STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated August 21, 2019, reports the unaudited Semi Annual IFRS Accounts for STMicroelectronics N.V. for the six-month period ended June 29, 2019. STMicroelectronics is a global independent semiconductor company designing, developing, and manufacturing products for automotive, industrial, personal electronics, and communications markets. The company operates through three reportable segments: Automotive and Discrete Group (ADG), Analog, MEMS and Sensors Group (AMS), and Microcontrollers and Digital ICs Group (MDG).
Key Financial Metrics
| Metric | H1 2019 (USD Millions) | H1 2018 (USD Millions) |
|---|---|---|
| Total Revenues | 4,249 | 4,494 |
| Gross Profit | 1,434 | 1,657 |
| Gross Margin | 33.8% | 36.9% |
| Operating Profit | 336 | 516 |
| Net Profit | 181 | 450 |
| Net Profit Attributable to Parent | 180 | 446 |
| Earnings Per Share (Diluted) | $0.20 | $0.49 |
| Net Cash from Operating Activities | 842 | 953 |
| Free Cash Flow (Non-GAAP) | (134) | 56 |
| Net Financial Position (Non-GAAP) | 308 | 686 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 5.5% year-over-year to $4,249 million, driven by a 21.2% drop in the MDG segment (Microcontrollers) and a 1.7% decline in AMS. The ADG segment grew 6.0%.
- Profitability Pressure: Operating profit fell 35% to $336 million. Gross margin contracted by 310 basis points due to price pressure, higher unloading charges, and increased amortization/impairment of capitalized development costs.
- Non-Cash Charges: Finance costs included a $114 million net loss from fair value adjustments on convertible bond embedded options, compared to $32 million in the prior year.
- Cash Flow: Free Cash Flow turned negative ($134 million) compared to positive $56 million in H1 2018, primarily due to higher investing outflows, including a $76 million acquisition of Norstel AB and increased capital expenditures.
- Accounting Changes: The company adopted IFRS 16 (Leases) effective January 1, 2019, recognizing right-of-use assets and lease liabilities on the balance sheet.
Guidance, Outlook, and Risks
- Full Year 2019 Guidance: Management expects net revenues in the range of $9.35 billion to $9.65 billion.
- Capital Expenditures: Capital investment for 2019 is confirmed in the range of $1.1 billion to $1.2 billion. Key initiatives include a new 300mm fab in Agrate, Italy; expansion of Silicon Carbide (SiC) and Gallium Nitride (GaN) capacity; and next-generation image sensor technology.
- Strategic Acquisitions: The company acquired a 55% stake in Norstel AB (SiC wafer manufacturer) for $77 million to strengthen its automotive and industrial ecosystem.
- Risks: Key risks include global trade policy changes (tariffs), uncertain macro-economic trends, customer demand volatility, and the impact of Brexit. The company also faces exposure to foreign exchange fluctuations, primarily between the Euro and the U.S. Dollar.
Investor Verification Checklist
- Verify the sustainability of the 21.2% revenue decline in the Microcontrollers and Digital ICs (MDG) segment and its impact on full-year guidance.
- Confirm the trajectory of gross margin recovery given the cited price pressures and increased amortization of development costs.
- Assess the impact of the $114 million non-cash fair value loss on convertible bonds on future earnings volatility.
- Monitor the execution of the $1.1–$1.2 billion capital expenditure plan, specifically the ramp-up of the new Agrate fab and SiC/GaN technologies.
- Review the cash burn rate associated with the negative Free Cash Flow and the company's ability to fund operations and dividends from existing liquidity ($2.5 billion total liquidity).