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STMicroelectronics Reports 2010 First Quarter Financial Results
Apr 22, 2010 (05:04 PM EDT)
- Net revenues $2,325 million, up 40.1% year-over-year
- Net earnings turned to profit of $57 million
- Net operating cash flow of $176 million, 7.6% of sales*
GENEVA, April 22 /PRNewswire-FirstCall/ -- STMicroelectronics (NYSE: STM) reported financial results for the 2010 first quarter ended March 27, 2010.
In a year-over-year comparison, net revenues increased 40.1% and were led by the Company's IMS and ACCI product segments with 60% and 47% growth, respectively. All regions and market segments posted double-digit revenues growth. Delivering the strongest regional results were Greater China-South Asia and America with revenues rising 60% and 49%, respectively.
President and CEO Carlo Bozotti commented, "Our first quarter revenues, well in-line with our expectations, reflected the significant rebound from the economic crisis and solid demand for our products. Although supply chain constraints somewhat limited our revenues opportunities, we fully participated in the market recovery with our new and innovative products.
"The Company's Automotive and Computer market segments posted impressive results and were up sharply with 61% and 59% growth, respectively. Sequentially, Consumer, Industrial and Automotive were the best performers.
"Mainly driven by high fab loading, our first quarter gross margin increased 1,140 basis points year-over-year to 37.7%, and expanded 70 basis points sequentially in contrast to a historical seasonal decrease.
"Last year we focused on important strategic actions to reshape our product portfolio and improve the efficiency of our operations. As a result, we are very happy to have returned the Company to profitability in the first quarter of 2010. We achieved net income of $57 million or 6 cents per share on a diluted basis, despite first quarter revenues 20% lower than the "peak" of the Company and the losses incurred by ST-Ericsson, which is focused on achieving a competitive cost structure and is progressively introducing an impressive wave of new platforms.
"The Company's performance continues to improve quarter after quarter. Our first quarter financial results demonstrate the additional progress we have made to achieve sustainable profitability as our manufacturing machine is now loaded and ramping up, our gross margin is improving and we have positive earnings dynamics and strong cash flow."
(*) Net operating cash flow is a non-U.S. GAAP measure. Please refer to Attachment A for additional information explaining why the Company believes these measures are important and for a reconciliation to U.S. GAAP.
First Quarter Review
ST's net revenues for the first quarter of 2010 totaled $2,325 million and included sales recorded by ST-Ericsson as consolidated by ST. Net revenues increased in comparison to the year-ago quarter in all market segments and in all regions. Net revenues decreased 10.0% sequentially, mainly reflecting fewer days in the fiscal first quarter compared to the prior quarter. ACCI and IMS product segments registered better than seasonal sequential revenues trends while the Company's Wireless segment decreased by 17.6%.
On a year-over-year basis, all market segments posted double-digit growth, with Automotive increasing by 61%, Computer by 59%, Industrial by 37%, Consumer by 24% and Telecom by 13%. Distribution, which is essentially back to pre-recession levels, increased 114%, reflecting strong global demand and improving market conditions. Sequentially, all market segments decreased with Computer down 21%, Telecom by 14%, Automotive by 4% and Industrial and Consumer both by 1%. Distribution decreased sequentially by 9%.
Gross margin in the first quarter of 2010 was 37.7%, 70 basis points higher than the 37.0% reported in the fourth quarter of 2009, mainly due to increased fab loading and some minor benefit due to favorable currency. As anticipated, ST's manufacturing performance continued to improve in the first quarter as the Company is currently operating near full capacity. Gross margin increased 1,140 basis points in comparison to the year-ago period level of 26.3% principally reflecting a return to normal fab loading as well as ongoing improvement from new products.
Combined SG&A and R&D expenses were $876 million in the first quarter of 2010, compared to $906 million in the prior quarter and $837 million in the year-ago quarter. Combined operating expenses, as a percentage of sales, were 37.7% vs. 35.1% in the prior quarter, and 50.5% in the year-ago quarter.
Related to the Company's cost-realignment initiatives, ST posted first quarter restructuring and impairment charges of $33 million, of which $25 million were related to ST-Ericsson. ST posted restructuring and impairment charges of $96 million and $56 million in the prior quarter and year-ago period, respectively.
Revenues and Operating Results by Product Segment
The following table provides a breakdown of revenues and operating results by product segment. Unused capacity charges are reflected in the segment "Others" in the respective quarters.
ACCI (Automotive/Consumer/Computer/Communication Infrastructure Product Groups) first quarter net revenues increased 47% year-over-year to $909 million, mainly driven by automotive, set-top box and computer peripherals products and continued improvement in industry conditions. ACCI posted operating income of $48 million, compared to income of $62 million in the prior quarter and a loss of $28 million in the year-ago quarter. First quarter ACCI operating margin was 5.3%.
IMS (Industrial and Multisegment Product Sector) first quarter net revenues increased 60% year-over-year to $811 million, driven by strong growth in microcontrollers, analog and power discrete products and again reflected solid growth in the multi-segment market and in distribution. IMS operating income continued to increase to $92 million in the first quarter, and compares to income of $85 million in the prior quarter and income of $5 million in the year-ago quarter. First quarter IMS operating margin was 11.3%.
