STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated August 4, 2008, reports the unaudited interim consolidated financial results for STMicroelectronics N.V. for the three and six months ended June 28, 2008. The company is a global independent semiconductor manufacturer. The reporting period is significantly impacted by the deconsolidation of the Flash Memory Group (FMG) following the creation of the Numonyx joint venture with Intel on March 30, 2008, and the acquisition of Genesis Microchip Inc. in January 2008.
Key Financial Metrics
| Metric | Q2 2008 (3 Months) | Q2 2007 (3 Months) | H1 2008 (6 Months) | H1 2007 (6 Months) |
|---|---|---|---|---|
| Net Revenues | $2,391 million | $2,418 million | $4,869 million | $4,693 million |
| Gross Margin | 36.8% | 34.7% | 36.5% | 34.6% |
| Operating Loss | $(26) million | $(772) million | $(114) million | $(710) million |
| Net Loss | $(47) million | $(758) million | $(131) million | $(684) million |
| Loss Per Share (Diluted) | $(0.05) | $(0.84) | $(0.15) | $(0.76) |
| Cash & Equivalents | $2,136 million (as of June 28, 2008) | |||
| Total Debt | $2,466 million (as of June 28, 2008) |
Revenue Excluding FMG: On a comparable basis excluding the Flash segment, Q2 2008 revenues increased 14.6% year-over-year, and H1 2008 revenues increased 13.2% year-over-year.
Material Changes vs. Prior Period
- Revenue Growth: Excluding the FMG deconsolidation, revenue growth was driven by double-digit increases in units sold and improved product mix, offsetting a ~7% decline in average selling prices.
- Impairment Charges: Significant impairment and restructuring charges of $185 million were recorded in Q2 2008, primarily due to a $114 million loss on the decision to sell the Phoenix fab and $25 million in additional losses related to the FMG disposal. This compares to $906 million in charges in Q2 2007, which was dominated by the initial FMG impairment.
- Investment Losses: The company recorded an other-than-temporary impairment charge of $39 million in Q2 2008 ($69 million for H1 2008) related to unauthorized Auction Rate Securities purchased by Credit Suisse Securities LLC.
- Currency Impact: The weakening U.S. dollar against the Euro negatively impacted operating profit by an estimated $134 million year-over-year in Q2 2008, as a significant portion of costs are incurred in Euros while revenues are largely dollar-denominated.
Guidance, Outlook, and Risks
Outlook: Management expects sequential net revenue growth in Q3 2008 to be in the range of (1)% to 6%, representing year-over-year growth of 7% to 14%. Gross margin is expected to be approximately 36.8% (plus or minus 1 percentage point), consistent with Q2 results.
Recent Developments:
- ST-NXP Wireless: On July 28, 2008, the company closed a joint venture with NXP for wireless operations, paying $1.55 billion in cash for an 80% stake.
- Capital Expenditures: The company reaffirmed a target of capital expenditures representing approximately 10% of sales for 2008.
Risks and Contingencies:
- Legal Proceedings: Ongoing patent litigation with SanDisk Corporation and Tessera, Inc. No provision has been recorded as the outcome is not currently estimable as probable.
- Investment Fraud: Arbitration proceedings initiated against Credit Suisse regarding unauthorized Auction Rate Securities, with a claim for recovery of losses exceeding $115 million.
- Market Volatility: Risks related to semiconductor industry cyclicality, pricing pressure, and exchange rate fluctuations.
Key Facts for Investor Verification
- Non-GAAP Adjustments: Verify the company's adjusted operating results excluding impairment and restructuring charges, which management cites as a better indicator of core performance ($239 million operating income for H1 2008 excluding these items).
- Auction Rate Securities: Confirm the status of the $300 million portfolio of Auction Rate Securities and the progress of the arbitration against Credit Suisse to recover the $115 million impairment.
- Phoenix Fab Sale: Monitor the progress of the sale of the Phoenix manufacturing facility, which was reclassified as "Assets held for sale" and resulted in a $114 million impairment charge.
- Currency Hedging: Assess the effectiveness of hedging strategies given the significant negative impact of the Euro/U.S. dollar exchange rate on margins.
- Joint Venture Integration: Review the financial impact and integration progress of the new ST-NXP Wireless joint venture and the Genesis Microchip acquisition.