STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated January 28, 2014, reports the fourth quarter and full-year 2013 financial results for STMicroelectronics N.V., a global semiconductor leader. The reporting period covers the quarter ended December 31, 2013, and the fiscal year ended December 31, 2013. A significant corporate event during this period was the completion of the split-up of the ST-Ericsson joint venture, with ST-Ericsson deconsolidated from ST's financials effective September 1, 2013.
Key Financial Metrics
| Metric | Q4 2013 | FY 2013 | FY 2012 |
|---|---|---|---|
| Net Revenues | $2.01 billion | $8.08 billion | $8.49 billion |
| Gross Margin | 32.9% | 32.3% | 32.8% |
| Operating Income (Loss) | $(11) million | $(465) million | $(2,081) million |
| Net Loss (Parent) | $(36) million | $(500) million | $(1,158) million |
| Diluted EPS | $(0.04) | $(0.56) | $(1.31) |
| Free Cash Flow (Non-GAAP) | $91 million | N/A | N/A |
| Net Financial Position | $741 million (Net Cash) | $741 million (Net Cash) | $1.19 billion (Net Cash) |
| Total Debt | $1.15 billion | $1.15 billion | $1.30 billion |
Note: Free cash flow is a non-U.S. GAAP measure. Net financial position represents total financial resources less total financial debt.
Material Changes vs. Prior Period
- Revenue: Q4 2013 revenues decreased 6.8% year-over-year (YoY) on a reported basis but increased 3.9% YoY excluding the former ST-Ericsson (Wireless) products. Full-year 2013 revenues decreased 4.8% YoY, primarily due to the exit from the wireless IC platform business.
- Profitability: The company reported a net loss of $36 million in Q4 2013, a significant improvement from the $428 million loss in Q4 2012. Operating loss narrowed from $730 million in Q4 2012 to $11 million in Q4 2013.
- Cost Reduction: Quarterly operating expenses decreased by approximately 25% compared to the year-ago quarter. R&D expenses dropped 30% YoY to $407 million, and SG&A expenses decreased 14% YoY to $249 million.
- Cash Flow: The company generated positive free cash flow of $91 million in Q4 2013, reversing a negative $72 million in Q3 2013.
- Inventory: Inventory increased sequentially by $20 million to $1.34 billion, with inventory turns at 4.0 (90 days) compared to 4.3 (84 days) in the prior year.
Guidance, Outlook, and Risks
Q1 2014 Outlook: Management expects Q1 2014 revenues to decrease sequentially by approximately 9.5% (midpoint), plus or minus 3.5 percentage points. This decline reflects seasonality and a drop in legacy ST-Ericsson revenues. Gross margin is expected to be approximately 32.4%, plus or minus 2.0 percentage points. Net operating expenses are targeted in the range of $600 million to $650 million per quarter.
Strategic Targets: The company aims to achieve an operating margin of about 10% by mid-2015 through revenue growth, gross margin improvement, and expense reduction.
Risks and Contingencies: Forward-looking statements are subject to risks including uncertain macro-economic trends, customer demand, execution of cost reduction plans, timing of the ST-Ericsson wind-down, manufacturing performance, foreign exchange fluctuations, and intellectual property claims.
Investor Verification Checklist
- Non-GAAP Reconciliations: Verify the reconciliation of non-GAAP measures (Free Cash Flow, Operating Income before impairment/restructuring) to U.S. GAAP figures in Attachment A.
- ST-Ericsson Wind-down: Confirm the impact of the ST-Ericsson deconsolidation on future revenue streams and the timeline for the complete phase-out of legacy wireless products.
- Inventory Levels: Monitor the sequential increase in inventory ($1.34 billion) and the extension of inventory days (90 days) for potential obsolescence risks.
- Operating Expense Targets: Track progress against the $600-$650 million quarterly net operating expense target to assess the path to the 10% operating margin goal.
- Currency Impact: Review the sensitivity of results to the Euro/USD exchange rate, which was approximately $1.34 to €1.00 in Q4 2013.