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 November 4, 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 Third Quarter and Nine Months ended October 2, 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 and nine months ended October 2, 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 and nine months ended October 2, 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 and nine months ended October 2, 2021 designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the fourth quarter of 2021.

 

Other Developments.

 

Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three and nine months ended October 2, 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 consolidated 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.

 

Other reviews.

 

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 significant changes in the first nine 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 ended on July 3 and the third quarter ended on October 2. 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

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

Net revenues

 

$

3,197

 

 

$

2,992

 

 

$

2,666

 

 

 

6.9

%

 

 

19.9

%

Gross profit

 

 

1,330

 

 

 

1,212

 

 

 

959

 

 

 

9.8

 

 

 

38.7

 

Gross margin as percentage of net revenues

 

 

41.6

%

 

 

40.5

%

 

 

36.0

%

 

110 bps

 

 

560 bps

 

Operating income

 

 

605

 

 

 

489

 

 

 

329

 

 

 

23.9

 

 

 

84.0

 

Operating margin

 

 

18.9

%

 

 

16.3

%

 

 

12.3

%

 

260 bps

 

 

660 bps

 

Net income attributable to parent company

 

 

474

 

 

 

412

 

 

 

242

 

 

 

15.1

 

 

 

95.6

 

Earnings per share (Diluted)

 

$

0.51

 

 

$

0.44

 

 

$

0.26

 

 

 

15.9

%

 

 

96.2

%

 

Our total available market is defined as our “TAM”, while our serviceable available market is defined as our “SAM” and represents the market for products sold by us (i.e., our TAM excluding major devices such as microprocessors, dynamic random-access memories, optoelectronics devices, flash memories and wireless application specific market products, such as baseband and application processors).

Based on the data published by World Semiconductor Trade Statistics, semiconductor industry revenues in the third quarter of 2021 increased sequentially by approximately 7% for our TAM and by approximately 6% for our SAM to reach approximately $145 billion and $67 billion, respectively. On a year-over-year basis, our TAM increased by approximately 28% and our SAM increased by approximately 27%.

Our third quarter 2021 net revenues amounted to $3,197 million, increasing 6.9% sequentially, substantially in line with the mid-point of our released guidance. The revenue performance was driven by strong global demand and by our engaged customer programs in Personal Electronics. This was partially offset by lower-than-expected revenues in Automotive, caused by more severe than anticipated reduced operations at our Malaysian manufacturing facility due to COVID-19. On a sequential basis, Automotive and Discrete Group (ADG) revenues decreased 6.7%, due to lower revenues in Automotive, partially offset by higher revenues in Power Discrete. Analog, Micro-Electro-Mechanical Systems (“MEMS”) and Sensors Group (AMS) revenues increased 25.2%, driven by higher Imaging revenues. Microcontrollers and Digital ICs Group (MDG) revenues increased 2.6%, driven by higher sales of Microcontrollers.

3


 

On a year-over-year basis, third quarter net revenues increased 19.9%, with all product groups contributing to the increase. ADG revenues increased 18.1%, mainly driven by Power Discrete. AMS revenues increased 27.1%, with all sub-groups contributing and MDG revenues increased 12.9%, driven by higher sales of Microcontrollers.

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

Our effective average exchange rate for the third quarter of 2021 was $1.19 for €1.00, compared to $1.19 in the second quarter of 2021 and $1.13 for €1.00 in the third 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 third quarter of 2021 gross profit was $1,330 million and gross margin was 41.6%, 60 basis points above the mid-point of our guidance, mainly due to product mix. On a sequential basis, gross margin increased 110 basis points, mainly due to favorable product mix and improved manufacturing efficiencies. Gross margin increased 560 basis points year-over-year, mainly driven by better product mix, favorable pricing, improved manufacturing efficiencies and lower unloading charges, partially offset by negative currency effects, net of hedging.

Our aggregated selling, general & administrative (“SG&A”) and research & development (“R&D”) expenses amounted to $757 million, compared to $767 million and $652 million in the prior and year-ago quarters, respectively. On a sequential basis, operating expenses decreased, positively impacted by favorable seasonality associated with higher vacation days. On a year-over-year basis, operating expenses increased mainly due to higher labor costs and negative currency effects, net of hedging.

