STMicroelectronics Reports 2015 Third Quarter and Nine Month Financial Results

(a) Effective January 1, 2015, the Digital Convergence Group (DCG) and Imaging, BI-CMOS and Silicon Photonics (IBP) groups were combined under one single organization, called Digital Product Group (DPG). Prior periods have been restated accordingly.

Net Revenues by Market Channel

Net Revenues By Market Channel(%) Q3 2015 Q2 2015 Q3 2014
Total OEM 67% 67% 68%
Distribution 33% 33% 32%

Revenues and Operating Results by ST Product Segment

Operating Segment  (Million US$) Q3 2015  Net  Revenues Q3 2015  Operating  Income (Loss) Q2 2015  Net  Revenues Q2 2015  Operating  Income (Loss) Q3 2014  Net  Revenues Q3 2014  Operating  Income (Loss)
Sense & Power and Automotive Products (SP&A)  1,117 102 1,159 76 1,218 111
Embedded Processing Solutions (EPS) 642 - 595 (42) 663 (38)
Others (a) 5 (11) 6 (22) 5 (36)
TOTAL 1,764 91 1,760 12 1,886 37

(a) Net revenues of "Others" include revenues from sales of Subsystems, assembly services, and other revenue. Operating income (loss) of "Others" includes items such as impairment, restructuring charges and other related closure costs, phase out and start-up costs, and other unallocated expenses such as: strategic or special research and development programs, certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to product groups, as well as operating earnings of the Subsystems and Other Products Group. "Others" includes $11 million, $21 million, and $38 million of impairment, restructuring charges, and other related closure costs in the third and second quarters of 2015 and third quarter of 2014, respectively.

Sense & Power and Automotive Products (SP&A) third quarter net revenues decreased 3.6% sequentially as growth in APG digital products was offset by IPD, reflecting market conditions impacting discrete and power transistor products, and AMS, due to a manufacturing issue at a subcontractor which affected sales of MEMS microphones. On a year-over-year basis, SP&A revenues decreased 8.3% mainly due to weaker market conditions, lower revenues in AMS and IPD and unfavorable currency effects specifically impacting APG.

SP&A operating margin improved to 9.2% in the 2015 third quarter compared to 6.6% in the prior quarter despite lower revenues, mainly due to a favorable currency effects, net of hedging, lower operating expenses due to seasonality and manufacturing efficiencies partially offset by normal price pressure. SP&A operating margin was 9.1% in the year-ago quarter.

Embedded Processing Solutions (EPS) third quarter net revenues increased 7.8% on a sequential basis driven by general purpose microcontrollers in MMS and imaging proximity sensors in DPG. On a year-over-year basis, EPS net revenues decreased 3.2% mainly due to DPG decreasing 19.6% reflecting the decline in the former ST-Ericsson and set-top box legacy products as well as commodity camera modules, while MMS posted revenue growth of 9.1%. Also, EPS was impacted by unfavorable currency effects.

EPS segment operating margin improved to break-even in the 2015 third quarter from negative 7.0% in the prior quarter driven by product mix, significantly lower operating expenses due to seasonality and favorable currency effects, net of hedging. In comparison to the year-ago period, EPS reduced its operating loss by $38 million due to improved product mix, positive currency effects, net of hedging, and significantly lower net expenses.

Cash Flow and Balance Sheet Highlights

Net cash from operating activities was $225 million in the third quarter, compared to $223 million and $281 million in the prior and year-ago quarter.

Capital expenditure payments, net of proceeds from sales, were $128 million during the third quarter and for the first nine months of the year totaled $378 million.

Free cash flow was positive $85 million in the third quarter, compared to $53 million and $140 million, respectively, in the prior and year-ago quarter. For the 2015 first nine months free cash flow had a significant swing to a positive $179 milion, compared to a negative $11 million in the year-ago first nine months.*

Inventory increased by $11 million to $1.25 billion at quarter end. Inventory in the third quarter of 2015 was at 3.7 turns or 97 days, similar to 3.8 turns or 95 days in the prior quarter.

In the third quarter, the Company paid cash dividends totaling $83 million.

ST's net financial position was stable on a sequential basis at $459 million at September 26, 2015.* ST's financial resources equaled $2.21 billion and total debt was $1.75 billion at September 26, 2015.

Total equity, including non-controlling interest, was $4.73 billion at quarter end.

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* Free cash flow and net financial position are non-US GAAP measures. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A. 

First Nine Months 2015 Results

Net revenues for the first nine months of 2015 decreased 6.2% to $5.23 billion from $5.58 billion in the year-ago period. Net revenues, excluding negative currency effects and mobile legacy products, decreased 2.6% compared to the year-ago period. MMS grew revenues 4.9% while all other product groups experienced a decrease.

Gross margin improved to 33.9% of net revenues, compared to 33.7% of net revenues for the first nine months of 2014, principally due to manufacturing efficiencies, favorable currency effects, net of hedging, and product mix largely offset by price pressure.

Sense & Power and Automotive revenues for the first nine months of 2015 totaled $3.39 billion, a decrease of 6.0% compared to the first nine months of 2014 due to lower sales in all product groups. SP&A operating margin decreased to 7.4% in the first nine months of 2015 from 8.9%, excluding the non-recurring catch-up of grants in the first nine months of 2014, mainly reflecting a lower level of revenues partially offset by favorable currency effects.

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