UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6‑K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a‑16 OR 15d‑16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6‑K dated May 7, 2021

Commission File Number:  1‑13546

 

STMicroelectronics N.V.
(Name of Registrant)

WTC Schiphol Airport
Schiphol Boulevard 265
1118 BH Schiphol Airport
The Netherlands
(Address of Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20‑F or Form 40‑F:

Form 20‑F Form 40‑F

Indicate by check mark if the registrant is submitting the Form 6‑K in paper as permitted by Regulation S‑T Rule 101(b)(1):

Yes No 

Indicate by check mark if the registrant is submitting the Form 6‑K in paper as permitted by Regulation S‑T Rule 101(b)(7):

Yes No 

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3‑2(b) under the Securities Exchange Act of 1934:

Yes No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3‑2(b):  82‑ __________

Enclosure:  STMicroelectronics N.V.’s First Quarter ended April 3, 2021:

 

Operating and Financial Review and Prospects;

 

Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flow, and Statements of Equity and related Notes for the three months ended April 3, 2021; and

 

Certifications pursuant to Sections 302 (Exhibits 12.1 and 12.2) and 906 (Exhibit 13.1) of the Sarbanes‑Oxley Act of 2002, submitted to the Commission on a voluntary basis.

 

 

 


 

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The following discussion should be read in conjunction with our Unaudited Interim Consolidated Statements of Income, Statements of Comprehensive Income, Balance Sheets, Statements of Cash Flows and Statements of Equity for the three months ended April 3, 2021 and Notes thereto included elsewhere in this Form 6‑K, and our annual report on Form 20‑F for the year ended December 31, 2020 as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) on February 24, 2021 (the “Form 20‑F”). The following discussion contains statements of future expectations and other forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended, particularly in the sections “Business Overview” and “Liquidity and Capital Resources—Financial Outlook: Capital Investment”. Our actual results may differ significantly from those projected in the forward‑looking statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in the forward‑looking statements in addition to the factors set forth below, see “Cautionary Note Regarding Forward‑Looking Statements” and “Item 3. Key Information—Risk Factors” included in the Form 20‑F. We assume no obligation to update the forward‑looking statements or such risk factors.

Our Management’s Discussion and Analysis of Financial Position and Results of Operations (“MD&A”) is provided in addition to the accompanying Unaudited Interim Consolidated Financial Statements (“Consolidated Financial Statements”) and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

 

Critical Accounting Policies using Significant Estimates.

 

Business Overview, a discussion of our business and overall analysis of financial and other relevant highlights of the three months ended April 3, 2021 designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the second quarter of 2021.

 

Other Developments.

 

Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three months ended April 3, 2021, as well as segment information.

 

Legal Proceedings.

 

Discussion of the impact of changes in exchange rates, interest rates and equity prices on our activity and financial results.

 

Liquidity and Capital Resources, presenting an analysis of changes in our balance sheets and cash flows, and discussing our financial condition and potential sources of liquidity.

 

Impact of Recently Issued U.S. Accounting Standards.

 

Backlog and Customers, discussing the level of backlog and sales to our key customers.

 

Disclosure Controls and Procedures.

 

Cautionary Note Regarding Forward-Looking Statements.

2


 

 

At STMicroelectronics N.V. (“ST” or the “Company”), we are 46,000 creators and makers of semiconductor technologies mastering the semiconductor supply chain with state-of-the-art manufacturing facilities. An independent device manufacturer, we work with more than 100,000 customers and thousands of partners to design and build products, solutions, and ecosystems that address their challenges and opportunities, and the need to support a more sustainable world. Our technologies enable smarter mobility, more efficient power and energy management, and the wide-scale deployment of the Internet of Things and 5G technology.

Critical Accounting Policies Using Significant Estimates

There were no material changes in the first three months of 2021 to the information provided under the heading “Critical Accounting Policies Using Significant Estimates” included in our Form 20-F for the year ended December 31, 2020.

Fiscal Year

Under Article 35 of our Articles of Association, our fiscal year extends from January 1 to December 31. The first quarter of 2021 ended on April 3. The second quarter will end on July 3, the third quarter will end on October 2 and the fourth quarter will end on December 31, 2021. Based on our fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to a different number of days in the various quarters of the fiscal year and can also differ from equivalent prior years’ periods, as illustrated in the below table for the years 2020 and 2021.

 

 

Q1

Q2

Q3

Q4

 

Days

2020

88

91

91

96

2021

93

91

91

90

 

Business Overview

Our results of operations for each period were as follows:

 

 

 

Three Months Ended

 

 

% Variation

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

Net revenues

 

$

3,016

 

 

$

3,235

 

 

$

2,231

 

 

 

(6.8

)%

 

 

35.2

%

Gross profit

 

 

1,175

 

 

 

1,254

 

 

 

846

 

 

 

(6.3

)

 

 

38.9

 

Gross margin as percentage of net revenues

 

 

39.0

%

 

 

38.8

%

 

 

37.9

%

 

20 bps

 

 

110 bps

 

Operating income

 

 

440

 

 

 

657

 

 

 

231

 

 

 

(33.0

)

 

 

90.3

 

Operating margin

 

 

14.6

%

 

 

20.3

%

 

 

10.4

%

 

-570 bps

 

 

420 bps

 

Net income attributable to parent company

 

 

364

 

 

 

582

 

 

 

192

 

 

 

(37.4

)

 

 

89.6

 

Earnings per share (Diluted)

 

$

0.39

 

 

$

0.63

 

 

$

0.21

 

 

 

(38.1

)%

 

 

85.7

%

 

The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products sold by us (which consists of the TAM and excludes major devices such as Microprocessors (MPUs), Dynamic random-access memories (DRAMs), optoelectronics devices, Flash Memories and the Wireless Application Specific market products such as Baseband and Application Processor).

