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STMicroelectronics Reports Q2 2018 Financial Results

PR No: C2855C

 

STMicroelectronics Reports Q2 2018 Financial Results

Geneva, July 25, 2018 - STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, reported U.S. GAAP financial results for the second quarter ended June 30, 2018. In addition, this press release contains non-U.S. GAAP measures (see Appendix for additional information).

Second quarter net revenues and gross margin were above the mid-point of the Company's outlook.  ST reported second quarter net revenues of $2.27 billion, gross margin of 40.2%, operating margin of 12.7%, and net income of $261 million or $0.29 diluted earnings per share.

Jean-Marc Chery, STMicroelectronics President & CEO, made the following comments:

Financial Summary (U.S. GAAP)(1)

($ in millions except earnings per share) Q2 2018 Q1 2018 Q2 2017 Y/Y Q/Q
Net Revenues $2,269 $2,226 $1,923 18.0% 1.9%
Gross Margin 40.2% 39.9% 38.3% 190 bps 30 bps
Operating Income $289 $269 $181 59.7% 7.4%
Operating Margin 12.7% 12.1% 9.4% 330 bps 60 bps
Net Income $261 $239 $151 72.8% 9.2%
Diluted Earnings Per Share $0.29 $0.26 $0.17 70.6% 11.5%

 (1) Certain amounts in the prior periods have been adjusted to reflect the January 1, 2018 adoption of ASU 2017-07 related to the reclassification of certain pension costs.

Second Quarter 2018 Summary Review

Effective January 1, 2018, the Subsystems business unit was transferred from Others to Analog, MEMS and Sensors Group (AMS). Prior periods have been restated accordingly.

Net Revenues By Product Group

(in US$ millions)
Q2 2018 Q1 2018 Q2 2017 Y/Y Q/Q
Automotive and Discrete Group (ADG) $870 $817 $755 15.2% 6.5%
Analog, MEMS and Sensors Group (AMS) 613 655 553 10.7 (6.4)
Microcontrollers and Digital ICs Group (MDG) 782 750 612 27.8 4.3
Others 4 4 3 24.1 5.9
Total Net Revenues $2,269 $2,226 $1,923 18.0% 1.9%

Net revenues increased 1.9% sequentially, 40 basis points better than the mid-point of the Company's guidance. On a year-over-year basis, second quarter net revenues increased 18.0% with all product groups delivering double-digit revenue growth. Year-over-year sales to OEMs and Distribution were up 9.8% and 33.4%, respectively.

Gross profit totaled $911 million, representing a year-over-year increase of 23.6%. Gross margin was 40.2%, 20 basis points better than the mid-point of the Company's guidance, and increasing 190 basis points year-over-year, largely driven by improved manufacturing efficiency and reflecting a favorable mix shift toward higher value products.

Operating income was $289 million, compared to $181 million in the year-ago quarter, with all product groups growing double-digit and delivering improved profitability. The Company's operating margin increased 330 basis points to 12.7% of net revenues, compared to 9.4% in the 2017 second quarter.

By product group, compared with the year-ago quarter:

Automotive and Discrete Group (ADG)

Analog, MEMS and Sensors Group (AMS):

Microcontrollers and Digital ICs Group (MDG):

Net income and diluted earnings per share increased to $261 million and $0.29, respectively, compared to $151 million and $0.17, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights

        Trailing 12 Months
US$ in millions Q2 2018 Q1 2018 Q2 2017 Q2 2018 Q2 2017 TTM Change
Net cash from operating activities $360 $455 $369 $1,865 $1,368 36.3%
Free cash flow (non-U.S. GAAP) $(40) $95 $52 $280 $351 (20.2)%

Capital expenditure payments, net of proceeds from sales, in the second quarter were $390 million, in line with the Company's CAPEX guidance of $1.2-$1.3 billion for the 2018 full year. In the year-ago quarter, capital expenditures were $307 million.

Inventory at the end of the quarter was $1.56 billion, up from $1.43 billion in the prior quarter, to support demand expected in the third quarter. Day sales of inventory at quarter-end was 103 days, up from 97 days in the prior quarter.

As a result, free cash flow(non-U.S. GAAP) was negative $40 million and positive $56 million in the year-to-date period.

In the second quarter of 2018, the Company paid cash dividends totaling $54 million. A cash dividend of $0.24 per common share payable in equal quarterly installments of $0.06 in each of the second, third and fourth quarters of 2018 and first quarter of 2019 was approved on May 31st at the 2018 Annual General Meeting of Shareholders.

ST's net financial position (non-U.S. GAAP) was $411 million at June 30, 2018 compared to $522 million at March 31, 2018 and reflected total financial resources of $2.13 billion and total financial debt of $1.72 billion.

