stm-6k_20221021.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 November 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 Nine months ended October 1, 2022 Third Quarter and Nine Months ended October 1, 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 nine months ended October 1, 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 nine months ended October 1, 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 nine months ended October 1, 2022, designed to provide context for the other sections of the MD&A, including our expectations for selected financial items for the fourth quarter of 2022.

 

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 1, 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 nine months 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 nine months ended October 1, 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, the second quarter ended on July 2 and the third quarter ended on October 1. The fourth quarter will end on December 31, 2022. 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

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

Net revenues

 

$

4,321

 

 

$

3,837

 

 

$

3,197

 

 

 

12.6

%

 

 

35.2

%

Gross profit

 

 

2,059

 

 

 

1,819

 

 

 

1,330

 

 

 

13.2

 

 

 

54.7

 

Gross margin (as percentage of net revenues)

 

 

47.6

%

 

 

47.4

%

 

 

41.6

%

 

20 bps

 

 

600 bps

 

Operating income

 

 

1,272

 

 

 

1,004

 

 

 

605

 

 

 

26.7

 

 

 

110.1

 

Operating margin

 

 

29.4

%

 

 

26.2

%

 

 

18.9

%

 

320 bps

 

 

1,050 bps

 

Net income attributable to parent company

 

 

1,099

 

 

 

867

 

 

 

474

 

 

 

26.8

 

 

 

131.8

 

Earnings per share (Diluted)

 

$

1.16

 

 

$

0.92

 

 

$

0.51

 

 

 

26.1

%

 

 

127.5

%

(1)

Following a change in U.S. GAAP reporting guidance effective January 1, 2022, net income for the second and third 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 second and third 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 third quarter of 2022 decreased by approximately 6% for our TAM and increased by approximately 2% for our SAM to reach approximately $141 billion and $73 billion, respectively. On a year-over-year basis, our TAM decreased by approximately 3% and our SAM increased by approximately 15%.

3


 

Our third quarter 2022 net revenues amounted to $4,321 million, increasing 12.6% sequentially, about 210 basis points above the mid-point of our released guidance, driven by continued strong demand for our product portfolio. On a sequential basis, Automotive and Discrete Group (ADG) revenues increased 7.5%, mainly driven by higher sales in Automotive. Analog, Micro-Electro-Mechanical Systems (“MEMS”) and Sensors Group (AMS) revenues increased 23.7%, driven by higher Imaging revenues. Microcontrollers and Digital ICs Group (MDG) revenues increased 8.8%, with both Microcontrollers and RF Communications contributing to the increase.

On a year-over-year basis, third quarter net revenues increased 35.2% with higher net sales in all product groups and sub-groups. ADG revenues increased 55.5% with both Automotive and Power Discrete contributing to the increase. AMS revenues increased 9.7%, with all sub-groups contributing and MDG revenues increased 47.7% driven by higher sales in both RF Communications 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 third quarter of 2022 was $1.08 for €1.00, compared to $1.12 in the second quarter of 2022 and $1.19 for €1.00 in the third quarter of 2021. For a more detailed discussion of our hedging transactions and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates”.

Our third quarter of 2022 gross profit was $2,059 million and gross margin was 47.6%, 60 basis points above the mid-point of our guidance mainly thanks to a more favorable product mix and improved manufacturing efficiency. On a sequential basis, gross margin increased 20 basis points, mainly due to positive currency effects and a more favorable product mix, partially offset by lower manufacturing efficiency. Gross margin increased 600 basis points year-over-year, principally due to favorable pricing and improved product mix partially offset by the inflation of manufacturing input costs.

Our aggregated selling, general & administrative (“SG&A”) and research & development (“R&D”) expenses amounted to $815 million, compared to $855 million and $757 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 and currency effects, net of hedging. On a year-over-year basis, operating expenses increased mainly due to higher cost of labor and higher levels of activity in R&D programs, partially offset by positive currency effects, net of hedging.

 

Other income and expenses, net, amounted to $28 million income, decreasing by $12 million sequentially and $5 million on a year-over-year basis, mainly due to lower public funding.

In the third quarter of 2022, our operating income was $1,272 million, equivalent to 29.4% of net revenues, compared to $1,004 million in the previous quarter (26.2% of net revenues), and to $605 million (18.9% of net revenues) in the year-ago quarter. On a sequential basis, operating income was positively impacted by the combination of higher revenues and lower operating expenses. 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 operating expenses.

In the third quarter of 2022, our cash and cash equivalents decreased by $216 million, with net cash from operating activities of $1,651 million. Capital expenditure payments for tangible and intangible assets, net of proceeds from sales, were $975 million.