Based on the data published by World Semiconductor Trade Statistics (WSTS), semiconductor industry revenues in the first quarter of 2021 increased sequentially by approximately 4% for the TAM and by approximately 5% for the SAM to reach approximately $123 billion and $59 billion, respectively. On a year-over-year basis, the TAM increased by approximately 18% and the SAM increased by approximately 24%.

Our first quarter 2021 net revenues amounted to $3,016 million, decreasing 6.8% sequentially, about 270 basis points above the mid-point of our released guidance. On a sequential basis, Automotive and Discrete Group (ADG) revenues increased 9.4%, with higher sales in both Automotive and Power Discrete. Analog, MEMS and Sensors Group (AMS) revenues decreased 23.7% primarily attributable to lower Imaging revenues. Microcontrollers and Digital ICs Group (MDG) revenues increased 3.2%, with both RFC and Microcontrollers contributing to the increase.

3


 

On a year-over-year basis, first quarter net revenues increased 35.2% with all product groups contributing to the increase, on continued acceleration of demand globally. ADG revenues increased 38.4% with both Automotive and Power Discrete contributing to the increase. AMS revenues increased 27.1%, with all sub-groups contributing and MDG revenues increased 42.2% on higher sales of Microcontrollers.

Our revenue performance was below the performance of the SAM on a sequential basis but above the performance of the SAM on a year-over-year basis.

Our effective average exchange rate for the first quarter of 2021 was $1.19 for €1.00, compared to $1.16 in the fourth quarter of 2020 and $1.11 for €1.00 in the first quarter of 2020. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates”.

Our first quarter of 2021 gross profit was $1,175 million and gross margin was 39.0%, about 50 basis points above the mid-point of our guidance. On a sequential basis, gross margin increased 20 basis points, mainly due to positive sale price impact, lower unloading charges and improved manufacturing efficiency, partially offset by negative currency effects, net of hedging. Gross margin increased 110 basis points year-over-year, mainly driven by lower unloading charges, improved manufacturing efficiency and more favorable product mix, partially offset by negative currency effects, net of hedging.

Our aggregated selling, general & administrative (SG&A) and research & development (R&D) expenses amounted to $769 million, compared to $729 million and $645 million in the prior and year-ago quarters, respectively. The sequential increase was mainly due to higher compensation expense on our employee share-based plans and negative currency effects, net of hedging. On a year-over-year basis, operating expenses increased mainly due to higher number of calendar days (93 days in the first quarter of 2021 compared to 88 days in the first quarter of 2020), negative currency effects, net of hedging and higher compensation expense on our employee share-based plans.

 

Other income and expenses, net, amounted to $34 million income, decreasing by $97 million sequentially, mainly due to a non-recurrent favorable impact recorded in the fourth quarter of 2020, associated with the Important Project of Common European Interest (IPCEI) grant catch-up. On a year-over-year basis, other income and expenses, net remained substantially flat.

In the first quarter of 2021, our operating income was $440 million, equivalent to 14.6% of net revenues, compared to $657 million in the previous quarter (20.3% of net revenues), and to $231 million (10.4% of net revenues) in the year-ago quarter. On a sequential basis, our operating income was negatively impacted by lower revenues and lower level of grants as a result of the IPCEI grant catch-up recorded in the fourth quarter of 2020. On a year-over-year basis, our operating income increased 90.3%, mainly due to higher revenues, lower unloading charges and improved manufacturing efficiency, partially offset by higher expenses.

In the first quarter of 2021, our net cash from operating activities was $682 million, entirely covering our net payment for purchase of tangible, intangible and financial assets of $421 million, resulting in a positive free cash flow (non-U.S. GAAP measure) of $261 million. Our net cash and cash equivalents increased $448 million, including $182 million from financing activities, composed of $406 million proceeds from the partial withdrawal of our credit facility signed with the European Investment Bank (EIB), $156 million used in the repurchase of common stock, $38 million of cash dividends paid to our shareholders and $30 million for long-term debt repayment.

Our net financial position (non-U.S. GAAP measure) increased from $1.10 billion in the fourth quarter of 2020 to $1.19 billion in the first quarter of 2021 and reflected total liquidity of $4.16 billion and total financial debt of $2.97 billion.

Looking at the second quarter, we expect a revenue decrease of approximately 3.8% sequentially, plus or minus 350 basis points, due to usual seasonality in Personal Electronics. Gross margin is expected to be approximately 39.5%, plus or minus 200 basis points.

This outlook is based on an assumed effective currency exchange rate of approximately $1.18 = €1.00 for the 2021 second quarter and includes the impact of existing hedging contracts. The second quarter will close on July 3, 2021.

4


 

These are forward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially; in particular, refer to those known risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and Item 3. “Key Information — Risk Factors” in our Form 20-F as may be updated from time to time in our SEC filings.

