STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated July 29, 2009, reports the financial results for STMicroelectronics N.V. for the second quarter and first half of 2009 ended June 27, 2009. The company is a global leader in semiconductor solutions. The reporting period reflects the complete integration of the former Ericsson Mobile Platforms business into the ST-Ericsson joint venture and the deconsolidation of the Flash Memory Group (FMG) into Numonyx.
Key Financial Metrics
| Metric | Q2 2009 | Q1 2009 | Q2 2008 |
|---|---|---|---|
| Net Revenues | $1,993 million | $1,660 million | $2,391 million |
| Gross Margin | 26.1% | 26.3% | 36.8% |
| Operating Loss | ($428) million | ($393) million | ($26) million |
| Net Loss (Parent) | ($318) million | ($541) million | ($47) million |
| Diluted EPS | ($0.36) | ($0.62) | ($0.05) |
| Net Operating Cash Flow (excl. M&A) | $45 million | ($139) million | $128 million |
| Inventory | $1.45 billion | $1.66 billion | $1.84 billion |
| Total Debt | $2.66 billion | $2.65 billion | $2.47 billion |
| Net Financial Position | $205 million (Net Cash) | $254 million (Net Cash) | $1.12 billion (Net Cash) |
First Half 2009 Highlights: Net revenues totaled $3.653 billion, a 25% decrease year-over-year. The net loss for the first half was $860 million ($-0.98 per share), compared to a net loss of $131 million in the first half of 2008.
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenues increased 20% sequentially, driven by stronger demand in Computer, Automotive, Telecom, and Industrial segments, particularly in China and Asia-Pacific. However, revenues declined 17% compared to Q2 2008 due to the global recession.
- Margin Compression: Gross margin remained at an "extraordinary low level" of 26.1% due to significant unused capacity charges, manufacturing inefficiencies, and negative product mix impacts. This is a significant decline from the 36.8% margin in Q2 2008.
- Inventory Reduction: Inventory levels were reduced by $207 million in Q2 and $391 million in the first half, accelerating inventory turns to 4.1 from 2.9 sequentially.
- Restructuring Charges: The company recorded $86 million in restructuring and impairment charges in Q2, down from $185 million in Q2 2008 but up from $56 million in Q1 2009.
- Equity Investment Losses: A $49 million loss on equity investments was recorded, including a $37 million non-cash charge related to Numonyx.
Guidance, Outlook, and Risks
Q3 2009 Outlook:
- Revenue: Expected to be between $2.07 billion and $2.27 billion, representing a sequential increase of 4% to 14%.
- Gross Margin: Expected to improve to 31% (+/- 2 percentage points), driven by recovered operating efficiencies and increased fab utilization to approximately 75%.
Management Commentary: CEO Carlo Bozotti noted that while the global recession negatively impacted results, the company is making solid progress in inventory reduction and innovation. The company is executing a $1 billion savings and productivity plan, with $750 million expected to be realized in 2009, primarily in the second half.
Risks and Contingencies:
- Economic Uncertainty: Ongoing global recession impacts demand and customer order patterns.
- Joint Ventures: Significant exposure to Numonyx (Flash Memory) and ST-Ericsson (Wireless) joint ventures, including potential impairment charges and guarantee obligations.
- Legal: The company is seeking enforcement of a $406 million award from Credit Suisse LLC regarding unauthorized asset-backed securities.
- Operational: Risks related to manufacturing capacity utilization and the ability to integrate acquisitions in a difficult economic environment.
Investor Verification Checklist
- Verify the reconciliation of non-GAAP measures (Net Operating Cash Flow, Adjusted Operating Income) to U.S. GAAP figures in Attachment A.
- Monitor the progress of the $1 billion cost-saving plan and the realization of the $750 million target for 2009.
- Track the status of the $406 million legal claim against Credit Suisse LLC and the timing of potential collection.
- Assess the financial health and performance of the Numonyx and ST-Ericsson joint ventures, given the significant equity investment losses and consolidation impacts.
- Confirm the trajectory of inventory turns and fab utilization rates to validate the projected gross margin recovery in Q3.