STMicroelectronics Reports 2016 Fourth Quarter and Full Year Financial Results

Full Year 2016 Review

Net revenues for the full year 2016 increased 1.1% to $6.97 billion from $6.90 billion in 2015. Net revenues, excluding businesses undergoing a phase-out (mobile legacy products, camera modules and set-top box), increased 2.4% with strong growth in specialized image sensors and solid growth in automotive and microcontrollers partially offset by market softness earlier in the year in both analog and power discrete sales for the computer peripheral market, and in MEMS sales for the smartphone market.

Full year 2016 gross margin improved 140 basis points to 35.2% from 33.8% in 2015 mainly benefiting from manufacturing efficiencies, favorable currency effects, net of hedging, lower unused capacity charges and improved product mix partially offset by normal price pressure.

Operating income increased substantially in 2016 to $214 million from $109 million in 2015. Similarly, operating income before impairment and restructuring charges⁽¹⁾ also increased sharply to $307 million, compared to $174 million in 2015 reflecting favorable currency effects, net of hedging, manufacturing efficiencies, improved product mix, and lower operating expenses partially offset mainly by price pressure and lower R&D grants. By product group, in 2016 both ADG and MDG operating performance improved in comparison to 2015 while AMG operating result decreased mainly due to lower sales.

Combined R&D and SG&A expenses decreased 3.2% to $2.25 billion compared to $2.32 billion in 2015 mainly reflecting lower R&D costs due to favorable currency effects, net of hedging, the benefits of the set-top box restructuring plan, and the savings plan completed in 2015.

Other income and expenses, net, registered income of $99 million compared to $164 million in 2015 mainly due to a lower level of R&D grants.

Impairment and restructuring charges were $93 million in 2016 compared to $65 million in 2015 and principally related to the set-top box restructuring plan.

Full Year 2016 net income increased 58% to $165 million, equivalent to $0.19 per share, compared to net income of $104 million, or $0.12 per share for the full year 2015.

Cash Flow and Balance Sheet Highlights

Net cash from operating activities was $378 million and $1.04 billion for the fourth quarter and full year 2016, respectively. Full Year 2015 net cash from operating activities was $842 million.

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

Capital expenditure payments, net of proceeds from sales, were $228 million and $607 million during the fourth quarter and full year of 2016, respectively. Full year 2015 capital expenditures were $467 million. Combined capital expenditures for the years 2015-2016 were 7.7% as a percentage of combined net revenues.

Free cash flow⁽¹⁾ was $135 million and $312 million (or $390 million before the NFC and RFID reader assets acquisition of $78 million) during the fourth quarter and full year of 2016, respectively. Full year 2015 free cash flow was $327 million.

Inventory was $1.17 billion at quarter end, down 5.3% from the prior quarter. Inventory in the fourth quarter of 2016 was at 4.0 turns or 90 days compared to 3.7 turns or 97 days in the third quarter.

The Company paid cash dividends to shareholders of $53 million and $251 million for the fourth quarter and full year 2016, respectively.

ST’s total financial resources equaled $1.96 billion and total financial debt was $1.45 billion at December 31, 2016. ST’s net financial position⁽¹⁾ was $513 million at December 31, 2016 compared to $464 million at October 1, 2016.

Total equity, including non-controlling interest, was $4.60 billion at December 31, 2016.

First Quarter 2017 Business Outlook

Mr. Bozotti commented, “Based on market forecasts, a positive booking trend, and a strong point-of-sales performance at our distributors, we see the momentum of the second half of 2016 to continue entering 2017.

“Based on these factors, we expect our first quarter to reflect better than normal seasonality, with a sequential net revenues decline of about 2.4% at the midpoint. On a year-over year basis, this would translate into a net revenues growth of about 12.5% at the mid-point. We expect a gross margin of about 37.0% at the midpoint.

“In order to support ST’s innovative product portfolio and to fuel significant revenue growth in 2017 and beyond, particularly from new specialized technologies and products, we expect to invest approximately $1 billion to $1.1 billion in 2017. Specifically, the Company is investing in 300mm front-end manufacturing and in back-end assembly and test to support new products. In particular, we anticipate a newly won program to ramp with substantial revenues in the second half of 2017.”

The Company expects first quarter 2017 revenues to decrease about 2.4% on a sequential basis, plus or minus 3.5 percentage points. Gross margin in the first quarter is expected to be about 37.0% plus or minus 2.0 percentage points.

This outlook is based on an assumed effective currency exchange rate of approximately $1.08 = €1.00 for the 2017 first quarter and includes the impact of existing hedging contracts. The first quarter will close on April 1, 2017.

