STMicroelectronics N.V. — FY2021 Form 20-F and Q4 2021 Summary
Business context and reporting period
STMicroelectronics is a global semiconductor manufacturer serving automotive, industrial, personal electronics, communications equipment, computers and peripherals. Reportable segments are Automotive and Discrete Group (ADG), Analog, MEMS and Sensors Group (AMS), and Microcontrollers and Digital ICs Group (MDG).
The filing is an annual report for the fiscal year ended December 31, 2021, prepared under U.S. GAAP in U.S. dollars. Fourth-quarter figures are unaudited; the quarter ended December 31, 2021.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenues | $12.761 billion | $10.219 billion | +24.9% |
| Gross profit | $5.326 billion | $3.789 billion | +40.6% |
| Gross margin | 41.7% | 37.1% | +460 bps |
| Operating income | $2.419 billion | $1.323 billion | +82.8% |
| Operating margin | 19.0% | 12.9% | +610 bps |
| Net income attributable to parent | $2.000 billion | $1.106 billion | +80.8% |
| Diluted EPS | $2.16 | $1.20 | +80.0% |
| Net cash from operating activities | $3.060 billion | $2.093 billion | +$967 million |
| Free cash flow | $1.120 billion | $627 million | +$493 million |
| Capital expenditures, net | $1.828 billion | $1.279 billion | +43.0% |
FY2021 revenue growth reflected approximately 19% higher volumes and a 6% increase in average selling prices, driven by pricing and product mix. Operating expenses increased 14.6% to $3.046 billion, but declined to 23.9% of revenue from 26.0%.
At December 31, 2021, cash and cash equivalents were $3.225 billion and short-term deposits were $291 million. Total liquidity was $3.516 billion, total financial debt was $2.539 billion, and net financial position was net cash of $977 million, compared with $1.099 billion in 2020. The debt-to-equity ratio was 0.28.
Q4 2021 performance
| Metric | Q4 2021 | Q3 2021 | Q4 2020 |
|---|---|---|---|
| Net revenues | $3.556 billion | $3.197 billion | $3.235 billion |
| Sequential / year-over-year growth | +11.2% / +9.9% | — | — |
| Gross profit | $1.609 billion | $1.330 billion | $1.254 billion |
| Gross margin | 45.2% | 41.6% | 38.8% |
| Operating income | $885 million | $605 million | $657 million |
| Operating margin | 24.9% | 18.9% | 20.3% |
| Net income attributable to parent | $750 million | $474 million | $582 million |
| Diluted EPS | $0.82 | $0.51 | $0.63 |
Q4 revenue exceeded the high end of management’s sequential guidance by 140 basis points. Performance benefited from higher pricing, favorable mix and manufacturing efficiencies. ADG revenue rose 22.0% sequentially, MDG rose 15.4%, and AMS declined 0.6% sequentially.
Material changes versus the prior comparable period
- All three product groups grew for FY2021: ADG revenue increased 32.5%, AMS 18.8%, and MDG 24.3%.
- ADG operating income increased to $512 million from $182 million; AMS increased to $1.015 billion from $810 million; and MDG increased to $915 million from $504 million.
- Unused capacity charges fell to $16 million from $153 million, supporting the gross-margin expansion.
- Public funding recorded in other income declined to $162 million from $231 million, partly because 2020 included a non-recurring IPCEI grant catch-up.
- Capital spending increased materially, while property, plant and equipment rose to $5.660 billion from $4.596 billion.
- ST settled Tranche B of its 2017 senior unsecured convertible bonds in 2021, using approximately $1.223 billion of cash and approximately 5.8 million treasury shares for part of the settlement. The transaction generated a $43 million loss on financial instruments.
- ST repurchased approximately 8.3 million shares for $313 million under its prior program and launched a new buyback program of up to $1.040 billion over three years.
Guidance, outlook and management commentary
- Q1 2022 revenue guidance was approximately $3.5 billion at the midpoint, representing approximately 16.1% year-over-year growth and a sequential decline of approximately 1.6%, plus or minus 350 basis points.
- Q1 2022 gross margin guidance was approximately 45.0%, plus or minus 200 basis points.
- Management planned FY2022 capital expenditures of approximately $3.4 billion to $3.6 billion, including capacity expansion and industrialization of the new 300mm Agrate, Italy, fab.
- Management’s FY2022 revenue plan was $14.8 billion to $15.3 billion, based on strong customer demand and an assumed Q1 effective exchange rate of $1.15 per euro.
- At year-end, ST had approximately $2.406 billion of equipment and other asset purchase commitments for delivery in 2022, and total purchase obligations of $4.064 billion.
- External foundries and back-end subcontractors were unable to satisfy all demand, and management expected capacity limitations to continue through 2022 and potentially beyond.
Risks, contingencies and unusual items
- The business remains exposed to semiconductor cyclicality, pricing pressure, customer demand volatility, high fixed manufacturing costs and the risk that elevated industry margins may not be sustainable.
- Apple represented 20.5% of FY2021 revenue, creating meaningful customer concentration despite management’s statement that it is not dependent on any one customer or group.
- Supply-chain constraints, limited external foundry capacity, equipment and materials availability, inflation, take-or-pay commitments and manufacturing disruptions could affect shipments and margins.
- Key financial exposures include U.S. dollar/euro currency movements, interest rates, customer credit risk, cybersecurity, intellectual property claims, product liability, tax audits and public-funding compliance.
- Probable loss provisions for claims and legal proceedings were not considered material at December 31, 2021, but the filing states that adverse litigation or IP outcomes could materially affect results, cash flow or financial condition.
- ST reported $118 million of uncertain tax positions and $588 million of net deferred tax assets. Recoverability of deferred tax assets was identified as the critical audit matter.
- COVID-19 incremental costs were $19 million in FY2021, and the pandemic continued to pose operational, supply-chain, workforce and demand risks.
- ST targets carbon neutrality by 2027, including a 50% reduction in direct and indirect emissions versus 2018 by 2025 and sourcing 100% renewable energy by 2027.
Most important facts for investors to verify
- Whether FY2022 revenue of $14.8 billion to $15.3 billion and capital expenditure of $3.4 billion to $3.6 billion are tracking as planned.
- Whether Q4’s 45.2% gross margin is sustainable as supply constraints ease and semiconductor capacity expands.
- The durability of pricing, product mix and manufacturing-efficiency benefits across ADG, AMS and MDG.
- Customer concentration, particularly Apple’s 20.5% contribution to FY2021 revenue, and the stability of major customer programs.
- Execution of the Agrate 300mm fab, Crolles expansion, SiC and GaN capacity programs, and the related $4.064 billion of purchase obligations.
- Future cash requirements for convertible bonds, debt maturities, dividends, buybacks and pension obligations.
- Potential changes in tax benefits, deferred-tax-asset realizability, uncertain tax positions and public-funding receipts.
- Progress against supply-chain capacity commitments, cybersecurity controls, IP matters and the 2027 carbon-neutrality objective.