Stmicroelectronics N.V. annual report, Q4 FY2022

STMicroelectronics N.V. — Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2022, with unaudited fourth-quarter results for the three months ended December 31, 2022. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars. STMicroelectronics designs, manufactures and sells semiconductor products serving automotive, industrial, personal electronics, communications, computers and peripherals markets.

Key Financial Metrics

Metric	FY 2022	FY 2021	Q4 2022	Q4 2021
Net revenues	$16,128 million	$12,761 million	$4,424 million	$3,556 million
Gross profit	$7,635 million	$5,326 million	$2,102 million	$1,609 million
Gross margin	47.3%	41.7%	47.5%	45.2%
Operating income	$4,439 million	$2,419 million	$1,287 million	$885 million
Operating margin	27.5%	19.0%	29.1%	24.9%
Net income attributable to parent	$3,960 million	$2,000 million	$1,248 million	$750 million
Diluted EPS	$4.19	$2.16	$1.32	$0.82
Operating cash flow	$5,202 million	$3,060 million	Not provided	Not provided
Free cash flow	$1,591 million	$1,120 million	Not provided	Not provided

Liquidity, Debt and Capital Allocation

Total liquidity at December 31, 2022 was $4,518 million, consisting of $3,258 million of cash and cash equivalents, $581 million of short-term deposits and $679 million of U.S. Treasury securities.
Total financial debt was $2,717 million, including $175 million of short-term debt and $2,542 million of long-term debt. Net financial position was positive $1,801 million, compared with positive $977 million at year-end 2021.
The debt-to-equity ratio was 0.21. The average interest rate on outstanding debt was 0.82%, while the average annual interest rate on financial resources was 4.16%.
Committed but undrawn medium-term credit facilities totaled $1,281 million.
Capital expenditures, net of proceeds, were $3,524 million in 2022, versus $1,828 million in 2021. The company repurchased $346 million of common stock and paid $212 million of dividends.
The company approved a quarterly dividend of $0.24 per share for 2022, paid in installments of $0.06. Future dividends remain subject to performance, cash generation, capital requirements and board approval.

Business and Segment Performance

Segment	FY 2022 Revenue	Year-over-year change	FY 2022 Operating Income
Automotive and Discrete Group	$5,969 million	+37.2%	$1,469 million
Analog, MEMS and Sensors Group	$4,911 million	+7.1%	$1,237 million
Microcontrollers and Digital ICs Group	$5,228 million	+37.5%	$1,830 million

Growth was led by automotive, industrial, microcontroller and power-related demand. Full-year revenue growth primarily reflected approximately 27% higher average selling prices, partially offset by an approximately 1% volume decline. In Q4, revenue increased 2.4% sequentially and 24.4% year over year; ADG grew 8.5% sequentially, MDG grew 0.7% and AMS declined 3.0%.

Material Changes Versus Prior Comparable Period

FY 2022 revenue increased 26.4%, gross profit increased 43.4% and operating income increased $2,020 million, or approximately 84%.
Gross margin expanded 560 basis points to 47.3%, driven by favorable pricing, product mix and currency effects, partly offset by manufacturing input-cost inflation.
Operating expenses increased 10.2% to $3,355 million because of higher labor costs and increased R&D activity, but declined to 20.8% of revenue from 23.9%.
Operating cash flow increased $2,142 million to $5,202 million, while free cash flow increased to $1,591 million.
Inventory increased to $2,583 million from $1,972 million, and trade receivables increased to $1,970 million from $1,759 million.
Property, plant and equipment increased to $8,201 million from $5,660 million as the company accelerated investment in 300mm wafer fabs and silicon-carbide capacity.
ST adopted new U.S. GAAP convertible-debt and EPS guidance on January 1, 2022. The adoption increased reported debt and resulted in full dilution of the 2020 convertible bonds; prior periods were not restated.

Guidance, Outlook and Management Commentary

First-quarter 2023 revenue guidance was approximately $4.20 billion at the midpoint, representing an expected 18.5% year-over-year increase and a 5.1% sequential decrease, with a range of plus or minus 350 basis points.
First-quarter 2023 gross margin guidance was approximately 48.0%, plus or minus 200 basis points.
Management planned approximately $4.0 billion of 2023 capital expenditures, focused on 300mm wafer capacity, silicon-carbide devices and substrates, back-end capacity and carbon-neutrality initiatives.
Management’s 2023 revenue plan was $16.8 billion to $17.8 billion, supported by customer demand and increased manufacturing capacity.
The company expects significant external-foundry and back-end subcontractor capacity limitations to continue through 2023 and potentially beyond.
ST is targeting carbon neutrality by 2027, including a 50% reduction in direct and indirect greenhouse-gas emissions versus 2018 by 2025 and 100% renewable energy sourcing by 2027.

Risks, Contingencies and Unusual Items

Key risks include semiconductor cyclicality, demand volatility, pricing pressure, inflation, supply-chain disruption, limited suppliers, manufacturing yields, external foundry capacity, customer concentration, foreign-exchange movements and intense competition.
Apple represented 16.8% of 2022 revenue, down from 20.5% in 2021, creating continued customer-concentration exposure.
2022 included $177 million of public funding income, $10 million of COVID-19 incremental costs, $13 million of start-up and phase-out costs, and a $38 million impairment of acquired technologies.
A $140 million one-time tax benefit resulted from the reversal of valuation allowances in certain jurisdictions. The reported effective tax rate was 12%; management also presents a 15% rate before discrete items.
There were no material restructuring charges in 2022 and no material probable or possible litigation losses were estimated at year-end. However, the company faces ongoing intellectual-property, product liability, warranty, tax, contractual and environmental risks.
Total purchase obligations were $5,554 million, including $3,587 million for equipment and other asset purchases and $1,827 million for foundry purchases. The company also had approximately $3,584 million of equipment and asset commitments for delivery in 2023.
The filing states that there were no material off-balance-sheet arrangements as of December 31, 2022.
ST Holding owned approximately 27.5% of issued common shares and may significantly influence shareholder and board decisions. An independent foundation has an option to acquire up to 540 million preference shares as an anti-takeover measure; none were issued at year-end.

Most Important Facts for Investors to Verify

Whether strong automotive, industrial, microcontroller and power demand remains sufficient to offset semiconductor-cycle weakness and lower volumes.
Execution and returns on the approximately $4.0 billion 2023 capital-spending plan, including 300mm fabs and silicon-carbide substrate capacity.
Gross-margin sustainability after 2022 pricing and product-mix benefits, particularly as input costs, capacity and industry supply normalize.
Customer concentration and the effect of Apple demand, inventory decisions and product transitions.
External-foundry capacity, take-or-pay commitments, inventory growth and the potential for excess capacity or inventory write-downs.
Cash conversion after substantially higher capital expenditures, purchase commitments, dividends, buybacks and upcoming debt maturities.
Potential changes to the effective tax rate, realization of $602 million of deferred tax assets and the impact of global minimum-tax rules.
Progress toward the 2027 carbon-neutrality target and the associated capital and operating costs.
Final performance determinations for 2022 management and employee stock-award plans, including the CEO’s 2022 short-term incentive, which had not yet been finalized when the filing was issued.