STMicroelectronics N.V. Semi-Annual Report Summary (H1 2010)
Business Context and Reporting Period
This Form 6-K filing presents the unaudited Semi-Annual IFRS Report for STMicroelectronics N.V. for the six months ended June 26, 2010. The company operates as a global semiconductor group with two primary business areas: Semiconductors (divided into ACCI, IMS, and Wireless segments) and Subsystems. The reporting period reflects a strong recovery in the semiconductor industry, with total available market (TAM) revenues increasing approximately 50% year-over-year.
Key Financial Metrics
| Metric | H1 2010 | H1 2009 |
|---|---|---|
| Total Revenues | $4,856 million | $3,653 million |
| Gross Profit | $1,678 million | $786 million |
| Gross Margin | 34.6% | 21.5% |
| Operating Income | $107 million | ($724 million) loss |
| Net Income | $214 million | ($923 million) loss |
| Net Income Attributable to Parent | $349 million | ($790 million) loss |
| Cash and Cash Equivalents | $1,268 million | $1,588 million |
| Total Debt (Interest-bearing) | $1,986 million | $2,395 million |
| Operating Cash Flow | $1,017 million | $305 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 32.9% year-over-year, driven by strong demand in the Automotive Consumer Computer and Communication Infrastructure (ACCI) and Industrial and Multisegment (IMS) segments, which combined grew 52%. Wireless segment revenues declined.
- Profitability Turnaround: The company returned to operating profitability ($107 million) from a significant loss ($724 million) in the prior year. This was driven by higher volumes, improved manufacturing efficiency, and reduced unused capacity charges.
- One-Time Gains: Net income was significantly boosted by a $162 million reversal of impairment and an $18 million gain on the divestiture of the company's 48.6% stake in Numonyx to Micron Technology Inc. in May 2010.
- Wireless Segment: The Wireless segment reported an operating loss of $253 million, partially offset by the attribution of $135 million of ST-Ericsson losses to non-controlling interests.
Guidance, Outlook, and Risks
- Q3 2010 Outlook: Management expects sequential revenue growth of 2% to 7% for the third quarter, equating to year-over-year growth of 13% to 19%. This assumes an effective exchange rate of approximately $1.32 = €1.00.
- Strategic Developments: The company is increasing capacity to meet demand and has launched a new photovoltaic joint venture (3Sun) with Enel and Sharp. ST-Ericsson continues restructuring efforts.
- Liquidity: Cash and cash equivalents decreased by $320 million during the period due to debt repurchases ($267 million for convertible bonds), dividend payments ($88 million), and capital expenditures ($313 million for tangible assets).
- Risks: Key risks include demand volatility, the success of ST-Ericsson's restructuring, foreign exchange fluctuations, and the outcome of ongoing litigation against Credit Suisse regarding unauthorized auction rate securities (a favorable ruling of ~$431 million was affirmed, though execution is pending).
Investor Verification Checklist
- Numonyx Divestiture: Verify the valuation and hedging status of the ~66.88 million Micron shares received ($583 million value at closing) and the associated lock-up period.
- Wireless Segment Performance: Monitor the progress of ST-Ericsson's restructuring and its impact on the Wireless segment's operating losses.
- Credit Suisse Litigation: Track the status of the $358 million remaining award from Credit Suisse regarding unauthorized auction rate securities and any potential appeals.
- Debt Structure: Review the maturity profile of the $1,986 million in interest-bearing debt, specifically the $554 million in 2016 Convertible Bonds subject to a put option in February 2011.
- Currency Exposure: Assess the impact of the Euro/U.S. dollar exchange rate on future margins, given the company's significant cost base in non-dollar currencies.