Business context and reporting period
STMicroelectronics N.V. filed its Form 20-F on March 4, 2013, covering the fiscal year ended December 31, 2012. The company is a global semiconductor designer, manufacturer and marketer reporting under U.S. GAAP in U.S. dollars. This summary emphasizes fourth-quarter 2012 results and the full-year comparison with 2011.
Revenue, profitability, cash flow, liquidity and debt
| Metric | Q4 2012 | FY 2012 | Comparable period |
|---|---|---|---|
| Net revenues | $2,162 million | $8,493 million | Q4 2011: $2,191 million; FY 2011: $9,735 million |
| Gross profit / margin | $697 million / 32.3% | $2,783 million / 32.8% | Q4 2011: $732 million / 33.4%; FY 2011: $3,574 million / 36.7% |
| Operating income (loss) | $(730) million / (33.8)% | $(2,081) million / (24.5)% | Q4 2011: $(132) million; FY 2011: $46 million |
| Net loss attributable to parent | $(428) million / $(0.48) diluted EPS | $(1,158) million / $(1.31) diluted EPS | Q4 2011: $(11) million / $(0.01); FY 2011: $650 million / $0.72 |
| Net cash from operating activities | Not separately provided in the filing text | $612 million | FY 2011: $880 million |
| Free cash flow | Not separately provided in the filing text | $33 million | FY 2011: $(288) million |
| Cash and cash equivalents | Not separately provided | $2,250 million | FY 2011: $1,912 million |
| Total financial debt | Not separately provided | $1,301 million | FY 2011: $1,566 million |
| ST net financial position | Not separately provided | $1,192 million net cash | FY 2011: $1,167 million net cash |
- FY 2012 revenue declined 12.8%, reflecting approximately 7% lower volume and 6% lower average selling prices.
- R&D expense was $2,413 million, or 28.4% of revenue, compared with $2,352 million, or 24.1%, in 2011. SG&A was $1,166 million, or 13.8% of revenue.
- Capital expenditures were $476 million, down from $1,258 million in 2011. Total cash increased by $338 million during 2012.
- At year-end, current debt was $630 million and long-term debt was $671 million. The $462 million 2013 Senior Bonds matured on March 17, 2013, and management expected to repay them with available cash.
Material changes versus the prior comparable period
- Semiconductor demand and inventory corrections continued to pressure shipments and pricing. FY 2012 net revenue fell below the serviceable available market, while Q4 revenue declined 1.4% year over year and 0.2% sequentially.
- AMM was the relative bright spot: FY revenue was $3,200 million and Q4 revenue increased approximately 16% year over year, driven by MEMS and microcontrollers. FY Digital revenue declined approximately 27%, PDP declined 18%, Automotive declined 7%, and Wireless declined approximately 13%.
- Wireless revenue was $1,345 million and its operating loss widened to $885 million from $812 million. ST-Ericsson generated approximately $700 million of negative cash flow in 2012.
- Gross margin declined 390 basis points for the year and 110 basis points year over year in Q4, primarily due to price pressure, lower utilization and unused-capacity charges. FY 2012 included a $53 million NXP arbitration award charge.
- Impairment, restructuring and closure costs increased to $1,376 million from $75 million. Wireless goodwill and intangible-asset impairments totaled $1,234 million, including $544 million recorded in Q4.
- The 2016 convertible bonds were fully redeemed in the second quarter of 2012. The company also received new European Investment Bank financing and reduced capital spending.
Guidance, outlook, management commentary and risks
- Management announced a strategic repositioning effective January 1, 2013 around Sense & Power and Automotive Products and Embedded Processing Solutions, with focus on automotive products, application processors and digital consumer products, MEMS and sensors, microcontrollers, and smart power.
- The company targets an operating margin of at least 10% and quarterly net operating expenses of $600 million to $650 million by early 2014, assuming an exchange rate of $1.30 per euro.
- For Q1 2013, management expected wholly owned businesses to decline approximately 3% sequentially at the midpoint and total revenue, including Wireless, to decline approximately 7%, plus or minus 3.5 percentage points. Expected gross margin was approximately 31.4%, plus or minus 2 percentage points.
- Management expected 2013 funding requirements related to the ST-Ericsson transition and restructuring of approximately $300 million to $500 million. The exit was expected to conclude during the third quarter of 2013, but additional provisions and asset write-downs remained possible.
- Planned 2013 capital expenditure was $500 million to $600 million, with spending expected to remain low in the first half and adjust to demand thereafter.
- Key risks include semiconductor cyclicality, pricing pressure, underutilized manufacturing capacity, inventory obsolescence, foreign-exchange exposure, dependence on major customers and suppliers, intellectual-property litigation, tax audits and deferred-tax-asset valuation, government-funding conditions, European sovereign and financial-sector exposure, and execution of the ST-Ericsson exit.
- Material contingencies included Tessera and Rambus intellectual-property proceedings, an ongoing tax position balance of $227 million in unrecognized tax benefits, and potential repayment or reduction of government funding if contractual conditions are not met. The filing states that probable legal-loss provisions were not material and that no material off-balance-sheet arrangements existed.
Most important facts for an investor to verify
- Whether the ST-Ericsson exit was completed on schedule and whether total 2013 cash funding and restructuring costs remained within the estimated $300 million to $500 million range.
- Whether the company achieved the targeted reduction in quarterly net operating expenses and made progress toward a 10% or higher operating margin.
- Recovery in wholly owned businesses, particularly MEMS, sensors, microcontrollers, automotive and analog products, versus continued deterioration in Wireless and Digital.
- Actual cash generation after repayment of the $462 million Senior Bonds, the $160 million EIB installment and ST-Ericsson-related obligations.
- Gross-margin recovery, fab utilization, pricing trends, inventory levels and any further impairment or restructuring charges.
- Outcomes of the Tessera and Rambus litigation, tax audits, government-funding reviews and the company’s potential commitment to provide up to €14 million of additional capital to 3Sun.