STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This filing covers the third quarter and nine months ended October 1, 2011. STMicroelectronics operates in two primary business areas: Semiconductors (divided into ACCI, AMM, PDP, and Wireless segments) and Subsystems. The semiconductor industry faced weak conditions and macroeconomic uncertainty in Q3 2011, resulting in a slowdown in market growth. The company's fiscal year ends December 31, with interim periods established on a thirteen-week basis.
Key Financial Metrics
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Net Revenues ($ millions) | $2,442 | $2,657 | $7,543 | $7,513 |
| Gross Margin (%) | 35.8% | 39.2% | 37.7% | 38.4% |
| Operating Income/Loss ($ millions) | ($23) | $193 | $178 | $263 |
| Net Income Attributable to Parent ($ millions) | $71 | $198 | $661 | $611 |
| Diluted EPS ($) | $0.08 | $0.22 | $0.73 | $0.68 |
| Net Cash Position ($ millions) | $827 | - | $827 | $1,152 (Dec 31, 2010) |
| Total Financial Debt ($ millions) | $1,709 | - | $1,709 | $1,770 (Dec 31, 2010) |
Segment Performance (Q3 2011):
- ACCI: Revenue $981M; Operating Income $70M.
- AMM: Revenue $721M; Operating Income $143M.
- PDP: Revenue $316M; Operating Income $33M.
- Wireless: Revenue $412M; Operating Loss ($215M).
Material Changes vs. Prior Period
- Revenue Decline: Q3 2011 revenues decreased 8.1% year-over-year and 4.9% sequentially. The decline was driven by weak performance in the Wireless segment and lower volumes/prices across other segments.
- Operating Loss: The company moved from an operating profit of $193M in Q3 2010 to a loss of $23M in Q3 2011. This deterioration was caused by lower volumes, negative price impacts, unused capacity charges ($42M in Q3), and unfavorable currency effects.
- Wireless Segment: The Wireless segment (ST-Ericsson joint venture) reported an operating loss of $215M, worsening from $94M in the prior year. However, revenues came in slightly ahead of expectations, with new products passing the 50% sales threshold.
- Wholly Owned Businesses: Excluding Wireless, revenues increased approximately 9% year-to-date, driven by growth in Automotive, MEMS, and Imaging products.
- One-Time Items: The nine months of 2011 included a $323M pre-tax gain from the settlement of Auction Rate Securities litigation with Credit Suisse. The prior year included a $265M gain from the Numonyx divestiture.
Guidance, Outlook, and Risks
Q4 2011 Outlook:
- Revenues: Anticipated to decrease sequentially by about 8%, within a range of $2.15 billion to $2.30 billion.
- Gross Margin: Expected to be approximately 33.5%, plus or minus 1.5 percentage points, reflecting higher unsaturation at facilities and inventory reductions.
Management Commentary:
- Management is taking actions to mitigate market conditions, including temporarily closing fabs, repatriating workload from subcontractors, and implementing cost-reduction measures.
- The company expects 2011 to remain a year of revenue and operating income growth in Automotive and MEMS businesses despite a weaker second half.
- ST-Ericsson is in a transition from legacy to new products; while progress is being made, operating losses remain substantial.
Risks and Contingencies:
- Impairment Risk: The Wireless segment's fair value exceeded its carrying value by 81% in the Q3 impairment test. However, further deterioration in market conditions or delays in design-wins could trigger future non-cash impairment charges.
- Legal Proceedings: Ongoing litigation includes patent disputes with Rambus (ITC trial held Oct 2011) and Tessera (patents expired, but damages claim pending). An arbitration with NXP regarding underloading costs is awaiting a decision.
- Deferred Tax Assets: Significant deferred tax assets ($160M at ST-Ericsson) rely on future profitability and tax strategies; realization is not guaranteed.
Key Facts for Investor Verification
- Wireless Segment Viability: Verify the ramp-up of ST-Ericsson's new NovaThor platform and the timeline for reducing the segment's operating losses.
- Unused Capacity Charges: Monitor the impact of fab closures and underutilization on future gross margins, as these charges significantly impacted Q3 results.
- Deferred Tax Asset Realization: Assess the likelihood of ST-Ericsson generating sufficient taxable income to utilize its net operating losses before expiration.
- Legal Outcomes: Track the final determination of the Rambus ITC case and the NXP arbitration, as unfavorable outcomes could result in significant damages or injunctions.
- Currency Exposure: Evaluate the impact of the weakening U.S. dollar against the Euro on future reported revenues and costs, given the company's significant Euro-denominated cost base.