STMicroelectronics reported U.S. GAAP financial results for the third quarter ended October 1, 2022. This press release also contains non-U.S. GAAP measures (see Appendix for additional information).
ST reported third quarter net revenues of $4.32 billion, gross margin of 47.6%, operating margin of 29.4%, and net income of $1.10 billion or $1.16 diluted earnings per share.
Jean-Marc Chery, STMicroelectronics President & CEO, commented:
· “Q3 net revenues of $4.32 billion and gross margin of 47.6% came in above the mid-point of our business outlook range, driven by continued strong demand for our product portfolio.
· “On a year-over-year basis, Q3 net revenues increased 35.2%, operating margin increased to 29.4% from 18.9%, and net income more than doubled to $1.10 billion.
· “First nine months net revenues increased 27.2% to $11.70 billion, driven by growth in all product groups and sub-groups. Operating margin was 26.9% and net income was $2.71 billion.
· “ST’s fourth quarter outlook, at the mid-point, is for net revenues of $4.40 billion, increasing year-over-year by 23.7% and sequentially by 1.8%; gross margin is expected to be about 47.3%.
· “The midpoint of this outlook translates into full year 2022 net revenues of about $16.10 billion, representing a 26.2% year-over-year growth and gross margin of about 47.3%, in line with the plan we outlined in July.”
Quarterly Financial Summary (U.S. GAAP)
| (US$ m, except per share data) | Q3 2022 | Q2 2022 | Q3 2021 | Q/Q | Y/Y |
| Net Revenues | $4,321 | $3,837 | $3,197 | 12.6% | 35.2% |
| Gross Profit | $2,059 | $1,819 | $1,330 | 13.2% | 54.7% |
| Gross Margin | 47.6% | 47.4% | 41.6% | 20 bps | 600 bps |
| Operating Income | $1,272 | $1,004 | $605 | 26.7% | 110.1% |
| Operating Margin | 29.4% | 26.2% | 18.9% | 320 bps | 1,050 bps |
| Net Income (a) | $1,099 | $867 | $474 | 26.8% | 131.8% |
| Diluted Earnings Per Share (b) | $1.16 | $0.92 | $0.51 | 26.1% | 127.5% |
(a) Following a change in U.S. GAAP reporting guidance effective January 1, 2022, Q3 and Q2 2022 net income does not include phantom interests associated with convertible bonds. Prior period has not been restated.
(b) Q3 and Q2 2022 diluted earnings per share includes the full dilutive effect of our outstanding convertible debt, upon adoption on January 1, 2022 of the new U.S. GAAP reporting guidance. Prior period has not been restated.
Third Quarter 2022 Summary Review
Effective July 1, 2022, the Low Power RF business unit was transferred from AMS (Analog sub-group) to MDG (Microcontrollers and Memories sub-group). Prior periods have been adjusted accordingly.
Net revenues totaled $4.32 billion, a year-over-year increase of 35.2%. On a year-over-year basis, the Company recorded higher net sales in all product groups and sub-groups. Year-over-year net sales to OEMs and Distribution increased 34.1% and 37.4%, respectively. On a sequential basis, net revenues increased 12.6%, 210 basis points better than the mid-point of the Company’s guidance. All product groups and sub-groups reported increases in net revenues on a sequential basis.
Gross profit totaled $2.06 billion, a year-over-year increase of 54.7%. Gross margin of 47.6%, 60 basis points above the mid-point of the Company’s guidance, increased 600 basis points year-over-year, principally due to favorable pricing and improved product mix, partially offset by the inflation of manufacturing input costs.
Operating income increased 110.1% to $1.27 billion, compared to $605 million in the year-ago quarter. The Company’s operating margin increased 1,050 basis points on a year-over-year basis to 29.4% of net revenues, compared to 18.9% in the 2021 third quarter.
By product group, compared with the year-ago quarter:
Automotive and Discrete Group (ADG):
· Revenue increased in both Automotive and in Power Discrete.
· Operating profit increased by 273.8% to $404.1 million. Operating margin was 25.9% compared to 10.8%.
Analog, MEMS and Sensors Group (AMS):
· Revenue increased in Analog, in MEMS and in Imaging.
· Operating profit increased by 23.1% to $375.7 million. Operating margin was 27.2% compared to 24.3%.
Microcontrollers and Digital ICs Group (MDG):
· Revenue increased in both Microcontrollers and in RF Communications.
· Operating profit increased by 130.3% to $503.8 million. Operating margin was 36.7% compared to 23.5%.
Net income increased to $1.10 billion and diluted earnings per share to $1.16 compared to $474 million and $0.51, respectively, in the year-ago quarter.
Cash Flow and Balance Sheet Highlights
| Trailing 12 Months | ||||||
| (US$ m) | Q3 2022 | Q2 2022 | Q3 2021 | Q3 2022 | Q3 2021 | TTM Change |
| Net cash from operating activities | 1,651 | 1,056 | 895 | 4,533 | 3,101 | 46.2% |
| Free cash flow (non-U.S. GAAP) | 676 | 230 | 420 | 1,302 | 1,318 | -1.2% |
Capital expenditure payments, net of proceeds from sales, were $955 million in the third quarter and $2.61 billion for the year-to-date period. In the year-ago quarter, capital expenditures, net, were $437 million.