 

Other income and expenses, net, amounted to $33 million income, decreasing by $9 million sequentially, mainly due to lower R&D funding. On a year-over-year basis, other income and expenses, net, increased by $9 million mainly due to higher R&D funding.

In the third quarter of 2021, our operating income was $605 million, equivalent to 18.9% of net revenues, compared to $489 million in the previous quarter (16.3% of net revenues), and to $329 million (12.3% of net revenues) in the year-ago quarter. On a sequential basis, our operating income was positively impacted by the combination of higher volumes and improved gross margin profitability. On a year-over-year basis, the increase was mainly driven by the combined effect of higher revenues and improved gross margin profitability, partially offset by higher labor costs and negative currency effects, net of hedging.

In the third quarter of 2021, our net cash from operating activities was $895 million, entirely covering our net payment for purchase of tangible, intangible and financial assets of $475 million, resulting in a positive free cash flow (non-U.S. GAAP measure) of $420 million. Despite positive free cash flow, $200 million proceeds from long-term debt and net proceeds from short-term deposits of $150 million, our net cash and cash equivalents decreased by $637 million, mainly impacted by $1.26 billion cash used for the settlement of Tranche B of our 2017 Senior Unsecured Convertible Bonds, $87 million used in the repurchase of common stock and $55 million of cash dividends paid to our shareholders.

Our net financial position (non-U.S. GAAP measure) was $798 million as at October 2, 2021 and reflected total liquidity of $3.46 billion and total financial debt of $2.66 billion.

Looking at the fourth quarter, we expect a revenue increase of approximately 6.3% sequentially, plus or minus 350 basis points. Gross margin is expected to be approximately 43.0%, 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 fourth quarter of 2021 and includes the impact of existing hedging contracts. The fourth quarter will close on December 31, 2021.

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.

4


 

Other Developments

On August 17, we announced the expansion of an existing multi-year, long-term silicon carbide wafer supply agreement with Cree. The amended agreement, which calls for Cree to supply us with 150mm silicon carbide bare and epitaxial wafers over the next several years, is now worth more than $800 million.

On August 18, we published our IFRS 2021 Semi Annual Accounts for the six-month period ended July 3, 2021 on our website and filed them with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten).

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 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, SG&A expenses and a part of R&D 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 R&D 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, public grants are allocated to our segments proportionally to the incurred 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


 

Third Quarter 2021 vs. Second Quarter 2021 and Third Quarter 2020

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

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

3,192

 

 

 

99.8

%

 

$

2,985

 

 

 

99.8

%

 

$

2,663

 

 

 

99.9

%

Other revenues

 

 

5

 

 

 

0.2

 

 

 

7

 

 

 

0.2

 

 

 

3

 

 

 

0.1

 

Net revenues

 

 

3,197

 

 

 

100.0

 

 

 

2,992

 

 

 

100.0

 

 

 

2,666

 

 

 

100.0

 

Cost of sales

 

 

(1,867

)

 

 

(58.4

)

 

 

(1,780

)

 

 

(59.5

)

 

 

(1,707

)

 

 

(64.0

)

Gross profit

 

 

1,330

 

 

 

41.6

 

 

 

1,212

 

 

 

40.5

 

 

 

959

 

 

 

36.0

 

Selling, general and administrative

 

 

(324

)

 

 

(10.1

)

 

 

(323

)

 

 

(10.8

)

 

 

(273

)

 

 

(10.3

)

Research and development

 

 

(433

)

 

 

(13.5

)

 

 

(444

)

 

 

(14.8

)

 

 

(379

)

 

 

(14.2

)

Other income and expenses, net

 

 

33

 

 

 

0.9

 

 

 

42

 

 

 

1.4

 

 

 

24

 

 

 

0.9

 

Impairment, restructuring charges and other

   related closure costs

 

 

(1

)

 

 

 

 

 

2

 

 

 

 

 

 

(2

)

 

 

(0.1

)

Operating income

 

 

605

 

 

 

18.9

 

 

 

489

 

 

 

16.3

 

 

 

329

 

 

 

12.3

 

Interest expense, net

 

 

(8

)

 

 

(0.3

)

 

 

(8

)

 

 

(0.2

)

