STMicroelectronics N.V. Q1 2013 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated April 23, 2013, reports the unaudited financial results for STMicroelectronics N.V. for the first quarter ended March 30, 2013. The company operates as a global semiconductor leader with two primary reporting segments effective January 1, 2013: Sense & Power and Automotive Products (SPA) and Embedded Processing Solutions (EPS). A significant corporate development during the period was the agreement to split the ST-Ericsson joint venture with Ericsson, with the wind-down expected to complete in Q3 2013.
Key Financial Metrics
| Metric (in millions USD) | Q1 2013 | Q4 2012 | Q1 2012 |
|---|---|---|---|
| Net Revenues | $2,009 | $2,162 | $2,017 |
| Gross Margin | 31.3% | 32.3% | 29.6% |
| Operating Income (Loss) | $(281) | $(730) | $(352) |
| Net Loss Attributable to Parent | $(171) | $(428) | $(176) |
| Diluted EPS | $(0.19) | $(0.48) | $(0.20) |
| Free Cash Flow | $(65) | $145 | $98 |
| Net Cash Position | $1.10 billion | $1.19 billion | N/A |
| Total Debt | $0.90 billion | N/A | N/A |
Note: Net revenues include consolidated sales from ST-Ericsson. Free cash flow is a non-U.S. GAAP measure.
Material Changes vs. Prior Periods
- Revenue: Net revenues decreased 7.1% sequentially and 0.4% year-over-year. Excluding ST-Ericsson, revenues decreased 3% sequentially, which management noted was better than normal seasonality.
- Profitability: The reported net loss of $171 million was primarily driven by the 50% share of ST-Ericsson's operating loss and $101 million in impairment and restructuring costs (of which $87 million related to ST-Ericsson). On a non-U.S. GAAP basis (excluding impairment/restructuring), the operating loss narrowed to $(180) million compared to $(730) million in Q4 2012.
- Segment Performance: The SPA segment generated an operating profit of $58 million. The EPS segment, which includes the Wireless product line (ST-Ericsson), reported an operating loss of $(210) million.
- Balance Sheet: The company redeemed $455 million in senior bonds at maturity and paid $89 million in dividends. Inventory decreased by $47 million to $1.31 billion.
Guidance, Outlook, and Risks
Q2 2013 Outlook: Management expects sequential revenue growth of approximately 3% (plus or minus 3.5 percentage points) at the midpoint. Gross margin is expected to be approximately 32.7% (plus or minus 2.0 percentage points), driven by improved fab loading. Excluding Wireless, revenue is expected to grow about 7% sequentially.
Management Commentary: CEO Carlo Bozotti highlighted strong performance in Microcontrollers, Power, and Smart Power for industrial and automotive applications. The company is advancing cost reduction initiatives and expects significant reductions in operating expenses in Q2 as the ST-Ericsson exit progresses.
Risks and Contingencies:
- ST-Ericsson Split: Risks associated with the execution and regulatory approval of the joint venture wind-down.
- Macro-Economics: Ongoing soft macro-economic environment and market volatility.
- Legal: Ongoing intellectual property litigation, including a complaint filed with the U.S. International Trade Commission against InvenSense, Inc.
- Currency: Variations in foreign exchange rates, particularly the Euro to U.S. dollar rate.
Key Investor Verification Points
- ST-Ericsson Transition Costs: Verify the total estimated cash costs for the wind-down ($350M-$450M) and the timing of future charges.
- Non-GAAP Reconciliations: Review Attachment A to understand the specific adjustments made to operating income and EPS to exclude restructuring and impairment charges.
- Wireless Segment Exposure: Assess the impact of the ST-Ericsson split on the Embedded Processing Solutions (EPS) segment's future revenue and margin profile.
- Liquidity Position: Confirm the net cash position of $1.10 billion and the status of the new €350 million loan facility with the European Investment Bank.
- Design Wins: Monitor the commercialization of new product wins in 28nm FD-SOI technology and automotive applications mentioned in the product highlights.