STMicroelectronics N.V. Q1 2012 Financial Summary
Business Context and Reporting Period
This Form 6-K, dated April 24, 2012, reports the first quarter financial results for STMicroelectronics N.V. for the period ended March 31, 2012. The company is a global semiconductor leader serving automotive, consumer, industrial, and wireless markets. The results include the consolidation of ST-Ericsson, a 50% owned joint venture with Ericsson, which significantly impacted operating results due to ongoing losses.
Key Financial Metrics
| Metric | Q1 2012 | Q4 2011 | Q1 2011 |
|---|---|---|---|
| Net Revenues | $2.02 billion | $2.19 billion | $2.54 billion |
| Gross Margin | 29.6% | 33.4% | 39.1% |
| Operating Income (Loss) | $(352) million | $(132) million | $118 million |
| Net Income (Loss) | $(176) million | $(11) million | $170 million |
| Diluted EPS | $(0.20) | $(0.01) | $0.19 |
| Free Cash Flow (Non-GAAP) | $98 million | $47 million | $51 million |
| Net Financial Position (Non-GAAP) | $1.27 billion | $1.17 billion | N/A |
| Total Debt | $1.44 billion | $1.57 billion | N/A |
| Cash and Equivalents | $2.20 billion | $2.33 billion | N/A |
Material Changes vs. Prior Periods
- Revenue Decline: Net revenues decreased 8% sequentially and 20% year-over-year. The Wireless segment drove the decline, dropping 29% sequentially due to reduced sales of new products at a major customer and legacy product declines.
- Margin Compression: Gross margin fell to 29.6% from 33.4% in Q4 2011. This was impacted by a $71 million unsaturation charge (low fab loading) and a one-time $59 million arbitration award payment to NXP Semiconductors.
- Operating Loss: The company reported an operating loss of $352 million, widening from a $132 million loss in Q4 2011. ST-Ericsson contributed a $293 million operating loss in the quarter.
- Segment Performance: Wholly-owned businesses (excluding Wireless) saw a sequential revenue decrease of only 3%, outperforming historical seasonality. Automotive and Analog/MEMS/Microcontrollers segments showed growth, while Digital and Power Discrete segments declined.
Guidance, Outlook, and Risks
- Q2 2012 Outlook: Management expects sequential revenue growth of approximately 7.5% (plus or minus 3 percentage points). Gross margin is projected at 34.4% (plus or minus 1.5 percentage points), assuming improved fab loading.
- Management Commentary: CEO Carlo Bozotti stated that billings have bottomed and bookings have improved. The company anticipates broad-based growth in H2 2012, particularly in MEMS and Analog sectors.
- Dividend: A cash dividend of $0.40 per share for 2012 was proposed, stable with 2011 levels.
- Risks and Contingencies:
- ST-Ericsson Turnaround: Significant uncertainty remains regarding the execution of ST-Ericsson's new strategic direction and the potential for further impairment charges on the $1.7 billion investment.
- Arbitration: While a $59 million award to NXP was recognized, ST intends to pursue a second arbitration to reverse the economic effect.
- Market Conditions: Risks include macro-economic uncertainties, currency volatility (EUR/USD), and demand fluctuations in key application markets.
Investor Verification Checklist
- Verify the reconciliation of Non-GAAP measures (Free Cash Flow, Net Financial Position) to U.S. GAAP figures in Attachment A.
- Monitor the progress of ST-Ericsson's cost-cutting measures and the timeline for reducing operating losses.
- Track the outcome of the second arbitration proceeding against NXP Semiconductors scheduled for June 2012.
- Assess the impact of the $71 million unsaturation charge on future manufacturing efficiency and fab loading levels.
- Review the specific design wins in the Automotive and MEMS sectors to validate the projected H2 2012 growth acceleration.