STMicroelectronics N.V. — 2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020, with unaudited fourth-quarter results for the three months ended December 31, 2020. The filing was submitted February 24, 2021. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars.
Business context
STMicroelectronics is a global semiconductor manufacturer serving automotive, industrial, personal electronics, communications, computers and peripherals markets. Its principal reportable segments are Automotive and Discrete Group (ADG), Analog, MEMS and Sensors Group (AMS), and Microcontrollers and Digital ICs Group (MDG). The company operates 13 major manufacturing sites, owns most manufacturing facilities and subcontracted approximately 24% of total silicon production value in 2020.
Financial highlights
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Net revenues | $10.219 billion | $9.556 billion | +6.9% |
| Gross profit | $3.789 billion | $3.696 billion | +2.5% |
| Gross margin | 37.1% | 38.7% | -160 bps |
| Operating income | $1.323 billion | $1.203 billion | +10.0% |
| Operating margin | 12.9% | 12.6% | +30 bps |
| Net income attributable to parent | $1.106 billion | $1.032 billion | +7.2% |
| Diluted EPS | $1.20 | $1.14 | +5.3% |
| Net cash from operating activities | $2.093 billion | $1.869 billion | +12.0% |
| Free cash flow | $627 million | $497 million | +26.2% |
| Fourth-quarter metric | Q4 2020 | Q3 2020 | Q4 2019 |
|---|---|---|---|
| Net revenues | $3.235 billion | $2.666 billion | $2.754 billion |
| Gross margin | 38.8% | 36.0% | 39.3% |
| Operating income | $657 million | $329 million | $460 million |
| Operating margin | 20.3% | 12.3% | 16.7% |
| Net income attributable to parent | $582 million | $242 million | $392 million |
| Diluted EPS | $0.63 | $0.26 | $0.43 |
Segment and geographic trends
- ADG: FY revenue declined 8.9% to $3.284 billion; operating income declined to $182 million from $357 million, reflecting weaker automotive and power-discrete profitability.
- AMS: FY revenue increased 18.0% to $3.892 billion and operating income rose to $810 million, primarily driven by Imaging.
- MDG: FY revenue increased 14.9% to $3.030 billion and operating income increased to $504 million, driven mainly by microcontrollers.
- Asia Pacific: Revenue increased 19.3% to $7.088 billion and represented approximately 69% of consolidated revenue by shipment location. EMEA and Americas revenue declined 13.2% and 13.7%, respectively.
- Apple accounted for 23.9% of 2020 revenue, up from 17.6% in 2019, increasing customer concentration risk.
Cash, debt and liquidity
| Balance-sheet metric | December 31, 2020 | December 31, 2019 |
|---|---|---|
| Cash and cash equivalents | $3.006 billion | $2.597 billion |
| Short-term deposits | $581 million | $4 million |
| Marketable securities | $133 million | $133 million |
| Total liquidity | $3.720 billion | $2.744 billion |
| Total financial debt | $2.621 billion | $2.072 billion |
| Net financial position | $1.099 billion net cash | $672 million net cash |
| Debt-to-equity ratio | 0.31 | 0.29 |
In August 2020, ST issued $1.5 billion of senior unsecured convertible bonds, generating $1.567 billion of net proceeds. It used approximately $750 million to settle Tranche A of the 2017 convertible bonds, with the residual consideration settled using 11.4 million treasury shares. At year-end, $795 million of debt was classified as short-term, including the liability component of the 2017 Tranche B convertible bonds because holders obtain full conversion rights beginning July 26, 2021. The company had approximately $1.2 billion of committed but undrawn credit facilities at year-end; €335 million was drawn in February 2021.
Material changes versus the prior comparable period
- Revenue growth accelerated, supported by higher volumes and favorable product mix, while gross margin contracted because of price pressure and higher unused-capacity charges.
- Unused-capacity charges increased to $153 million from $65 million, reducing 2020 gross margin by approximately 150 basis points.
- Other income increased to $202 million from $103 million, largely because of a non-recurring catch-up of IPCEI research and development grants.