 

 

(9

)

 

 

(0.3

)

Other components of pension benefit costs

 

 

(3

)

 

 

(0.1

)

 

 

(3

)

 

 

(0.1

)

 

 

(2

)

 

 

 

Income (loss) on equity-method investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

Loss on financial instruments, net

 

 

(45

)

 

 

(1.3

)

 

 

 

 

 

 

 

 

(26

)

 

 

(1.0

)

Income before income taxes and

   noncontrolling interest

 

 

549

 

 

 

17.2

 

 

 

478

 

 

 

16.0

 

 

 

293

 

 

 

11.0

 

Income tax expense

 

 

(73

)

 

 

(2.3

)

 

 

(65

)

 

 

(2.2

)

 

 

(50

)

 

 

(1.9

)

Net income

 

 

476

 

 

 

14.9

 

 

 

413

 

 

 

13.8

 

 

 

243

 

 

 

9.1

 

Net income attributable to

   noncontrolling interest

 

 

(2

)

 

 

(0.1

)

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Net income attributable to parent

   company stockholders

 

$

474

 

 

 

14.8

%

 

$

412

 

 

 

13.8

%

 

$

242

 

 

 

9.1

%

 

Net revenues

 

 

Three Months Ended

 

 

% Variation

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,192

 

 

$

2,985

 

 

$

2,663

 

 

 

7.0

%

 

 

19.9

%

Other revenues

 

 

5

 

 

 

7

 

 

 

3

 

 

 

(31.1

)

 

 

70.0

 

Net revenues

 

$

3,197

 

 

$

2,992

 

 

$

2,666

 

 

 

6.9

%

 

 

19.9

%

 

Sequentially, our third quarter 2021 net revenues increased 6.9%, 10 basis points below the mid-point of our released guidance. The sequential increase resulted from higher volumes of approximately 12%, partially offset by a decrease of approximately 5% in average selling prices, driven by a less favorable product mix.

On a year-over-year basis, net revenues increased 19.9% as a result of higher volumes of approximately 22%, partially offset by lower average selling prices of approximately 2%, mainly driven by a less favorable product mix, partially offset by higher selling prices.

7


 

Net revenues by product group

 

 

Three Months Ended

 

 

% Variation

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

ADG

 

$

1,005

 

 

$

1,077

 

 

$

851

 

 

 

(6.7

)%

 

 

18.1

%

AMS

 

 

1,268

 

 

 

1,013

 

 

 

997

 

 

 

25.2

 

 

 

27.1

 

MDG

 

 

920

 

 

 

897

 

 

 

815

 

 

 

2.6

 

 

 

12.9

 

Others

 

 

4

 

 

 

5

 

 

 

3

 

 

 

 

 

 

 

Total consolidated net revenues

 

$

3,197

 

 

$

2,992

 

 

$

2,666

 

 

 

6.9

%

 

 

19.9

%

 

On a sequential basis, ADG revenues decreased 6.7%, driven by an approximate 23% decrease in average selling prices, due to a less favorable product mix, partially offset by higher volumes of approximately 16%, driven by Power Discrete. AMS revenues increased 25.2% as a result of higher average selling prices of approximately 15%, mainly due to a better product mix, and higher volumes of approximately 10%. MDG revenues increased 2.6% due to higher volumes of approximately 8%, partially offset by lower average selling prices of approximately 5%, as a result of a less favorable product mix.

On a year-over-year basis, ADG revenues increased 18.1% due to higher volumes of approximately 23%, partially offset by lower average selling prices of approximately 5%, due to a less favorable product mix. AMS revenues increased 27.1% compared to the year-ago period, driven by higher volumes of approximately 22% and higher average selling prices of approximately 5%, mainly due to a more favorable product mix and higher selling prices. MDG revenues increased 12.9% due to higher volumes of approximately 18%, while average selling prices decreased by approximately 5%, due to a less favorable product mix.

Net Revenues by Market Channel (1)

 

 

Three Months Ended

 

 

October 2,

2021

 

July 3,

2021

 

September 26,

2020

OEM

 

68%

 

64%

 

74%

Distribution

 

32

 

36

 

26

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 third quarter net revenues in Distribution amounted to 32% of our total revenues, decreasing from 36% and increasing from 26% in the prior and year-ago quarters, respectively.