Other Developments

On March 25, we announced the resolutions to be submitted for adoption at the Company’s Annual General Meeting of Shareholders (AGM), which will be held in Schiphol, the Netherlands, on May 27, 2021. The resolutions, proposed by the Supervisory Board, are:

 

 

The adoption of the Company's Statutory Annual Accounts for the year ended December 31, 2020, prepared in accordance with International Financial Reporting Standards (IFRS) and filed with the Netherlands Authority for the Financial Markets (AFM) on March 25, 2021;

 

The distribution of a cash dividend of $0.24 per outstanding share of the Company’s common stock to be distributed in quarterly installments of $0.06 in each of the second, third and fourth quarters of 2021 and first quarter of 2022;

 

The reappointment of Mr. Jean-Marc Chery as sole member of the Managing Board for a three-year term to expire at the end of the 2024 AGM;

 

The reappointment of Mr. Nicolas Dufourcq, as member of the Supervisory Board, for a three-year term to expire at the end of the 2024 AGM;

 

The adoption of an amended remuneration policy for the Managing Board, in line with recent changes in Dutch corporate law and the EU’s Shareholder Rights Directive II (SRDII);

 

The approval of the stock-based portion of the compensation of the President and CEO;

 

The adoption of a new 3-year Unvested Stock Award Plan for Management and Key Employees;

 

The authorization to the Managing Board, until the end of the 2022 AGM, to repurchase shares, subject to the approval of the Supervisory Board;

 

The delegation to the Supervisory Board of the authority to issue new common shares, to grant rights to subscribe for such shares, and to limit and/or exclude existing shareholders’ pre-emptive rights on common shares, until the end of the 2022 AGM;

 

The discharge of the sole member of the Managing Board; and

 

The discharge of the members of the Supervisory Board.    

5


 

 

Results of Operations

 

Segment Information

We design, develop, manufacture and market a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, we further participate in the manufacturing value chain of smartcard products, which includes the production and sale of both silicon chips and smartcards.

Our reportable segments are as follows:

 

Automotive and Discrete Group (ADG), comprised of dedicated automotive ICs, and discrete and power transistor products.

 

Analog, MEMS and Sensors Group (AMS), comprised of analog, smart power, low power RF, MEMS sensors and actuators, and optical sensing solutions.

 

Microcontrollers and Digital ICs Group (MDG), comprised of microcontrollers (general purpose and secure), memories (RF and EEPROM), and RF communications.

For the computation of the segments’ internal financial measurements, we use certain internal rules of allocation for the costs not directly chargeable to the segments, including cost of sales, selling, general and administrative expenses and a part of research and development expenses. In compliance with our internal policies, certain costs are not allocated to the segments, but reported in “Others”. Those comprise unused capacity charges, including reduced manufacturing activity due to COVID-19, impairment, restructuring charges and other related closure costs, management reorganization expenses, phase-out and start-up costs of certain manufacturing facilities, 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 other products. In addition, depreciation and amortization expense is part of the manufacturing costs allocated to the segments and is neither identified as part of the inventory variation nor as part of the unused capacity charges; therefore, it cannot be isolated in cost of sales. Finally, R&D grants are allocated to our segments proportionally to the R&D expenses on the sponsored projects.

 

Wafer costs are allocated to the segments based on actual cost. From time to time, with respect to specific technologies, wafer costs are allocated to segments based on market price.

6


 

First Quarter 2021 vs. Fourth Quarter 2020 and First Quarter 2020

The following table sets forth certain financial data from our Unaudited Interim Consolidated Statements of Income:

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

3,011

 

 

 

99.8

%

 

$

3,206

 

 

 

99.1

%

 

$

2,228

 

 

 

99.9

%

Other revenues

 

 

5

 

 

 

0.2

 

 

 

29

 

 

 

0.9

 

 

 

3

 

 

 

0.1

 

Net revenues

 

 

3,016

 

 

 

100.0

 

 

 

3,235

 

 

 

100.0

 

 

 

2,231

 

 

 

100.0

 

Cost of sales

 

 

(1,841

)

 

 

(61.0

)

 

 

(1,981

)

 

 

(61.2

)

 

 

(1,385

)

 

 

(62.1

)

Gross profit

 

 

1,175

 

 

 

39.0

 

 

 

1,254

 

 

 

38.8

 

 

 

846

 

 

 

37.9

 

Selling, general and administrative

 

 

(325

)

 

 

(10.8

)

 

 

(308

)

 

 

(9.5

)

 

 

(270

)

 

 

(12.1

)

Research and development

 

 

(444

)

 

 

(14.7

)

 

 

(421

)

 

 

(13.0

)

 

 

(375

)

 

 

(16.8

)

Other income and expenses, net

 

 

34

 

 

 

1.1

 

 

 

131

 

 

 

4.0

 

 

 

35

 

 

 

1.6

 

Impairment, restructuring charges and other

   related closure costs

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

(5

)

 

 

(0.2

)

Operating income

 

 

440

 

 

 

14.6

 

 

 

657

 

 

 

20.3

 

 

 

231

 

 

 

10.4

 

Interest income (expense), net

 

 

(9

)

 

 

(0.3

)

 

 

(8

)

 

 

(0.2

)

 

 

1

 

 

 

 

Other components of pension benefit costs

 

 

(2

)

 

 

(0.1

)

 

 

(3

)

 

 

(0.1

)

 

 

(3

)

 

 

(0.1

)

Gain (loss) on financial instruments, net

 

 

2

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and

   noncontrolling interest

 

 

431

 

 

 

14.3

 

 

 

646

 

 

 

20.0

 

 

 

229

 

 

 

10.3

 

Income tax expense

 

 

(66

)

 

 

(2.2

)

 

 

(63

)

 

 

(2.0

)

 

 

(39

)

 

 

(1.7

)

