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STMicroelectronics Reports Q3 2018 Financial Results

PR No: C2859C

STMicroelectronics Reports Q3 2018 Financial Results

Geneva, October 24, 2018 - STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, reported U.S. GAAP financial results for the third quarter ended September 29, 2018. This press release also contains non-U.S. GAAP measures (see Appendix for additional information).

ST reported third quarter net revenues of $2.52 billion, gross margin of 39.8%, operating margin of 15.8%, and net income of $369 million or $0.41 diluted earnings per share.

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

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

(US$ in millions except earnings per share) Q3 2018 Q2 2018 Q3 2017 Y/Y Q/Q
Net Revenues $2,522 $2,269 $2,136 18.1% 11.2%
Gross Margin 39.8% 40.2% 39.6% 20 bps (40) bps
Operating Income $398 $289 $281 41.8% 37.8%
Operating Margin 15.8% 12.7% 13.1% 270 bps 310 bps
Net Income $369 $261 $236 56.7% 41.4%
Diluted Earnings Per Share $0.41 $0.29 $0.26 57.7% 41.4%

 (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.

Third 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)
Q3 2018 Q2 2018 Q3 2017 Y/Y Q/Q
Automotive and Discrete Group (ADG) $901 $870 $775 16.3% 3.6%
Analog, MEMS and Sensors Group (AMS) 899 613 657 36.7 46.6
Microcontrollers and Digital ICs Group (MDG) 719 782 701 2.5 (8.1)
Others 3 4 3 9.4 (2.8)
Total Net Revenues $2,522 $2,269 $2,136 18.1% 11.2%

Net revenues increased 11.2% sequentially, 120 basis points better than the mid-point of the Company's guidance. On a year-over-year basis, third quarter net revenues increased 18.1% with all product groups delivering revenue growth. Year-over-year sales to OEMs and Distribution were up 21.6% and 11.2%, respectively.

Gross profit totaled $1.0 billion, representing a year-over-year increase of 18.6%. Gross margin was 39.8%, 20 basis points lower than the mid-point of the Company's guidance mainly due to product group mix. Gross margin increased 20 basis points year-over-year, largely driven by a favorable mix shift toward higher value products and improved manufacturing efficiency.

Operating income was $398 million, compared to $281 million in the year-ago quarter, with all product groups growing revenues and with ADG and AMS delivering improved profitability. The Company's operating margin increased 270 basis points on a year-over-year basis to 15.8% of net revenues, compared to 13.1% in the 2017 third 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 $369 million and $0.41, respectively, compared to $236 million and $0.26, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights(1)

        Trailing 12 Months
US$ in millions Q3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 TTM Change
Net cash from operating activities $373 $360 $433 $1,775 $1,469 18.4%
Free cash flow (non-U.S. GAAP) $114 $(40) $50 $314 $299 (4.6)%

(1)  Q3 2017 amounts have been adjusted to reflect the impact of new 2018 accounting guidance, which requires, on comparative periods, the reclassification as operating cash flows of the implied interest paid in the settlement of our convertible bonds.

Capital expenditure payments, net of proceeds from sales, were $242 million in the third quarter and $983 million for the year-to-date period. In the year-ago quarter, capital expenditures were $365 million.

Inventory at the end of the quarter was $1.59 billion, up from $1.56 billion in the prior quarter. Day sales of inventory at quarter-end was 95 days, down from 103 days in the prior quarter.

Free cash flow (non-U.S. GAAP) was $114 million in the third quarter and $170 million in the year-to-date period.

The Company paid cash dividends totaling $54 million in the third quarter and $162 million year-to-date.

ST's net financial position (non-U.S. GAAP) was $447 million at September 29, 2018 compared to $411 million at June 30, 2018 and reflected total financial resources of $2.17 billion and total financial debt of $1.72 billion.