Business Outlook

The Company expects third quarter 2018 revenues to increase about 10.0% Q/Q (16.8% Y/Y) at the mid-point of the Company's guidance, driven by continued healthy demand in the Automotive and Industrial end markets and, as anticipated, by growth in smartphone applications.

The Company's guidance for the 2018 third quarter is:

Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and media to discuss its second quarter 2018 financial results and current business outlook today at 9:30 a.m. Central European Time (CET) / 3:30 a.m. U.S. Eastern Time (ET). A live webcast (listen-only mode) of the conference call will be accessible at ST's website, http://investors.st.com, and will be available for replay until August 10, 2018.

Use of Supplemental Non-U.S. GAAP Financial Information

This press release contains supplemental non-U.S. GAAP financial information.

Readers are cautioned that these measures are unaudited and not prepared in accordance with U.S. GAAP and should not be considered as a substitute for U.S. GAAP financial measures. In addition, such non-U.S. GAAP financial measures may not be comparable to similarly titled information from other companies.

See the Appendix of this press release for a reconciliation of the Company's non-U.S. GAAP financial measures to their corresponding U.S. GAAP financial measures. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with the Company's consolidated financial statements prepared in accordance with U.S. GAAP.

Forward-looking Information

Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management's current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those anticipated by such statements, due to, among other factors:

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain forward-looking statements can be identified by the use of forward looking terminology, such as "believes," "expects," "may," "are expected to," "should," "would be," "seeks" or "anticipates" or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions.

Some of these risk factors are set forth and are discussed in more detail in "Item 3. Key Information - Risk Factors" included in our Annual Report on Form 20-F for the year ended December 31, 2017, as filed with the SEC on March 1, 2018. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed, or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this release to reflect subsequent events or circumstances.

About STMicroelectronics

ST is a global semiconductor leader delivering intelligent and energy-efficient products and solutions that power the electronics at the heart of everyday life. ST's products are found everywhere today, and together with our customers, we are enabling smarter driving and smarter factories, cities and homes, along with the next generation of mobile and Internet of Things devices.

By getting more from technology to get more from life, ST stands for life.augmented.

In 2017, the Company's net revenues were $8.35 billion, serving more than 100,000 customers worldwide.

Further information can be found at www.st.com.

For further information, please contact:

INVESTOR RELATIONS:
Tait Sorensen                                       
Group VP, Investor Relations
STMicroelectronics
Tel: +1 602 485 2064
tait.sorensen@st.com

MEDIA RELATIONS:
Alexis Breton                                        
Director, PR & Media Operations
STMicroelectronics
Tel: + 33 6 59 16 79 08
alexis.breton@st.com

STMicroelectronics N.V.    
CONSOLIDATED STATEMENTS OF INCOME    
(in millions of U.S. dollars, except per share data ($))    
     
  Three months ended
  June 30, July 1,
  2018 2017
  (Unaudited) (Unaudited)
     
Net sales   2,250   1,911
Other revenues   19   12
NET REVENUES   2,269   1,923
Cost of sales   (1,358)   (1,186)
GROSS PROFIT   911   737
Selling, general and administrative   (277)   (239)
Research and development   (356)   (326)
Other income and expenses, net   11   15
Impairment, restructuring charges and other related closure costs   -   (6)
Total operating expenses   (622)   (556)
OPERATING INCOME   289   181
Interest expense, net   (2)   (4)
Other components of pension benefit costs   (3)   (3)
Income (loss) on equity-method investments   -   (2)
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTEREST   284   172
Income tax expense   (21)   (19)
NET INCOME   263   153
Net income attributable to noncontrolling interest   (2)   (2)
NET INCOME ATTRIBUTABLE TO PARENT COMPANY   261   151
     
EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.29   0.17
EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.29   0.17
     
NUMBER OF WEIGHTED AVERAGE SHARES USED IN CALCULATING DILUTED EARNINGS PER SHARE 915.6 911.1
     


STMicroelectronics N.V.    
CONSOLIDATED STATEMENTS OF INCOME    
(in millions of U.S. dollars, except per share data ($))    
     
  Six months ended
  June 30, July 1,
  2018 2017
  (Unaudited) (Unaudited)
     
