STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated August 3, 2010, reports the unaudited financial results for STMicroelectronics N.V. for the second quarter and first half of 2010, ended June 26, 2010. The company operates in the semiconductor industry, focusing on automotive, consumer, computer, communication, industrial, and wireless markets. The reporting period reflects a strong recovery in the semiconductor industry, with total available market (TAM) revenues increasing approximately 43% year-over-year.
Key Financial Metrics
| Metric | Q2 2010 | Q2 2009 | 6M 2010 | 6M 2009 |
|---|---|---|---|---|
| Net Revenues ($ millions) | $2,531 | $1,993 | $4,856 | $3,653 |
| Gross Margin (%) | 38.3% | 26.1% | 38.0% | 26.2% |
| Operating Income ($ millions) | $91 | ($428) | $71 | ($821) |
| Net Income Attributable to Parent ($ millions) | $356 | ($318) | $413 | ($860) |
| Diluted EPS ($) | $0.39 | ($0.36) | $0.46 | ($0.98) |
| Net Financial Position ($ millions) | $702 | $205 | $702 | $205 |
| Free Cash Flow ($ millions) | $212 (Q2) | $1,022 (6M 2009) | $388 (6M) | $1,022 (6M) |
Material Changes vs. Prior Period
- Revenue Growth: Q2 2010 revenues increased 27.0% year-over-year and 8.9% sequentially. Growth was driven by the Automotive Consumer Computer and Communication Infrastructure (ACCI) and Industrial and Multisegment Sector (IMS) segments, which grew 47% and 56% respectively year-over-year. Wireless revenues declined 19% year-over-year.
- Profitability Turnaround: The company returned to operating profitability in Q2 2010 ($91 million) after several quarters of losses. This was driven by higher revenues, improved gross margins (up 12.2 percentage points year-over-year), and reduced restructuring charges.
- One-Time Gain: Net income was significantly boosted by a $265 million after-tax gain from the divestiture of the company's 48.6% stake in Numonyx to Micron Technology Inc., completed in May 2010.
- Restructuring Costs: Impairment and restructuring charges decreased significantly to $12 million in Q2 2010 compared to $86 million in Q2 2009, as major restructuring plans matured.
- Liquidity: The net financial position improved to a net cash position of $702 million as of June 26, 2010, up from $205 million at year-end 2009.
Guidance, Outlook, and Risks
- Q3 2010 Outlook: Management expects sequential revenue growth of 2% to 7% (13% to 19% year-over-year). Gross margin is expected to improve to approximately 38.8% (+/- 1 percentage point).
- Capital Expenditures: The company is accelerating capital spending to meet strong demand, targeting a sustainable capex-to-sales ratio of 5% to 7% over an industry cycle. Key projects include expanding 300-mm fab capacity in Crolles and back-end facilities in China and the Philippines.
- Legal Proceedings:
- Credit Suisse: A federal district court affirmed a $431 million arbitration award in STMicroelectronics' favor regarding unauthorized Auction Rate Securities. The company expects to receive approximately $358 million, pending potential appeals.
- Tessera: An ITC exclusion order regarding BGA packages is under appeal; the company is not currently impacted as its U.S. affiliate holds a license.
- NXP: NXP has filed an arbitration claim for approximately $59 million regarding "underloading costs" in a manufacturing services agreement.
- Risks: Key risks include the cyclical nature of the semiconductor industry, foreign exchange fluctuations (particularly the Euro vs. USD), the ongoing restructuring of the ST-Ericsson joint venture, and potential IP litigation outcomes.
Investor Verification Checklist
- Numonyx Divestiture: Verify the valuation and hedging status of the 66.88 million Micron shares received as consideration for the Numonyx sale.
- Wireless Segment Performance: Monitor the ST-Ericsson joint venture's progress in restructuring and design wins, as this segment continues to report operating losses.
- Credit Suisse Recovery: Track the status of the $358 million collection from Credit Suisse and any potential appeals that could delay or reduce the payout.
- Restructuring Completion: Confirm the final costs and timeline for the manufacturing and ST-Ericsson restructuring plans to ensure no further material charges are required.
- Convertible Bonds: Assess the likelihood of bondholders exercising the put option on the 2016 Convertible Bonds in February 2011, which could require a cash outflow of approximately $672 million.