Mr. Bozotti commented, "Our sustained R&D efforts are now resulting in many new product introductions and important design wins with major companies across the market segments we serve. In the area of MEMS we have two new families, gyroscopes and active microphones, which recently won key design wins at several well-known portable consumer device manufacturers. We have important families of 32-bit microcontrollers for automotive, including several design wins at tier-one OEMs in Europe and the US, and industrial and security applications and new complex digital ASICs for computer peripherals and communication infrastructure, in which we recently won 3 major design wins in 32nm process technology. Focusing on 3D graphics and 3DTV applications and offering low power performance, we are introducing a new generation of set-top box and TV products. And in the area of advanced analog and smart-power and power we are introducing a large number of new products."
Wireless net revenues in the first quarter increased 13% year-over-year to $587 million. Net revenues were driven by solid demand in Asia. Wireless operating loss in the first quarter increased to $116 million compared to an operating loss of $48 million and $107 million in the prior quarter and year-ago quarter, respectively, driven by lower revenues but partially mitigated by restructuring initiatives completed to date. Wireless operating loss in the first quarter of 2010 excludes $25 million in restructuring charges related to ST-Ericsson.
ST recorded $72 million of income in the first quarter of 2010, $59 million and $54 million in the prior quarter and year-ago period, respectively, reflecting the net loss attributable to non-controlling interest, mainly related to the ST-Ericsson joint venture. This amount is posted below operating results in ST's Consolidated Income Statement and reflects Ericsson's 50% share in the joint venture's loss, as consolidated by ST.
For additional information, including key design wins, on ST-Ericsson, see www.stericsson.com
Income tax in the first quarter was $10 million of tax benefit, mainly reflecting a limited tax benefit from ST-Ericsson's results.
ST reported net income of $57 million in the first quarter of 2010, or $0.06 per diluted share, compared to a net loss of $70 million and $541 million in the prior quarter and year-ago period, respectively. On an adjusted basis, ST reported a first quarter of 2010 net income, excluding impairment, restructuring charges and other related closure costs attributable to parent Company's shareholders, of $62 million, or $0.07 per share compared to $36 million, or $0.04 per share in the fourth quarter of 2009.*
For the 2010 first quarter, the effective average exchange rate for the Company was approximately $1.39 to euro 1.00 compared to $1.43 to euro 1.00 for the 2009 fourth quarter and $1.33 to euro 1.00 for the 2009 first quarter.
Cash Flow and Balance Sheet Highlights
Net operating cash flow was $176 million and increased significantly in comparison to the year-ago period total of ($139) million, excluding M&A transactions and disposal of a financial instrument.*
Capital expenditures were $179 million during the first quarter of 2010, principally related to an increase in capacity. In the year-ago quarter, capital expenditures were $89 million.
Inventory was $1.27 billion at quarter end, down from $1.28 billion at December 31, 2009 and $1.66 billion at March 28, 2009. In the first quarter inventory turns were 4.6, in line with the Company's targeted range of 4.5 to 5.0 turns.
ST's net financial position improved significantly to a net cash position of $566 million at March 27, 2010 compared to $420 million at December 31, 2009 and $254 million at March 28, 2009.* ST's cash and cash equivalents, marketable securities (current and non-current) and restricted cash equaled $2.76 billion. Excluding cash and cash equivalents and marketable securities of $118 million related to ST-Ericsson, a $250 million restricted cash deposit as collateral for the Hynix-Numonyx loan and $47 million of non-current marketable securities, the Company's liquidity totaled $2.34 billion. Total debt was $2.19 billion. Total equity was $8.04 billion, including non-controlling interest of $1.13 billion.
With respect to the previously disclosed portfolio of unauthorized asset-backed securities, the recent ruling of the federal district court in New York granted the Company's petition to confirm the FINRA award and required Credit Suisse to satisfy fully its obligations to ST under the award. Based on the ruling, which can still be appealed by Credit Suisse, the Company is entitled to receive an additional amount of approximately $354 million.
(*)Adjusted earnings per share, net operating cash flow and net financial position are non-U.S. GAAP measures. For additional information please refer to Attachment A.
Second Quarter 2010 Business Outlook
Mr. Bozotti stated, "Turning to the second quarter, based upon our current assessment of demand and backlog, revenues should show a solid progression driven by IMS and ACCI. We expect, therefore, to see sequential revenues growth of between 6% and 12%, which equates to solid growth of 24% to 31% when compared to the year-over-year period. Based upon the anticipated mix of revenue, the gross margin should improve slightly to about 38%, plus or minus 1 percentage point.
"As the market momentum is stronger than expected, we are committed to serve the robust demand of our customers, boosting our revenues growth and continuing to improve our net earnings through the next quarters.
"Additionally, based upon the Company's strong financial foundation, our confidence in the Company's ability to generate solid free cash flow and the expected proceeds of our product portfolio reshaping, our Supervisory Board has recommended to shareholders an increase in our annual cash dividend to 28 cents per share, which represents a yield of about 2.7%."