Net sales   4,463   3,728
Other revenues   31   16
NET REVENUES   4,494   3,744
Cost of sales   (2,695)   (2,320)
GROSS PROFIT   1,799   1,424
Selling, general and administrative   (542)   (473)
Research and development   (705)   (659)
Other income and expenses, net   26   32
Impairment, restructuring charges and other related closure costs   (20)   (11)
Total operating expenses   (1,241)   (1,111)
OPERATING INCOME   558   313
Interest expense, net   (5)   (9)
Other components of pension benefit costs   (5)   (6)
Income (loss) on equity-method investments   -   (2)
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTEREST   548   296
Income tax expense   (44)   (34)
NET INCOME   504   262
Net income attributable to noncontrolling interest   (4)   (4)
NET INCOME ATTRIBUTABLE TO PARENT COMPANY   500   258
     
EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.56   0.29
EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.55   0.28
     
NUMBER OF WEIGHTED AVERAGE SHARES USED IN CALCULATING DILUTED EARNINGS PER SHARE 915.1 906.5
     

 

STMicroelectronics N.V.      
CONSOLIDATED BALANCE SHEETS      
As at June 30, March 31, December 31,
In millions of U.S. dollars 2018 2018 2017
  (Unaudited) (Unaudited) (Audited)
ASSETS      
Current assets:      
Cash and cash equivalents 1,683 1,791 1,759
Short-term deposits 15 14 -
Marketable securities 429 429 431
Trade accounts receivable, net 1,106 1,042 1,149
Inventories 1,559 1,435 1,335
Other current assets 405 449 425
Total current assets 5,197 5,160 5,099
Goodwill 121 125 123
Other intangible assets, net 198 205 209
Property, plant and equipment, net 3,410 3,371 3,094
Non-current deferred tax assets 674 632 624
Long-term investments 58 58 57
Other non-current assets 391 517 475
  4,852 4,908 4,582
Total assets 10,049 10,068 9,681
       
LIABILITIES AND EQUITY      
Current liabilities:      
Short-term debt 118 119 118
Trade accounts payable 991 979 893
Other payables and accrued liabilities 887 940 897
Dividends payable to stockholders 168 6 60
Accrued income tax 40 41 52
Total current liabilities 2,204 2,085 2,020
Long-term debt 1,598 1,593 1,583
Post-employment benefit obligations 374 393 385
Long-term deferred tax liabilities 11 12 11
Other long-term liabilities 208 216 215
  2,191 2,214 2,194
Total liabilities 4,395 4,299 4,214
Commitment and contingencies      
Equity      
Parent company stockholders' equity      
Common stock (preferred stock: 540,000,000 shares authorized, not issued; common stock: Euro 1.04 nominal value, 1,200,000,000 shares authorized, 911,141,920 shares issued, 901,354,389 shares outstanding) 1,157 1,157 1,157
Capital surplus 2,766 2,743 2,718
Retained earnings 1,215 1,212 973
Accumulated other comprehensive income 538 724 688
Treasury stock (89) (132) (132)
Total parent company stockholders' equity 5,587 5,704 5,404
Noncontrolling interest 67 65 63
Total equity 5,654 5,769 5,467
Total liabilities and equity 10,049 10,068 9,681
       

 

STMicroelectronics N.V.      
       
SELECTED CASH FLOW DATA      
       
Cash Flow Data (in US$ millions) Q2 2018 Q1 2018 Q2 2017
       
Net Cash from operating activities   360   455   369
Net Cash used in investing activities   (401)   (374)   (317)
Net Cash used in financing activities   (60)   (54)   (53)
Net Cash increase (decrease)   (108)   32   13
       
Selected Cash Flow Data (in US$ millions) Q2 2018 Q1 2018 Q2 2017
       
Depreciation & amortization   193 185 152
Net payment for Capital expenditures   (390)   (351)   (307)
Dividends paid to stockholders   (54)   (54)   (48)
Change in inventories, net   (157)   (84)   (26)

 

Appendix
STMicroelectronics
Supplemental Financial Information

  Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017
Net Revenues By Market Channel(%)          
Total OEM 61% 63% 68% 66% 66%
Distribution 39% 37% 32% 34% 34%
           
€/$ Effective Rate 1.19 1.18 1.15 1.13 1.09
           
Product Group Data (a) (US$ Million)          
Automotive & Discrete Group (ADG)          
 - Net Revenues $870 $817 $821 $775 $755
 - Operating Income $84 $90 $102 $85 $65
Analog, MEMS & Sensors Group (AMS) (b)          
 - Net Revenues 613 655 902 657 553
 - Operating Income 64 64 187 86 52
Microcontrollers & Digital ICs Group (MDG)          
 - Net Revenues 782 750 740 701 612
 - Operating Income 159 146 146 126 72
Others (c)          
 - Net Revenues 4 4 3 3 3
 - Operating Income (Loss) (18) (31) (24) (16) (8)
Total          
 - Net Revenues $2,269 $2,226 $2,466 $2,136 $1,923
 - Operating Income $289 $269 $411 $281 $181

