stm-6k_20220803.htm

 

 

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 August 3, 2022

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 Second Quarter and Six Months ended July 2, 2022:

 

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 six months ended July 2, 2022; 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 six months ended July 2, 2022 and Notes thereto included elsewhere in this Form 6‑K, and our annual report on Form 20‑F for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) on February 24, 2022 (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 for the three and six months ended July 2, 2022, designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the third quarter of 2022.

 

Other Developments.

 

Results of Operations, containing a year-over-year and sequential analysis of our financial results for the three and six months ended July 2, 2022, 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.

 

Other reviews

 

Cautionary Note Regarding Forward-Looking Statements.

2


 

 

At STMicroelectronics N.V. (“ST” or the “Company”), we are 48,000 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 200,000 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 connectivity. ST is committed to becoming carbon neutral by 2027.

Critical Accounting Policies Using Significant Estimates

There were no significant changes in the first half of 2022 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, 2021, except for the impacts of the application of the new guidance on convertible instruments, as described in Note 5, Recent Accounting Pronouncements, of the consolidated financial statements for the three and six months ended July 2, 2022.

Fiscal Year

Under Article 35 of our Articles of Association, our fiscal year extends from January 1 to December 31. The first quarter of 2022 ended on April 2 and the second quarter ended on July 2. The third quarter will end on October 1 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 2021 and 2022.

 

Q1

Q2

Q3

Q4

 

Days

2021

93

91

91

90

2022

92

91

91

91

 

Business Overview

Our results of operations for each period were as follows:

 

 

Three Months Ended

 

 

% Variation

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

Net revenues

 

$

3,837

 

 

$

3,546

 

 

$

2,992

 

 

 

8.2

%

 

 

28.3

%

Gross profit

 

 

1,819

 

 

 

1,655

 

 

 

1,212

 

 

 

10.0

 

 

 

50.2

 

Gross margin as percentage of net revenues

 

 

47.4

%

 

 

46.7

%

 

 

40.5

%

 

70 bps

 

 

690 bps

 

Operating income

 

 

1,004

 

 

 

877

 

 

 

489

 

 

 

14.4

 

 

 

105.4

 

Operating margin

 

 

26.2

%

 

 

24.7

%

 

 

16.3

%

 

150 bps

 

 

990 bps

 

Net income attributable to parent company

 

 

867

 

 

 

747

 

 

 

412

 

 

 

16.1

 

 

 

110.4

 

Earnings per share (Diluted)

 

$

0.92

 

 

$

0.79

 

 

$

0.44

 

 

 

16.5

%

 

 

109.1

%

(1)

Following a change in U.S. GAAP reporting guidance effective January 1, 2022, net income for the first and second quarter of 2022 does not include phantom interests associated with convertible bonds. Prior year comparative period has not been restated.  

(2)

Diluted earnings per share for the first and second quarter of 2022 include the full dilutive effect of our outstanding convertible debt upon adoption of the new U.S. GAAP reporting guidance on January 1, 2022. Prior year comparative period has not been restated.

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

Based on the data published by World Semiconductor Trade Statistics, on a sequential basis, semiconductor industry revenues in the second quarter of 2022 remained substantially flat for our TAM and increased by approximately 5% for our SAM to reach approximately $152 billion and $73 billion, respectively. On a year-over-year basis, our TAM increased by approximately 13% and our SAM increased by approximately 22%.

3


 

Our second quarter 2022 net revenues amounted to $3,837 million, increasing 8.2% sequentially, about 240 basis points above the mid-point of our released guidance. On a sequential basis, Automotive and Discrete Group (ADG) revenues increased 15.8%, driven by higher sales in both Automotive and Power Discrete. Analog, Micro-Electro-Mechanical Systems (“MEMS”) and Sensors Group (AMS) revenues increased 3.7%, driven by higher Imaging revenues. Microcontrollers and Digital ICs Group (MDG) revenues increased 4.4%, primarily attributable to higher revenues in Microcontrollers.