Net Revenues by Location of Shipment (1)

 

 

Three Months Ended

 

 

% Variation

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

Europe, Middle East, Africa ("EMEA")

 

$

578

 

 

$

643

 

 

$

495

 

 

 

(10.0

)%

 

 

16.8

%

Americas

 

 

360

 

 

 

378

 

 

 

289

 

 

 

(4.8

)

 

 

24.7

 

Asia Pacific

 

 

2,259

 

 

 

1,971

 

 

 

1,882

 

 

 

14.6

 

 

 

20.0

 

Total

 

$

3,197

 

 

$

2,992

 

 

$

2,666

 

 

 

6.9

%

 

 

19.9

%

 

(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 and Americas revenues decreased 10.0% and 4.8%, respectively, mainly due to lower sales in Automotive. Asia Pacific revenues increased 14.6%, mainly driven by higher sales in Imaging.

On a year-over-year basis, all regions registered double-digits revenue growth. EMEA revenues grew 16.8%, mainly driven by higher sales in Microcontrollers, Power Discrete and Analog. Americas revenues increased 24.7%, mainly due to higher sales in Microcontrollers and Power Discrete. Asia Pacific revenues increased 20.0%, mainly due to higher sales in Imaging, Power Discrete and Microcontrollers.

8


 

Gross profit

 

 

Three Months Ended

 

 

Variation

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Gross profit

 

$

1,330

 

 

$

1,212

 

 

$

959

 

 

 

9.8

%

 

 

38.7

%

Gross margin

(as percentage of net revenues)

 

 

41.6

%

 

 

40.5

%

 

 

36.0

%

 

110 bps

 

 

560 bps

 

 

In the third quarter of 2021, gross margin was 41.6%, 60 basis points above the mid-point of our guidance mainly due to product mix. On a sequential basis, gross margin increased 110 basis points, mainly due to favorable product mix and improved manufacturing efficiencies.

On a year-over-year basis, gross margin increased 560 basis points, mainly driven by better product mix, favorable pricing, improved manufacturing efficiencies and lower unloading charges, partially offset by negative currency effects, net of hedging.

Operating expenses

 

 

Three Months Ended

 

 

Variation

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

$

(324

)

 

$

(323

)

 

$

(273

)

 

 

(0.5

)%

 

 

(18.7

)%

Research and development

 

 

(433

)

 

 

(444

)

 

 

(379

)

 

 

2.5

 

 

 

(14.3

)

Total operating expenses

 

$

(757

)

 

$

(767

)

 

$

(652

)

 

 

1.2

%

 

 

(16.2

)%

As percentage of net revenues

 

 

23.6

%

 

 

25.6

%

 

 

24.4

%

 

-200 bps

 

 

-80 bps

 

 

On a sequential basis, operating expenses decreased by $10 million, positively impacted by favorable seasonality associated with higher vacation days.

On a year-over-year basis, operating expenses increased by 105 million, mainly due to higher labor costs and negative currency effects, net of hedging.

As a percentage of net revenues, our operating expenses amounted to 23.6% in the third quarter of 2021, decreasing compared to 25.6% in the prior quarter and 24.4% in the year-ago quarter.

R&D expenses were net of research tax credits, which amounted to $31 million in the third quarter of 2021, compared to $35 million and $31 million, in the prior and year-ago quarters, respectively.

Other income and expenses, net

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

R&D funding

 

$

39

 

 

$

43

 

 

$

28

 

Exchange gain (loss), net

 

 

2

 

 

 

1

 

 

 

2

 

Patent costs

 

 

(2

)

 

 

(1

)

 

 

(2

)

Gain on sale of non-current assets

 

 

2

 

 

 

3

 

 

 

2

 

COVID-19 incremental costs

 

 

(5

)

 

 

(4

)

 

 

(5

)

Other, net

 

 

(3

)

 

 

 

 

 

(1

)

Other income and expenses, net

 

$

33

 

 

$

42

 

 

$

24

 

As percentage of net revenues

 

 

0.9

%

 

 

1.4

%

 

 

0.9

%

 

In the third quarter of 2021, other income and expenses, net, amounted to $33 million income, decreasing by $9 million sequentially, mainly due to lower R&D funding.

