STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This filing covers the unaudited interim results for the first quarter ended March 30, 2019. STMicroelectronics N.V. is a global semiconductor leader providing intelligent and energy-efficient products for automotive, industrial, and consumer electronics markets. The company operates 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 (in millions, except per share) | Q1 2019 | Q4 2018 | Q1 2018 |
|---|---|---|---|
| Net Revenues | $2,076 | $2,648 | $2,226 |
| Gross Profit | $818 | $1,059 | $888 |
| Gross Margin | 39.4% | 40.0% | 39.9% |
| Operating Income | $211 | $443 | $269 |
| Net Income (Parent) | $178 | $418 | $239 |
| Diluted EPS | $0.20 | $0.46 | $0.26 |
| Operating Cash Flow | $341 | N/A | $455 |
| Free Cash Flow (Non-GAAP) | ($67) | N/A | $95 |
| Total Liquidity | $2,698 | $2,596 | $2,234 |
| Total Financial Debt | $2,188 | $1,910 | $1,712 |
| Net Financial Position | $510 | $686 | $522 |
Material Changes vs. Prior Periods
- Revenue Decline: Net revenues decreased 21.6% sequentially and 6.7% year-over-year (YoY). The sequential drop was driven by a ~27% volume decrease, partially offset by a ~5% increase in average selling prices.
- Segment Performance:
- AMS: Revenues fell 44.1% sequentially and 15.7% YoY, primarily due to lower Imaging sales.
- MDG: Revenues fell 10.5% sequentially and 17.7% YoY, driven by reduced sales in Microcontrollers and Mixed Signal (MMS).
- ADG: Revenues decreased 6.6% sequentially but increased 10.5% YoY, supported by Automotive and Power Discrete growth.
- Profitability: Operating income dropped 52.4% sequentially to $211 million. Gross margin compressed 60 basis points sequentially due to sales price pressure.
- Cash Flow: Free cash flow turned negative at ($67) million, compared to $95 million in Q1 2018, largely due to a $76 million cash outflow for the acquisition of 55% of Norstel AB.
Guidance, Outlook, and Risks
- Q2 2019 Outlook: Management expects sequential revenue growth of approximately 2.4% (plus or minus 350 basis points). Gross margin is projected at 38.5% (plus or minus 200 basis points).
- Full Year 2019 Guidance: Net revenues are expected to range between $9.45 billion and $9.85 billion.
- Capital Investment: 2019 CAPEX guidance was moderated to $1.1 - $1.2 billion (previously $1.2 - $1.3 billion). Investments will focus on a new 300mm fab in Agrate, SiC/GaN expansion, and next-gen image sensors.
- Key Risks:
- Market Conditions: Semiconductor industry revenues decreased ~16% sequentially in Q1 2019.
- Currency: Effective exchange rate was $1.16/€1.00 in Q1 2019. Hedging activities resulted in a net loss of $23 million in the quarter.
- Backlog: Backlog entered Q2 lower than Q1, with potential for cancellations or push-backs.
Investor Verification Checklist
- Imaging Segment Recovery: Verify the trajectory of the AMS Imaging division, which drove a significant portion of the sequential revenue decline.
- Volume vs. Price Mix: Confirm if the ~5% increase in average selling prices can be sustained against the ~27% volume drop in the coming quarters.
- CAPEX Execution: Monitor the start of construction for the new 300mm fab in Agrate and the ramp-up of SiC/GaN technologies.
- Free Cash Flow: Assess the impact of the Norstel acquisition on liquidity and the ability to return to positive free cash flow in Q2.
- Convertible Bonds: Review the status of the $1.5 billion senior unsecured convertible bonds (due 2022/2024) and potential dilution if conversion triggers are met.