SiC FETs Among Drivers of STMicroelectronics 4.7% Sequential Revenue Growth

STMicroelectronics reported U.S. GAAP financial results for the second quarter ended June 29, 2019. The company posted second-quarter net revenues of $2.17 billion. ST also reported a gross margin of 38.2% and operating margin of 9.0%. The company achieved a net income of $160 million or $0.18 diluted earnings per share.

Jean-Marc Chery, STMicroelectronics President & CEO, commented, "As planned, in the second quarter we returned to sequential revenue growth. In fact, revenues increased 4.7%, above the mid-point of our guidance of 2.4%, driven by specialized imaging sensors, RF products for front end modules, silicon carbide MOSFETs and digital automotive, partially offset by general-purpose analog, microcontrollers, and legacy automotive products. We delivered an operating margin of 9.0%."

"During the first half of 2019 we delivered sales and profitability results in line with our quarterly guidance and we continued to advance our strategic investments."

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Forcast

"Looking at the third quarter, we expect strong sequential revenue growth of about 15.3% at the midpoint. This growth will be driven by engaged customer programs and new products in a softer than expected legacy automotive and industrial market. Gross margin is expected to be about 37.5% at the mid-point, including about 140 basis points of unsaturation charges."

"For the full year 2019, we now expect net revenues to be in the range of about $9.35 to $9.65 billion. We confirm our investment plan of $1.1 to $1.2 billion," Chery said.

Revenues increased 4.7% sequentially, 230 basis points above the mid-point of the ST's guidance.

On a year-over-year basis, second-quarter net revenues declined 4.2% as the company listed lower sales in Analog, Microcontrollers, and Digital ICs, which were partially offset by growth in Automotive and Power Discrete, MEMS, and Sensors.

On a year-over-year basis, sales to OEMs rose by 10.3%, while distribution diminished by 27.0% due to the ongoing inventory correction. Gross profit totaled $830 million, a year-over-year decrease of 8.9%. The gross margin of 38.2% decreased 200 basis points year-over-year, mainly from the usual sales price pressure, an unfavorable product mix, and unsaturation charges.

Second-quarter gross margin was 30 basis points lower than the mid-point of the ST's guidance, primarily due to an unfavorable product mix. The Second-quarter gross margin includes 80 basis points of unsaturation charges. Operating income dropped 32.0% to $196 million, compared to $289 million in the year-ago quarter.

The operating margin decreased 370 basis points on a year-over-year basis to 9.0% of net revenues, compared to 12.7% in the second quarter of 2018.

By product group, compared with the year-ago quarter:

Automotive and Discrete Group (ADG):

• For the Automotive and Discrete Group (ADG), revenue grew in both Automotive and Power Discrete.
• Operating profit declined by 13.1% to $73 million.
• Operating margin was 8.2% compared to 9.7%.

Analog, MEMS and Sensors Group (AMS):

• Revenue increased in MEMS and Sensors while Analog decreased.
• Operating profit increased by 15.6% to $74 million.
• Operating margin was 10.7% compared to 10.5%.

Microcontrollers and Digital ICs Group (MDG):

• Revenue decreased in both Digital IC and Microcontrollers.
• Operating profit fell by 71.7% to $45 million.
• Operating margin was 7.6% compared to 20.3%.

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Net income and diluted earnings per share fell to $160 million and $0.18, respectively, compared to $261 million and $0.29, respectively, in the second quarter of 2018.

Cash Flow and Balance Sheet Highlights

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Business Outlook

The company's forecast for 2019 third-quarter ending September 28, 2019, is:

• Net revenues are projected to grow about 15.3% sequentially, plus or minus 350 basis points;
• Gross margin is expected to be about 37.5%, plus or minus 200 basis points;
• This forecast is based on an assumed effective currency exchange rate of about $1.15 = €1.00 for the 2019 third quarter and includes the impact of existing hedging contracts.