(a)   Certain amounts in the prior periods have been adjusted to reflect the January 1, 2018 adoption of ASU 2017-07 related to the reclassification of certain pension costs.
(b)   Effective January 1, 2018, the Subsystems business unit was transferred from Others to Analog, MEMS and Sensors (AMS). Prior periods have been restated accordingly.
(c)   Net revenues of Others includes revenues from sales assembly services and other revenue. Operating income (loss) of Others includes items such as unused capacity charges, impairment, restructuring charges and other related closure costs, management reorganization costs, phase out and start-up costs, and other unallocated expenses such as: strategic or special research and development programs, certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to product groups, as well as operating earnings of other products. Others includes:

(US$ Million) Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017
Unused Capacity Charges - 1 1 1 1
Impairment & Restructuring Charges - 21 20 14 6


(Appendix - continued)

STMicroelectronics
Supplemental Non-U.S. GAAP Financial Information
U. S. GAAP - Non-U.S. GAAP Reconciliation

The supplemental non-U.S. GAAP information presented in this press release is unaudited and subject to inherent limitations. Such non-U.S. GAAP information is not based on any comprehensive set of accounting rules or principles and should not be considered as a substitute for U.S. GAAP measurements. Also, our supplemental non-U.S. GAAP financial information may not be comparable to similarly titled non-U.S. GAAP measures used by other companies. Further, specific limitations for individual non-U.S. GAAP measures, and the reasons for presenting non-U.S. GAAP financial information, are set forth in the paragraphs below. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP.

Operating income (loss) before impairment and restructuring charges and one-time items is used by management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items, such as impairment, restructuring charges and other related closure costs. Adjusted net earnings and earnings per share (EPS) are used by management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items like impairment, restructuring charges and other related closure costs attributable to ST and other one-time items, net of the relevant tax impact.

The Company believes that these non-U.S. GAAP financial measures provide useful information for investors and management because they measure the Company's capacity to generate profits from its business operations, excluding the effect of acquisitions and expenses related to the rationalizing of its activities and sites that it does not consider to be part of its on-going operating results, thereby offering, when read in conjunction with the Company's U.S. GAAP financials, (i) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results, (ii) the ability to better identify trends in the Company's business and perform related trend analysis, and (iii) an easier way to compare the Company's results of operations against investor and analyst financial models and valuations, which usually exclude these items.

(US$ Million, except earnings per share in $) Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017
U.S. GAAP Net Earnings 261 239 308 236 151
U.S. GAAP Earnings Per Share 0.29 0.26 0.34 0.26 0.17
Impairment & Restructuring - 21 20 14 6
Estimated Income Tax Effect - (3) (1) (1) (1)
Non-U.S. GAAP Net Earnings 261 257 327 249 156
Non-U.S. GAAP Earnings Per Share 0.29 0.28 0.36 0.28 0.17


(Appendix - continued)

Net financial position (non-U.S. GAAP measure): resources (debt), represents the balance between our total financial resources and our total financial debt. Our total financial resources include cash and cash equivalents, marketable securities, short-term deposits and restricted cash, and our total financial debt includes short-term borrowings, current portion of long-term debt and long-term debt, all as reported in our consolidated balance sheet. We believe our net financial position provides useful information for investors and management because it gives evidence of our global position either in terms of net indebtedness or net cash position by measuring our capital resources based on cash, cash equivalents and marketable securities and the total level of our financial indebtedness.

(US$ Million) Jun 30

2018
Mar 31 2018 Dec 31 2017 Sep 30 2017 Jul 1 2017
Cash and cash equivalents 1,683 1,791 1,759 2,188 1,654
Short term deposits 15 14 - - -
Marketable securities 429 429 431 433 335
Total financial resources 2,127 2,234 2,190 2,621 1,989
Short-term debt (118) (119) (118) (486) (117)
Long-term debt (1,598) (1,593) (1,583) (1,689) (1,348)
Total financial debt (1,716) (1,712) (1,701) (2,175) (1,465)
Net financial position 411 522 489 446 524

Free cash flow (non-U.S. GAAP measure) is defined as net cash from operating activities minus net cash from (used in) investing activities, excluding payment for purchases (proceeds from the sale of) marketable securities, short-term deposits and restricted cash. We believe free cash flow provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operating activities. Free cash flow does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. In addition, our definition of free cash flow may differ from definitions used by other companies.

(US$ Million) Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017
Net cash from operating activities 360 455 587 463 369
Net cash used in investing activities (401) (374) (442) (482) (317)
Payment for purchase and proceeds from sale of marketable securities, investment in short-term deposits, restricted cash 1 14 - 99 -
Free cash flow (40) 95 145 80 52

Attachment