Elettronica
STMicroelectronics Reports 2015 Third Quarter and Nine Month Financial Results
a global semiconductor leader serving customers across the spectrum of electronics applications, reported financial results for the third quarter and nine months ended September 26, 2015.
Third quarter net revenues totaled $1.76 billion, gross margin was 34.8%, operating margin excluding impairment and restructuring was 5.8%, net income was $90 million and free cash flow was positive $85 million.
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ST's third quarter net revenues increased 0.3% on a sequential basis to $1.76 billion.
On a sequential basis, net revenues by region of shipment increased 7.2% in the Americas and 1.0% in Greater China & South Asia. Japan & Korea and EMEA decreased by 5.3% and 2.4%, respectively.
On a year-over-year basis, net revenues decreased 6.5%. Net revenues, excluding negative currency effects and mobile legacy products, decreased 3.8% year-over-year.
Third quarter gross profit was $613 million and gross margin was 34.8%. Gross margin improved 100 basis points sequentially, mostly reflecting manufacturing efficiencies, product mix, and favorable currency effects, net of hedging, largely offset by price pressure. On a year-over-year basis, gross margin improved 50 basis points, mainly due to favorable currency effects, net of hedging, manufacturing efficiencies and lower unused capacity charges largely offset by price pressure.
Combined R&D and SG&A expenses totaled $549 million compared to $599 million in the second quarter and $603 million in the year-ago quarter. On a sequential basis, combined R&D and SG&A expenses decreased 8.3% mainly due to seasonality, favorable currency effects, net of hedging, and savings from the EPS restructuring plan.
Other income and expenses, net in the third quarter, was an income of $38 million, compared to $37 million and $32 million in the second and year-ago quarter, respectively, largely comprised of the Nano2017 R&D grants.
Impairment, restructuring and other related closure costs were $11 million in the third quarter, compared to $21 million in the second quarter, and were principally related to the impairment of certain intangible assets. In the year-ago period, impairment, restructuring and other related closure costs were $38 million.
Operating margin before impairment and restructuring charges improved to 5.8% in the third quarter from 1.9% and 4.0%, respectively, in the prior and year-ago quarter*.
Income tax benefit of $8 million in the third quarter includes a one-time income of $14 million related to the positive settlement of a local tax assessment. Reflecting this benefit, third quarter net income was $90 million, or $0.10 per share compared to net income of $35 million, or $0.04 per share in the prior quarter and net income of $72 million, or $0.08 per share in the year-ago quarter. On an adjusted basis, ST reported non-U.S. GAAP net income per share of $0.12 in the third quarter, excluding impairment and restructuring charges, compared to net income of $0.06 and $0.13 per share in the prior and year-ago quarter, respectively.*
For the third quarter of 2015, the effective average exchange rate for the Company was approximately $1.16 to EUR1.00 compared to $1.17 to EUR1.00 for the second quarter of 2015 and $1.34 to EUR1.00 for the third quarter of 2014.
Sense & Power and Automotive Products (SP&A) third quarter net revenues decreased 3.6% sequentially as growth in APG digital products was offset by IPD, reflecting market conditions impacting discrete and power transistor products, and AMS, due to a manufacturing issue at a subcontractor which affected sales of MEMS microphones. On a year-over-year basis, SP&A revenues decreased 8.3% mainly due to weaker market conditions, lower revenues in AMS and IPD and unfavorable currency effects specifically impacting APG.
SP&A operating margin improved to 9.2% in the 2015 third quarter compared to 6.6% in the prior quarter despite lower revenues, mainly due to a favorable currency effects, net of hedging, lower operating expenses due to seasonality and manufacturing efficiencies partially offset by normal price pressure. SP&A operating margin was 9.1% in the year-ago quarter.
Embedded Processing Solutions (EPS) third quarter net revenues increased 7.8% on a sequential basis driven by general purpose microcontrollers in MMS and imaging proximity sensors in DPG. On a year-over-year basis, EPS net revenues decreased 3.2% mainly due to DPG decreasing 19.6% reflecting the decline in the former ST-Ericsson and set-top box legacy products as well as commodity camera modules, while MMS posted revenue growth of 9.1%. Also, EPS was impacted by unfavorable currency effects.
EPS segment operating margin improved to break-even in the 2015 third quarter from negative 7.0% in the prior quarter driven by product mix, significantly lower operating expenses due to seasonality and favorable currency effects, net of hedging. In comparison to the year-ago period, EPS reduced its operating loss by $38 million due to improved product mix, positive currency effects, net of hedging, and significantly lower net expenses.
Net cash from operating activities was $225 million in the third quarter, compared to $223 million and $281 million in the prior and year-ago quarter.
Capital expenditure payments, net of proceeds from sales, were $128 million during the third quarter and for the first nine months of the year totaled $378 million.
