STMicroelectronics N.V. Q1 2011 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated April 27, 2011, reports the unaudited financial results for STMicroelectronics N.V. for the first quarter ended April 2, 2011. The company is a global leader in semiconductor solutions serving automotive, consumer, computer, and industrial markets. The quarter included the final divestiture of the Flash memory business via the sale of remaining Micron shares and the closure of the Phoenix, Arizona fabrication facility.
Key Financial Metrics
| Metric | Q1 2011 | Q4 2010 | Q1 2010 |
|---|---|---|---|
| Net Revenues | $2,535 million | $2,833 million | $2,325 million |
| Gross Margin | 39.1% | 39.9% | 37.7% |
| Operating Income (GAAP) | $118 million | $213 million | ($20 million) |
| Operating Income (Non-GAAP, pre-restructuring) | $142 million | $245 million | $13 million |
| Net Income (GAAP) | $170 million | $219 million | $57 million |
| Diluted EPS | $0.19 | $0.24 | $0.06 |
| Free Cash Flow | $51 million | $176 million | $349 million |
| Net Cash Position | $1.14 billion | $1.15 billion | $566 million |
| Total Debt | $1.75 billion | $1.77 billion | $2.19 billion |
Material Changes vs. Prior Periods
- Revenue Growth: Net revenues increased 9.0% year-over-year (YoY) to $2.53 billion, driven by strong performance in Automotive (+34% YoY), Analog/MEMS/Microcontrollers (+38% YoY), and Power Discrete Products (+18% YoY). Sequentially, revenues declined 10.5% due to seasonality and a steeper-than-anticipated drop in Wireless sales.
- Profitability: Gross margin improved 140 basis points YoY to 39.1%, aided by higher volumes and manufacturing efficiencies. Operating income before restructuring attributable to ST more than doubled YoY to $142 million (9.9% margin).
- Wireless Segment: The Wireless segment (including ST-Ericsson) revenues decreased 34% YoY and 32% sequentially, resulting in an operating loss of $180 million. This was attributed to declining sales of legacy products and weak demand from a single customer.
- Restructuring: Impairment and restructuring charges decreased to $24 million from $33 million in Q1 2010, following the closure of the Phoenix fab.
- Cash Flow: Free cash flow dropped to $51 million from $176 million in Q1 2010, primarily due to higher capital expenditures ($466 million) and inventory buildup ($1.67 billion) related to lower wireless sales.
Guidance, Outlook, and Risks
- Q2 2011 Outlook: Management expects Q2 revenues to evolve sequentially in the range of -2% to +5%, accounting for anticipated declines at ST-Ericsson. Gross margin is expected to be approximately 38.7% (+/- 1 percentage point).
- Japan Earthquake Impact: Management stated that impacts from the March 11, 2011, earthquake in Japan have been manageable to date, though the company remains vigilant regarding supply chain disruptions.
- Dividend: The company proposed a cash dividend of $0.40 per share, payable in four quarterly installments starting May 2011.
- Legal Contingency: Legal proceedings continue regarding the collection of approximately $358 million due from Credit Suisse pursuant to a FINRA award; a Court of Appeals hearing was held in March 2011.
- Risks: Key risks include demand volatility in key markets, the financial performance of the ST-Ericsson joint venture, foreign exchange rate fluctuations (specifically USD/EUR), and potential supply chain disruptions from natural events.
Investor Verification Checklist
- ST-Ericsson Performance: Verify the trajectory of the Wireless segment's recovery and the impact of the portfolio transition on future margins.
- Inventory Levels: Monitor inventory turns (3.7x in Q1) and potential write-downs given the buildup to $1.67 billion amidst weak wireless demand.
- Capital Expenditures: Assess the sustainability of high CapEx ($466 million in Q1) relative to free cash flow generation.
- Credit Suisse Litigation: Track the outcome of the appeal regarding the $358 million award, which represents a significant potential cash inflow.
- Non-GAAP Reconciliations: Review Attachment A for reconciliations of non-GAAP measures (Operating Income before restructuring, Free Cash Flow) to GAAP figures.