Business Outlook

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

            
Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and media to discuss its third 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 November 9, 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
  September 29, September 30,
  2018 2017
  (Unaudited) (Unaudited)
     
Net sales   2,515   2,123
Other revenues   7   13
NET REVENUES   2,522   2,136
Cost of sales   (1,519)   (1,290)
GROSS PROFIT   1,003   846
Selling, general and administrative   (268)   (244)
Research and development   (348)   (312)
Other income and expenses, net   11   5
Impairment, restructuring charges and other related closure costs    -   (14)
Total operating expenses   (605)   (565)
OPERATING INCOME   398   281
Interest expense, net   (2)   (7)
Other components of pension benefit costs   (3)   (3)
Income (loss) on equity-method investments   2   -
Loss on financial instruments, net   -   (5)
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTEREST   395   266
Income tax expense   (24)   (28)
NET INCOME   371   238
Net income attributable to noncontrolling interest   (2)   (2)
NET INCOME ATTRIBUTABLE TO PARENT COMPANY   369   236
     
EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.41   0.27
EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.41   0.26
     
NUMBER OF WEIGHTED AVERAGE SHARES USED IN CALCULATING DILUTED EPS 908.0 901.0


STMicroelectronics N.V.    
CONSOLIDATED STATEMENTS OF INCOME    
(in millions of U.S. dollars, except per share data ($))    
     
  Nine months ended
  September 29, September 30,
  2018 2017
  (Unaudited) (Unaudited)
     
Net sales   6,978   5,851
Other revenues   38   29
NET REVENUES   7,016   5,880
Cost of sales   (4,214)   (3,611)
GROSS PROFIT   2,802   2,269
Selling, general and administrative   (810)   (717)
Research and development   (1,054)   (970)
Other income and expenses, net   38   37
Impairment, restructuring charges and other related closure costs   (20)   (25)
Total operating expenses   (1,846)   (1,675)
OPERATING INCOME   956   594
Interest expense, net   (8)   (16)
Other components of pension benefit costs   (9)   (9)
Income (loss) on equity-method investments   3   (2)
Loss on financial instruments, net   -   (5)
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTEREST   942   562
Income tax expense   (68)   (63)
NET INCOME   874   499
Net income attributable to noncontrolling interest   (5)   (5)
NET INCOME ATTRIBUTABLE TO PARENT COMPANY   869   494
     
EARNINGS PER SHARE (BASIC) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.97   0.56
EARNINGS PER SHARE (DILUTED) ATTRIBUTABLE TO PARENT COMPANY STOCKHOLDERS   0.95   0.55
     
NUMBER OF WEIGHTED AVERAGE SHARES USED IN CALCULATING DILUTED EPS 912.8 904.7


STMicroelectronics N.V.      
CONSOLIDATED BALANCE SHEETS      
As at September 29, June 30, December 31,
In millions of U.S. dollars 2018 2018 2017
  (Unaudited) (Unaudited) (Audited)
ASSETS      
Current assets:      
Cash and cash equivalents 1,835 1,683 1,759
Short-term deposits 8 15
Marketable securities 328 429 431
Trade accounts receivable, net 1,309 1,106 1,149
Inventories 1,586 1,559 1,335
Other current assets 442 405 425
Total current assets 5,508 5,197 5,099
Goodwill 121 121 123
Other intangible assets, net 198 198 209
Property, plant and equipment, net 3,414 3,410 3,094
Non-current deferred tax assets 691 674 624
Long-term investments 60 58 57
Other non-current assets 421 391 475
  4,905 4,852 4,582
Total assets 10,413 10,049 9,681
       
LIABILITIES AND EQUITY      
Current liabilities:      
Short-term debt 117 118 118
Trade accounts payable 976 991 893
Other payables and accrued liabilities 909 887 897
Dividends payable to stockholders 114 168 60
Accrued income tax 53 40 52
Total current liabilities 2,169 2,204 2,020
Long-term debt 1,607 1,598 1,583
Post-employment benefit obligations 375 374 385
Long-term deferred tax liabilities 13 11 11
Other long-term liabilities 197 208 215
  2,192 2,191 2,194
Total liabilities 4,361 4,395 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,
911,151,920 shares issued, 902,581,049 shares outstanding)
1,157 1,157 1,157
Capital surplus 2,798 2,766 2,718
Retained earnings 1,574 1,215 973
Accumulated other comprehensive income 534 538 688
Treasury stock (79) (89) (132)
Total parent company stockholders' equity 5,984 5,587 5,404
Noncontrolling interest 68 67 63
Total equity 6,052 5,654 5,467
Total liabilities and equity 10,413 10,049 9,681
       


       
STMicroelectronics N.V.      
       