On a year-over-year basis, other income and expenses, net, increased by $9 million mainly due to higher R&D funding.

9


 

Impairment, restructuring charges and other related closure costs

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Impairment, restructuring charges and other related closure costs

 

$

(1

)

 

$

2

 

 

$

(2

)

 

The timing of our annual impairment test was changed from the third quarter to the fourth quarter, starting 2021, to consider the availability of relevant information prepared as part of the budgeting and forecasting cycle.

In the third quarter of 2021, we recorded $1 million of impairment, restructuring charges and other related closure costs, related to the impairment charge on licenses with no alternative future use.

In the second quarter of 2021, we recorded a $2 million reversal as an adjustment to accrued restructuring charges when compared to actual amounts paid.

In the third quarter of 2020, we recorded $2 million of impairment, restructuring charges and other related closure costs, mainly consisting of restructuring charges related to the restructuring plan in Bouskoura, Morocco.

Operating income

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Operating income

 

$

605

 

 

$

489

 

 

$

329

 

As percentage of net revenues

 

 

18.9

%

 

 

16.3

%

 

 

12.3

%

 

In the third quarter of 2021, operating income was $605 million, compared to an operating income of $489 million and $329 million in the prior and year-ago quarters, respectively.

On a sequential basis, our operating income was positively impacted by the combination of higher volumes and improved gross margin profitability.

On a year-over-year basis, the increase is mainly driven by the combined effect of higher revenues and improved gross margin profitability, partially offset by higher labor costs and negative currency effects, net of hedging.

Operating income by product group

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

ADG

 

$

108

 

 

 

10.8

%

 

$

102

 

 

 

9.5

%

 

$

49

 

 

 

5.8

%

AMS

 

 

304

 

 

 

24.0

 

 

 

189

 

 

 

18.6

 

 

 

175

 

 

 

17.5

 

MDG

 

 

220

 

 

 

23.9

 

 

 

206

 

 

 

22.9

 

 

 

142

 

 

 

17.4

 

Total operating income of product groups

 

 

632

 

 

 

19.8

 

 

 

497

 

 

 

16.6

 

 

 

366

 

 

 

13.7

 

Others(1)

 

 

(27

)

 

 

 

 

 

(8

)

 

 

 

 

 

(37

)

 

 

 

Total consolidated operating income

 

$

605

 

 

 

18.9

%

 

$

489

 

 

 

16.3

%

 

$

329

 

 

 

12.3

%

 

(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 R&D 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.

For the third quarter of 2021, ADG operating income was $108 million, increasing sequentially by $6 million. AMS operating income increased sequentially by $115 million, reaching $304 million, mainly driven by higher profitability in Imaging. MDG operating income increased by $14 million sequentially, reaching $220 million, driven by Microcontrollers.

10


 

ADG operating income increased by $59 million year-over-year reflecting higher profitability in both Power Discrete and Automotive. AMS operating income increased by $129 million, with all sub-groups contributing to the increase. MDG operating income increased by $78 million, due to Microcontrollers higher profitability.

Reconciliation to consolidated operating income

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Total operating income of product segments

 

$

632

 

 

$

497

 

 

$

366

 

Impairment, restructuring charges and other related closure costs

 

 

(1

)

 

 

2

 

 

 

(2

)

Unused capacity charges

 

 

(14

)

 

 

 

 

 

(38

)

Other unallocated manufacturing results

 

 

(6

)

 

 

(6

)

 

 

3

 

Gain on sale of non-current assets

 

 

2

 

 

 

1

 

 

 

 

Strategic and other R&D programs

   and other non-allocated provisions(1)

 

 

(8

)

 

 

(5

)

 

 

 

Total operating loss of Others

 

 

(27

)

 

 

(8

)

 

 

(37

)

Total consolidated operating income

 

$

605

 

 

$

489

 

 

$

329

 

 

(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 expense, net

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Interest expense, net

 

$

(8

)

 

$

(8

)

 

$

(9

)

 

In the third quarter of 2021, we recorded a net interest expense of $8 million, substantially flat compared to the prior and year-ago quarters. The third quarter net interest expense was composed of $10 million of interest expense on our borrowings and banking fees, partially offset by $2 million of interest income.