Net income

 

 

365

 

 

 

12.1

 

 

 

583

 

 

 

18.0

 

 

 

190

 

 

 

8.6

 

Net (income) loss attributable to

   noncontrolling interest

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

2

 

 

 

 

Net income attributable to parent

   company

 

$

364

 

 

 

12.1

%

 

$

582

 

 

 

18.0

%

 

$

192

 

 

 

8.6

%

 

 

Net revenues

 

 

 

Three Months Ended

 

 

% Variation

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,011

 

 

$

3,206

 

 

$

2,228

 

 

 

(6.1

)%

 

 

35.1

%

Other revenues

 

 

5

 

 

 

29

 

 

 

3

 

 

 

(82.8

)

 

 

51.5

 

Net revenues

 

$

3,016

 

 

$

3,235

 

 

$

2,231

 

 

 

(6.8

)%

 

 

35.2

%

 

Sequentially, our first quarter 2021 net revenues decreased 6.8%, about 270 basis points above the mid-point of our released guidance. The sequential decrease resulted from a decrease of approximately 4% in average selling prices, entirely driven by a less favorable product mix, and by lower volumes of approximately 3%.

On a year-over-year basis, net revenues increased 35.2% as a result of higher volumes of approximately 43%, partially offset by a decrease of approximately 8% in average selling prices, mainly driven by a less favorable product mix.

7


 

Net revenues by product group

 

 

 

Three Months Ended

 

 

% Variation

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Automotive and Discrete Group (ADG)

 

$

1,043

 

 

$

953

 

 

$

753

 

 

 

9.4

%

 

 

38.4

%

Analog, MEMS and Sensors Group (AMS)

 

 

1,083

 

 

 

1,419

 

 

 

852

 

 

 

(23.7

)

 

 

27.1

 

Microcontrollers and Digital ICs Group (MDG)

 

 

886

 

 

 

859

 

 

 

623

 

 

 

3.2

 

 

 

42.2

 

Others

 

 

4

 

 

 

4

 

 

 

3

 

 

 

 

 

 

 

Total consolidated net revenues

 

$

3,016

 

 

$

3,235

 

 

$

2,231

 

 

 

(6.8

)%

 

 

35.2

%

 

On a sequential basis, ADG revenues increased 9.4%, driven by an approximate 12% increase in average selling prices, mainly due to a more favorable product mix, partially offset by lower volumes of approximately 3%. AMS revenues decreased 23.7%. The decrease is explained by lower average selling prices of approximately 22%, entirely due to a less favorable product mix, and by lower volumes of approximately 2%. MDG revenues increased 3.2% due to better average selling prices of approximately 9%, mainly driven by a better product mix, partially offset by lower volumes of approximately 6%.

On a year-over-year basis, ADG revenues increased 38.4% due to higher volumes of approximately 46%, partially offset by lower average selling prices of approximately 8%, mainly due to a less favorable product mix. AMS revenues increased 27.1% compared to the year-ago period due to higher volumes of approximately 38%, while average selling prices decreased by approximately 11%, mainly due to a less favorable product mix. MDG revenues increased 42.2% entirely due to higher volumes while average selling prices remained substantially flat.

Net Revenues by Market Channel (1)

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

OEM

 

 

67

%

 

 

74

%

 

 

75

%

Distribution

 

 

33

 

 

 

26

 

 

 

25

 

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

(1)

Original Equipment Manufacturers (“OEM”) are the end-customers to which we provide direct marketing application engineering support, while Distribution refers to the distributors and representatives that we engage to distribute our products around the world.

By market channel, our first quarter net revenues in Distribution amounted to 33% of our total revenues, increasing from 26% and 25% in the prior and year-ago quarters, respectively.

Net Revenues by Location of Shipment (1)

 

 

 

Three Months Ended

 

 

% Variation

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

EMEA

 

$

627

 

 

$

586

 

 

$

500

 

 

 

6.9

%

 

 

25.4

%

Americas

 

 

375

 

 

 

346

 

 

 

283

 

 

 

8.3

 

 

 

32.1

 

Asia Pacific

 

 

2,014

 

 

 

2,303

 

 

 

1,448

 

 

 

(12.5

)

 

 

39.1

 

Total

 

$

3,016

 

 

$

3,235

 

 

$

2,231

 

 

 

(6.8

)%

 

 

35.2

%

 

(1)

Net revenues by location of shipment are classified by location of customer invoiced or reclassified by shipment destination in line with customer demand. For example, products ordered by U.S.‑based companies to be invoiced to Asia Pacific affiliates are classified as Asia Pacific revenues. Furthermore, the comparison among the different periods may be affected by shifts in shipments from one location to another, as requested by our customers.

On a sequential basis, EMEA revenues grew 6.9% mainly due to higher sales in Microcontrollers, Automotive and Power Discrete, and Americas revenues increased 8.3% mainly due to higher sales in Power Discrete. Asia Pacific revenues decreased 12.5% mainly driven by lower sales in Imaging.

8


 

On a year-over-year basis, all regions registered a double-digits revenue growth. EMEA, Americas and Asia Pacific revenues increased 25.4%, 32.1% and 39.1%, respectively, mainly driven by higher sales in Microcontrollers, Power Discrete, Analog and Automotive.