This outlook is based on an assumed effective currency exchange rate of approximately $1.38 = euro 1.00 for the 2010 second quarter, which reflects an assumed exchange rate of $1.34 = euro 1.00 combined with the impact of existing hedging contracts. The second quarter will close on June 26, 2010.
Recent Corporate Developments
On April 20, ST announced the main resolutions to be submitted for shareholder approval at the Company's Annual General Meeting, which will be held in Amsterdam on May 25, 2010. The main resolutions, proposed by the Supervisory Board, include:
The record date for all shareholders to participate at the Annual General Meeting will be April 28, 2010. The complete agenda and all relevant detailed information concerning the STMicroelectronics N.V. Annual General Meeting, as well as all related AGM materials, are available on the Company's web site (www.st.com) and are available to shareholders in compliance with legal requirements.
On March 24, 2010, in connection with its legal action to recover from Credit Suisse the amount invested in unauthorized auction rate securities against ST's instructions, ST received a court ruling affirming the unanimous FINRA arbitration award entered in February 2009 in its favor for more than $431 million. The ruling of the federal district court in New York granted ST's petition to confirm the award, denied Credit Suisse's motion to vacate the award, and required Credit Suisse to satisfy fully its obligations to ST under the award. Based on the ruling, which can still be appealed by Credit Suisse, ST is entitled to receive a further amount of approximately $354 million, which includes approximately $23 million of interest to date, and which amount is to be added to the approximately $75 million received by ST last December upon selling a portion of the auction rate securities at the initiative of Credit Suisse.
On February 9, 2010, ST announced that, together with its partners Intel Corporation and Francisco Partners, it had entered into a definitive agreement with Micron Technology Inc., in which Micron will acquire Numonyx Holding B.V. in an all-stock transaction. The Numonyx Flash memory joint venture was created by the partners on March 30, 2008. Pursuant to the terms of the transaction, at closing Micron will issue to Numonyx's three shareholders an aggregate of 140 million shares of Micron common stock, plus up to 10 million additional shares if the volume weighted average price of Micron's common stock for the 20 trading days, ending two days prior to closing, is lower than $9.00 per share. Micron shares will be held by ST as a financial investment.
Q1 2010 Products, Technology and Design Wins
Automotive, Consumer, Computer and Communication Infrastructure (ACCI)
Industrial and Multisegment Sector (IMS) Product Highlights
All of STMicroelectronics' press releases are available at www.st.com/stonline/press/news/latest.htm.
All of ST-Ericsson's press releases are available at www.stericsson.com/press/press_releases.jsp.
Faroudja, SPEAr, iNEMO, S-Touch and MDmesh are trademarks of STMicroelectronics. All other trademarks or registered trademarks are the property of their respective owners.
Use of Supplemental Non-U.S. GAAP Financial Information
This press release contains supplemental non-U.S. GAAP financial information, including adjusted operating income (loss), adjusted net earnings (loss), adjusted net earnings (loss) per share, net operating 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.
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 in 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, 2009, as filed with the SEC on March 10, 2010. 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.
STMicroelectronics Conference Call and Webcast Information
The management of STMicroelectronics will conduct a conference call and webcast on April 23, 2010 at 9:00 a.m. U.S. Eastern Time / 3:00 p.m. CET, to discuss its operating performance for the first quarter of 2010.
The conference call and webcast will be available 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 and conference call will be available until April 30, 2010.
STMicroelectronics is a global leader serving customers across the spectrum of electronics applications with innovative semiconductor solutions. ST aims to be the undisputed leader in multimedia convergence and power applications leveraging its vast array of technologies, design expertise and combination of intellectual property portfolio, strategic partnerships and manufacturing strength. In 2009, the Company's net revenues were $8.51 billion. Further information on ST can be found at www.st.com.
Readers are cautioned that 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.
Adjusted operating income (loss) is used by our management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items. Adjusted operating income (loss) excludes impairment, restructuring charges and other related closure costs, the impact of purchase accounting (such as in-process R&D costs and inventory step-up charges) and related tax effects.
Adjusted net earnings and earnings per share are used by our management to help enhance an understanding of ongoing operations and to communicate the impact of the excluded items. Adjusted earnings exclude impairment, restructuring charges and other related closure costs attributable to parent Company's shareholders, the impact of purchase accounting (such as in-process R&D costs and inventory step-up charges), other-than-temporary impairment (OTTI) charges on financial assets, and impairment related to equity investments, 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.
(Attachment A – continued)
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, current and non-current marketable securities, short-term deposits and restricted cash, and our total financial debt include bank overdrafts, the current portion of long-term debt and long-term debt, all as represented 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 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.
Net operating cash flow is defined as net cash from operating activities minus net cash used in investing activities, excluding payment for purchases of and proceeds from the sale of marketable securities (both current and non-current), short-term deposits and restricted cash. We believe net operating 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. Net operating 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 net operating cash flow may differ from definitions used by other companies.