Net interest expense recorded in the third quarter of 2021 included a $8 million non-cash charge related to our Senior Unsecured Convertible Bonds compared to a $11 million charge in the second quarter of 2021 and a $13 million charge in the third quarter of 2020.

Loss on financial instruments, net

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Loss on financial instruments, net

 

$

(45

)

 

$

 

 

$

(26

)

 

During the third quarter of 2021, we recorded a $45 million loss on financial instruments generated on the settlement of Tranche B of our 2017 Senior Unsecured Convertible Bonds. This loss was associated with the fair value measurement of the liability component of Tranche B upon settlement and the write-off of unamortized debt issuance costs.

 

During the third quarter of 2020, we recorded a $26 million loss on financial instruments, of which $25 million generated on the settlement of Tranche A of our 2017 Senior Unsecured Convertible Bonds. This loss was associated with the fair value measurement of the liability component of Tranche A upon settlement and the write-off of unamortized debt issuance costs.

 

Income tax expense

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Income tax expense

 

$

(73

)

 

$

(65

)

 

$

(50

)

11


 

 

 

During the third quarter of 2021, we registered an income tax expense of $73 million, reflecting a 15% estimated annual effective tax rate at consolidated level, applied to the first nine months of 2021 consolidated income before income tax, consistent with the actual annual tax rate of 2020.

Net income attributable to parent company

 

 

Three Months Ended

 

 

 

October 2,

2021

 

 

July 3,

2021

 

 

September 26,

2020

 

 

 

(In millions)

 

Net income attributable to parent company stockholders

 

$

474

 

 

$

412

 

 

$

242

 

As percentage of net revenues

 

 

14.8

%

 

 

13.8

%

 

 

9.1

%

 

For the third quarter of 2021, we reported net income of $474 million, representing diluted earnings per share of $0.51, compared to $0.44 in the prior quarter and $0.26 in the prior-year quarter.

12


 

Nine Months of 2021 vs. Nine Months of 2020

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

 

 

Nine Months Ended

 

 

 

October 2,

2021

 

 

September 26,

2020

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

9,187

 

 

 

99.8

%

 

$

6,975

 

 

 

99.9

%

Other revenues

 

 

18

 

 

 

0.2

 

 

 

9

 

 

 

0.1

 

Net revenues

 

 

9,205

 

 

 

100.0

 

 

 

6,984

 

 

 

100.0

 

Cost of sales

 

 

(5,488

)

 

 

(59.6

)

 

 

(4,449

)

 

 

(63.7

)

Gross profit

 

 

3,717

 

 

 

40.4

 

 

 

2,535

 

 

 

36.3

 

Selling, general and administrative

 

 

(972

)

 

 

(10.6

)

 

 

(802

)

 

 

(11.5

)

Research and development

 

 

(1,321

)

 

 

(14.4

)

 

 

(1,126

)

 

 

(16.1

)

Other income and expenses, net

 

 

109

 

 

 

1.3

 

 

 

71

 

 

 

1.0

 

Impairment, restructuring charges and other

   related closure costs

 

 

1

 

 

 

 

 

 

(12

)

 

 

(0.2

)

Operating income

 

 

1,534

 

 

 

16.7

 

 

 

666

 

 

 

9.5

 

Interest expense, net

 

 

(24

)

 

 

(0.3

)

 

 

(12

)

 

 

(0.1

)

Other components of pension benefit costs

 

 

(8

)

 

 

(0.1

)

 

 

(8

)

 

 

(0.1

)

Income (loss) on equity-method investments

 

 

 

 

 

 

 

 

1

 

 

 

 

Loss on financial instruments, net

 

 

(43

)

 

 

(0.4

)

 

 

(26

)

 

 

(0.4

)

Income before income taxes and

   noncontrolling interest

 

 

1,459

 

 

 

15.9

 

 

 

621

 

 

 

8.9

 

Income tax expense

 

 

(204

)

 

 

(2.3

)

 

 

(96

)

 

 

(1.4

)

Net income

 

 

1,255

 

 

 

13.6

 

 

 

525

 

 

 

7.5

 

Net income attributable to

   noncontrolling interest

 

 

(4

)