Business Context and Reporting Period
This Form 6-K, dated August 3, 2010, presents STMicroelectronics N.V.'s financial performance and strategic roadmap. The filing primarily covers the first quarter of fiscal year 2010 (ended March 27, 2010), with comparative data for Q4 2009, Q3 2008, and full-year results for 2009 and 2008. The company is executing a restructuring plan involving the divestiture of flash memory (Numonyx) and Phoenix assets, and managing a 50% joint venture with Ericsson (ST-Ericsson).
Key Financial Metrics
| Metric (US$M unless noted) | Q1 2010 | Q4 2009 | FY 2009 |
|---|---|---|---|
| Net Revenues | 2,325 | 2,583 | 8,510 |
| Gross Margin | 37.7% | 37.0% | 30.9% |
| Adjusted Operating Profit (Attributable to Parent) | 81 | 128 | (499) |
| Adjusted Operating Margin | 4.0% | 5.7% | -6.8% |
| Diluted EPS (GAAP) | 0.06 | (0.08) | (1.29) |
| Adjusted Diluted EPS | 0.07 | 0.04 | (0.72) |
| Net Operating Cash Flow (ex M&A) | 176 | 221 | 226 |
| Net Financial Position | 566 | 420 | 420 |
| Total Financial Debt | (2,191) | (2,492) | (2,492) |
Liquidity: As of March 27, 2010, total available cash and marketable securities were $2,757 million. The company maintains a net cash position of $566 million.
Material Changes vs. Prior Period
- Revenue Decline: Q1 2010 revenues decreased to $2,325 million from $2,583 million in Q4 2009, attributed to seasonally lower demand.
- Margin Improvement: Despite lower revenue, Gross Margin improved to 37.7% from 37.0% in the prior quarter, driven by cost reduction initiatives and currency effects.
- Profitability: Adjusted Operating Profit dropped to $81 million from $128 million in Q4 2009. However, the company returned to positive Adjusted EPS ($0.07) compared to a loss in FY 2009.
- Debt Reduction: Total financial debt decreased by approximately $300 million year-over-year due to debt repurchases and divestiture proceeds.
Guidance, Outlook, and Risks
Management Commentary and Targets
- Financial Model: The company targets a long-term operating margin of 9% to 12% and a Return on Net Assets (RONA) of 12% to 18%.
- Segment Targets:
- IMS (Industrial & Multimedia): Targeting operating margins in the high teens to 20%+.
- ACCI (Automotive & Consumer): Targeting low to mid-teens margins.
- Wireless (ST-Ericsson): Plans to achieve profitability at a quarterly revenue run-rate of $750 million or more once restructuring is complete.
- Dividend: Increased to $0.28 per share, representing a 3.6% yield as of May 31, 2010.
Risks and Contingencies
- Currency Exposure: A 1% change in the Euro/USD exchange rate impacts operating profit by $8 to $10 million. The company hedges approximately 5% of Euro exposure (excluding other currencies).
- Legal Proceedings: STMicroelectronics won a FINRA award against Credit Suisse for $406 million plus interest. $75 million was collected in Dec 2009; a further $354 million is expected following a March 2010 US District Court ruling, though Credit Suisse may still appeal.
- Restructuring: Ongoing costs related to the phase-out of the Phoenix fab and other restructuring initiatives.
Investor Verification Checklist
- Verify the timeline and final proceeds from the Numonyx divestiture (estimated >$500M after lock-up) and the Phoenix sale.
- Monitor the progress of ST-Ericsson toward the $750 million quarterly revenue run-rate required for profitability.
- Track the status of the Credit Suisse litigation appeal and the actual collection of the remaining $354 million award.
- Confirm the execution of the "Assets Lighter" strategy, specifically the reduction of CapEx-to-sales ratio to the 5-7% target range.
- Review the impact of the 2016 Convertible Bond redemption (residual $673M due Feb 2011) on future liquidity.