STMicroelectronics Reports Q4 and FY 2020 Financial Results

STMicroelectronics reported U.S. GAAP financial results for the fourth quarter ended December 31, 2020. This press release also contains non-U.S. GAAP measures.

ST reported fourth-quarter net revenues of $3.24 billion, gross margin of 38.8%, operating margin of 20.3%, and net income of $582 million or $0.63 diluted earnings per share.

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

“As we announced on January 8, 2021, our Q420 net revenues increased 21.3% sequentially, 580 basis points above the high end of our outlook range. Our engaged customer programs in Personal Electronics, as well as continuous acceleration in demand, especially of Automotive products and Microcontrollers, were the main factors that contributed to this result. Fourth quarter gross margin was 30 basis points above the mid-point of our outlook range. On a sequential basis, our operating margin was up 800 basis points to 20.3% and free cash flow increased to $512 million.

“Based upon a stronger than expected second half of 2020, full year revenues increased 6.9% to $10.22 billion, with an operating margin of 12.9%.

“ST’s first quarter outlook, at the mid-point, is for net revenues of $2.93 billion, increasing year-over-year by 31.2% and decreasing sequentially by 9.5%; gross margin is expected to be about 38.5%.

“For 2021, we plan to invest about $1.8 billion to $2.0 billion in CAPEX to support the strong market demand and our strategic initiatives.”

Quarterly Financial Summary (U.S. GAAP)

Annual Financial Summary (U.S. GAAP)

Fourth Quarter 2020 Summary Review

Net revenues totaled $3.24 billion, representing a year-over-year increase of 17.5%. On a year-over-year basis, the Company recorded higher net sales in all product groups except the RF Communications (former “Digital”) sub-group. Year-over-year net sales to OEMs and Distribution increased 19.8% and 11.4%, respectively. On a sequential basis, net revenues increased 21.3%, 580 basis points above the high end of the Company’s guidance. All product groups except the RF Communications sub-group reported increases in net revenues on a sequential basis.

Gross profit totaled $1.25 billion, representing a year-over-year increase of 16.0%. Gross margin of 38.8% decreased 50 basis points year-over-year, mainly due to usual price pressure and negative currency effects, net of hedging, partially offset by improved mix and lower unloading charges. Fourth quarter gross margin was 30 basis points above the mid-point of the Company’s guidance.

Operating income increased 42.7% to $657 million, compared to $460 million in the year-ago quarter. The Company’s operating margin increased 360 basis points on a year-over-year basis to 20.3% of net revenues, compared to 16.7% in the 2019 fourth quarter. Fourth quarter other income and expenses, net, was $131 million compared to $54 million to the year-ago quarter mainly due to a non-recurrent favorable impact mainly associated with the Important Projects of Common European Interest (IPCEI) R&D grants catch-up.

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 decreased by 16.4% to $94 million. Operating margin was 9.9% compared to 12.2%.

Analog, MEMS and Sensors Group (AMS):

• Revenue increased in Imaging, Analog and MEMS.
• Operating profit increased by 42.9% to $402 million. The operating margin was 28.3% compared to 25.9%.

Microcontrollers and Digital ICs Group (MDG):

• Revenue increased in Microcontrollers and decreased in RF Communications.
• Operating profit increased by 46.4% to $174 million. The operating margin was 20.3% compared to 16.0%.

Unused capacity charges are included under the group “Others”.

Net income and diluted earnings per share increased to $582 million and $0.63, respectively, compared to $392 million and $0.43, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights

Capital expenditure payments, net of proceeds from sales, were $381 million in the fourth quarter and $1.28 billion for the full year 2020. In the year-ago quarter, capital expenditures, net, was $236 million.

Inventory at the end of the fourth quarter was $1.84 billion, up from $1.69 billion in the year-ago quarter. Day sales of inventory at quarter-end was 84 days compared to 90 days in the year-ago quarter.

Free cash flow (non-U.S. GAAP) was $512 million in the fourth quarter, compared to $461 million in the year-ago quarter.

In the fourth quarter, the Company paid cash dividends to its stockholders totaling $40 million.

ST’s net financial position (non-U.S. GAAP) was $1.1 billion at December 31, 2020 compared to $662 million at September 26, 2020 and reflected total liquidity of $3.72 billion and total financial debt of $2.62 billion.

Business Outlook

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

• Net revenues are expected to be $2.93 billion, a decrease of 9.5% sequentially, plus or minus 350 basis points;
• Gross margin of about 38.5%, plus or minus 200 basis points;
• This outlook is based on an assumed effective currency exchange rate of approximately $1.20 = €1.00 for the 2021 first quarter and includes the impact of existing hedging contracts.
• The first quarter will close on April 3, 2021.

Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and reporters to discuss its fourth quarter 2020 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 February 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 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;
• 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, 2019, as filed with the SEC on February 26, 2020. 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