STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated August 23, 2017, reports the unaudited Semi Annual IFRS Accounts for STMicroelectronics N.V. for the six-month period ended July 1, 2017. STMicroelectronics is a global independent semiconductor company designing, developing, and manufacturing products for automotive, industrial, and consumer connected device markets. The company operates through three primary reportable segments: Automotive and Discrete Group (ADG), Analog and MEMS Group (AMG), and Microcontrollers and Digital ICs Group (MDG).
Key Financial Metrics
| Metric | Period Ended July 1, 2017 | Period Ended July 2, 2016 |
|---|---|---|
| Total Revenues | $3,744 million | $3,316 million |
| Gross Profit | $1,324 million | $1,009 million |
| Gross Margin | 35.4% | 30.4% |
| Operating Profit | $375 million | $22 million |
| Net Profit | $213 million | $12 million |
| Net Profit Attributable to Parent | $209 million | $9 million |
| Earnings Per Share (Diluted) | $0.24 | $0.01 |
| Free Cash Flow (Non-GAAP) | $113 million | $79 million |
| Cash and Cash Equivalents | $1,654 million | $1,629 million |
| Total Debt (Interest-bearing) | $1,497 million | $1,454 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 12.9% year-over-year, driven primarily by a 30% increase in volume, partially offset by a 17% decrease in average selling prices due to product mix shifts. Excluding phase-out businesses, revenue growth was 14.1%.
- Segment Performance: AMG revenues grew 24.1% (volume +21%, price +3%). MDG revenues grew 10.7% (volume +17%, price -6%). ADG revenues grew 5.1% driven by power discrete sales.
- Profitability: Operating profit surged to $375 million from $22 million. This improvement was driven by a 500 basis point increase in gross margin (due to manufacturing efficiencies and lower unused capacity charges) and reduced SG&A/R&D expenses.
- Finance Costs: Finance costs increased significantly to $150 million from $23 million, primarily due to a $131 million fair value adjustment on Senior Bonds.
- Cash Flow: Net cash from operating activities rose to $791 million from $464 million, aided by higher net income and favorable working capital changes.
Guidance, Outlook, and Risks
- 2017 Outlook: Management expects full-year 2017 revenues to be at the high-end of the previously provided range (approximately 14% year-over-year growth, +/- 1.5 percentage points).
- Capital Expenditure: Capital spending guidance has been raised to a range of $1.25 billion to $1.3 billion (up from $1.0-$1.1 billion) to support new product ramps and capacity expansion in 300mm and 200mm fabs.
- Debt Management: The company completed a $1.5 billion offering of new convertible bonds in June 2017. Proceeds are being used to redeem the $600 million Tranche A convertible bonds (due 2019) via a net-share settlement process expected to conclude in August 2017. A share buy-back program of up to $297 million was also completed in August 2017.
- Risks: Key risks include macro-economic trends, customer demand volatility, foreign exchange fluctuations (primarily USD/EUR), and the ability to ramp new programs. The company notes potential impacts from Brexit, though no material impact has been experienced to date.
Investor Verification Checklist
- Convertible Bond Settlement: Verify the completion of the Tranche A bond conversion and the associated share issuance in the second half of 2017 financials.
- Capital Expenditure Execution: Monitor the ramp-up of the new 300mm program in Crolles, France, and the acquisition of the former Numonyx fab in Singapore to ensure alignment with the increased capex guidance.
- Product Mix and Pricing: Assess the sustainability of volume growth given the 17% decline in average selling prices; verify if mix improvements in AMG can offset price erosion in other segments.
- Restructuring Progress: Track the execution of the Set-top Box restructuring plan and other initiatives to ensure cost savings targets are met.
- Foreign Exchange Exposure: Review hedging strategies given the company's significant exposure to USD/EUR fluctuations and the impact on reported earnings.