Gross profit

 

 

 

Three Months Ended

 

 

Variation

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Gross profit

 

$

1,175

 

 

$

1,254

 

 

$

846

 

 

 

(6.3

)%

 

 

38.9

%

Gross margin

(as percentage of net revenues)

 

 

39.0

%

 

 

38.8

%

 

 

37.9

%

 

20 bps

 

 

110 bps

 

 

In the first quarter of 2021, gross margin was 39.0%, about 50 basis points above the mid-point of our guidance. On a sequential basis, gross margin increased 20 basis points, mainly due to positive sale price impact, lower unloading charges and improved manufacturing efficiency, partially offset by negative currency effects, net of hedging.

On a year-over-year basis, gross margin increased 110 basis points, mainly driven by lower unloading charges, improved manufacturing efficiency and more favorable product mix, partially offset by negative currency effects, net of hedging.

Operating expenses

 

 

 

Three Months Ended

 

 

Variation

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

$

(325

)

 

$

(308

)

 

$

(270

)

 

 

(5.6

)%

 

 

(20.5

)%

Research and development

 

 

(444

)

 

 

(421

)

 

 

(375

)

 

 

(5.4

)

 

 

(18.4

)

Total operating expenses

 

$

(769

)

 

$

(729

)

 

$

(645

)

 

 

(5.5

)%

 

 

(19.3

)%

As percentage of net revenues

 

 

25.5

%

 

 

22.5

%

 

 

28.9

%

 

300 bps

 

 

-340 bps

 

 

The first quarter of 2021 operating expenses increased to $769 million compared to $729 million in the previous quarter, mainly due to higher compensation expense on our employee share-based plans and negative currency effects, net of hedging.

On a year-over-year basis, operating expenses increased by $124 million, mainly due to higher number of calendar days (93 days in the first quarter of 2021 compared to 88 days in the first quarter of 2020), negative currency effects, net of hedging and higher compensation expense on our employee share-based plans.

As a percentage of revenues, our operating expenses amounted to 25.5% in the first quarter of 2021, increasing compared to 22.5% in the prior quarter and decreasing compared to 28.9% in the year-ago quarter.

R&D expenses were net of research tax credits, which amounted to $31 million in the first quarter of 2021, compared to $42 million and $28 million in the prior and year-ago quarters, respectively.

9


 

Other income and expenses, net

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Research and development funding

 

$

40

 

 

$

143

 

 

$

31

 

Exchange gain (loss), net

 

 

2

 

 

 

3

 

 

 

3

 

Phase-out and start-up costs

 

 

 

 

 

 

 

 

(6

)

Patent costs

 

 

(2

)

 

 

(6

)

 

 

(1

)

Gain on sale of non-current assets

 

 

 

 

 

 

 

 

11

 

COVID-19 incremental costs

 

 

(5

)

 

 

(9

)

 

 

(3

)

Other, net

 

 

(1

)

 

 

 

 

 

 

Other income and expenses, net

 

$

34

 

 

$

131

 

 

$

35

 

As percentage of net revenues

 

 

1.1

%

 

 

4.0

%

 

 

1.6

%

 

In the first quarter of 2021, other income and expenses, net, amounted to $34 million income, decreasing by $97 million sequentially, mainly due to a non-recurrent favorable impact recorded in the fourth quarter of 2020, associated with the Important Project of Common European Interest (IPCEI) grant catch-up. On a year-over-year basis, other income and expenses, net remained substantially flat.

Impairment, restructuring charges and other related closure costs

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Impairment, restructuring charges and other related closure costs

 

$

 

 

$

1

 

 

$

(5

)

 

In the first quarter of 2021, there were no significant impairment, restructuring charges and other related closure costs.

In the fourth quarter of 2020, we recorded a $1 million income as an adjustment to accrued restructuring charges when compared to actual amounts paid.

In the first quarter of 2020, we recorded $5 million of impairment, restructuring charges and other related closure costs, consisting of restructuring charges associated with the restructuring plan in Bouskoura, Morocco.

 

Operating income

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Operating income

 

$

440

 

 

$

657

 

 

$

231

 

As percentage of net revenues

 

 

14.6

%

 

 

20.3

%

 

 

10.4

%

 

In the first quarter of 2021, operating income was $440 million, compared to an operating income of $657 million and $231 million in the prior and year-ago quarters, respectively.

On a sequential basis, our operating income was negatively impacted by lower revenues and lower level of grants as a result of the IPCEI grant catch-up recorded in the fourth quarter of 2020.

On a year-over-year basis, our operating income increased 90.3%, mainly due to higher revenues, lower unloading charges and improved manufacturing efficiency, partially offset by higher expenses.

10


 

Operating income by product group

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Automotive and Discrete Group (ADG)

 

$

85

 

 

 

8.2

%

 

$

94

 

 

 

9.9

%

 

$

23

 

 

 

3.0

%

Analog, MEMS and Sensors Group (AMS)

 

 

187

 

 

 

17.2

 

 

 

402

 

 

 

28.3

 

 

 

177

 

 

 

20.8

 

Microcontrollers and Digital ICs Group (MDG)

 

 

172

 

 

 

19.4

 

 

 

174

 

 

 

20.3

 

 

 

71

 

 

 

11.5

 

Total operating income of product segments

 

 

444

 

 

 

14.7

 

 

 

670

 

 

 

20.7

 

 

 

271

 

 

 

12.1

 

Others(1)

 

 

(4

)

 

 

 

 

 

(13

)

 

 

 

 

 

(40

)

 

 

 

Total operating income

 

$

440

 

 

 

14.6

%

 

$

657

 

 

 

20.3

%

 

$

231

 

 

 

10.4

%

 

(1)

Operating income (loss) of Others includes items such as unused capacity charges, including reduced manufacturing activity due to COVID-19, impairment, restructuring charges and other related closure costs, management reorganization costs, phase-out and start-up costs of certain manufacturing facilities, 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 other products.

