STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated July 26, 2017, reports the financial results for STMicroelectronics N.V. for the second quarter and first half ended July 1, 2017. STMicroelectronics is a global semiconductor leader serving automotive, industrial, and consumer electronics markets.
Key Financial Metrics
| Metric | Q2 2017 | Q1 2017 | Q2 2016 | H1 2017 | H1 2016 |
|---|---|---|---|---|---|
| Net Revenues ($M) | 1,923 | 1,821 | 1,703 | 3,744 | 3,316 |
| Gross Margin (%) | 38.3% | 37.6% | 33.9% | 38.0% | 33.6% |
| Operating Income ($M) | 178 | 129 | 28 | 307 | (5) |
| Net Income ($M) | 151 | 108 | 23 | 258 | (18) |
| Diluted EPS ($) | 0.17 | 0.12 | 0.03 | 0.28 | (0.02) |
| Free Cash Flow ($M) | 52 | 62 | 48 | 113 | 79 |
| Net Financial Position ($M) | 524 | 518 | 426 | - | - |
Balance Sheet Highlights (as of July 1, 2017): Total financial resources were $1.99 billion against total financial debt of $1.47 billion. Inventory stood at $1.26 billion (95 days supply).
Material Changes vs. Prior Period
- Revenue Growth: Q2 2017 revenues increased 5.6% sequentially and 12.9% year-over-year (YoY). H1 2017 revenues grew 12.9% YoY.
- Margin Expansion: Q2 gross margin improved 70 basis points sequentially to 38.3% and 440 basis points YoY, driven by manufacturing efficiencies, better product mix, and improved fab loading.
- Profitability: Operating income surged $150 million YoY in Q2. H1 2017 net income turned from a loss of $18 million in the prior year to a profit of $258 million.
- Product Group Performance:
- Analog and MEMS (AMG): Q2 revenues up 28.3% YoY.
- Microcontrollers and Digital ICs (MDG): Q2 revenues up 10.0% YoY; operating margin reached 10.9% in H1.
- Automotive and Discrete (ADG): Q2 revenues up 4.7% YoY.
- Restructuring: Impairment and restructuring charges were $6 million in Q2, down from $12 million in Q2 2016. The set-top box restructuring plan is on track to achieve $132 million of targeted annualized savings.
Guidance, Outlook, and Capital Structure
Q3 2017 Outlook: Management expects Q3 revenues to increase approximately 9.0% sequentially (plus or minus 3.5 percentage points), representing roughly 16.6% YoY growth. Gross margin is expected to be approximately 39.0% (plus or minus 2.0 percentage points).
Capital Structure Update: In July 2017, the company raised $1.5 billion through a convertible bond offering (two tranches: 5-year and 7-year maturities) at zero cost. Proceeds will fund general corporate purposes and the early redemption of $600 million in convertible bonds due in 2019. A share buy-back program of up to $297 million was also launched to mitigate dilution from the convertible bonds.
Risks and Contingencies: Forward-looking statements are subject to risks including macro-economic trends, customer demand fluctuations, supply chain constraints, foreign exchange variations, and the potential impact of Brexit on the Eurozone and UK markets.
Investor Verification Checklist
- Verify the reconciliation of Non-U.S. GAAP measures (Operating Income before impairment/restructuring, Free Cash Flow) to U.S. GAAP figures in the Appendix.
- Confirm the terms and settlement mechanics of the new $1.5 billion convertible bond offering and the associated share buy-back program.
- Monitor the progress of the set-top box restructuring plan and the realization of the targeted $170 million in annualized savings.
- Assess the impact of currency exchange rates (assumed $1.12 = €1.00 for Q3 guidance) on future revenue and margin projections.
- Review the "Others" category in product group data, which includes unallocated expenses and the Imaging Product Division, to understand the full scope of operating losses in that segment.