On a year-over-year basis, second quarter net revenues increased 28.3% with higher net sales in its product groups and all sub-groups. ADG revenues increased 35.1% with both Automotive and Power Discrete contributing to the increase. AMS revenues increased 11.3%, with all sub-groups contributing and MDG revenues increased 39.5% driven by higher sales in both RFC and Microcontrollers.

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

Our effective average exchange rate for the second quarter of 2022 was $1.12 for €1.00, compared to $1.15 in the first quarter of 2022 and $1.19 for €1.00 in the second quarter of 2021. 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 second quarter of 2022 gross profit was $1,819 million and gross margin was 47.4%, 140 basis points above the mid-point of our guidance mainly due to better than expected sales price increase and improved product mix. On a sequential basis, gross margin increased 70 basis points, mainly due to positive sales price impact, partially offset by lower manufacturing efficiency. Gross margin increased 690 basis points year-over-year, mainly driven by favorable pricing and better product mix, partially offset by inflation of manufacturing input costs.

Our aggregated selling, general & administrative (“SG&A”) and research & development (“R&D”) expenses amounted to $855 million, compared to $835 million and $767 million in the prior and year-ago quarters, respectively. On a sequential and year-over-year basis, operating expenses increased mainly due to higher labor costs and increased levels of activity in R&D programs, partially offset by positive currency effects, net of hedging.

 

Other income and expenses, net, amounted to $40 million income, decreasing by $17 million sequentially, mainly due to a one-time positive impact on public funding in the prior quarter. On a year-over-year basis, other income and expenses, net, remained substantially flat.

In the second quarter of 2022, our operating income was $1,004 million, equivalent to 26.2% of net revenues, compared to $877 million in the previous quarter (24.7% of net revenues), and to $489 million (16.3% of net revenues) in the year-ago quarter. On a sequential and a year-over-year basis, our operating income was positively impacted by the combination of increased revenues and improved gross margin profitability, partially offset by higher operating expenses.

In the second quarter of 2022, our cash and cash equivalents increased by $200 million, with net cash from operating activities of $1,056 million. Capital expenditure payments for tangible and intangible assets, net of proceeds from sale were $826 million.

Our free cash flow, a non-U.S. GAAP measure, amounted to $230 million in the second quarter of 2022 compared to $125 million in the second quarter of 2021. Refer to “Liquidity and Capital Resources” for the reconciliation of the free cash flow, a non U.S. GAAP measure, to our consolidated Statements of Cash Flows.

Looking at the third quarter, we expect a revenue increase of approximately 10.5% sequentially, plus or minus 350 basis points. Gross margin is expected to be approximately 47.0%, plus or minus 200 basis points.

This outlook is based on an assumed effective currency exchange rate of approximately $1.09 = €1.00 for the third quarter of 2022 and includes the impact of existing hedging contracts. The third quarter will close on October 1, 2022.

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 July 20, we announced a new cooperation model with CARIAD, the software unit of Volkswagen Group, under which the underlying parties will jointly develop an automotive system-on-chip (SoC). The planned cooperation targets the new generation of Volkswagen Group vehicles that will be based on the unified and scalable software platform. At the same time, the parties are moving to agree that TSMC, one of the world’s leading dedicated semiconductor foundry companies, will manufacture the SoC wafers for ST.

 

On July 11, we signed a Memorandum of Understanding with GlobalFoundries to create a new, jointly-operated 300mm semiconductor manufacturing facility adjacent to ST’s existing 300mm facility in Crolles, France. This facility is targeted to ramp at full capacity by 2026, with up to 620,000 300mm wafer per year production at full build-out. The project is subject to the execution of definitive agreements and various regulatory approvals, including from the European Commission’s DG Competition, and to the completion of the consultation with ST’s French Works Council.