In the first quarter of 2021, ADG operating income was $85 million, decreasing sequentially by $9 million. AMS operating income was $187 million, decreasing sequentially by $215 million, mainly impacted by lower level of revenues. MDG operating income remained substantially flat at $172 million.

Compared to a year ago, ADG operating income increased by $62 million, reflecting higher profitability in both Automotive and Power Discrete. AMS operating income increased by $10 million, mainly driven by Analog and MEMS higher profitability. MDG operating income increased by $101 million, mainly due to Microcontrollers higher profitability.

Reconciliation to consolidated operating income

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Total operating income of product segments

 

$

444

 

 

$

670

 

 

$

271

 

Impairment, restructuring charges and other related closure costs

 

 

 

 

 

1

 

 

 

(5

)

Unused capacity charges

 

 

(2

)

 

 

(17

)

 

 

(34

)

Other unallocated manufacturing results

 

 

4

 

 

 

4

 

 

 

(4

)

Gain on sale of non-current assets

 

 

 

 

 

1

 

 

 

10

 

Strategic and other research and development programs

   and other non-allocated provisions(1)

 

 

(6

)

 

 

(2

)

 

 

(7

)

Total operating income (loss) of Others

 

 

(4

)

 

 

(13

)

 

 

(40

)

Total consolidated operating income

 

$

440

 

 

$

657

 

 

$

231

 

 

(1)

Includes unallocated income and expenses such as certain corporate-level operating expenses and other income (costs) that are not allocated to the product segments.

Interest income (expense), net

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Interest income (expense), net

 

$

(9

)

 

$

(8

)

 

$

1

 

 

In the first quarter of 2021, we recorded a net interest expense of $9 million, compared to a net interest expense of $8 million in the prior quarter and a net interest income of $1 million in the year-ago quarter. The first quarter net interest expense was composed of $13 million of interest expense on our borrowings and banking fees, partially offset by $4 million of interest income.

11


 

Net interest expense recorded in the first quarter of 2021 included a $11 million charge related to our senior unsecured convertible bonds, mainly non-cash, compared to a $12 million charge in the fourth quarter of 2020 and a $10 million charge in the first quarter of 2020.

Gain on financial instruments, net

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Gain on financial instruments, net

 

$

2

 

 

$

 

 

$

 

 

During the first quarter of 2021, we recorded a $2 million gain on the sale of one of our non-strategic investments.

 

Income tax expense

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Income tax expense

 

$

(66

)

 

$

(63

)

 

$

(39

)

 

During the first quarter of 2021, we registered an income tax expense of $66 million, reflecting the estimated annual effective tax rate in each of our jurisdictions, applied to the first three months of 2021 consolidated income before income taxes.

Net income attributable to parent company

 

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Net income attributable to parent company

 

$

364

 

 

$

582

 

 

$

192

 

As percentage of net revenues

 

 

12.1

%

 

 

18.0

%

 

 

8.6

%

 

For the first quarter of 2021, we reported a net income attributable to parent company of $364 million, representing diluted earnings per share of $0.39, compared to $0.63 in the prior quarter and $0.21 in the prior-year quarter.

12


 

Legal Proceedings

For a discussion of legal proceedings, see Note 27 Contingencies, Claims and Legal Proceedings to our Unaudited Interim Consolidated Financial Statements.

Impact of Changes in Exchange Rates

Our results of operations and financial condition can be significantly affected by material changes in the exchange rates between the U.S. dollar and other currencies, particularly the Euro.

As a market practice, the reference currency for the semiconductor industry is the U.S. dollar and the market prices of semiconductor products are mainly denominated in U.S. dollars. However, revenues for some of our products are quoted in currencies other than the U.S. dollar such as Euro-denominated sales, and consequently, are directly affected by fluctuations in the value of the U.S. dollar. As a result of currency variations, the appreciation of the Euro compared to the U.S. dollar could increase our level of revenues when translated into U.S. dollars or the depreciation of the Euro compared to the U.S. dollar could decrease our level of revenues when reported in U.S. dollars. Over time and depending on market conditions, the prices in the industry could align to the equivalent amount in U.S. dollars, except that there is a lag between the changes in the currency rate and the adjustment in the price paid in local currency, which is proportional to the amplitude of the currency swing, and such adjustment could be only partial and/or delayed, depending on market demand. Furthermore, certain significant costs incurred by us, such as manufacturing costs, SG&A expenses, and R&D expenses, are largely incurred in the currency of the jurisdictions in which our operations are located. Given that most of our operations are located in the Eurozone and other non-U.S. dollar currency areas, including Singapore, our costs tend to increase when translated into U.S. dollars when the U.S. dollar weakens or to decrease when the U.S. dollar strengthens.

Our principal strategy to reduce the risks associated with exchange rate fluctuations is to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of materials, purchases and services from our suppliers denominated in U.S. dollars, thereby reducing the potential exchange rate impact of certain variable costs relative to revenues. Moreover, in order to further reduce the exposure to U.S. dollar exchange fluctuations, we hedge certain line items on our Unaudited Interim Consolidated Statements of Income, in particular with respect to a portion of cost of sales, most of R&D expenses and certain SG&A expenses, located in the Eurozone, which we designate as cash flow hedge transactions. We use two different types of hedging instruments: forward contracts and currency options (including collars).

