
- “Others” operating losses increased to $414 million from $97 million, including $134 million of start-up and phase-out costs, $120 million of unused-capacity charges, $36 million of intangible-asset impairment and $94 million of other unallocated manufacturing results.
- Capital spending increased substantially, raising property, plant and equipment to $10.554 billion from $8.201 billion, as the company expanded 300mm wafer, silicon-carbide and other manufacturing capacity.
- Liquidity increased by $1.565 billion, and net cash increased by $1.355 billion despite $4.111 billion of net capital expenditures, $346 million of share repurchases and $223 million of dividends paid.
- Apple remained the largest customer but represented 12.3% of revenue, down from 16.8% in 2022.
Guidance, outlook and management commentary
- Q1 2024 revenue guidance was approximately $3.6 billion at the midpoint, down 15.9% sequentially and 15.2% year over year, with a plus or minus 350-basis-point range.
- Q1 2024 gross margin guidance was approximately 42.3%, plus or minus 200 basis points.
- Management planned approximately $2.5 billion of net capital expenditures in 2024 and targeted full-year revenue of $15.9 billion to $16.9 billion, with gross margin in the low to mid-40% range.
- Planned investment priorities include silicon-carbide capacity in Italy and Singapore, the Catania silicon-carbide substrate facility, the Sanan joint venture in China, the Agrate 300mm fab and the jointly operated GlobalFoundries facility in Crolles, France.
- The company expects to fund capital requirements primarily through operating cash flow, available liquidity, public funding and existing credit facilities, with potential future debt, convertible bond or equity financing if needed.
- Management stated that available financial resources should cover projected requirements for the next twelve months, including capital expenditures, working capital, dividends, share repurchases and scheduled debt repayments.
- STMicroelectronics remains committed to becoming carbon neutral by 2027 for scope 1 and scope 2 emissions and partially for scope 3 emissions.
- Effective February 5, 2024, the company reorganized its product groups into two product groups and four reportable segments. Segment reporting will change beginning in 2024.
Risks, contingencies and unusual items
- The semiconductor industry is cyclical and exposed to demand volatility, inventory corrections, pricing pressure, excess capacity and rapid technology changes. High fixed manufacturing costs may magnify the effect of downturns.
- Customer concentration, changing customer product strategies and distributor inventory adjustments could affect revenue. Apple accounted for 12.3% of FY 2023 revenue.
- Supply-chain risks include dependence on limited suppliers of equipment, materials and technology, external foundries and back-end subcontractors. Approximately 20% of the value of silicon production was subcontracted in 2023.
- Foreign-exchange exposure, particularly to the euro and Singapore dollar, can affect reported revenue, costs and margins. Hedging does not cover the company’s full exposure.
- Public funding is material to selected R&D and capital projects. Funding agreements may impose performance requirements, repayment obligations or clawback mechanisms. Public funding income recognized in 2023 was $201 million.
- The company had $1.1 billion of foundry purchase commitments and $0.8 billion of other obligations, primarily related to power purchase and energy-efficiency commitments.
- A U.S. jury found in favor of Purdue University in a patent case in December 2023. Final judgment had not been issued; the company estimated a possible loss of $32 million and stated that it intends to pursue post-trial motions and potentially an appeal.
- Probable-loss provisions for claims and legal proceedings were not material at year-end, but management cautioned that litigation, product liability, warranty and intellectual-property matters could require material future expenditures.
- The company recorded a $42 million impairment loss on intangible assets in 2023, primarily relating to technologies acquired in business combinations. No goodwill impairment was recorded.
- Deferred tax assets were $592 million, net of valuation allowance, and uncertain tax positions were estimated at $55 million. The filing identifies recoverability of deferred tax assets as the critical audit matter.
- The company reported no material cybersecurity incident through December 31, 2023 and stated that disclosure controls and internal control over financial reporting were effective. As with any control system, management noted that controls provide reasonable, not absolute, assurance.
Most important facts for investors to verify
- Whether the planned 2024 revenue range of $15.9 billion to $16.9 billion and low-to-mid-40% gross-margin target are achieved amid the expected Q1 downturn.
- The pace, cost and utilization of the Agrate, Crolles, Catania and Sanan silicon-carbide expansion projects, including reliance on public funding and related clawback conditions.
- Whether the Q4 2023 deterioration in AMS and MDG revenue and margins represents a temporary mix and inventory issue or a broader demand correction.
- The timing and funding of the $962 million 2025 and $947 million 2027 debt maturities, including the convertible bonds and potential share settlement.
- The outcome of the Purdue patent litigation and any other intellectual-property, product-liability, tax or environmental proceedings.
- The sustainability of public funding benefits, tax credits and the company’s ability to realize its deferred tax assets.
- The effect of the 2024 segment reorganization on comparability, performance measurement and disclosure.
- Customer concentration and exposure to Apple, automotive customers, distributors and evolving end-market demand.