STMicroelectronics N.V. Q1 2018 Financial Summary
Business Context and Reporting Period
This Form 6-K, dated April 25, 2018, reports the unaudited financial results for STMicroelectronics N.V. for the first quarter ended March 31, 2018. The company is a global semiconductor leader focusing on Smart Driving and Internet of Things (IoT) applications. The reporting period reflects strong year-over-year growth across all product groups and regions, despite seasonal headwinds in smartphone applications.
Key Financial Metrics
| Metric (US$ Million) | Q1 2018 | Q4 2017 | Q1 2017 |
|---|---|---|---|
| Net Revenues | 2,226 | 2,466 | 1,821 |
| Gross Margin | 39.9% | 40.7% | 37.7% |
| Operating Income | 269 | 411 | 132 |
| Operating Margin | 12.1% | 16.7% | 7.3% |
| Net Income (Parent) | 239 | 308 | 108 |
| Diluted EPS | $0.26 | $0.34 | $0.12 |
| Free Cash Flow (Non-GAAP) | 95 | 145 | 62 |
| Net Financial Position (Non-GAAP) | 522 | 489 | 518 |
Balance Sheet Highlights: Total financial resources were $2.23 billion against total financial debt of $1.71 billion. Inventory stood at $1.43 billion (97 days supply). Capital expenditures were $351 million.
Material Changes vs. Prior Periods
- Year-Over-Year (Q1 2018 vs. Q1 2017): Net revenues increased 22.2%. Gross margin expanded 220 basis points to 39.9%, and operating margin increased 480 basis points to 12.1%. Net income improved by $131 million (121% increase).
- Sequential (Q1 2018 vs. Q4 2017): Net revenues decreased 9.8%, driven primarily by a 27.4% sequential decline in the Analog, MEMS and Sensors Group (AMS) due to seasonal smartphone dynamics. Operating income decreased to $269 million from $411 million.
- Product Group Performance:
- Microcontrollers and Digital ICs (MDG): Revenues up 26.6% YoY; operating margin improved to 19.5%.
- Automotive and Discrete (ADG): Revenues up 15.4% YoY; operating margin doubled to 11.0%.
- Analog, MEMS and Sensors (AMS): Revenues up 26.5% YoY; operating margin expanded to 9.8%.
Guidance, Outlook, and Risks
Q2 2018 Outlook: Management expects Q2 revenues to increase approximately 1.5% sequentially (plus or minus 3.5 percentage points). Gross margin is expected to be approximately 40.0% (plus or minus 2.0 percentage points). Full-year revenue growth is anticipated at the mid-point of 19.8%.
Management Commentary: CEO Carlo Bozotti highlighted better-than-seasonal performance in Automotive and Industrial sectors. The company anticipates healthy demand in the second half of the year with a strong backlog.
Corporate Developments:
- CEO Carlo Bozotti and CFO Carlo Ferro announced plans to retire following the May 31, 2018 Annual General Meeting (AGM).
- Deputy CEO Jean-Marc Chery is proposed as the next President & CEO.
- A cash dividend of $0.24 per share for 2018 was proposed.
Risks and Contingencies: Key risks include macro-economic trends, customer demand fluctuations, currency exchange rate variations (specifically USD/EUR), Brexit implications, supply chain constraints, and intellectual property claims. The filing notes that forward-looking statements are subject to these uncertainties.
Investor Verification Checklist
- Leadership Transition: Verify the timeline and details of the CEO/CFO succession plan and the appointment of Jean-Marc Chery at the May 31 AGM.
- Smartphone Exposure: Assess the impact of the 27.4% sequential revenue drop in the AMS group and the sustainability of the "better than seasonal" performance in other sectors.
- Currency Impact: Review the sensitivity of margins to the assumed Q2 exchange rate of $1.21 = €1.00 and the negative currency effects noted in Q1.
- Capital Allocation: Monitor the high capital expenditure run rate ($351M in Q1) against free cash flow generation ($95M in Q1) to ensure liquidity remains robust.
- Restructuring Costs: Confirm the status of the set-top box restructuring plan, which incurred $21 million in charges in Q1.