Our Unaudited Interim Consolidated Statements of Income for the three months ended April 3, 2021 included income and expense items translated at the average U.S. dollar exchange rate for the period, plus the impact of the hedging contracts settled during the period. Our effective average exchange rate for the first quarter of 2021 was $1.19 for €1.00, compared to $1.16 for €1.00 in the fourth quarter of 2020 and $1.11 for €1.00 in the first quarter of 2020. These effective exchange rates reflect the actual exchange rates combined with the effect of cash flow hedge transactions impacting earnings in the period.

The time horizon of our cash flow hedging for manufacturing costs and operating expenses may run up to 24 months, for a limited percentage of our exposure to the Euro, depending on currency market circumstances. As at April 3, 2021, the outstanding hedged amounts were €812 million to cover manufacturing costs and €507 million to cover operating expenses, both at an average exchange rate of approximately $1.21 for €1.00 (considering the collars at upper strike), maturing from April 9, 2021 to February 2, 2022. As at April 3, 2021, measured in respect to the exchange rate at period closing of about $1.17 to €1.00, these outstanding hedging contracts and certain settled contracts covering manufacturing expenses capitalized in inventory resulted in a deferred loss of approximately $9 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statement of Equity, compared to a deferred gain of approximately $57 million before tax at December 31, 2020.

We also hedge certain manufacturing costs denominated in Singapore dollars (SGD); as at April 3, 2021, the outstanding hedged amounts were SGD 161 million at an average exchange rate of approximately SGD 1.35 to $1.00 maturing from April 8, 2021 to March 3, 2022. As at April 3, 2021, these outstanding hedging contracts resulted in a deferred gain of less than $1 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred gain of approximately $4 million before tax at December 31, 2020.

13


 

Our cash flow hedging policy is not intended to cover our full exposure and is based on hedging a declining portion of our exposure in the next four quarters. In the first quarter of 2021, as a result of our cash flow hedging, we recycled to earnings a gain of $23 million, of which approximately $14 million impacted cost of sales, $7 million impacted research and development and $2 million impacted selling, general and administrative expenses, while in the comparable quarter in 2020, we recorded a loss of $8 million.

In addition to our cash flow hedging, in order to mitigate potential exchange rate risks on our commercial transactions, we purchase and enter into foreign exchange forward contracts and currency options to cover foreign currency exposure in payables or receivables at our affiliates, which we do not designate for hedge accounting. We may in the future purchase or sell similar types of instruments. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F. Furthermore, we may not predict on a timely basis the amount of future transactions in the volatile industry environment. No assurance may be given that our hedging activities will sufficiently protect us against fluctuations in the value of the U.S. dollar. Consequently, our results of operations have been and may continue to be impacted by fluctuations in exchange rates. The net effect of our consolidated foreign exchange exposure in payables and receivables at our affiliates resulted in a net gain of $2 million recorded in “Other income and expenses, net” in our Unaudited Interim Consolidated Statements of Income for the first quarter of 2021.

The assets and liabilities of subsidiaries whose functional currency is different from the U.S. dollar reporting currency are, for consolidation purposes, translated into U.S. dollars at the period-end exchange rate. Income and expenses, as well as cash flows, are translated at the average exchange rate for the period. The balance sheet impact, as well as the income statement and cash flow impact, of these currency translations have been, and may be expected to be, significant from period to period since a large part of our assets and liabilities and activities are accounted for in Euros as they are located in jurisdictions where the Euro is the functional currency. Adjustments resulting from the currency translation are recorded directly in equity and are reported as “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity. At April 3, 2021, our outstanding indebtedness was denominated mainly in U.S. dollars and in Euros.

For a more detailed discussion, see Item 3. “Key Information — Risks Related to Our Operations” in our Form 20‑F, which may be updated from time to time in our public filings.

Impact of Changes in Interest Rates

Interest rates may fluctuate upon changes in financial market conditions and material changes can affect our results of operations and financial condition, since these changes can impact the total interest income received on our cash and cash equivalents, short-term deposits and marketable securities, as well as the total interest expense paid on our financial debt.

Our interest income (expense), net, as reported in our Interim Consolidated Statements of Income, is the balance between interest income received from our cash and cash equivalents, short-term deposits and marketable securities and interest expense paid on our financial liabilities (including the sale without recourse of receivables, if any), non-cash interest expense on the senior unsecured convertible bonds and bank fees (including fees on committed credit lines). Our interest income is dependent upon fluctuations in interest rates, mainly in U.S. dollars and Euros, since we invest primarily on a short-term basis; any increase or decrease in the market interest rates would mean a proportional increase or decrease in our interest income. Our interest expenses are also dependent upon fluctuations in interest rates, since our financial liabilities include European Investment Bank Floating Rate Loans at Libor and Euribor plus variable spreads.

At April 3, 2021 our total financial resources, including cash and cash equivalents, short-term deposits and marketable securities, generated an average interest income annual rate of 0.35%. At the same date, the average interest annual rate on our outstanding debt was 1.51% including the non-cash effective interest of the senior unsecured convertible bonds issued on July 3, 2017 and on August 4, 2020, while the average coupon interest rate was only 0.09%.

Impact of Changes in Equity Prices

As at April 3, 2021, we did not hold any significant investments in equity securities with a material exposure to equity price risk. However, on these equity investments, carrying value could be reduced due to further losses or impairment charges. See Note 20 to our Unaudited Interim Consolidated Financial Statements.