Our free cash flow, a non-U.S. GAAP measure, amounted to $676 million in the third quarter of 2022 compared to $420 million in the third 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 1.8% sequentially, plus or minus 350 basis points. Gross margin is expected to be approximately 47.3%, plus or minus 200 basis points.

This outlook is based on an assumed effective currency exchange rate of approximately $1.03 = €1.00 for the fourth quarter of 2022 and includes the impact of existing hedging contracts. The fourth quarter will close on December 31, 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

4


 

“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 October 5, we announced our plan to build an integrated Silicon Carbide (SiC) substrate manufacturing facility in Italy to support the increasing demand from our customers for SiC devices across automotive and industrial applications. This facility, built at our Catania site in Italy alongside the existing SiC device manufacturing facility, will be a first of a kind in Europe for the production in volume of 150mm SiC epitaxial substrates, integrating all steps in the production flow. Production is expected to start in 2023, enabling a balanced supply of SiC substrate between internal and merchant supply.

 

On August 24, we published our IFRS 2022 Semi Annual Accounts for the six-month period ended July 2, 2022 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 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, MEMS sensors and actuators, and optical sensing solutions.

 

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

Effective July 1, 2022, the Low Power RF business unit was transferred from the Analog, MEMS and Sensors Group (AMS) to the Microcontrollers and Digital ICs Group (MDG). Prior periods have been adjusted accordingly.

 

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


 

Third Quarter 2022 vs. Second Quarter 2022 and Third Quarter 2021

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

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

4,305

 

 

 

99.6

%

 

$

3,830

 

 

 

99.8

%

 

$

3,192

 

 

 

99.8

%

Other revenues

 

 

16

 

 

 

0.4

 

 

 

7

 

 

 

0.2

 

 

 

5

 

 

 

0.2

 

Net revenues

 

 

4,321

 

 

 

100.0

 

 

 

3,837

 

 

 

100.0

 

 

 

3,197

 

 

 

100.0

 

Cost of sales

 

 

(2,262

)

 

 

(52.3

)

 

 

(2,018

)

 

 

(52.6

)

 

 

(1,867

)

 

 

(58.4

)

Gross profit

 

 

2,059

 

 

 

47.6

 

 

 

1,819

 

 

 

47.4

 

 

 

1,330

 

 

 

41.6

 

Selling, general and administrative

 

 

(352

)

 

 

(8.2

)

 

 

(366

)

 

 

(9.5

)

 

 

(324

)

 

 

(10.1

)

Research and development

 

 

(463

)

 

 

(10.7

)

 

 

(489

)

 

 

(12.7

)

 

 

(433

)

 

 

(13.5

)

Other income and expenses, net

 

 

28

 

 

 

0.6

 

 

 

40

 

 

 

1.0

 

 

 

33

 

 

 

0.9

 

Impairment, restructuring charges and other

   related closure costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

Operating income

 

 

1,272

 

 

 

29.4

 

 

 

1,004

 

 

 

26.2

 

 

 

605

 

 

 

18.9

 

Interest income (expense), net

 

 

16

 

 

 

 

 

 

6

 

 

 

0.2

 

 

 

(8

)

 

 

(0.3

)

Other components of pension benefit costs

 

 

(2

)

 

 

 

 

 

(2

)

 

 

(0.1

)

 

 

(3

)

 

 

(0.1

)

Gain (loss) on financial instruments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

(1.3

)

Income before income taxes and

   noncontrolling interest

 

 

1,286

 

 

 

29.8

 

 

 

1,008

 

 

 

26.3

 

 

 

549

 

 

 

17.2

 

Income tax expense

 

 

(185

)

 

 

(4.3

)

 

 

(139

)

 

 

(3.6

)

 

 

(73

)

 

 

(2.3

)

Net income

 

 

1,101

 

 

 

25.5

 

 

 

869

 

 

 

22.6

 

 

 

476

 

 

 

14.9

 

Net (income) loss attributable to

   noncontrolling interest

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

Net income attributable to parent

   company

 

$

1,099

 

 

 

25.4

%

 

$

867

 

 

 

22.6

%

 

$

474

 

 

 

14.8

%

Net revenues

 

 

Three Months Ended

 

 

% Variation

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Net sales

 

$

4,305

 

 

$

3,830

 

 

$

3,192

 

 

 

12.4

%

 

 

34.9

%

Other revenues

 

 

16

 

 

 

7

 

 

 

5

 

 

 

121.9

 

 

 

217.6

 

Net revenues

 

$

4,321

 

 

$

3,837

 

 

$

3,197

 

 

 

12.6

%

 

 

35.2

%

Sequentially, our third quarter 2022 net revenues increased 12.6%, 210 basis points above the mid-point of our released guidance, driven by continued strong demand for our product portfolio. The sequential increase resulted from higher average selling prices of approximately 8%, driven by a more favorable product mix, and higher volumes of approximately 5%.