 

On May 25, we held our Annual General Meeting of Shareholders (AGM) in Schiphol, the Netherlands. The proposed resolutions, all approved by the Shareholders, were:

 

 

The adoption of the Company's Statutory Annual Accounts for the year ended December 31, 2021, prepared in accordance with International Financial Reporting Standards (IFRS-EU) and filed with the Netherlands Authority for the Financial Markets (AFM) on March 24, 2022;

 

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 2022 and first quarter of 2023;

 

The reappointment of Ms. Janet Davidson, as member of the Supervisory Board for a two-year term to expire at the end of the 2024 AGM;

 

The appointment of Ms. Donatella Sciuto, as member of the Supervisory Board, for a three-year term expiring at the end of the 2025 AGM in replacement of Ms. Lucia Morselli whose mandate expired at the end of the 2022 AGM;

 

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

 

The authorization to the Managing Board, until the end of the 2023 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 2023 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, 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 and incidents leading to power outage, impairment, restructuring charges and other related closure costs, management reorganization expenses, phase-out and start-up costs of certain manufacturing facilities, and other unallocated income (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


 

Second Quarter 2022 vs. First Quarter 2022 and Second Quarter 2021

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

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

3,830

 

 

 

99.8

%

 

$

3,540

 

 

 

99.8

%

 

$

2,985

 

 

 

99.8

%

Other revenues

 

 

7

 

 

 

0.2

 

 

 

6

 

 

 

0.2

 

 

 

7

 

 

 

0.2

 

Net revenues

 

 

3,837

 

 

 

100.0

 

 

 

3,546

 

 

 

100.0

 

 

 

2,992

 

 

 

100.0

 

Cost of sales

 

 

(2,018

)

 

 

(52.6

)

 

 

(1,891

)

 

 

(53.3

)

 

 

(1,780

)

 

 

(59.5

)

Gross profit

 

 

1,819

 

 

 

47.4

 

 

 

1,655

 

 

 

46.7

 

 

 

1,212

 

 

 

40.5

 

Selling, general and administrative

 

 

(366

)

 

 

(9.5

)

 

 

(358

)

 

 

(10.1

)

 

 

(323

)

 

 

(10.8

)

Research and development

 

 

(489

)

 

 

(12.7

)

 

 

(477

)

 

 

(13.5

)

 

 

(444

)

 

 

(14.8

)

Other income and expenses, net

 

 

40

 

 

 

1.0

 

 

 

57

 

 

 

1.6

 

 

 

42

 

 

 

1.4

 

Impairment, restructuring charges and other

   related closure costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

0.1

 

Operating income

 

 

1,004

 

 

 

26.2

 

 

 

877

 

 

 

24.7

 

 

 

489

 

 

 

16.3

 

Interest income (expense), net

 

 

6

 

 

 

 

 

 

1

 

 

 

 

 

 

(8

)

 

 

(0.2

)

Other components of pension benefit costs

 

 

(2

)

 

 

(0.1

)

 

 

(3

)

 

 

(0.1

)

 

 

(3

)

 

 

(0.1

)

Income before income taxes and

   noncontrolling interest

 

 

1,008

 

 

 

26.3

 

 

 

875

 

 

 

24.7

 

 

 

478

 

 

 

16.0

 

Income tax expense

 

 

(139

)

 

 

(3.6

)

 

 

(129

)

 

 

(3.6

)

 

 

(65

)

 

 

(2.2

)

Net income

 

 

869

 

 

 

22.6

 

 

 

746

 

 

 

21.0

 

 

 

413

 

 

 

13.8

 

Net (income) loss attributable to

   noncontrolling interest

 

 

(2

)

 

 

 

 

 

1

 

 

 

 

 

 

(1

)

 

 

 

Net income attributable to parent

   company

 

$

867

 

 

 

22.6

%

 

$

747

 

 

 

21.1

%

 

$

412

 

 

 

13.8

%

Net revenues

 

