STMicro's 4Q Loss Widens Y/Y
STMicroelectronics (STM) reported adjusted fourth quarter 2012 loss of 11 cents per share, wider than the Zacks Consensus Estimate of 9 cents loss per share on lower volumes and lower gross margins.
Revenues
STMicro reported revenues of $2.16 billion in the fourth quarter, down 1.3% from the year-ago period. However, reported revenues were above the mid-point of management’s expected range due to ramp of new products.
Revenues by Product Segment
The Automotive (:APG) segment generated 17% of fourth quarter revenues. Segment revenue decreased 6.0% sequentially, mainly due to weak market conditions.
The Analog, MEMS & Microcontrollers (AMM) segment generated 40% of fourth quarter sales. Segment revenue increased 7.4% sequentially driven by higher demand for MEMS, secure microcontrollers and analog applications.
The Digital segment accounted for 14.8% of sales, which was down 1.7% sequentially due to weak demand for digital consumer products.
The Power Discrete (PDP) segment accounted for 11.3% of sales. Segment revenue decreased 11.0% sequentially due to weak market demand.
The Wireless segment accounted for 16.2% of sales. Wireless includes the portion of sales and operating results of ST-Ericsson as well as other items affecting operating results related to the wireless business. Segment revenue decreased 2.2% sequentially. Revenue results reflected ST-Ericsson’s continued ramp of NovaThor platforms as well as $43 million from IP licensing, which was more than offset by the decrease in legacy products sales.
Others segmentaccounted for 0.7% of sales and was down 16.7% sequentially.
Operating Results
Reported gross margin for the quarter was 32.2%, down 120 basis points (bps) from 33.4% in the comparable year-ago quarter due to negative price effect and lower volumes, partially offset by a favorable product mix.
STMicro reported operating expenses of $876.0 million, down 2.0% from $894.0 million incurred in the year-ago quarter. However, GAAP operating loss was 33.8% compared with a loss of 6.0% in the year-ago quarter. Selling, general and administrative costs, were up as a percentage of sales from the year-ago quarter, while research and development (R&D) expenses declined.
Net Income
On a fully diluted GAAP basis, STMicro recorded a net loss of $428 million or 48 cents per share compared with a loss of $11 million or 1 cent per share in the year-ago quarter.
STMicro reported adjusted net loss of $96 million compared with a loss of 8 million in the year-ago quarter. Pro forma loss per share came in at 11 cents, compared with a loss of 1 cent in the year-ago quarter.
Balance Sheet & Cash Flow
STMicro exited the fourth quarter with cash, cash equivalents and short-term deposits and marketable securities of approximately $2.48 billion versus $1.92 billion in the prior quarter. Trade receivables were $1.0 billion, flat sequentially.
Cash flow from operations was $252 million, up from $148 million in the prior quarter. Capex was $78 million versus $203 million in the prior quarter. The company paid a total dividend of $89 million in the quarter.
During the fourth quarter, STMicro and Ericsson (ERIC) waived their loan to ST-Ericsson (a joint venture between STMicro and Ericsson) for an amount of $1,546 million. As a consequence, the Ericsson portion of $773 million was recorded as a contribution from non-controlling interest and reduced the company’s consolidated debt.
In the fourth quarter, the company drew an €350 million multi currency 8 year credit facility granted by the European Investment Bank in 2010 to support its R&D programs in Europe. The proceeds will strengthen the company’s financial flexibility going forward.
Guidance
For the first quarter of 2013, STMicro expects total revenue to decrease 7.0% (+/- 3.5 percentage points) sequentially. Gross margin is expected to be about 31.4% (+/-2 percentage points), to reflect the lower unsaturation charges and no revenues from licensing compared to the fourth quarter.
Our Take
STMicro is a semiconductor company, which engages in design, development, marketing, and manufacture of semiconductor integrated circuits and discrete devices. The company delivered a weak fourth quarter. The reported loss was wider than the Zacks Consensus Estimate.
However, we are impressed by the company’s new strategic plan, which states that the company would exit its investment in ST-Ericsson after a transition period. STMicro’s focus to improve its market position in wireless through its leading product portfolio is quite encouraging. The improvement in the AMM segment, introduction of several major products, and new design wins during the quarter will lead to fast recovery in the coming quarters.
However, lack of visibility and macro uncertainty may keep the share price range bound in the near term. Over the long term, STMicro is well positioned for growth and is gaining share in its key served markets.
Currently, STMicroelectronics has a Zacks Rank #3 (Hold). Investors should look out for some other stocks with positive Zacks Rankand Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method).
Interdigital Inc. (IDCC), a Zacks Rank #2 (Buy) with an ESP of +350.0%.
Geospace Tec. Corp. (GEOS), a Zacks Rank #2 (Buy) with an ESP of +16.95%.
Read the Full Research Report on STM
Read the Full Research Report on ERIC
Read the Full Research Report on IDCC
Read the Full Research Report on GEOS
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