STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated November 5, 2010, reports the unaudited financial results for STMicroelectronics N.V. for the third quarter and nine months ended September 25, 2010. The company is a global independent semiconductor manufacturer operating in three primary segments: Automotive Consumer Computer and Communication Infrastructure (ACCI), Industrial and Multisegment Sector (IMS), and Wireless (including the ST-Ericsson joint venture).
Key Financial Metrics
| Metric | Q3 2010 | Q3 2009 | 9M 2010 | 9M 2009 |
|---|---|---|---|---|
| Net Revenues | $2,657 million | $2,275 million | $7,513 million | $5,927 million |
| Gross Margin | 39.2% | 31.3% | 38.4% | 28.2% |
| Operating Income | $193 million | ($196 million) | $263 million | ($1,016 million) |
| Net Income (Parent) | $198 million | ($201 million) | $611 million | ($1,061 million) |
| Diluted EPS | $0.22 | ($0.23) | $0.68 | ($1.21) |
| Free Cash Flow | $224 million | $1,117 million | $612 million | $1,117 million |
| Net Financial Position | $878 million (Net Cash) | N/A | $878 million (Net Cash) | N/A |
Note: Q3 2010 Free Cash Flow excludes the impact of business combinations which drove the 2009 figure.
Material Changes vs. Prior Period
- Revenue Growth: Q3 2010 revenues increased 16.8% year-over-year (YoY) and 5.0% sequentially. Growth was driven by ACCI (+30% YoY) and IMS (+43% YoY), while Wireless revenues declined 23% YoY due to volume and price decreases.
- Profitability Turnaround: The company returned to profitability in Q3 2010 with an operating income of $193 million, compared to a $196 million loss in Q3 2009. This was driven by higher fab utilization, improved manufacturing efficiency, and reduced unused capacity charges (which penalized the prior year by ~2 percentage points).
- Restructuring Costs: Restructuring and impairment charges decreased significantly to $27 million in Q3 2010 from $53 million in Q3 2009. For the nine months, charges were $72 million compared to $194 million in the prior year.
- One-Time Gains: The nine-month 2010 results included a $265 million gain from the divestiture of the company's stake in Numonyx to Micron Technology.
Guidance, Outlook, and Risks
- Q4 2010 Outlook: Management expects sequential net revenue growth of 2% to 7% and a gross margin of approximately 39.5% (+/- 1.0 percentage point).
- Capital Expenditures: The company plans to accelerate capex to meet demand, focusing on expanding 300-mm capacity in Crolles and restructuring front-end fabs.
- Legal Proceedings:
- Credit Suisse: A federal court affirmed a $431 million arbitration award in STMicroelectronics' favor regarding unauthorized Auction Rate Securities. Credit Suisse has appealed; the company expects to receive approximately $358 million pending final resolution.
- Tessera: An ITC exclusion order regarding BGA packages is under appeal; the company notes its U.S. affiliate holds a license mitigating immediate risk.
- NXP: NXP has filed an arbitration claim for approximately $59 million regarding "underloading costs" from a prior joint venture.
- Risks: Key risks include the performance of the ST-Ericsson joint venture, foreign exchange fluctuations (costs are largely in Euros while reporting is in USD), and potential order cancellations if customer inventory levels rise.
Investor Verification Checklist
- Wireless Segment Performance: Verify the trajectory of the ST-Ericsson joint venture, which continues to report operating losses despite sequential revenue growth.
- Numonyx Divestiture Proceeds: Confirm the status of the Micron shares received (currently hedged) and the timing of the $78 million payable to Francisco Partners.
- Credit Suisse Recovery: Monitor the appeal process regarding the $358 million award to assess the likelihood and timing of cash recovery.
- Restructuring Completion: Track the execution of the manufacturing restructuring plan (expected completion H1 2011) and the ST-Ericsson workforce reduction plan (expected completion end of 2010).
- Debt Maturity: Review the potential redemption of $568 million in 2016 Convertible Bonds in February 2011 and the company's liquidity position to manage this outflow.