 

Three Months Ended

 

 

% Variation

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,830

 

 

$

3,540

 

 

$

2,985

 

 

 

8.2

%

 

 

28.3

%

Other revenues

 

 

7

 

 

 

6

 

 

 

7

 

 

 

25.9

 

 

 

(1.4

)

Net revenues

 

$

3,837

 

 

$

3,546

 

 

$

2,992

 

 

 

8.2

%

 

 

28.3

%

 

Sequentially, our second quarter 2022 net revenues increased 8.2%, 240 basis points above the mid-point of our released guidance. The sequential increase resulted from higher average selling prices of approximately 5%, driven by sales price increase and a more favorable product mix, and higher volumes of approximately 3%.

On a year-over-year basis, net revenues increased 28.3% as a result of higher average selling prices of approximately 22%, driven by a more favorable product mix and sales price increase, and higher volumes of approximately 6%.

7


 

Net revenues by product group

 

 

Three Months Ended

 

 

% Variation

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

ADG

 

$

1,454

 

 

$

1,256

 

 

$

1,077

 

 

 

15.8

%

 

 

35.1

%

AMS

 

 

1,127

 

 

 

1,087

 

 

 

1,013

 

 

 

3.7

 

 

 

11.3

 

MDG

 

 

1,251

 

 

 

1,198

 

 

 

897

 

 

 

4.4

 

 

 

39.5

 

Others

 

 

5

 

 

 

5

 

 

 

5

 

 

 

 

 

 

 

Total consolidated net revenues

 

$

3,837

 

 

$

3,546

 

 

$

2,992

 

 

 

8.2

%

 

 

28.3

%

 

On a sequential basis, ADG revenues increased 15.8%, driven by higher volumes of approximately 9% and higher average selling prices of approximately 7%, due to a more favorable product mix and higher selling prices. AMS revenues increased 3.7%, due to higher average selling prices of approximately 7%, mainly due to a better product mix, partially offset by lower volumes of approximately 3%. MDG revenues increased 4.4%, driven by higher average selling prices of approximately 4%, due to higher selling prices, while volumes remained substantially flat.

On a year-over-year basis, ADG revenues increased 35.1%, driven by higher average selling prices of approximately 24%, due to higher selling prices and a better product mix, and higher volumes of approximately 11%. AMS revenues increased 11.3% compared to the year-ago period, driven by higher average selling prices of approximately 20%, mainly due to a better product mix, partially offset by lower volumes of approximately 9%. MDG revenues increased 39.5%, due to higher average selling prices of approximately 25%, due to higher selling prices and a better product mix, and higher volumes of approximately 14%.

Net Revenues by Market Channel (1)

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

OEM

 

 

65

%

 

 

66

%

 

 

64

%

Distribution

 

 

35

 

 

 

34

 

 

 

36

 

Total consolidated net revenues

 

 

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 second quarter net revenues in Distribution amounted to 35% of our total consolidated revenues, increasing from 34% and decreasing from 36% in the prior and year-ago quarter, respectively.

Net Revenues by Location of Shipment (1)

 

 

Three Months Ended

 

 

% Variation

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

Europe, Middle East, Africa ("EMEA")

 

$

826

 

 

$

791

 

 

$

643

 

 

 

4.4

%

 

 

28.5

%

Americas

 

 

562

 

 

 

494

 

 

 

378

 

 

13.8

 

 

48.7

 

Asia Pacific

 

 

2,449

 

 

 

2,261

 

 

 

1,971

 

 

8.3

 

 

24.3

 

Total consolidated net revenues

 

$

3,837

 

 

$

3,546

 

 

$

2,992

 

 

 

8.2

%

 

 

28.3

%

(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 4.4%, mainly due to higher sales in Automotive and Power Discrete. Americas revenues grew 13.8%, mainly due to higher sales in Power Discrete and Automotive. Asia Pacific revenues increased 8.3%, mainly driven by higher sales in Power Discrete, Automotive and Imaging.