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

Q4 2016 – Product and Technology Highlights

Automotive and Discrete Group (ADG)

• Earned a design win for a surround-view ADAS system-on-chip with a top Japanese Tier1;
• Landed an important win in vehicle-to-vehicle (V2V) communication from a global car maker;
• Recorded numerous design wins for automotive-grade rectifiers and protection devices to be used in powertrain, on-board charging, safety, and high-speed data-line networks;
• Captured wins for several 32-bit Power Architecture-based microcontrollers for a premium electric vehicle;
• Awarded a win for a valve driver for transmission applications from a European market leader;
• Continued good expansion of voltage-regulator business with a win in an alternator from an important Japanese customer and for a voltage regulator and power driver for engine management from a Korean customer;
• Maintained growth in the 7^th-generation VIPower family of high-side switches for body-control-module applications at major European Tier1s;
• Earned major awards for low-voltage advanced trench MOSFETs from several European Tier1s;
• Started production of Accordo2 for Bluetooth radios being manufactured by several major Tier1s to be used in entry-level cars by multiple OEMs;
• Announced next-generation Accordo processor for in-vehicle infotainment applications covering applications such as head units, audio/video navigation, and digital cluster with smartphone-mirroring functionality;
• Signed a strategic partnership with Valens around innovative high-speed in-car connectivity for infotainment, road safety, and automotive-control content;
• Signed an important strategic agreement with a major global premium-audio maker;
• Won a socket for intelligent power modules in a white-goods application;
• Expanded penetration of very high voltage MDMesh MOSFETs in chargers for mobile applications and adapters for home appliances;
• Registered important design wins for RF tunable capacitors from multiple Chinese smartphone markets leaders;
• Collected wins in the air-conditioning market for ultrafast power diodes.

Analog and MEMS Group (AMG)

In MEMS and Sensors:

• Gained market share with our ultra-low-power 6-axis inertial measurement unit, gyroscope for optical image stabilization, and pressure sensors in Smartphones and Wearables worldwide;
• Continued to grow in automotive and industrial MEMS Market with strong demand for multi-axis gyroscope for car navigation systems;
• Introduced SensorTile, a miniaturized wireless multisensor module that eases and accelerates new IoT-application development;
• Strengthened our position for new Android-Nougat-based products by earning Google DayDream and Tango certification for our latest-generation 6-axis inertial measurement unit;
• Agreed with Microvision to co-market MEMS mirror-based laser beam scanning solution for Internet of Things and automotive applications.

In Analog:

• Captured design wins with both SPIRIT1 subGHz and Bluetooth Low Energy wireless solutions for Smart Home and Smart Things applications, including infrared sensors, heater allocators, and presence sensors from manufacturers in Europe;
• Ramped quickly Power Line Modems for the energy meter of a major European utility;
• Benefited from strong customer engagement to gain share in HDD market with power solutions;
• Revealed a cooperative effort with WiTricity to develop innovative IC solutions for resonant wireless power transfer;
• Announced an economical, low-power high-reliable disposable wearable wireless biosensor platform we developed with HMicro;
• Received Sigfox certification of a new low-power long-range radio chip in the SPIRIT1 family that extends the reach of the IoT;
• Earned several design wins with fast battery chargers from Asian smartphone manufacturers.

Microcontrollers and Digital ICs Group (MDG)

• Unveiled the STM32H7 series of microcontrollers delivering record performance and advanced secure services for the IoT;
• Introduced new STM32F7 lines and a new Discovery Kit, based on the STM32F769;
• Extended the STM32F4 Access Lines targeting always-on sensor acquisition and general-purpose industrial applications with highly featured STM32F413 and STM32F423;
• Began delivering STM32L0 to USI for their low-cost stand-alone LPWAN module supporting LoRaWAN;
• Ramped production of the ST33G1M2 secure MCU for a leading smartphone manufacturer;
• Expanded the STSAFE secure element family with latest Trusted Platform Modules (TPMs);
• Received certification for the ST33J2M0 secure MCU from the CFA (China Financial Authentication) for mobile payments in China;
• Won sockets for ST25 dynamic NFC tag in a Home Gateway and Wi-Fi Router at a major consumer OEM;
• Started production ramp of a WLCSP EEPROM for a major Japanese smartphone camera module OEM;
• Achieved record quarterly volume shipment of memory ICs;
• Won multiple new designs in 55nm BiCMOS process technology at a leading optical module manufacturer for next-generation 400G on-board transceivers;
• Landed first design win in 7nm FinFET technology from a leading long-haul optical-cable supplier;
• Released 28-FD-SOI ASIC to production for a key customer.