On a year-over-year basis, net revenues increased 35.2% as a result of higher average selling prices of approximately 35%, driven by a more favorable product mix and sales price increase.

7


 

Net revenues by product group

 

 

Three Months Ended

 

 

% Variation

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

ADG

 

$

1,563

 

 

$

1,454

 

 

$

1,005

 

 

 

7.5

%

 

 

55.5

%

AMS(1)

 

 

1,380

 

 

 

1,115

 

 

 

1,258

 

 

 

23.7

 

 

 

9.7

 

MDG(1)

 

 

1,374

 

 

 

1,263

 

 

 

930

 

 

 

8.8

 

 

 

47.7

 

Others

 

 

4

 

 

 

5

 

 

 

4

 

 

 

 

 

 

 

Total consolidated net revenues

 

$

4,321

 

 

$

3,837

 

 

$

3,197

 

 

 

12.6

%

 

 

35.2

%

(1)

Effective July 1, 2022, the Low Power RF business unit was transferred from AMS to MDG. Prior periods have been adjusted accordingly.

On a sequential basis, ADG revenues increased 7.5%, driven by higher volumes of approximately 6% and higher average selling prices of approximately 2%. AMS revenues increased 23.7%, due to higher average selling prices of approximately 24%, thanks to a better product mix. MDG revenues increased 8.8%, driven by higher volumes of approximately 6% and higher average selling prices of approximately 3%, due to a more favorable product mix.

On a year-over-year basis, ADG revenues increased 55.5%, driven by higher average selling prices of approximately 54%, due to a better product mix and higher selling prices, and higher volumes of approximately 2%. AMS revenues increased 9.7% 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 10%. MDG revenues increased 47.7%, due to higher average selling prices of approximately 37%, due to a better product mix and higher selling prices, and higher volumes of approximately 11%.

Net Revenues by Market Channel (1)

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

OEM

 

 

67

%

 

 

65

%

 

 

68

%

Distribution

 

 

33

 

 

 

35

 

 

 

32

 

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 third quarter net revenues in Distribution amounted to 33% of our total consolidated revenues, decreasing from 35% and increasing from 32% in the prior and year-ago quarter, respectively.

Net Revenues by Location of Shipment (1)

 

 

Three Months Ended

 

 

% Variation

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

Europe, Middle East, Africa ("EMEA")

 

$

936

 

 

$

826

 

 

$

578

 

 

 

13.3

%

 

 

61.9

%

Americas

 

 

586

 

 

 

562

 

 

 

360

 

 

 

4.3

 

 

 

62.8

 

Asia Pacific

 

 

2,799

 

 

 

2,449

 

 

 

2,259

 

 

 

14.3

 

 

 

23.9

 

Total consolidated net revenues

 

$

4,321

 

 

$

3,837

 

 

$

3,197

 

 

 

12.6

%

 

 

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 13.3%, mainly due to higher sales in Microcontrollers and Automotive. Americas revenues grew 4.3%, mainly due to higher sales in Microcontrollers and RF Communications. Asia Pacific revenues increased 14.3%, mainly driven by higher sales in Imaging and Automotive.

8


 

On a year-over-year basis, all regions registered double-digits revenue growth. EMEA revenues grew 61.9%, mainly driven by higher sales in Automotive and Microcontrollers. Americas revenues increased 62.8%, mainly due to higher sales in Microcontrollers, Automotive and RF Communications. Asia Pacific revenues increased 23.9%, mainly due to higher sales in Automotive and Microcontrollers.

Gross profit

 

 

Three Months Ended

 

 

Variation

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Gross profit

 

$

2,059

 

 

$

1,819

 

 

$

1,330

 

 

 

13.2

%

 

 

54.7

%

Gross margin

(as percentage of net revenues)

 

 

47.6

%

 

 

47.4

%

 

 

41.6

%

 

20 bps

 

 

600 bps

 

In the third quarter of 2022, gross margin was 47.6%, 60 basis points above the mid-point of our guidance, mainly thanks to a more favorable product mix and improved manufacturing efficiency. On a sequential basis, gross margin increased 20 basis points, mainly due to positive currency effects and a more favorable product mix, partially offset by lower manufacturing efficiency.

On a year-over-year basis, gross margin increased 600 basis points, principally due to favorable pricing and improved product mix partially offset by the inflation of manufacturing input costs.

