STMicroelectronics Declares Q3 2018 Financial Results

STMicroelectronics, 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.

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:

• “ST had another quarter of solid performance, with sequential revenue growth of 11.2%, above our 10% midpoint outlook, and operating margin expansion to 15.8%.
• “Revenue increased 18.1% year-over-year driven by strong growth in Imaging, Power Discrete and Automotive products.
• “Operating income and net income were up sharply year-over-year and sequentially.
• “ST’s fourth quarter outlook is for revenues to grow sequentially about 5.7% at the mid­point, translating into year-over-year revenue growth above 8%; gross margin is expected to be about 39.8%.
• “Based on our fourth quarter guidance, we anticipate 2018 revenues to grow about 16% year-over-year, in line with our expectations shared in May at our Capital Markets Day. This level of revenue growth will also drive strong improvements in operating margin and net earnings.”

Financial Summary (U.S. GAAP)⁽¹⁾

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 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):

• Revenue grew double-digits, in both Automotive and Power Discrete.
• Operating profit increased by 36.2% to $116 million, mainly due to higher revenue and associated gross profit. Operating margin increased to 12.8% from 10.9%.

Analog, MEMS and Sensors Group (AMS):

• Revenue grew triple-digits in Imaging and was supported by growth in both Analog and MEMS.
• Operating profit increased by 82.4% to $157 million, mainly due to higher revenue and associated gross profit. Operating margin increased to 17.5% from 13.1%.

Microcontrollers and Digital ICs Group (MDG):

• Revenue grew in Digital ICs while Microcontrollers / Memories were stable.
• Operating profit decreased by 5.4% to $119 million mainly due to less favorable mix between Microcontrollers and other products. Operating margin decreased to 16.6% from 18.0%.

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⁾

⁽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:

• Net revenues are expected to increase about 5.7% sequentially, plus or minus 350 basis points;
• Gross margin of about 39.8%, plus or minus 200 basis points;
• This outlook is based on an assumed effective currency exchange rate of approximately $1.18 = €1.00 for the 2018 fourth quarter and includes the impact of existing hedging contracts.
• The fourth quarter will close on December 31, 2018.