STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated October 31, 2018, reports the unaudited interim consolidated financial results for STMicroelectronics N.V. (ST) for the third quarter and nine months ended September 29, 2018. ST is a global semiconductor leader providing intelligent and energy-efficient products for automotive, industrial, consumer, and IoT markets. The company operates through three reportable segments: Automotive and Discrete Group (ADG), Analog, MEMS and Sensors Group (AMS), and Microcontrollers and Digital ICs Group (MDG).
Key Financial Metrics
| Metric (in millions) | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Net Revenues | $2,522 | $2,136 | $7,016 | $5,880 |
| Gross Profit | $1,003 | $846 | $2,802 | $2,269 |
| Gross Margin | 39.8% | 39.6% | 39.9% | 38.6% |
| Operating Income | $398 | $281 | $956 | $594 |
| Operating Margin | 15.8% | 13.1% | 13.6% | 10.1% |
| Net Income (Parent) | $369 | $236 | $869 | $494 |
| Diluted EPS | $0.41 | $0.26 | $0.95 | $0.55 |
| Free Cash Flow (Non-GAAP) | $114 | N/A | $170 | $164 |
| Net Financial Position | $447 | N/A | $447 | $446 |
Note: Free Cash Flow and Net Financial Position are non-U.S. GAAP measures. Net Financial Position as of Sept 29, 2018, was $447 million (Total Financial Resources $2,171M less Total Financial Debt $1,724M).
Material Changes vs. Prior Periods
- Revenue Growth: Q3 2018 revenues increased 18.1% year-over-year (YoY) and 11.2% sequentially. The 9M 2018 revenue grew 19.3% YoY. Growth was driven by double-digit increases in ADG and AMS segments, particularly in Imaging products.
- Segment Performance:
- AMS: Q3 revenues surged 46.6% sequentially and 36.7% YoY, primarily due to triple-digit growth in Imaging.
- ADG: Q3 revenues grew 3.6% sequentially and 16.3% YoY, driven by Automotive and Power Discrete products.
- MDG: Q3 revenues declined 8.1% sequentially due to unfavorable product mix, though they increased 2.5% YoY.
- Profitability: Operating income improved significantly to $398 million in Q3 (15.8% margin) from $281 million in Q3 2017. This was driven by higher revenues, improved manufacturing efficiency, and favorable product mix, partially offset by higher operating expenses and currency effects.
- Restructuring: No impairment or restructuring charges were recorded in Q3 2018. For the first nine months of 2018, charges totaled $20 million, entirely related to the completed set-top-box restructuring plan.
Guidance, Outlook, and Risks
- Q4 2018 Guidance: Management expects Q4 revenues to grow approximately 5.7% sequentially (plus or minus 350 basis points), translating to YoY growth above 8%. Gross margin is expected to be about 39.8% (plus or minus 200 basis points).
- Full Year 2018 Outlook: Based on Q4 guidance, full-year 2018 revenue growth is anticipated to be approximately 16% YoY.
- Capital Investment: Capital spending for 2018 is expected to range between $1.2 billion and $1.3 billion, focusing on 300mm front-end manufacturing and back-end assembly/test capacity.
- Risks and Contingencies:
- Currency: Results are sensitive to USD/EUR fluctuations. The effective exchange rate for Q3 was $1.18/€1.00. Hedging activities resulted in a net loss of $20 million in Q3.
- Legal: The company faces potential IP claims and litigation, though provisions for estimated probable losses were not considered material as of September 29, 2018.
- ST-Ericsson: Exposure to the wind-down of the ST-Ericsson joint venture is estimated to be negligible.
- Macro: Risks include uncertain macro-economic trends, trade policies, and supply chain disruptions.
Investor Verification Checklist
- Imaging Revenue Sustainability: Verify the durability of the triple-digit growth in the Imaging division within the AMS segment, which was the primary driver of Q3 performance.
- Product Mix Impact: Assess the extent to which revenue growth is driven by average selling price (ASP) increases due to mix versus volume growth, as volumes decreased slightly YoY in Q3.
- Operating Expense Trajectory: Monitor the trend in R&D and SG&A expenses, which increased YoY due to currency effects and share-based compensation, to ensure margin expansion continues.
- Convertible Bond Liability: Review the accretion of the $1.5 billion senior unsecured convertible bonds issued in 2017, which contributes to non-cash interest expense.
- Capital Expenditure Execution: Confirm progress on the $1.2-$1.3 billion capital investment plan, specifically the 300mm fab expansions in Crolles and Agrate.