STMicroelectronics N.V. Q1 2024 Financial Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited financial results for STMicroelectronics N.V. for the first quarter ended March 30, 2024. The Company is a global integrated device manufacturer of semiconductor technologies. Effective January 1, 2024, the Company reorganized its reporting structure from three to four reportable segments: Analog products, MEMS and Sensors (AM&S); Power and discrete products (P&D); Microcontrollers (MCU); and Digital ICs and RF Products (D&RF).
Key Financial Metrics
| Metric (in millions, except per share) | Q1 2024 | Q4 2023 | Q1 2023 |
|---|---|---|---|
| Net Revenues | $3,465 | $4,282 | $4,247 |
| Gross Profit | $1,444 | $1,949 | $2,110 |
| Gross Margin | 41.7% | 45.5% | 49.7% |
| Operating Income | $551 | $1,023 | $1,201 |
| Operating Margin | 15.9% | 23.9% | 28.3% |
| Net Income (Parent) | $513 | $1,076 | $1,044 |
| Diluted EPS | $0.54 | $1.14 | $1.10 |
| Free Cash Flow (Non-GAAP) | ($134) | $206 | $206 |
| Net Financial Position (Non-GAAP) | $3,126 | $3,156 | $1,855 |
Material Changes vs. Prior Periods
- Revenue Decline: Net revenues decreased 19.1% sequentially and 18.4% year-over-year (YoY). The decline was driven by lower volumes (approx. 13% sequentially, 12% YoY) and lower average selling prices (approx. 6% sequentially and YoY) across all segments.
- Margin Compression: Gross margin decreased 380 basis points sequentially and 800 basis points YoY. Drivers included unfavorable product mix, lower selling prices, higher unused capacity charges, and reduced manufacturing efficiencies.
- Operating Expenses: Total operating expenses (SG&A and R&D) increased to $953 million, up 1.6% sequentially and 5.9% YoY, primarily due to higher R&D activity, labor costs, and negative currency effects.
- Segment Performance:
- MCU: Most significant decline, down 25.3% sequentially and 34.4% YoY.
- D&RF: Down 23.8% sequentially but only 2.1% YoY, supported by higher volumes offsetting price declines.
- AM&S & P&D: Both segments saw double-digit declines sequentially (14.2% and 15.1% respectively).
- Cash Flow: Free cash flow turned negative at ($134) million compared to positive $206 million in Q1 2023, driven by higher capital expenditures ($994 million net) and lower operating cash flow.
Guidance, Outlook, and Risks
- Q2 2024 Outlook: Management expects revenue to decrease approximately 7.6% sequentially (plus or minus 350 basis points). Gross margin is expected to be approximately 40% (plus or minus 200 basis points).
- 2024 Full Year Plan: The Company has revised its 2024 revenue plan to a range of $14 billion to $15 billion, with an expected gross margin in the low 40s.
- Capital Investment: Net Capex for 2024 is planned at approximately $2.5 billion, focusing on silicon carbide (SiC) capacity expansion in Catania and Singapore, a new SiC joint venture in China, and the ramp-up of the 300mm fab in Agrate, Italy.
- Risks and Contingencies:
- Legal: A jury verdict in a patent infringement lawsuit (Purdue University) resulted in an estimated possible loss of $32 million; the Company plans to appeal.
- Market: Risks include macroeconomic trends, supply chain fluctuations, customer demand volatility, and geopolitical conflicts.
- Currency: Significant exposure to Euro/USD fluctuations, though hedging strategies are in place.
Investor Verification Checklist
- Margin Sustainability: Verify the trajectory of gross margin recovery given the impact of unused capacity charges and product mix shifts.
- MCU Segment Recovery: Assess the timeline for demand recovery in the General Purpose Microcontroller market, which drove the largest revenue decline.
- Capital Expenditure Execution: Monitor the $2.5 billion Capex plan, specifically the ramp-up of SiC facilities and the new China joint venture, to ensure alignment with the revised revenue targets.
- Free Cash Flow: Track the turnaround of free cash flow from negative to positive as capital spending normalizes and operating cash flow improves.
- Legal Exposure: Review the status of the Purdue University patent litigation and potential impacts on future earnings.