Sales and Margins down at STMicroelectronics

April 30, 2015 by Jeff Shepard

STMicroelectronics NV reported financial results for the first quarter ended March 28, 2015, including net revenues of $1.71 billion, gross margin was 33.2%, and net loss was $0.03 per share. First quarter revenues were slightly better than ST's usual seasonality decreasing 6.8% on a sequential basis, although reflecting the impact of the U.S. dollar strengthening on about 15% of revenues that are Euro-denominated and lower sales of components for PC applications than anticipated. On a year-over-year basis by region of shipment, Greater China and South Asia, EMEA and the Americas decreased by 3.7%, 3.8%, and 3.9%, respectively. Japan and Korea revenues were lower by 22.2% mainly driven by the decline of legacy ST-Ericsson products.

First quarter gross profit was $566 million and gross margin was 33.2%. Gross margin improved 40 basis points year-over-year, benefiting from manufacturing efficiencies and favorable currency effects, net of hedging, partially offset by price pressure and by about 80 basis points of unused capacity charges mainly related to manufacturing capacity in digital technology. Gross margin decreased 60 basis points sequentially due to price pressure partially offset by favorable currency effects, net of hedging. In the first quarter of 2015, unused capacity charges, largely related to digital technology, had a negative impact on the gross margin of about 110 basis points.

First quarter operating income before impairment and restructuring charges was $10 million compared to income of $8 million in the year-ago quarter. First quarter net loss was $22 million or $(0.03) per share, compared to a net loss per share of $(0.03) in the year-ago quarter and a net income of $0.05 in the prior quarter. On an adjusted basis, ST’s non-U.S. GAAP net income per share was $0.01 in the first quarter compared to a net loss per share of $(0.01) in the year-ago quarter and a net income of $0.07 in the prior quarter.

“As expected, the start of the year reflected seasonal softness. Additionally, revenues in the first quarter were affected by the anticipated currency impact on the portion of our euro-denominated revenues, and by lower sales of components for PC applications, both particularly affecting our SP&A segment revenue performance,” commented ST President and CEO Carlo Bozotti.

“Although revenues came in lower than the midpoint of our first quarter outlook, gross margin was well aligned with our guidance and, despite seasonal factors, ST generated positive free cash flow.

“During the quarter, we saw ST products enabling more and more of the Internet of Things as well as some of the latest flagship mobile and wearable devices: our AMOLED drivers, touchscreen controllers, pressure sensors, 6-axis motion MEMS, high-performance microphones and STM32 microcontrollers ramped production or were designed-in with global brands in exciting, new devices. The many new industry-leading products we introduced during 2014 are steadily increasing our footprint with customers and starting to bring results,” Bozotti concluded

Sense & Power and Automotive Products first quarter net revenues decreased 6.0% compared to the year-ago quarter mainly due to lower AMS sales. SP&A revenues decreased 3.9% sequentially, mainly due to lower IPD sales related to power supply components for PC applications. SP&A operating margin, including unused capacity charges, decreased to 6.4% in the 2015 first quarter compared to 8.5% and 8.4% in the year-ago and prior quarter, respectively, mainly due to lower revenues.

Embedded Processing Solutions first quarter net revenues reflected mixed results, with strong year-over-year growth for MMS of 8.0% more than offset by the decrease of ST-Ericsson legacy products and lower DPG revenues. EPS revenues decreased 7.4% and 12.0% on a year-over-year and sequential basis, respectively, mainly due to lower DPG sales. First quarter EPS operating margin, including unused capacity charges, was negative 11.1%. Despite lower sales and higher unused capacity charges, EPS operating margin improved from negative 13.1% in the year-ago quarter mainly due to lower operating expenses from favorable currency effects and higher R&D funding. First quarter operating margin decreased from negative 5.1% in the prior quarter mainly due to lower sales partially offset by lower unused capacity charges.

“Our cost savings program within the EPS organization remains on track and, as anticipated, we will end our participation in the IBM Technology Development Alliance at the end of the second quarter,” said Jean-Marc Chery, ST Chief Operating Officer.