STMicro Results up 3.2% in Q2 down 5.6% Year-to-Year

STMicroelectronics (ST) reported financial results for the second quarter and first half ended June 27, 2015.Second quarter net revenues totaled $1.76 billion, gross margin was 33.8% and net income was $35 million. ST's second quarter net revenues increased 3.2% on a sequential basis to $1.76 billion. Most of the product groups posted sequential growth with Analog and MEMS (AMS) increasing 7.0%, Industrial and Power Discrete (IPD) up by 4.2%, Microcontroller, Memory and Secure MCU (MMS) up by 3.8% and Automotive (APG) up by 1.0%. Digital Product Group (DPG) net revenues were flat sequentially. All regions grew sequentially led by Japan & Korea up 7.5% and Americas up by 4.6%, followed by EMEA and Greater China & South Asia up 2.9% and 1.6%, respectively.

On a year-over-year basis, net revenues decreased 5.6% with most groups contributing to the decrease. Net revenues, excluding negative currency effects and mobile legacy products, decreased 1.1% year-over-year with growth in AMS and MMS, and APG substantially flat.

Second quarter gross profit was $595 million and gross margin was 33.8%, at the midpoint of ST’s outlook range. Gross margin improved 60 basis points sequentially, mostly reflecting favorable currency effects, net of hedging, product mix and lower unused capacity charges. On a year-over-year basis, gross margin decreased by 20 basis points mainly due to price pressure and the catch-up from previous periods of the industrialization funding in the year-ago quarter of approximately 90 basis points, partially offset by favorable currency effects, net of hedging, and manufacturing efficiencies.

“Our second quarter performance was substantially in line with our expectations in terms of revenues, gross margin, operating margin and free cash flow generation,” commented Carlo Bozotti, President and CEO of STMicroelectronics.

“More specifically, our microcontroller business enjoyed further expansion of the STM32 ultra-low-power families into Internet of Things, mobile and industrial applications; our Analog, MEMS and Sensors business benefited from our diversified offering, including microphones and touchscreen controllers, into large customers; sales in Industrial, Power and Discrete were fueled by discrete and power transistor products for mobile and industrial markets, and our Automotive business enjoyed good traction in advanced safety systems with premium car makers as well as in 32-bit microcontrollers. Our Digital Products revenues were stable on a sequential basis with growth in ASICs.”

Combined R&D and SG&A expenses totaled $599 million compared to $591 million in the first quarter and $626 million in the year-ago quarter. On a sequential basis, combined R&D and SG&A expenses increased 1.4% mainly due to a higher number of days in the second quarter and one-time R&D expenses partially offset by favorable currency effects, net of hedging, and the initial savings from the EPS restructuring plan.

Second quarter other income and expenses, net, registered income of $37 million mainly due to R&D funding, compared to $35 million in the first quarter and $110 million in the year-ago quarter including $100 million related to the catch-up funding following the European Union approval of the Nano2017 R&D program at that time.

Impairment, restructuring and other related closure costs for the second quarter were $21 million, compared to $29 million in the first quarter and were principally related to the EPS cost savings program, announced in October 2014, which the Company will complete in July 2015. In the year-ago period, impairment, restructuring and other related closure costs were $20 million.

Operating margin before impairment and restructuring was a positive 1.9% in the 2015 second quarter compared to a positive 0.6% in the prior quarter.

Income tax benefit includes a one-time income of $32 million associated with the remeasurement of a local tax provision. Reflecting this benefit, second quarter net income was $35 million, or $0.04 per share compared to a net loss of $22 million, or $(0.03) per share in the prior quarter and net income of $38 million, or $0.04 per share in the year-ago quarter. On an adjusted basis, ST reported non-U.S. GAAP net income per share of $0.06 in the second quarter, excluding impairment and restructuring charges, compared to net income of $0.01 and $0.11 per share in the prior and year-ago quarter, respectively.

For the second quarter of 2015, the effective average exchange rate for the Company was approximately $1.17 to €1.00 compared to $1.23 to €1.00 for the first quarter of 2015 and $1.36 to €1.00 for the second quarter of 2014.