Free cash flow was positive $85 million in the third quarter, compared to $53 million and $140 million, respectively, in the prior and year-ago quarter. For the 2015 first nine months free cash flow had a significant swing to a positive $179 milion, compared to a negative $11 million in the year-ago first nine months.*
Inventory increased by $11 million to $1.25 billion at quarter end. Inventory in the third quarter of 2015 was at 3.7 turns or 97 days, similar to 3.8 turns or 95 days in the prior quarter.
In the third quarter, the Company paid cash dividends totaling $83 million.
ST's net financial position was stable on a sequential basis at $459 million at September 26, 2015.* ST's financial resources equaled $2.21 billion and total debt was $1.75 billion at September 26, 2015.
Total equity, including non-controlling interest, was $4.73 billion at quarter end.
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Net revenues for the first nine months of 2015 decreased 6.2% to $5.23 billion from $5.58 billion in the year-ago period. Net revenues, excluding negative currency effects and mobile legacy products, decreased 2.6% compared to the year-ago period. MMS grew revenues 4.9% while all other product groups experienced a decrease.
Gross margin improved to 33.9% of net revenues, compared to 33.7% of net revenues for the first nine months of 2014, principally due to manufacturing efficiencies, favorable currency effects, net of hedging, and product mix largely offset by price pressure.
Sense & Power and Automotive revenues for the first nine months of 2015 totaled $3.39 billion, a decrease of 6.0% compared to the first nine months of 2014 due to lower sales in all product groups. SP&A operating margin decreased to 7.4% in the first nine months of 2015 from 8.9%, excluding the non-recurring catch-up of grants in the first nine months of 2014, mainly reflecting a lower level of revenues partially offset by favorable currency effects.
Embedded Processing Solutions revenues were $1.82 billion and reflected mixed results. MMS revenues increased 4.9% to $1.17 billion, while DPG net revenues decreased significantly including ST-Ericsson and set-top box legacy products and commodity camera modules. EPS operating margin in the first nine months of 2015 was negative 5.8%, improving from a negative 9.8%, excluding the non-recurring catch-up of grants in the 2014 first nine months, mainly reflecting improved product mix, favorable currency impact and lower net operating expenses.
Net income, as reported, was $102 million in the first nine months of 2015, or $0.12 per share, compared to a net income of $85 million, or $0.10 per share in the first nine months of 2014 which included the non-recurring catch-up of grants of $97 million. On an adjusted basis, ST reported a non-U.S. GAAP net income per share of $0.18 excluding impairment, restructuring charges and one-time items in the first nine months of 2015, compared to a net income per share of $0.23 in the first nine months of 2014.*
The effective average exchange rate for the Company was approximately $1.19 to EUR1.00 for the first nine months of 2015, compared to $1.35 to EUR1.00 for the first nine months of 2014.
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Nine Months Revenue and Operating Results by Product Segment
Mr. Bozotti commented,
The Company expects fourth quarter 2015 revenues to decrease about 6% on a sequential basis, plus or minus 3.5 percentage points. Gross margin in the fourth quarter is expected to be about 33.5%, plus or minus 2.0 percentage points.
This outlook is based on an assumed effective currency exchange rate of approximately $1.13 = EUR1.00 for the 2015 fourth quarter and includes the impact of existing hedging contracts. The fourth quarter will close on December 31, 2015.
This press release contains supplemental non-U.S. GAAP financial information, including operating income (loss) before impairment and restructuring charges, operating margin before impairment and restructuring charges, adjusted net earnings per share, free cash flow and net financial position.
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 by other companies.
See Attachment A 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.
On October 29, 2015, the management of STMicroelectronics will conduct a conference call to discuss the Company's operating performance for the third quarter of 2015.
The conference call will be held at 9:30 a.m. CET / 8:30 a.m. BST / 4:30 a.m. U.S. Eastern Time (ET) / 1:30 a.m. U.S. Pacific Time (PT). The conference call will be available live via the Internet by accessing http://investors.st.com. Those accessing the webcast should go to the Web site at least 15 minutes prior to the call, in order to register, download and install any necessary audio software. The webcast will be available until November 13, 2015.
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 2014, the Company's net revenues were $7.40 billion, serving more than 100,000 customers worldwide. Further information can be found at www.st.com
INVESTOR RELATIONS:
Tait Sorensen
Group VP, Investor Relations
Tel: +1 602 485 2064
tait.sorensen@st.com
MEDIA RELATIONS:
Nelly Dimey
Director, Corporate Media and Public Relations
Tel: + 33 1 58 07 77 85
nelly.dimey@st.com
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-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 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.
Net financial position: 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 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. Net financial position is not a U.S. GAAP measure.
Free cash flow 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 and net cash variation for joint ventures deconsolidation. 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 is not a U.S. GAAP measure and 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.
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