STMicroelectronics reported financial results for the third quarter and nine months ended October 1, 2016. Third quarter net revenues totaled $1.80 billion, gross margin was 35.8%, and net earnings were $71 million or $0.08 per share.
“In the third quarter revenues increased 5.5% sequentially and 1.9% year-over year. Revenue growth also brought improved operating profitability, with a third quarter operating margin before impairment and restructuring of 6.6%,†commented Carlo Bozotti, STMicroelectronics President and Chief Executive Officer.
“Sequential growth was driven by the increasing pervasiveness of ST’s products in flagship smartphones, wearables and Internet of Things applications: from MEMS and sensors, including our latest 6-axis gyroscope, to imaging sensors, with new products based on our Time-of-Flight technology, to our expanding STM32 family of microcontrollers. In addition, we grew year-over-year in automotive and we continued to see positive momentum in industrial, the distribution channel and the mass market.
“In the quarter we completed the acquisition of NFC and RFID reader assets, strengthening our portfolio of secure microcontrollers for next-generation mobile and Internet of Things devices, while also improving our cash balance thanks to increased cash flow generated from operations.â€
Third quarter net revenues increased 5.5% sequentially, at the midpoint of the Company’s guidance. Analog and MEMS Group (AMG) revenues increased sequentially 7.1% driven by motion MEMS and microphones. Microcontrollers and Digital ICs Group (MDG) increased 5.5% on a sequential basis driven by general purpose microcontrollers and digital ASICs for networking. Automotive and Discrete Group (ADG) revenues decreased 2.3% on a sequential basis due to seasonality in automotive products and substantially flat revenues in power discretes. Specialized image sensors, reported in Others, registered a very strong sequential revenue growth due to new products, based on ST’s Time-of-Flight technology, ramping in wireless applications.
On a year-over-year basis, third quarter net revenues increased 1.9%, or 3.4% excluding businesses undergoing a phase-out (mobile legacy products, camera modules and set-top box). Growth was driven by MEMS and sensors, microcontrollers, automotive, specialized image sensors and digital ASICs partially offset by analog and power discretes - both negatively impacted by the weak computer peripheral market - and by the discontinued product lines.
Third quarter net revenues increased 5.5% sequentially, at the midpoint of the Company’s guidance. Analog and MEMS Group (AMG) revenues increased sequentially 7.1% driven by motion MEMS and microphones. Microcontrollers and Digital ICs Group (MDG) increased 5.5% on a sequential basis driven by general purpose microcontrollers and digital ASICs for networking. Automotive and Discrete Group (ADG) revenues decreased 2.3% on a sequential basis due to seasonality in automotive products and substantially flat revenues in power discretes. Specialized image sensors, reported in Others, registered a very strong sequential revenue growth due to new products, based on ST’s Time-of-Flight technology, ramping in wireless applications.
On a year-over-year basis, third quarter net revenues increased 1.9%, or 3.4% excluding businesses undergoing a phase-out (mobile legacy products, camera modules and set-top box). Growth was driven by MEMS and sensors, microcontrollers, automotive, specialized image sensors and digital ASICs partially offset by analog and power discretes - both negatively impacted by the weak computer peripheral market - and by the discontinued product lines.
By region, Asia Pacific grew revenues sequentially 12.7% while the Americas and EMEA were lower by 0.1% and 5.4%, respectively. On a year-over-year basis, Asia Pacific and EMEA grew revenues 5.6% and 1.4%, respectively, while the Americas decreased by 10.2%.
Third quarter gross profit was $643 million. Gross margin was 35.8%, and included about 60 basis points of unused capacity charges. On a sequential basis, gross margin increased 190 basis points due to improved manufacturing efficiency and product mix, partially offset principally by normal price pressure and higher unused capacity charges. Gross margin also improved on a year-over-year basis, increasing 100 basis points on improved manufacturing efficiency and favorable currency effects, net of hedging, partially offset by normal price pressure.
Combined R&D and SG&A expenses were $542 million, decreasing by $23 million on a sequential basis, benefiting from favorable seasonality and the set-top box restructuring plan.
Third quarter other income and expenses, net, registered income of $18 million compared to $28 million in the prior quarter mainly due to lower R&D funding.
Impairment and restructuring charges in the third quarter were $29 million compared to $12 million in the prior quarter, both mostly related to the set-top box restructuring plan announced in January 2016.
Third quarter operating income was $90 million compared to $28 million and $91 million in the prior quarter and year-ago quarter. In the third quarter, the Imaging Product Division turned to profit. In addition, the Company continued to make progress on its restructuring of the set-top box business targeting annualized savings of $170 million upon completion. Operating income before impairment and restructuring charges improved sequentially to $119 million, or 6.6% of revenues, from $40 million, mainly due to higher revenues and higher gross profit as well as lower operating expenses. On a year-over-year basis, operating income before impairment and restructuring charges improved by $17 million reflecting improved manufacturing efficiencies, better product mix, lower operating expenses and favorable currency effects, net of hedging, partially offset mainly by a lower level of R&D grants.
Third quarter net income was $71 million, equivalent to $0.08 per share, compared to net income of $23 million in the prior quarter and net income of $90 million in the year-ago quarter which included an income tax benefit of $14 million related to the settlement of a tax assessment.
In total, net revenues in the nine months 2016 decreased 2.2% to $5.11 billion from $5.23 billion in the year-ago period. Net revenues, excluding businesses undergoing a phase-out, decreased 0.9% with strong growth in specialized image sensors and solid growth in microcontrollers and automotive offset by analog and power discrete, due to weakness in the computer peripheral markets, and MEMS, due to weakness in smartphones earlier in the year.
Gross margin in the nine months 2016 improved to 34.4% from 33.9% in the year-ago period mainly benefiting from manufacturing efficiencies and favorable currency effects, net of hedging, partially offset by price pressure.
Nine Month 2016 operating income was $85 million compared to $84 million in the year-ago period. Operating income before impairment and restructuring charges was $154 million, compared to $145 million in the year-ago period reflecting improved manufacturing efficiencies, better product mix, favorable currency effects, net of hedging, and lower operating expenses partially offset mainly by price pressure and lower R&D grants. ADG operating performance improved principally due to mix improvements in comparison to the year-ago period. MDG operating margin turned positive due to higher sales of general purpose microcontrollers, lower sales of low margin set-top box products and the savings from the set-top box restructuring plan. AMG operating results decreased mainly due to lower sales.
