ST 2020 first quarter financial report, net profit of US$192 million

STMicroelectronics, a global semiconductor leader serving customers across the spectrum of electronics applications, announces financial results for the first quarter ended March 28, 2020, prepared in accordance with US GAAP. This press release also includes non-GAAP financial measures.

STMicroelectronics announced first-quarter net revenue of $2.23 billion, a gross margin of 37.9%, an operating margin of 10.4%, a net profit of $192 million, and diluted earnings per share of $0.21.

Commenting on the first quarter results, Jean-Marc Chery, President and CEO of STMicroelectronics, said:

 “Net revenue for the first quarter of 2020 increased 7.5% year-over-year, led by sales of imaging products, followed by analog devices and microcontrollers, while sales of automotive, power discrete devices and digital products declined. Operating profit margin increased to 10.4%, and net income increased 7.9% to $192 million.

“Revenue in the first quarter was approximately 5% lower than the midpoint of our forecast at the beginning of the quarter. The global outbreak of the COVID-19 epidemic and the subsequent prevention and control measures taken by governments around the world have brought challenges to our manufacturing operations and logistics, especially the impact on logistics in the last few days of this quarter. The gross profit margin in the first quarter was 37.9%, which was basically in line with our expected midpoint target.

 “Net financial position was solid in the first quarter, totaling $668 million, with $2.7 billion of available liquidity and $1.1 billion of available credit facilities.

 "For the second quarter business outlook, considering the market environment of declining demand, especially in the automotive market, and the challenges posed by government control measures to production operations and logistics, we expect all ST factories to operate normally, some of which will reduce production capacity, and the current idle capacity expenditure is estimated to be about 400 basis points.

"We strive to ensure that the full-year revenue for 2020 is between $8.8 billion and $9.5 billion, and plan to increase revenue by $340 million to $1.04 billion in the second half of the year compared to the first half of the year. The growth momentum will come from the customer programs that have been launched and the removal of supply restrictions. The specific growth rate depends on market developments.

"We have reduced our 2020 capital expenditure plan from $1.5 billion to a range of $1 billion to $1.2 billion.

"In response to the current global spread of the new coronavirus pneumonia epidemic, we will continue to work hard to ensure the health and safety of all employees, implement our business continuity plan, and firmly cooperate with customers, partners and local communities in epidemic prevention and control."

Quarterly Financial Summary (U.S. GAAP)

Please refer to Appendix A for the conversion of non-GAAP measures to GAAP and the reasons why the Company considers these measures to be material.

Summary and review of the first quarter of 2020

Net revenue totaled $2.23 billion, up 7.5% year-over-year. Compared to the same period last year, some sales growth in imaging chips, analog devices, and microcontrollers offset the decline in revenue from automotive chips, power discrete devices, and digital chips. Compared to the same period last year, OEM sales revenue increased by 22.5%, while agency channel sales revenue decreased by 21.4%. Net revenue decreased by 19.0% month-on-month, about 5% lower than the median forecast at the beginning of the quarter, because the global spread of the new coronavirus pneumonia epidemic and the subsequent prevention and control measures taken by governments around the world have brought challenges to our manufacturing operations and logistics, especially in the last few days of this quarter. The logistics brought great challenges. Revenues of all product departments decreased month-on-month.

Gross profit totaled $846 million, up 3.5% year-over-year. Gross margin was 37.9%, down 150 basis points year-over-year, driven by pricing pressures and idle capacity spending, including labor control measures related to the COVID-19 pandemic. First quarter gross margin was 10 basis points below the midpoint of the company's forecast.

Operating profit totaled $231 million, up 9.4% from $211 million in the same period last year. Operating margin decreased 20 basis points year-over-year to 10.4% of net revenue, compared to 10.2% in the first quarter of 2019.

Year-on-year financial data of each product department:

Automotive and Discrete Products Group (ADG)

Lower revenue from automotive and power discrete product sales

Operating profit was US$23 million, down 76.4% year-on-year. Operating profit margin was 3.0%, compared with 10.6% in the same period last year.

Analog, MEMS and Sensors (AMS)

Imaging and simulation revenue increased, while MEMS revenue remained roughly flat

Operating profit was $177 million, up 313.1%. Operating profit margin was 20.8%, compared to 7.8% in the same period last year.

Microcontroller and Digital IC Group (MDG)

Microcontroller revenues grow, digital IC revenues decline

Operating profit was US$71 million, down 13.5% year-on-year. Operating profit margin was 11.5%, compared with 13.4% in the same period last year.

Net income and diluted earnings per share were $192 million and $0.21, respectively, compared with $178 million and $0.20, respectively, in the same period last year.

Cash Flow and Balance Sheet Summary

Capital expenditures (net of proceeds from asset sales) were $266 million in the first quarter. In the same period last year, net capital expenditures were $322 million.

Inventory at the end of the quarter was $1.77 billion, flat year-over-year. Days of inventory turnover at the end of the quarter was 116 days, down from 124 days in the same period last year.

Free cash flow (non-GAAP) was $113 million in the first quarter, compared with negative $67 million in the same period last year.

Cash dividend payments totaled $53 million during the first quarter, and the company completed $62 million of stock repurchases during the quarter as part of its previously announced stock repurchase program.

As of March 28, 2020, STMicroelectronics' net financial position (non-U.S. GAAP) was US$668 million; the net financial position was US$672 million as of December 31, 2019; at the end of the first quarter, total current assets were US$2.71 billion and total liabilities were US$2.04 billion.

Business Outlook

The company's business forecast for the second quarter of 2020 (median):

Net revenue is expected to be $2 billion, down approximately 10.3% from the previous quarter, plus or minus 350 basis points;

The gross profit margin is approximately 34.6%, with a fluctuation of 200 basis points;

This previous forecast assumes a U.S. dollar to euro exchange rate of approximately $1.11 = €1.00 in the second quarter of 2020, including the impact of current hedging contracts;

The second quarter settlement date is June 27, 2020.

The company has lowered its 2020 capital expenditures to a range of $1 billion to $1.2 billion from $1.5 billion.