STMicroelectronics N.V. Q3 2018 Financial Summary
Business Context and Reporting Period
This Form 6-K, dated October 25, 2018, reports the third-quarter and nine-month financial results for STMicroelectronics N.V., a global semiconductor leader. The reporting period covers the three months ended September 29, 2018. The filing includes U.S. GAAP results and supplemental non-U.S. GAAP measures. Effective January 1, 2018, the Subsystems business unit was transferred from "Others" to the Analog, MEMS and Sensors Group (AMS), and prior periods have been restated accordingly.
Key Financial Metrics
| Metric | Q3 2018 | Q3 2017 | Y/Y Change |
|---|---|---|---|
| Net Revenues | $2.52 billion | $2.14 billion | +18.1% |
| Gross Margin | 39.8% | 39.6% | +20 bps |
| Operating Income | $398 million | $281 million | +41.8% |
| Operating Margin | 15.8% | 13.1% | +270 bps |
| Net Income | $369 million | $236 million | +56.7% |
| Diluted EPS | $0.41 | $0.26 | +57.7% |
| Free Cash Flow (Non-GAAP) | $114 million | $50 million | +128.0% |
| Net Financial Position (Non-GAAP) | $447 million | $446 million | +1.0% |
Liquidity and Debt: Total financial resources were $2.17 billion against total financial debt of $1.72 billion. Inventory stood at $1.59 billion with days sales of inventory at 95 days.
Material Changes vs. Prior Period
- Revenue Growth: Sequential revenue growth was 11.2%, exceeding the company's 10% midpoint guidance. Year-over-year growth was driven by strong performance in Imaging, Power Discrete, and Automotive products.
- Product Group Performance:
- Automotive and Discrete Group (ADG): Revenue up 16.3% Y/Y; operating profit up 36.2% to $116 million.
- Analog, MEMS and Sensors Group (AMS): Revenue up 36.7% Y/Y, driven by triple-digit growth in Imaging; operating profit up 82.4% to $157 million.
- Microcontrollers and Digital ICs Group (MDG): Revenue up 2.5% Y/Y; operating profit decreased 5.4% to $119 million due to less favorable product mix.
- Margin Expansion: Operating margin expanded 270 basis points year-over-year to 15.8%, driven by revenue growth and improved manufacturing efficiency.
- Cash Flow: Net cash from operating activities was $373 million. Capital expenditures were $242 million for the quarter.
Guidance, Outlook, and Risks
Q4 2018 Outlook:
- Net revenues expected to increase approximately 5.7% sequentially (mid-point), with a range of +/- 350 basis points.
- Gross margin expected to be approximately 39.8% (mid-point), with a range of +/- 200 basis points.
- Based on Q4 guidance, full-year 2018 revenue is expected to grow approximately 16.0% year-over-year.
Management Commentary: CEO Jean-Marc Chery highlighted solid performance with sequential revenue growth above guidance and significant year-over-year improvements in operating and net income. The outlook assumes an effective currency exchange rate of approximately $1.18 = €1.00.
Risks and Contingencies:
- Uncertain macro-economic and industry trends impacting end-market demand.
- Changes in global trade policies, tariffs, and trade barriers.
- Impact of Brexit on business activity and economic conditions.
- Foreign exchange rate variations, particularly the U.S. dollar vs. Euro.
- Intellectual property claims and litigation outcomes.
- Supply chain disruptions, raw material costs, and manufacturing performance.
Key Facts for Investor Verification
- Verify the sustainability of the 36.7% revenue growth in the AMS group, specifically the triple-digit growth in Imaging.
- Monitor the sequential revenue growth in Q4 to ensure it meets the 5.7% midpoint guidance amidst potential macro-economic headwinds.
- Assess the impact of the 20 basis point gross margin miss against guidance, attributed to product group mix.
- Review the decline in operating profit for the MDG group despite overall revenue growth.
- Confirm the stability of the net financial position given the high level of capital expenditures ($983 million year-to-date).