On a year-over-year basis, all regions registered double-digits revenue growth. EMEA revenues grew 28.5%, mainly driven by higher sales in Automotive and Microcontrollers. Americas revenues increased 48.7%, mainly due to higher sales in Microcontrollers, Automotive and RF Communications. Asia Pacific revenues increased 24.3%, mainly due to higher sales in Microcontrollers, Automotive and Power Discrete.

8


 

Gross profit

 

 

Three Months Ended

 

 

Variation

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Gross profit

 

$

1,819

 

 

$

1,655

 

 

$

1,212

 

 

 

10.0

%

 

 

50.2

%

Gross margin

(as percentage of net revenues)

 

 

47.4

%

 

 

46.7

%

 

 

40.5

%

 

70 bps

 

 

690 bps

 

In the second quarter of 2022, gross margin was 47.4%, 140 basis points above the mid-point of our guidance mainly due to better than expected sales price increase and improved product mix. On a sequential basis, gross margin increased 70 basis points, mainly due to positive sales price impact, partially offset by lower manufacturing efficiency.

On a year-over-year basis, gross margin increased 690 basis points, mainly driven by favorable pricing and better product mix, partially offset by inflation of manufacturing input costs.

Operating expenses

 

 

Three Months Ended

 

 

Variation

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

$

(366

)

 

$

(358

)

 

$

(323

)

 

 

2.5

%

 

 

13.4

%

Research and development

 

 

(489

)

 

 

(477

)

 

 

(444

)

 

 

(18.5

)

 

 

10.3

 

Total operating expenses

 

$

(855

)

 

$

(835

)

 

$

(767

)

 

 

2.6

%

 

 

11.6

%

As percentage of net revenues

 

 

22.3

%

 

 

23.5

%

 

 

25.6

%

 

-120 bps

 

 

-330 bps

 

On a sequential and year-over-year basis, operating expenses increased by $20 million and $88 million respectively, mainly due to higher labor costs and increased levels of activity in R&D programs, partially offset by positive currency effects, net of hedging.

As a percentage of net revenues, our operating expenses amounted to 22.3% in the second quarter of 2022, decreasing compared to 23.5% in the prior quarter and 25.6% in the year-ago quarter.

R&D expenses were net of research tax credits, which amounted to $27 million in the second quarter of 2022, compared to $27 million and $35 million, in the prior and year-ago quarters, respectively.

Other income and expenses, net

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Public funding

 

$

39

 

 

$

64

 

 

$

43

 

Exchange gains and losses, net

 

 

5

 

 

 

2

 

 

 

1

 

Start-up and phase-out costs

 

 

(1

)

 

 

 

 

 

 

Patent costs

 

 

(1

)

 

 

(3

)

 

 

(1

)

Gain on sale of non-current assets

 

 

2

 

 

 

 

 

 

3

 

COVID-19 incremental costs

 

 

(3

)

 

 

(5

)

 

 

(4

)

Other, net

 

 

(1

)

 

 

(1

)

 

 

 

Other income and expenses, net

 

$

40

 

 

$

57

 

 

$

42

 

As percentage of net revenues

 

 

1.0

%

 

 

1.6

%

 

 

1.4

%

In the second quarter of 2022, other income and expenses, net, amounted to $40 million income, decreasing by $17 million sequentially, mainly due to a one-time positive impact on public funding in the prior quarter.

On a year-over-year basis, other income and expenses, net, remained substantially flat.

9


 

Impairment, restructuring charges and other related closure costs

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Impairment, restructuring charges and other related closure costs

 

$

 

 

$

 

 

$

2

 

There are no pending restructuring initiatives in 2022.

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.

