STMicroelectronics Reports 2016 Second Quarter and First Half Financial Results

Impairment and restructuring charges in the second quarter were $12 million related to the set-top box restructuring plan.

Earnings on equity investments reflected a one-time net income of $9 million in the second quarter. Second quarter net profit was $23 million, equivalent to $0.03 per share, compared to a net loss of $41 million in the prior quarter and a net income of $35 million in the year-ago quarter, which included a one-time income tax benefit.

First Half Financial Summary by Product Group

Product Group Data
(Million US$)
H1 2016
H1 2015
Automotive and Discrete Group (ADG) 1,392 1,388
Analog and MEMS Group (AMG) 745 890
Microcontrollers and Digital ICs Group (MDG) 1,089 1,088
Others 90 99
Total 3,316 3,465

First Half 2016 Review

In total, net revenues in the first half 2016 decreased 4.3% to $3.32 billion from $3.47 billion in the 2015 first half, or 2.5% excluding businesses undergoing a phase-out (mobile legacy products, camera modules and set-top box). By product group, ADG was higher by 0.3% on solid growth in automotive products offset to a large measure by lower discrete sales; MDG revenues were flat compared to the year-ago period and AMG decreased 16.2%, principally due to lower sales of MEMS.

Gross margin in the first half 2016 improved to 33.6% from 33.5% in the year-ago period despite lower revenues. Specifically, the 2016 first half gross margin benefited from favorable currency effects, net of hedging, manufacturing efficiencies and lower unused capacity charges substantially offset by price pressure.

First half 2016 operating income before impairment and restructuring charges(1) was $35 million, compared to $43 million in the year-ago period on mixed performances by group and product families. ADG operating performance improved due to both higher revenues and mix improvements in comparison to the year-ago period. MDG operating margin turned positive due to lower sales of low margin set-top box products and the initial savings from the set-top box restructuring plan. However, AMG operating results decreased mainly due to lower sales.

Combined R&D and SG&A expenses were $1.14 billion compared to $1.19 billion in the year-ago period mainly reflecting lower R&D costs due to favorable currency effects, net of hedging, and the benefits of the set-top box restructuring plan and savings plan completed in 2015.

Other income and expenses, net, registered income of $55 million compared to $73 million in the year-ago period mainly due to lower R&D funding.

First half impairment and restructuring charges were $40 million and principally related to the initial phase of the set-top box restructuring plan, compared to $50 million in the year-ago period.

First half of 2016 net loss, as reported, was $18 million, equivalent to negative $0.02 per share, compared to a net income of $12 million, or $0.01 per share in the first half of 2015.

(1) Non-U.S. GAAP measure. See Appendix for additional information and reconciliation to U.S. GAAP.

Cash Flow and Balance Sheet Highlights

Capital expenditure payments, net of proceeds from sales, were $136 million and $236 million during the second quarter and first half of 2016, respectively. First half 2015 capital expenditures were $250 million.

Inventory was $1.27 billion at quarter end, down 3% from the prior quarter. Inventory in the second quarter of 2016 was at 3.6 turns or 100 days.

The Company paid cash dividends totaling $57 million and $145 million for the second quarter and first half of 2016, respectively.

ST's net financial position(1) was $426 million at July 2, 2016 compared to $439 million at April 2, 2016. ST's total financial resources equaled $2.03 billion and total financial debt was $1.60 billion at July 2, 2016.

Total equity, including non-controlling interest, was $4.56 billion at July 2, 2016.

(1) Non-U.S. GAAP measure. See Appendix for additional information and reconciliation to U.S. GAAP.

Third Quarter 2016 Business Outlook

Mr. Bozotti commented, "The strategic choices we have made position us for a strong third quarter. Our backlog is currently underpinned by a healthy demand in the markets we serve. This makes us confident we can grow revenues sequentially and, in H2 2016, year-over-year. We expect that in the second half of 2016, power discretes and AMG (Analog and MEMS Group) will restart year-over-year growth and that automotive, microcontrollers and imaging will continue their positive revenue momentum. At the same time we remain vigilant due to the macro-economic uncertainties, especially in Europe, which could impact overall GDP and semiconductor demand".

"Based on these factors, we anticipate a sequential increase in net revenues by about 5.5% at the mid-point, and the gross margin to be about 35.5% at the mid-point" .

The Company expects third quarter 2016 revenues to increase about 5.5% on a sequential basis, plus or minus 3.5 percentage points. Gross margin in the third quarter is expected to be about 35.5% plus or minus 2.0 percentage points and reflects unsaturation charges negatively impacting gross margin by about 65 basis points .

This outlook is based on an assumed effective currency exchange rate of approximately $1.12 = €1.00 for the 2016 third quarter and includes the impact of existing hedging contracts. The third quarter will close on October 1, 2016.

Recent Corporate Developments 

  • On May 25, ST announced that all of the resolutions were approved at the Company's Annual General Meeting of Shareholders (AGM). The main resolutions, approved by the shareholders, were:
  • The adoption of the Company's Statutory Annual Accounts for the year ended December 31, 2015, prepared in accordance with International Financial Reporting Standards (IFRS);
  • The distribution of a cash dividend of US$0.24 per outstanding share of the Company's common stock, to be distributed in quarterly installments of US$0.06 in each of the second, third and fourth quarters of 2016 and first quarter of 2017 to shareholders of record in the month of each quarterly payment;
  • The appointment of Mr. Salvatore Manzi as a member of the Supervisory Board, for a three-year term expiring at the 2019 AGM, in replacement of Mr. Alessandro Ovi whose mandate expired as of the 2016 AGM;
  • The reappointment of Ms. Janet Davidson as a member of the Supervisory Board for a three-year term, expiring at the 2019 AGM;
  • The delegation to the Supervisory Board of the authority to issue new common and preference shares, to grant rights to subscribe for such shares and to limit and/or exclude existing shareholders' pre-emptive rights on common shares for a period of eighteen months; and
  • Authorization to our Managing Board, for eighteen months following the AGM, to repurchase our shares, subject to the approval of our Supervisory Board.
  • On May 26, ST announced the publication of the Company's 2015 Sustainability Report.  The Company's nineteenth annual report contains details of ST's sustainability strategy and its 2015 performance.

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