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STMicroelectronics Reports 2015 Third Quarter and Nine Month Financial Results

  • Third quarter net revenues of $1.76 billion and gross margin of 34.8%
  • Third quarter net income of $90 million
  • Free cash flow of $85 million; $179 million for the first nine months*

GENEVA, Switzerland, Oct. 29, 2015 (GLOBE NEWSWIRE) -- STMicroelectronics (STM.PA), 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.

" In the third quarter, ST delivered sequential improvement in gross margin, operating margin, earnings per share and free cash flow. Revenue growth was limited and lower than expected, due to softer market demand as we progressed through the quarter and a manufacturing issue at a subcontractor which affected our sales of microphones," commented Carlo Bozotti, President and CEO of ST.

"On the other hand, three of our five product groups delivered sequential revenue growth. Our Microcontroller group performed well, growing 6.1% and hitting another record billing quarter thanks to the STM32 family. The Automotive group grew revenues by 1.9%, mainly driven by microcontrollers and by demand for advanced driver assistance systems, an area where ST is a leader. Additionally, our Digital Product Group increased revenues by $23 million driven by Imaging.

"During the third quarter, the market progressively deteriorated: the lower consumer spending in China is impacting the dynamics of the distribution channel in the region and the industry more globally, particularly in automotive."

Summary Financial Highlights

U.S. GAAP

(Million US$)
Q3 2015 Q2 2015 Q3 2014
Net Revenues 1,764 1,760 1,886
Gross Margin 34.8% 33.8% 34.3%
Operating Income, as reported 91 12 37
Net Income attributable to parent company 90 35 72
Non-U.S. GAAP*

Before impairment and restructuring charges (Million US$)
Q3 2015 Q2 2015 Q3 2014
Operating Income 102 33 75
Operating Margin 5.8% 1.9% 4.0%

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(*)Free cash flow, operating income before impairment and restructuring charges and operating margin before impairment and restructuring charges are non-U.S. GAAP measures. Please refer to Attachment A for additional information explaining why the Company believes this measure is important and for reconciliation to U.S. GAAP.

Third Quarter Review

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 EURO1.00 compared to $1.17 to EURO1.00 for the second quarter of 2015 and $1.34 to EURO1.00 for the third quarter of 2014.

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(*)Operating margin before impairment and restructuring charges and adjusted net earnings per share are non-U.S. GAAP measures. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.

Quarterly Net Revenues Summary

Net Revenues By Product Line and Segment

(Million US$)
Q3 2015 Q2 2015 Q3 2014
Analog & MEMS (AMS) 233 273 268
Automotive (APG) 447 438 464
Industrial & Power Discrete (IPD) 437 448 486
Sense & Power and Automotive Products (SP&A) 1,117 1,159 1,218
Digital Product Group (DPG) (a) 230 207 286
Microcontroller, Memory & Secure MCU (MMS) 412 388 377
Other EPS - - -
Embedded Processing Solutions (EPS) 642 595 663
Others 5 6 5
Total 1,764 1,760 1,886

(a) Effective January 1, 2015, the Digital Convergence Group (DCG) and Imaging, BI-CMOS and Silicon Photonics (IBP) groups were combined under one single organization, called Digital Product Group (DPG). Prior periods have been restated accordingly.

Net Revenues by Market Channel

Net Revenues By Market Channel(%) Q3 2015 Q2 2015 Q3 2014

Revenues and Operating Results by ST Product Segment

Operating Segment (Million US$) Q3 2015 Net Revenues Q3 2015 Operating Income (Loss) Q2 2015 Net Revenues Q2 2015 Operating Income (Loss) Q3 2014 Net Revenues Q3 2014 Operating Income (Loss)
Sense & Power and Automotive Products (SP&A) 1,117 102 1,159 76 1,218 111
Embedded Processing Solutions (EPS) 642 - 595 (42) 663 (38)
Others (a) 5 (11) 6 (22) 5 (36)
TOTAL 1,764 91 1,760 12 1,886 37

(a) Net revenues of "Others" include revenues from sales of Subsystems, assembly services, and other revenue. Operating income (loss) of "Others" includes items such as impairment, restructuring charges and other related closure 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 the Subsystems and Other Products Group. "Others" includes $11 million, $21 million, and $38 million of impairment, restructuring charges, and other related closure costs in the third and second quarters of 2015 and third quarter of 2014, respectively.

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.

Cash Flow and Balance Sheet Highlights

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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* Free cash flow and net financial position are non-US GAAP measures. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.

First Nine Months 2015 Results

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...


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