Inventory at the end of the third quarter was $2.38 billion, compared to $1.97 billion in the year-ago quarter. Days sales of inventory at quarter-end and in the year-ago quarter were 96 days.
Free cash flow(non-U.S. GAAP) was $676 million in the third quarter, compared to $420 million in the year-ago quarter.
In the third quarter, the Company paid cash dividends to its stockholders totaling $55 million and executed a $86 million share buy-back as part of its current share repurchase program.
ST’s net financial position (non-U.S. GAAP) was $1.46 billion at October 1, 2022 compared to $924 million at July 2, 2022 and reflected total liquidity of $4.09 billion and total financial debt of $2.63 billion.
Business Outlook
The Company’s guidance, at the mid-point, for the 2022 fourth quarter is:
- Net revenues are expected to be $4.40 billion, an increase of 1.8% sequentially, plus or minus 350 basis points;
- Gross margin of 47.3%, plus or minus 200 basis points;
- This outlook is based on an assumed effective currency exchange rate of approximately $1.03 = €1.00 for the 2022 fourth quarter and includes the impact of existing hedging contracts; and
- The fourth quarter will close on December 31, 2022.
Conference Call and Webcast Information
STMicroelectronics will conduct a conference call with analysts, investors and reporters to discuss its third quarter 2022 financial results and current business outlook today at 9:30 a.m. Central European Time (CET) / 3:30 a.m. U.S. Eastern Time (ET). A live webcast (listen-only mode) of the conference call will be accessible at ST’s website, http://investors.st.com, and will be available for replay until November 11, 2022.
Use of Supplemental Non-U.S. GAAP Financial Information
This press release contains supplemental non-U.S. GAAP financial information.
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 from other companies. 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.
See the Appendix 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.
Forward-looking Information
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 anticipated by such statements, due to, among other factors:
- changes in global trade policies, including the adoption and expansion of tariffs and trade barriers, that could affect the macro-economic environment and adversely impact the demand for our products;
- uncertain macro-economic and industry trends (such as inflation and fluctuations in supply chains), which may impact production capacity and end-market demand for our products;
- customer demand that differs from projections;
- the ability to design, manufacture and sell innovative products in a rapidly changing technological environment;
- changes in economic, social, public health, labor, political, or infrastructure conditions in the locations where we, our customers, or our suppliers operate, including as a result of macroeconomic or regional events, military conflicts, (including the military conflict between Russia and the Ukraine), social unrest, labor actions, or terrorist activities;
- unanticipated events or circumstances, which may impact our ability to execute our plans and/or meet the objectives of our R&D and manufacturing programs, which benefit from public funding;
- legal, political and economic uncertainty surrounding Brexit may be a continued source of instability in international markets and currency exchange rate volatility and may adversely affect business activity, political stability and economic conditions and while we do not have material operations in the U.K. and have not experienced any material impact from Brexit on our underlying business to date, we cannot predict its future implications;
- financial difficulties with any of our major distributors or significant curtailment of purchases by key customers;
- the loading, product mix, and manufacturing performance of our production facilities and/or our required volume to fulfill capacity reserved with suppliers or third party manufacturing providers;
- availability and costs of equipment, raw materials, utilities, third-party manufacturing services and technology, or other supplies required by our operations (including increasing costs resulting from inflation);
- the functionalities and performance of our IT systems, which are subject to cybersecurity threats and which support our critical operational activities including manufacturing, finance and sales, and any breaches of our IT systems or those of our customers or suppliers;
- theft, loss, or misuse of personal data about our employees, customers, or other third parties, and breaches of global and local privacy legislation, including the EU’s General Data Protection Regulation (“GDPR”);
- the impact of intellectual property claims by our competitors or other third parties, and our ability to obtain required licenses on reasonable terms and conditions;
- changes in our overall tax position as a result of changes in tax rules, new or revised legislation, the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets;
- variations in the foreign exchange markets and, more particularly, the U.S. dollar exchange rate as compared to the Euro and the other major currencies we use for our operations;
- the outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;
- product liability or warranty claims, claims based on epidemic or delivery failure, or other claims relating to our products, or recalls by our customers for products containing our parts;
- natural events such as severe weather, earthquakes, tsunamis, volcano eruptions or other acts of nature, the effects of climate change, health risks and epidemics such as the COVID-19 pandemic in locations where we, our customers or our suppliers operate;
- increased regulation and initiatives in our industry, including those concerning climate change and sustainability
matters and our commitment to be carbon neutral by 2027;
- potential loss of key employees and potential inability to recruit and retain qualified employees as a result of the COVID-19 pandemic, remote-working arrangements and the corresponding limitation on social and professional interaction;
- the duration and the severity of the global outbreak of COVID-19 may continue to negatively impact the global economy in a significant manner for an extended period of time, and could also materially adversely affect our business and operating results;
- industry changes resulting from vertical and horizontal consolidation among our suppliers, competitors, and customers; and
- the ability to successfully ramp up new programs that could be impacted by factors beyond our control, including the availability of critical third party components and performance of subcontractors in line with our expectations.
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 risks 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, 2021 as filed with the SEC on February 24, 2022. 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 press 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.
Unfavorable changes in the above or other risks or uncertainties listed under “Item 3. Key Information — Risk Factors”
from time to time in our Securities and Exchange Commission filings, could have a material adverse effect on our business and/or financial condition.