Operating income

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Operating income

 

$

1,004

 

 

$

877

 

 

$

489

 

As percentage of net revenues

 

 

26.2

%

 

 

24.7

%

 

 

16.3

%

In the second quarter of 2022, operating income was $1,004 million, compared to an operating income of $877 million and $489 million in the prior and year-ago quarters, respectively.

On a sequential basis and on a year-over-year basis, our operating income was positively impacted by the combination of increased revenues and improved gross margin profitability, partially offset by higher operating expenses.

Operating income by product group

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

ADG

 

$

359

 

 

 

24.7

%

 

$

235

 

 

 

18.7

%

 

$

102

 

 

 

9.5

%

AMS

 

 

269

 

 

 

23.8

 

 

 

246

 

 

 

22.6

 

 

 

189

 

 

 

18.6

 

MDG

 

 

425

 

 

 

34.0

 

 

 

407

 

 

 

34.0

 

 

 

206

 

 

 

22.9

 

Total operating income of product groups

 

 

1,053

 

 

 

27.5

 

 

 

888

 

 

 

25.1

 

 

 

497

 

 

 

16.6

 

Others(1)

 

 

(49

)

 

 

 

 

 

(11

)

 

 

 

 

 

(8

)

 

 

 

Total consolidated operating income

 

$

1,004

 

 

 

26.2

%

 

$

877

 

 

 

24.7

%

 

$

489

 

 

 

16.3

%

(1)

Operating income (loss) of Others includes items such as unused capacity charges, including reduced manufacturing activity due to COVID-19 and incidents leading to power outage, impairment, restructuring charges and other related closure costs, management reorganization costs, phase-out and start-up costs of certain manufacturing facilities, and other unallocated income (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 second quarter of 2022, ADG operating income was $359 million, increasing sequentially by $124 million due to higher profitability in both Automotive and Power Discrete. AMS operating income was $269 million, increasing sequentially by $23 million, mainly driven by higher profitability in MEMS and Imaging. MDG operating income increased by $18 million sequentially, reaching $425 million, driven by RF Communications.

ADG operating income increased by $257 million year-over-year reflecting higher profitability in both Automotive and Power Discrete. AMS operating income increased by $80 million, with all sub-groups contributing to the increase. MDG operating income increased by $219 million, driven by both Microcontrollers and RF Communications higher profitability.

10


 

Reconciliation to consolidated operating income

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Total operating income of product groups

 

$

1,053

 

 

$

888

 

 

$

497

 

Impairment, restructuring charges and other related closure costs

 

 

 

 

 

 

 

 

2

 

Unused capacity charges

 

 

(13

)

 

 

(9

)

 

 

 

Other unallocated manufacturing results

 

 

(33

)

 

 

(17

)

 

 

(6

)

Gain on sale of non-current assets

 

 

2

 

 

 

 

 

 

1

 

Strategic and R&D programs

   and other non-allocated provisions(1)

 

 

(5

)

 

 

15

 

 

 

(5

)

Total operating income (loss) of Others

 

 

(49

)

 

 

(11

)

 

 

(8

)

Total consolidated operating income

 

$

1,004

 

 

$

877

 

 

$

489

 

(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

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Interest income (expense), net

 

$

6

 

 

$

1

 

 

$

(8

)

 

In the second quarter of 2022, we recorded a net interest income of $6 million, compared to a net interest income of $1 million in the prior quarter and a net interest expense of $8 million in the year-ago quarter. The second quarter net interest income was composed of $9 million of interest income, partially offset by interest expense on borrowings and banking fees of $3 million.

On January 1, 2022, we adopted the new U.S. GAAP reporting guidance on distinguishing liabilities from equity and EPS, by applying the modified retrospective method, under which prior year periods are not restated. Interest expense recorded in the year ago quarter included a charge of $11 million related to the outstanding senior unsecured convertible bonds, mainly resulting from the non-cash accretion expense, as recorded under the previous accounting guidance. With the adoption of the new guidance, the finance cost of the convertible debt instruments outstanding at the date of adoption is limited to the amortization expense of debt issuance costs.