- Operating expenses increased 2.6% to $2.657 billion, reflecting salary costs, higher share-based compensation and selected R&D investments.
- Capital expenditures increased to $1.279 billion from $1.174 billion. The company entered 2021 with approximately $916 million of equipment and other asset purchase commitments for delivery during 2021.
- ST completed or closed acquisitions involving Exagan, BeSpoon, Riot Micro, SOMOS and another minor acquisition, strengthening GaN, silicon carbide, wireless connectivity and RF front-end capabilities.
- The annual dividend was reduced to $0.168 per share from $0.240 per share in each of the prior three years.
- Share repurchases were suspended for portions of 2020; the company repurchased approximately 4.8 million shares for $125 million during the year.
Guidance, outlook and management commentary
- First-quarter 2021 revenue guidance was approximately $2.93 billion at the midpoint, implying year-over-year growth of approximately 31.2% and sequential decline of approximately 9.5%, plus or minus 350 basis points.
- First-quarter 2021 gross margin was expected to be approximately 38.5%, plus or minus 200 basis points.
- 2021 capital expenditures were planned at approximately $1.8 billion to $2.0 billion, focused on 300 mm capacity, silicon carbide, GaN, automotive and optical-sensing capacity, automation and energy-efficiency initiatives.
- Management stated that available resources should meet projected requirements for the next twelve months, including capital expenditures, working capital, approved dividends and scheduled debt repayments.
- ST announced a goal of carbon neutrality by 2027, including a 50% reduction in direct and indirect emissions from 2018 levels by 2025 and sourcing 100% renewable energy by 2027.
Risks, contingencies and unusual items
- COVID-19 caused additional costs of $32 million and contributed to reduced manufacturing activity and unused-capacity charges. Future effects on demand, supply chains, customers, employees and liquidity remained uncertain.
- The semiconductor industry is cyclical and exposed to excess capacity, pricing pressure, inventory corrections, product obsolescence and volatile customer demand.
- Manufacturing operations have high fixed costs and require substantial capital investment; underutilization or technology transitions could reduce margins or require impairment and restructuring charges.
- Key exposure areas include customer concentration, especially Apple, supply-chain dependence, external foundries, equipment availability, trade restrictions involving China, foreign exchange, cybersecurity, intellectual property litigation, tax audits and environmental compliance.
- Deferred tax assets totaled $739 million, and the recoverability of those assets was identified as the critical audit matter. Uncertain tax positions totaled $48 million.
- Public-funding arrangements may require repayment or financial returns if contractual conditions are not met. A $42 million liability, primarily related to the Nano2017 program, was recorded at year-end.
- Purchase obligations totaled $1.978 billion, including $916 million for equipment and other assets and $935 million for foundry purchases. The filing states that no material off-balance-sheet arrangements existed.
- Probable losses from claims and legal proceedings were not considered material at December 31, 2020, but the company remains exposed to patent, product-liability, warranty, tax, contractual and environmental claims.
Investor verification checklist
- Verify the sustainability of Q4 growth, particularly Imaging, microcontrollers and personal-electronics programs, versus the effect of product mix and seasonal demand.
- Assess whether gross-margin recovery can offset normal pricing pressure, currency movements and rising capacity utilization costs.
- Review the concentration and durability of Apple-related revenue, including customer program timing and potential changes in sourcing.
- Track the conversion, refinancing and dilution implications of the 2017 and 2020 convertible bonds, especially the 2017 Tranche B conversion rights beginning in July 2021.
- Evaluate the return on the planned $1.8 billion to $2.0 billion of 2021 capital expenditures and the company’s ability to execute new fab, GaN and silicon carbide programs.
- Reconcile non-U.S. GAAP free cash flow and net financial position to U.S. GAAP cash flows and debt balances.
- Monitor COVID-19 effects, semiconductor supply constraints, China-related trade restrictions, foreign exchange exposure and cybersecurity events.
- Review the realization of deferred tax assets, public-funding conditions and contingent acquisition consideration.