STMicroelectronics Reports 2021 Third Quarter Financial Results

STMicroelectronics, a global semiconductor leader serving customers across the spectrum of electronics applications, reported U.S. GAAP financial results for the third quarter ended October 2, 2021. This press release also contains non-U.S. GAAP measures (see Appendix for additional information).

ST reported third-quarter net revenues of $3.20 billion, gross margin of 41.6%, operating margin of 18.9%, and net income of $474 million or $0.51 diluted earnings per share.

Jean-Marc Chery, STMicroelectronics President & CEO, commented:

• “Q3 net revenues came in substantially at the mid-point of our business outlook range, up 6.9% sequentially and up 19.9% on a year-over-year basis. The revenue performance was driven by strong global demand and by our engaged customer programs in Personal Electronics. This was partially offset by lower than expected revenues in Automotive, caused by more severe than anticipated reduced operations at our Malaysian manufacturing facility due to the pandemic.
• “Q3 gross margin of 41.6% came in 60 basis points higher than the mid-point. On a year-over-year basis, Q3 operating margin of 18.9% improved from 12.3%, and net income nearly doubled to $474 million.

• “First nine months net revenues increased 31.8% year-over-year, driven by growth in all product groups, except the RF Communications sub-group. The operating margin was 16.7% and net income was $1.25 billion.
• “ST’s fourth-quarter outlook, at the mid-point, is for net revenues of $3.40 billion, increasing sequentially by 6.3%; gross margin is expected to be about 43.0%.
• “For the full year 2021, we now expect net revenues at the mid-point to be about $12.6 billion, translating into 23.3% year-over-year growth. The revenue growth planned for this year reflects continuing strong dynamics in all the end markets we address and our engaged customer programs.”

Quarterly Financial Summary (U.S. GAAP)

Third Quarter 2021 Summary Review

Net revenues totalled $3.20 billion, a year-over-year increase of 19.9%. On a year-over-year basis, the Company recorded higher net sales in all product groups except the RF Communications sub-group. Year-over-year net sales to OEMs and Distribution increased 9.9% and 48.6%, respectively. On a sequential basis, net revenues increased 6.9%, substantially in line with the mid-point of the Company’s guidance. AMS and MDG reported increases in net revenues on a sequential basis while ADG decreased, caused by more severe than anticipated reduced operations at our Malaysian manufacturing facility due to the pandemic.

Gross profit totalled $1.33 billion, a year-over-year increase of 38.7%. Gross margin of 41.6% increased 560 basis points year-over-year, mainly driven by improved product mix, manufacturing efficiencies, favorable pricing and lower unloading charges, partially offset by negative currency effects, net of hedging. The third-quarter gross margin was 60 basis points above the mid-point of the Company’s guidance mainly due to product mix.

Operating income increased 84.0% to $605 million, compared to $329 million in the year-ago quarter. The Company’s operating margin increased 660 basis points on a year-over-year basis to 18.9% of net revenues, compared to 12.3% in the 2020 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 120.6% to $108 million. The operating margin was 10.8% compared to 5.8%.

Analog, MEMS and Sensors Group (AMS):

• Revenue increased in Analog, MEMS and Imaging.
• Operating profit increased by 73.8% to $304 million. The operating margin was 24.0% compared to 17.5%.

Microcontrollers and Digital ICs Group (MDG):

• Revenue increased in Microcontrollers and decreased in RF Communications.
• Operating profit increased by 54.9% to $220 million. The operating margin was 23.9% compared to 17.4%.

Net income and diluted earnings per share increased to $474 million and $0.51, respectively, compared to $242 million and $0.26, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights

Capital expenditure payments, net of proceeds from sales, were $437 million in the third quarter and $1.28 billion for the year-to-date period. In the year-ago quarter, capital expenditures, net, were $319 million.

Inventory at the end of the third quarter was $1.97 billion, compared to $1.93 billion in the year-ago quarter. Day sales of inventory at quarter-end was 96 days compared to 103 days in the year-ago quarter.

ST exercised the call option for the early redemption of its 2024 Tranche B of the convertible bond issued in 2017. As a consequence, bondholders exercised their conversion rights on the total of $750 million principal amount of the Tranche B convertible bond. In the third quarter, ST fully settled the Tranche B convertible bond, delivering about 5.8 million treasury shares and paying $1.26 billion in cash, which includes the $750 million principal amount.

Free cash flow (non-U.S. GAAP) was $420 million in the third quarter, up from negative $25 million in the year-ago quarter.

In the third quarter, the Company paid cash dividends to its shareholders totaling $55 million and executed an $87 million share buy-back as part of its share repurchase program launched on July 1, 2021.

ST’s net financial position (non-U.S. GAAP) was $798 million at October 2, 2021 compared to $1.08 billion on July 3, 2021, and reflected total liquidity of $3.46 billion and total financial debt of $2.66 billion.

Business Outlook

The Company’s guidance, at the mid-point, for the 2021 fourth quarter is:

• Net revenues are expected to be $3.40 billion, an increase of 6.3% sequentially, plus or minus 350 basis points;
• Gross margin of about 43.0%, plus or minus 200 basis points;
• This outlook is based on an assumed effective currency exchange rate of approximately $1.18 = €1.00 for the 2021 fourth quarter and includes the impact of existing hedging contracts.
• The fourth quarter will close on December 31, 2021.

Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and reporters to discuss its third quarter 2021 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 12, 2021.

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, which may impact 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, 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 fulfil 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;
• 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 (“IP”) 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 in locations where we, our customers or our suppliers operate;
• 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 also could 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 risk factors 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, 2020, as filed with the SEC on February 24, 2021. 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 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.

For more information, visit www.st.com