Income tax expense

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Income tax expense

 

$

(139

)

 

$

(129

)

 

$

(65

)

During the second quarter of 2022, we registered an income tax expense of $139 million, reflecting a 14.5% estimated annual effective tax rate before discrete items at consolidated level, applied to the first six months of 2022 consolidated income before income tax, consistent with the actual annual tax rate of 2021.

Net income attributable to parent company

 

 

Three Months Ended

 

 

 

July 2,

2022

 

 

April 2,

2022

 

 

July 3,

2021

 

 

 

(In millions)

 

Net income attributable to parent company

 

$

867

 

 

$

747

 

 

$

412

 

As percentage of net revenues

 

 

22.6

%

 

 

21.1

%

 

 

13.8

%

For the second quarter of 2022, we reported net income of $867 million, representing diluted earnings per share of $0.92, compared to $0.79 in the prior quarter and $0.44 in the prior-year quarter.

Diluted earnings per share for the second quarter of 2022 includes the full dilutive effect of our outstanding convertible debt upon adoption of the newly applicable U.S. GAAP reporting guidance on January 1, 2022. Prior year period has not been restated.

11


 

First Half of 2022 vs. First Half of 2021

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

 

 

Six Months Ended

 

 

 

July 2,

2022

 

 

July 3,

2021

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

7,370

 

 

 

99.8

%

 

$

5,995

 

 

 

99.8

%

Other revenues

 

 

13

 

 

 

0.2

 

 

 

13

 

 

 

0.2

 

Net revenues

 

 

7,383

 

 

 

100.0

 

 

 

6,008

 

 

 

100.0

 

Cost of sales

 

 

(3,909

)

 

 

(52.9

)

 

 

(3,621

)

 

 

(60.3

)

Gross profit

 

 

3,474

 

 

 

47.1

 

 

 

2,387

 

 

 

39.7

 

Selling, general and administrative

 

 

(723

)

 

 

(9.8

)

 

 

(648

)

 

 

(10.8

)

Research and development

 

 

(966

)

 

 

(13.1

)

 

 

(888

)

 

 

(14.8

)

Other income and expenses, net

 

 

96

 

 

 

1.3

 

 

 

76

 

 

 

1.3

 

Impairment, restructuring charges and other

   related closure costs

 

 

 

 

 

 

 

 

2

 

 

 

0.1

 

Operating income

 

 

1,881

 

 

 

25.5

 

 

 

929

 

 

 

15.5

 

Interest income (expense), net

 

 

7

 

 

 

0.1

 

 

 

(16

)

 

 

(0.3

)

Other components of pension benefit costs

 

 

(5

)

 

 

(0.1

)

 

 

(5

)

 

 

(0.1

)

Gain (loss) on financial instruments, net

 

 

 

 

 

 

 

 

2

 

 

 

 

Income before income taxes and

   noncontrolling interest

 

 

1,883

 

 

 

25.5

 

 

 

910

 

 

 

15.1

 

Income tax expense

 

 

(268

)

 

 

(3.6

)

 

 

(131

)

 

 

(2.1

)

Net income

 

 

1,615

 

 

 

21.9

 

 

 

779

 

 

 

13.0

 

Net income attributable to

   noncontrolling interest

 

 

(1

)

 

 

 

 

 

(3

)

 

 

(0.1

)

Net income attributable to parent

   company

 

$

1,614

 

 

 

21.9

%

 

$

776

 

 

 

12.9

%

Net revenues

 

 

Six Months Ended

 

 

 

 

 

 

 

July 2,

2022

 

 

July 3,

2021

 

 

% Variation

 

 

 

(In millions)

 

Net sales

 

$

7,370

 

 

$

5,995

 

 

 

22.9

%

Other revenues

 

 

13

 

 

 

13

 

 

 

5.6

 

Net revenues

 

$

7,383

 

 

$

6,008