Operating expenses

 

 

Three Months Ended

 

 

Variation

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

Sequential

 

 

Year

Over

Year

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

$

(352

)

 

$

(366

)

 

$

(324

)

 

 

(3.8

)%

 

 

8.6

%

Research and development

 

 

(463

)

 

 

(489

)

 

 

(433

)

 

 

(5.3

)

 

 

7.0

 

Total operating expenses

 

$

(815

)

 

$

(855

)

 

$

(757

)

 

 

(4.7

)%

 

 

7.7

%

As percentage of net revenues

 

 

18.9

%

 

 

22.3

%

 

 

23.6

%

 

-340 bps

 

 

-470 bps

 

On a sequential basis, operating expenses decreased, positively impacted by favorable seasonality associated with higher vacation days and currency effects, net of hedging. On a year-over-year basis, operating expenses increased mainly due to higher cost of labor and higher 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 18.9% in the third quarter of 2022, decreasing compared to 22.3% in the prior quarter and 23.6% in the year-ago quarter.

R&D expenses were net of research tax credits, which amounted to $24 million in the third quarter of 2022, compared to $27 million and $31 million, in the prior and year-ago quarters, respectively.

Other income and expenses, net

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Public funding

 

$

28

 

 

$

39

 

 

$

39

 

Exchange gain (loss), net

 

 

6

 

 

 

5

 

 

 

2

 

Start-up and phase-out costs

 

 

(1

)

 

 

(1

)

 

 

 

Patent costs

 

 

(3

)

 

 

(1

)

 

 

(2

)

Gain on sale of non-current assets

 

 

 

 

 

2

 

 

 

2

 

COVID-19 incremental costs

 

 

(1

)

 

 

(3

)

 

 

(5

)

Other, net

 

 

(1

)

 

 

(1

)

 

 

(3

)

Other income and expenses, net

 

$

28

 

 

$

40

 

 

$

33

 

As percentage of net revenues

 

 

0.6

%

 

 

1.0

%

 

 

0.9

%

9


 

 

In the third quarter of 2022, other income and expenses, net, amounted to $28 million income, decreasing by $12 million sequentially and $5 million on a year-over-year basis, mainly due to lower public funding.

Impairment, restructuring charges and other related closure costs

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Impairment, restructuring charges and other related closure costs

 

$

 

 

$

 

 

$

(1

)

There are no pending restructuring initiatives in 2022.

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.

Operating income

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Operating income

 

$

1,272

 

 

$

1,004

 

 

$

605

 

As percentage of net revenues

 

 

29.4

%

 

 

26.2

%

 

 

18.9

%

In the third quarter of 2022, operating income was $1,272 million, compared to an operating income of $1,004 million and $605 million in the prior and year-ago quarters, respectively.

On a sequential basis, operating income was positively impacted by the combination of higher revenues and lower operating expenses.

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 operating expenses.

Operating income by product group

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

ADG

 

$

404

 

 

 

25.9

%

 

$

359

 

 

 

24.7

%

 

$

108

 

 

 

10.8

%

AMS(1)

 

 

376

 

 

 

27.2

 

 

 

269

 

 

 

24.1

 

 

 

305

 

 

 

24.3

 

MDG(1)

 

 

504

 

 

 

36.7

 

 

 

425

 

 

 

33.6

 

 

 

219

 

 

 

23.5

 

Total operating income of product groups

 

 

1,284

 

 

 

29.7

 

 

 

1,053

 

 

 

27.5

 

 

 

632

 

 

 

19.8

 

Others(2)

 

 

(12

)

 

 

 

 

 

(49

)

 

 

 

 

 

(27

)

 

 

 

Total consolidated operating income

 

$

1,272

 

 

 

29.4

%

 

$

1,004

 

 

 

26.2

%

 

$

605

 

 

 

18.9

%

(1)

Effective July 1, 2022, the Low Power RF business unit was transferred from AMS to MDG. Prior periods have been adjusted accordingly.

(2)

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 third quarter of 2022, ADG operating income was $404 million, increasing sequentially by $45 million mainly driven by higher profitability in Automotive. AMS operating income was $376 million, increasing sequentially by $107 million, mainly thanks to higher profitability in Imaging. MDG operating income increased by $79 million sequentially, reaching $504 million, driven by both Microcontrollers and RF Communications.

ADG operating income increased by $296 million year-over-year reflecting higher profitability in both Automotive and Power Discrete. AMS operating income increased by $71 million, with Analog and MEMS contributing to the increase. MDG operating income increased by $285 million, driven by both Microcontrollers and RF Communications higher profitability.

