Business Context and Reporting Period
This Form 6-K, dated March 25, 2020, submits STMicroelectronics N.V.'s 2019 Dutch Statutory Annual Report. STMicroelectronics is a global independent semiconductor company designing, developing, manufacturing, and marketing products for automotive, industrial, personal electronics, and communications equipment markets. The reporting period covers the fiscal year ended December 31, 2019.
Key Financial Metrics (2019)
| Metric | 2019 Value | 2018 Value |
|---|---|---|
| Net Revenues | $9.56 billion | $9.66 billion |
| Gross Margin | 34.1% | 36.9% |
| Operating Profit | $1.04 billion | $1.36 billion |
| Net Profit | $388 million | $1.64 billion |
| Diluted EPS | $0.43 | $1.80 |
| Operating Cash Flow | $2.20 billion | $2.11 billion |
| Free Cash Flow (Non-GAAP) | $497 million | $533 million |
| Net Financial Position (Non-GAAP) | $672 million (Net Cash) | $686 million (Net Cash) |
| Capital Expenditures (Net) | $1.17 billion | $1.26 billion |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased slightly by approximately 1% year-over-year, reflecting soft market conditions in the industrial and distribution sectors, partially offset by growth in automotive smart mobility and personal electronics.
- Margin Compression: Gross margin decreased by 280 basis points to 34.1%, driven by price pressure, increased unsaturation charges, and higher write-offs of capitalized development costs.
- Significant Non-Cash Loss: Net profit dropped significantly from $1.64 billion to $388 million. This was primarily due to a $519 million non-cash loss related to the fair value adjustment of the embedded conversion option on the company's convertible bonds, driven by a strong increase in the company's share price.
- Acquisition: The company completed the full acquisition of Norstel AB, a Swedish silicon carbide (SiC) wafer manufacturer, for a total consideration of $137.5 million.
Guidance, Outlook, and Risks
- Q1 2020 Outlook: Management forecasts Q1 2020 revenues of approximately $2.36 billion (mid-point), representing a year-over-year increase of about 13.7% but a sequential decrease of approximately 14.3%.
- Capital Investment: Planned capital investment for 2020 is approximately $1.5 billion, focused on a new 300mm fab in Agrate, Italy, and expansion of Silicon Carbide (SiC) and Gallium Nitride (GaN) capabilities. This plan may be modulated based on market evolution.
- COVID-19 Impact: Management explicitly notes that the novel coronavirus (COVID-19) pandemic adds uncertainty to the global economy and market evolution. The company is carefully monitoring the situation, which could impact the 2020 capital investment plan and operational results.
- Strategic Focus: Continued investment in Smart Mobility, Power & Energy, IoT, and 5G trends to achieve a mid-term revenue ambition of $12 billion.
Investor Verification Checklist
- Convertible Bond Accounting: Verify the impact of the $519 million non-cash loss on net profit and understand that operating cash flow ($2.20 billion) remains robust despite the lower net income.
- Market Exposure: Assess the sensitivity of the business to the "soft" industrial market and the recovery trajectory of the automotive legacy business versus smart mobility growth.
- COVID-19 Contingency: Review the specific risks outlined regarding supply chain disruptions and demand volatility due to the pandemic, as the 2020 outlook is subject to modulation.
- Capital Allocation: Confirm the execution of the $1.5 billion 2020 capex plan, particularly the new 300mm fab and SiC/GaN expansions, against the backdrop of potential economic headwinds.
- Customer Concentration: Note that Apple represented 17.6% of consolidated net revenues in 2019, up from 13.1% in 2018.