STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated November 7, 2012, reports the unaudited financial results for STMicroelectronics N.V. for the third quarter and nine months ended September 29, 2012. The company operates in the semiconductor industry, facing a weak macroeconomic environment characterized by demand reduction and inventory correction. The reporting period includes a significant strategic review of the Wireless segment (ST-Ericsson joint venture).
Key Financial Metrics
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Net Revenues | $2,166 million | $2,442 million | $6,331 million | $7,543 million |
| Gross Margin | 34.8% | 35.8% | 32.9% | 37.7% |
| Operating Loss | ($792) million | ($23) million | ($1,352) million | $178 million |
| Net Loss Attributable to Parent | ($478) million | $71 million | ($730) million | $661 million |
| Diluted EPS | ($0.54) | $0.08 | ($0.82) | $0.73 |
| Net Financial Position | $369 million | N/A | N/A | N/A |
| ST Net Financial Position (Excl. ST-Ericsson debt) | $1,064 million | N/A | N/A | N/A |
Cash Flow (9 Months): Net cash from operating activities was $360 million. Free Cash Flow (non-GAAP) was negative $112 million. Capital expenditures for the full year 2012 are projected to be approximately $500 million.
Material Changes vs. Prior Period
- Revenue Decline: Q3 revenues decreased 11.3% year-over-year due to a 4% volume decrease and a 7% reduction in average selling prices. Sequentially, revenues increased 0.9%.
- Impairment Charges: The company recorded a preliminary non-cash impairment charge of $690 million related to Wireless goodwill. This was the primary driver of the operating loss, which widened significantly from a $23 million loss in Q3 2011 to $792 million in Q3 2012.
- Segment Performance:
- Wireless: Reported an operating loss of $184 million (Q3), though this improved sequentially from $215 million. The segment continues to report negative cash flows.
- Wholly Owned Businesses: Automotive (APG), Analog/MEMS/Microcontrollers (AMM), and Power Discrete Products (PDP) maintained profitability despite revenue declines. The Digital segment reported an operating loss of $30 million.
- Restructuring: Total impairment, restructuring, and closure costs were $713 million in Q3 2012, compared to $10 million in Q3 2011.
Guidance, Outlook, and Risks
- Q4 2012 Outlook: Management expects revenues to be relatively flat quarter-to-quarter, with a sequential range of -5% to +2%. Gross margin is expected to be approximately 32% (+/- 2 percentage points), reflecting higher unsaturation charges estimated at $80 million.
- Strategic Plan: A new strategic plan is scheduled for announcement in December 2012, aiming to accelerate the roadmap for financial sustainability. A new $150 million annual savings plan was announced in October 2012.
- Wireless Segment Risks: ST-Ericsson remains in a challenging situation. Further impairment charges may be required if the strategic plan is not successfully executed or if business prospects worsen. The company may need to provide additional financing to ST-Ericsson.
- Legal Proceedings: The company is involved in patent litigation with Tessera (trial scheduled for April 2014) and Rambus (ITC appeal filed). Estimated possible losses for known claims range from $0 to $28 million.
- Deferred Tax Assets: Significant deferred tax assets ($225 million) are related to ST-Ericsson net operating losses. Realization depends on future profitability and tax strategies.
Key Facts for Investor Verification
- Wireless Goodwill Impairment: Verify the finalization of the $690 million impairment charge and the potential for additional charges in Q4 2012 based on the refined valuation of the Wireless reporting unit.
- ST-Ericsson Liquidity: Monitor the cash burn rate of the ST-Ericsson joint venture and the potential requirement for additional capital injections from STMicroelectronics or Ericsson.
- Q4 Execution: Assess the ability to meet the flat revenue guidance and manage the $80 million in unsaturation charges while maintaining the projected 32% gross margin.
- Legal Exposure: Track the status of the Tessera and Rambus litigation, as unfavorable outcomes could result in injunctions or significant damages.
- Deferred Tax Realization: Evaluate the likelihood of realizing the $225 million in deferred tax assets associated with ST-Ericsson losses before their expiration.