10


 

Reconciliation to consolidated operating income

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Total operating income of product groups

 

$

1,284

 

 

$

1,053

 

 

$

632

 

Impairment, restructuring charges and other related closure costs

 

 

 

 

 

 

 

 

(1

)

Start-up and phase-out costs

 

 

(1

)

 

 

(1

)

 

 

 

Unused capacity charges

 

 

 

 

 

(13

)

 

 

(14

)

Other unallocated manufacturing results

 

 

(8

)

 

 

(33

)

 

 

(6

)

Gain on sale of non-current assets

 

 

 

 

 

2

 

 

 

2

 

Strategic and R&D programs

   and other non-allocated provisions(1)

 

 

(3

)

 

 

(4

)

 

 

(8

)

Total operating income (loss) of Others

 

 

(12

)

 

 

(49

)

 

 

(27

)

Total consolidated operating income

 

$

1,272

 

 

$

1,004

 

 

$

605

 

(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

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Interest income (expense), net

 

$

16

 

 

$

6

 

 

$

(8

)

In the third quarter of 2022, we recorded a net interest income of $16 million, compared to a net interest income of $6 million in the prior quarter and a net interest expense of $8 million in the year-ago quarter. The third quarter net interest income was composed of $19 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 $8 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.

Gain (loss) on financial instruments, net

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Gain (loss) on financial instruments, net

 

$

 

 

$

 

 

$

(45

)

During the third quarter of 2022, no significant gain or loss on financial instruments was recorded.

During the third quarter of 2021, we recorded a $45 million loss 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.

Income tax expense

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Income tax expense

 

$

(185

)

 

$

(139

)

 

$

(73

)

During the third quarter of 2022, we registered an income tax expense of $185 million, reflecting a 14.6% estimated annual effective tax rate before discrete items at consolidated level, applied to the first nine months of 2022 consolidated income before income tax, consistent with the actual annual tax rate of 2021.

11


 

Net income attributable to parent company

 

 

Three Months Ended

 

 

 

October 1,

2022

 

 

July 2,

2022

 

 

October 2,

2021

 

 

 

(In millions)

 

Net income attributable to parent company

 

$

1,099

 

 

$

867

 

 

$

474

 

As percentage of net revenues

 

 

25.4

%

 

 

22.6

%

 

 

14.8

%

For the third quarter of 2022, we reported net income of $1,099 million, representing diluted earnings per share of $1.16, compared to $0.92 in the prior quarter and $0.51 in the prior-year quarter.

Diluted earnings per share for the third 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.

12


 

 

Nine Months of 2022 vs. Nine Months of 2021

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

 

 

Nine Months Ended

 

 

 

October 1,

2022

 

 

October 2,

2021

 

 

 

$ million

 

 

% of net

revenues

 

 

$ million

 

 

% of net

revenues

 

Net sales

 

$

11,675

 

 

 

99.8

%

 

$

9,187

 

 

 

99.8

%

Other revenues

 

 

29

 

 

 

0.2

 

 

 

18

 

 

 

0.2

 

Net revenues

 

 

11,704

 

 

 

100.0

 

 

 

9,205

 

 

 

100.0

 

Cost of sales

 

 

(6,171

)

 

 

(52.7

)

 

 

(5,488

)

 

 

(59.6

)

Gross profit

 

 

5,533

 

 

 

47.3

 

 

 

3,717

 

 

 

40.4

 

Selling, general and administrative

 

 

(1,076

)

 

 

(9.2

)

 

 

(972

)

 

 

(10.6

)

Research and development

 

 

(1,429

)

 

 

(12.2

)

 

 

(1,321

)

 

 

(14.4

)

Other income and expenses, net

 

 

125

 

 

 

1.1

 

 

 

109

 

 

 

1.3

 

Impairment, restructuring charges and other

   related closure costs

 

 

 

 

 

 

 

 

1

 

 

 

 

Operating income

 

 

3,153

 

 

 

26.9

 

 

 

1,534

 

 

 

16.7

 

Interest income (expense), net

 

 

24

 

 

 

0.2

 

 

 

(24

)

 

 

(0.3

)

Other components of pension benefit costs

 

 

(7

)

 

 

(0.1

)

 

 

(8

)

 

 

(0.1

)

Gain (loss) on financial instruments, net

 

 

 

 

 

 

 

 

(43

)

 

 

(0.4

)

Income before income taxes and

   noncontrolling interest

 

 

3,170

 

 

 

27.1

 

 

 

1,459

 

 

 

15.9

 

Income tax expense

 

 

(454

)

 

 

(3.9

)

 

 

(204

)