STMicroelectronics N.V. (NYSE:STM) Q1 2019 Earnings Conference Call Transcript

Apr 24, 2019 • 03:30 am ET

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STMicroelectronics N.V. (NYSE:STM) Q1 2019 Earnings Conference Call Transcript

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Presentation
Executive
Jean-Marc Chery

improving market conditions in the second half of the year.

Indeed, our visibility of the market improved as we progressed through the first quarter. In industrial and mass market, exiting the Chinese New Year, we saw no sign of improvement in Q2 demand. However, March and April point of sales revenues at distributors are showing signs of recovery. This, coupled with the financial stimulus programs in China, is increasing our confidence level for improved market conditions for the second half of 2019. Automotive is still growing, although tracking at a softer pace than planned.

While confirming our revenue dynamics for sequential growth in Q2 and a stronger second half compared to the first half, our 2019 plan is lower than what we expected entering the year. Therefore, we have started to take actions. First, on inventory. Our goal is to decrease it to a level in line with our current revenue expectations. This is an action already embedded in our Q2 gross margin guidance which includes significant unsaturation charges.

Second, to adjust our capital spending, we have moderated our 2019 CapEx plan to a range of $1.1 billion to $1.2 billion as the decrease is essentially impacting short-term capacity additions. At the same time, we are protecting our strategic programs that support our future growth. In 2019, we will maintain a solid capital structure. Importantly, as part of the proposed Annual General Meeting resolutions, our Supervisory Board is proposing to shareholders to declare a cash dividend of $0.24 per common share, payable to shareholders in equal quarterly installments.

Now let's move to a detailed review of the first quarter. Net revenues decreased 6.7% year-over-year and sales of microcontrollers and memories, analog and imaging were lower. On the other hand, we had strong growth in power discrete and automotive as well as growth in digital and MEMS. On a sequential basis, net revenues decreased 21.6%. Compared to our midpoint target, we were lower by 90 basis points, mainly due to ADG revenues, below expectation in discrete and in traditional automotive products. As expected, all product groups decreased on a sequential basis.

Our gross margin was 39.4%, 40 basis points higher than the midpoint of our guidance, mainly due to the lower sales pressure and a better than expected product mix. On a seasonally low quarter, our net operating expenses were $607 million, which is the range already shared with you in January. And as anticipated, they included some catch-up of 2018 R&D costs (ph). As a result, we maintained a solid level of profitability as our operating margin was 10.2%, net income was $178 million and diluted earnings per share were $0.20.

Turning to cash generation. Our net cash from operating activities was $341 million in the first quarter. Our CapEx in Q1 '19 amounted to $322 million. After the cash outflow of $76 million of the acquisition of 55% of Norstel share capital, free cash flow was negative $67 million in the first quarter. We paid cash dividends totaling $54