STMicroelectronics N.V. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, dated June 4, 2010, reports on a presentation delivered by STMicroelectronics N.V. at its Field Day in London on June 3, 2010. The company, a global semiconductor leader and the largest in Europe, operates through three main sectors: Automotive, Consumer, Computer & Communication Infrastructure (ACCI); Industrial and Multisegment (IMS); and Wireless (via the ST-Ericsson joint venture). The reporting period focuses on Q1 2010 results and the outlook for the remainder of 2010, following a recovery from the 2009 global recession.
Key Financial Metrics
- Revenue: Q1 2010 net revenues were $2,325 million. FY 2009 revenues were $8,510 million.
- Profitability: Q1 2010 gross margin was 37.7%. Adjusted operating margin attributable to the parent was 4.0%. Diluted EPS was $(0.08), while Adjusted Diluted EPS was $0.07.
- Cash Flow: Net Operating Cash Flow (excluding M&A) for Q1 2010 was $176 million.
- Liquidity: As of March 27, 2010, the company held $2,757 million in total financial resources (cash, restricted cash, and marketable securities). Total financial debt was $2,191 million, resulting in a net financial position of $566 million.
- Debt: The company repurchased $316 million of convertible bonds in late 2009/early 2010 and an additional $55 million in Q1 2010.
Material Changes and Strategic Developments
- Numonyx Divestiture: On May 7, 2010, STMicroelectronics completed the sale of its 48.6% stake in Numonyx to Micron Technology. ST received 66.88 million shares of Micron stock (valued at approximately $585 million at the time) and expects to record an estimated after-tax gain of ~$245 million in Q2 2010. This transaction eliminated a $225 million guarantee risk and is expected to improve the capital structure by over $1 billion.
- Phoenix Fab Closure: The company signed an agreement in May 2010 to sell its Phoenix, Arizona fab, with closure expected by Q1 2011.
- Legal Settlements: ST won a FINRA award ordering Credit Suisse to pay $406 million plus interest regarding the 2006 acquisition of NXP Wireless. A further $354 million including interest is expected to be collected following a US District Court confirmation.
- Market Recovery: The semiconductor industry is recovering from the 2009 recession. ST expects the Semiconductor Addressable Market (SAM) to grow approximately 20% in 2010.
Guidance, Outlook, and Risks
- Q2 2010 Guidance: Management expects sequential revenue growth of between 6% and 12% for Q2 2010.
- Financial Targets: The company aims to achieve a 9% to 12% operating margin and a 12% to 18% Return on Net Assets (RONA) in the mid-term. Net operating cash flow is targeted at double-digit percentages of sales.
- Segment Outlook:
- ACCI: Targeting high single-digit operating margins by Q4 2010 and teens in the mid-term.
- IMS: Targeting high teens operating margins by Q4 2010 and above 20% in the mid-term.
- Wireless (ST-Ericsson): Focused on mitigating losses. The joint venture plans to reach profitability at a quarterly revenue run rate of $750 million or greater after restructuring is complete.
- Risks: Key risks include significant changes in demand, capacity constraints, the successful integration of ST-Ericsson, volatility in foreign exchange rates (particularly the Euro vs. USD), and the timing and price of the sale of Micron shares due to resale restrictions.
Investor Verification Checklist
- Verify the final valuation and lock-up period details for the Micron Technology shares received in the Numonyx transaction.
- Monitor the progress of ST-Ericsson's restructuring and its ability to reach the $750 million quarterly revenue run rate required for profitability.
- Track the timeline for the closure of the Phoenix fab and the associated cost savings realization.
- Assess the impact of foreign exchange rate fluctuations on operating margins, given the company's significant cost base in Euros and other non-USD currencies.
- Confirm the collection status of the Credit Suisse litigation award and any potential appeals.