SELECTED CASH FLOW DATA      
       
Cash Flow Data (in US$ millions) Q3 2018 Q2 2018 Q3 2017
       
Net Cash from operating activities   373   360   433
Net Cash used in investing activities   (152)   (401)   (482)
Net Cash from (used in) financing activities   (68)   (60)   576
Net Cash increase (decrease)   152   (108)   534
       
Selected Cash Flow Data (in US$ millions) Q3 2018 Q2 2018 Q3 2017
       
Depreciation & amortization   201 193 165
Net payment for Capital expenditures   (242)   (390)   (365)
Dividends paid to stockholders   (54)   (54)   (59)
Change in inventories, net   (31)   (157)   (41)
       

Appendix
STMicroelectronics
Supplemental Financial Information

  Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017
Net Revenues By Market Channel (%)          
Total OEM 68% 61% 63% 68% 66%
Distribution 32% 39% 37% 32% 34%
           
€/$ Effective Rate 1.18 1.19 1.18 1.15 1.13
           
Product Group Data (a) (US$ Million)          
Automotive & Discrete Group (ADG)          
 - Net Revenues $901 $870 $817 $821 $775
 - Operating Income $116 $84 $90 $102 $85
Analog, MEMS & Sensors Group (AMS) (b)          
 - Net Revenues 899 613 655 902 657
 - Operating Income 157 64 64 187 86
Microcontrollers & Digital ICs Group (MDG)          
 - Net Revenues 719 782 750 740 701
 - Operating Income 119 159 146 146 126
Others (c)          
 - Net Revenues 3 4 4 3 3
 - Operating Income (Loss) 6 (18) (31) (24) (16)
Total          
 - Net Revenues $2,522 $2,269 $2,226 $2,466 $2,136
 - Operating Income $398 $289 $269 $411 $281

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

(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 $) Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017
U.S. GAAP Net Earnings 369 261 239 308 236
U.S. GAAP Earnings Per Share 0.41 0.29 0.26 0.34 0.26
Impairment & Restructuring - - 21 20 14
Estimated Income Tax Effect - - (3) (1) (1)
Non-U.S. GAAP Net Earnings 369 261 257 327 249
Non-U.S. GAAP Earnings Per Share 0.41 0.29 0.28 0.36 0.28

(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) Sep 29
2018
Jun 30
2018
Mar 31 2018 Dec 31 2017 Sep 30 2017
Cash and cash equivalents 1,835 1,683 1,791 1,759 2,188
Short term deposits 8 15 14 - -
Marketable securities 328 429 429 431 433
Total financial resources 2,171 2,127 2,234 2,190 2,621
Short-term debt (117) (118) (119) (118) (486)
Long-term debt (1,607) (1,598) (1,593) (1,583) (1,689)
Total financial debt (1,724) (1,716) (1,712) (1,701) (2,175)
Net financial position 447 411 522 489 446

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) Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017(1)
Net cash from operating activities 373 360 455 587 433
Net cash used in investing activities (152) (401) (374) (442) (482)
Payment for purchase and proceeds from sale of marketable securities, investment in short-term deposits, restricted cash (107) 1 14 - 99
Free cash flow 114 (40) 95 145 50

(1)        Q3 2017 amounts have been adjusted to reflect the impact of new 2018 accounting guidance, which requires, on comparative periods,
 the reclassification as operating cash flows of the implied interest paid in the settlement of our convertible bonds.

Attachment