STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated August 4, 2016, reports the unaudited interim consolidated financial results for STMicroelectronics N.V. for the three and six months ended July 2, 2016. The company is a global semiconductor leader focusing on intelligent and energy-efficient products for automotive, industrial, and consumer markets. The fiscal year ends December 31, with the second quarter concluding on July 2, 2016.
Key Financial Metrics
| Metric | Q2 2016 (3 Months) | Q2 2015 (3 Months) | H1 2016 (6 Months) | H1 2015 (6 Months) |
|---|---|---|---|---|
| Net Revenues | $1,703 million | $1,760 million | $3,316 million | $3,465 million |
| Gross Profit | $577 million | $595 million | $1,115 million | $1,160 million |
| Gross Margin | 33.9% | 33.8% | 33.6% | 33.5% |
| Operating Income (Loss) | $28 million | $12 million | $(5) million | $(7) million |
| Net Income (Loss) to Parent | $23 million | $35 million | $(18) million | $12 million |
| Earnings Per Share (Diluted) | $0.03 | $0.04 | $(0.02) | $0.01 |
| Free Cash Flow (Non-GAAP) | $47 million | $94 million (H1 2015) | $78 million | $94 million |
| Net Financial Position (Non-GAAP) | $426 million (Net Cash as of July 2, 2016) |
Material Changes vs. Prior Period
- Revenue Trends: Q2 2016 revenues increased 5.6% sequentially but decreased 3.2% year-over-year (YoY). The YoY decline was driven by a 5% volume decrease, partially offset by a 2% increase in average selling prices due to product mix. Excluding phase-out businesses (mobile legacy, camera modules, set-top boxes), revenue declined 1.7% YoY.
- Segment Performance:
- Automotive and Discrete Group (ADG): Revenues up 7.5% sequentially and 1.0% YoY, driven by automotive strength and power discrete recovery.
- Analog and MEMS Group (AMG): Revenues up 1.8% sequentially but down 15.4% YoY due to weakness in wireless and computer peripheral applications.
- Microcontrollers and Digital ICs (MDG): Revenues up 4.6% sequentially and flat YoY.
- Profitability: Gross margin improved 50 basis points sequentially to 33.9%, aided by manufacturing efficiencies and lower unused capacity charges ($8 million vs. $10 million in Q1). Operating income turned positive at $28 million in Q2, recovering from a $33 million loss in Q1, primarily due to higher revenues and lower restructuring charges.
- Restructuring: Impairment and restructuring charges were $12 million in Q2 2016, down from $28 million in Q1 2016, related principally to the set-top box restructuring plan.
Guidance, Outlook, and Risks
- Q3 2016 Guidance: Management anticipates a sequential revenue increase of approximately 5.5% (plus or minus 3.5 percentage points) and a gross margin of about 35.5% (plus or minus 2.0 percentage points). The margin guidance includes an anticipated negative impact of 65 basis points from unsaturation charges.
- Capital Investment: Full-year 2016 capital expenditure is estimated between $600 million and $670 million, focused on front-end facilities (Crolles, Singapore, Italy) and back-end capacity growth.
- Acquisition: On July 29, 2016, the company announced the acquisition of ams' NFC and RFID reader assets for $77.8 million in cash plus a deferred earn-out (estimated $13 million, max $37 million).
- Risks: Key risks include macro-economic uncertainties (particularly in Europe), foreign exchange fluctuations (USD/Euro), customer demand volatility, and the impact of the Brexit vote. The company notes that a substantial deterioration in economic results could impact cash generation.
Investor Verification Checklist
- Phase-out Impact: Verify the specific revenue contribution and timeline for the phase-out of mobile legacy products, camera modules, and set-top boxes to understand the "organic" growth rate.
- Unused Capacity Charges: Monitor the trend of unused capacity charges, which impacted Q2 margins by 45 basis points and are expected to impact Q3 by 65 basis points.
- Set-Top Box Restructuring: Track the execution of the set-top box restructuring plan, which is expected to result in total pre-tax charges of approximately $170 million, with actions potentially lasting until 2018.
- Currency Hedging: Review the effectiveness of hedging strategies given the company's significant exposure to Euro-denominated costs and USD-denominated revenues.
- Free Cash Flow Definition: Note that Free Cash Flow is a non-GAAP measure defined as operating cash flow plus investing cash flow excluding marketable securities; verify reconciliation to GAAP cash flow.