14


 

Liquidity and Capital Resources

Treasury activities are regulated by our policies, which define procedures, objectives and controls. Our policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office. The majority of our cash and cash equivalents are held in U.S. dollars and Euros and are placed with financial institutions rated at least as single A long-term rating, meaning at least A3 from Moody’s Investors Service (“Moody’s”) and A- from Standard & Poor’s (“S&P”) or Fitch Ratings (“Fitch”). Marginal amounts are held in other currencies. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F, which may be updated from time to time in our public filings.

Cash flow

We maintain a significant cash position and a low debt-to-equity ratio, which provides us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.

During the first three months of 2021, our net cash and cash equivalents increased by $448 million. The components of the net cash increase for the comparable period are set forth below:

 

 

Three Months Ended

 

 

 

April 3,

2021

 

 

March 28,

2020

 

 

 

(In millions)

 

Net cash from operating activities

 

$

682

 

 

$

399

 

Net cash used in investing activities

 

 

(413

)

 

 

(821

)

Net cash from (used in) financing activities

 

 

182

 

 

 

(143

)

Effect of changes in exchange rates

 

 

(3

)

 

 

(4

)

Net cash increase (decrease)

 

$

448

 

 

$

(569

)

 

Net cash from operating activities. Net cash from operating activities is the sum of (i) net income adjusted for non-cash items and (ii) changes in net working capital. The net cash from operating activities for the first three months of 2021 was $682 million, increasing compared to $399 million in the prior-year period mainly due to higher net income and more favorable changes in net working capital.

Net cash used in investing activities. Investing activities used $413 million of cash in the first three months of 2021, decreasing compared to $821 million in the prior-year period, mainly due to lower net investments in short-term deposits of $543 million, partially offset by higher payments for purchase of tangible assets which totaled $405 million in the first quarter of 2021 compared to $266 million in the prior-year period.

Net cash from (used in) financing activities. Net cash from financing activities was $182 million for the first three months of 2021, compared to $143 million used in the first three months of 2020, and consisted of $406 million proceeds from the partial withdrawal of our credit facility signed with the EIB, partially offset by $156 million repurchase of common stock, $38 million of dividends paid to stockholders and $30 million repayment of long-term debt.

Free Cash Flow (non-U.S. GAAP measure)

We also present Free Cash Flow, which is a non-U.S. GAAP measure, defined as (i) net cash from operating activities plus (ii) net cash used in investing activities, excluding payment for purchase of (and proceeds from matured) marketable securities, and net investment in short-term deposits, which are considered as temporary financial investments. The result of this definition is ultimately net cash from operating activities plus payment for purchase and proceeds from sale of tangible, intangible and financial assets, and net cash paid for business acquisitions. We believe Free Cash Flow, a non-U.S. GAAP measure, provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operations. Free Cash Flow is not a U.S. GAAP measure and does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. Free Cash Flow reconciles with net cash increase (decrease) by including the payment for purchase of (and proceeds from matured) marketable securities and net investment in short-term deposits, the net cash from (used in) financing activities and the effect

15


 

of changes in exchange rates. In addition, our definition of Free Cash Flow may differ from definitions used by other companies. Free Cash Flow is determined from our Consolidated Statements of Cash Flows as follows:

 

 

Three Months Ended

 

 

April 3,

2021

 

 

March 28,

2020

 

 

(In millions)

 

Net cash from operating activities

$

682

 

 

$

399

 

Net cash used in investing activities

 

(413

)

 

 

(821

)

Excluding:

 

 

 

 

 

 

 

Payment for purchase of (and proceeds from matured) marketable securities and net investment in short-term deposits

 

(8

)

 

 

535

 

Payment for purchase and proceeds from sale of tangible, intangible and financial assets(1)

 

(421

)

 

 

(286

)

Free Cash Flow (non-U.S. GAAP measure)

$

261

 

 

$

113

 

 

(1)

Reflects the total of the following line items reconciled with our Consolidated Statements of Cash Flows relating to the investing activities: Payment for purchase of tangible assets, Proceeds from sale of tangible assets, Payment for purchase of intangible assets and Proceeds from sale of financial assets.

Free Cash Flow increased in the first three months of 2021 compared to the year-ago period, mainly due to higher cash from operating activities, partially offset by higher payments for purchase of tangible assets.

Net Financial Position (non-U.S. GAAP measure)

Our Net Financial Position represents the difference between our total liquidity and our total financial debt. Our total liquidity includes cash and cash equivalents, restricted cash, short-term deposits and marketable securities, and our total financial debt includes short-term debt and long-term debt, as reported in our Consolidated Balance Sheets. Net Financial Position is not a U.S. GAAP measure but we believe it provides useful information for investors and management because it gives evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents, restricted cash, short-term deposits and marketable securities and the total level of our financial indebtedness. Our definition of Net Financial Position may differ from definitions used by other companies and therefore comparability may be limited. Our Net Financial Position for each period has been determined from our Consolidated Balance Sheets as follows:

 

 

 

As at

 

 

 

April 3,

2021

 

 

December 31,

2020

 

 

March 28,

2020

 

 

 

(In millions)

 

Cash and cash equivalents

 

$

3,454

 

 

$

3,006

 

 

$

2,028

 

Restricted cash

 

 

 

 

 

 

 

 

10

 

Short-term deposits

 

 

573

 

 

 

581

 

 

 

537

 

Marketable securities

 

 

132

 

 

 

133

 

 

 

135

 

Total liquidity