STMicroelectronics shares sink 14% on Q2 loss, weak margin outlook

Investing.com -- STMicroelectronics (EPA:STMPA) shares plunged more than 14% Thursday after the chipmaker posted a second-quarter net loss of $97 million, reversing a profit of $353 million a year earlier, as revenue declined 14.4% to $2.77 billion and gross margin narrowed to 33.5%.

Gross profit fell to $926 million from $1.3 billion, while the company reported an operating loss of $133 million, compared with income of $375 million a year ago. 

The result included $190 million in impairment, restructuring and phase-out charges. On a non-GAAP basis, operating and net income both stood at $57 million, with diluted earnings per share of $0.06, down from $0.38.

Revenue declined across all product segments. The Analog, Power & Discrete, MEMS and Sensors group reported $1.58 billion in revenue, down 17.4% year over year. 

Within that group, Analog, MEMS and Sensors declined 15.2%, and Power and Discrete products fell 22.2%, posting an operating loss of $56 million after a $61 million profit a year earlier.

The Microcontrollers, Digital ICs and RF products group saw revenue decline 10.1% to $1.18 billion. 

Embedded Processing revenue fell 6.5%, while RF & Optical Communications dropped 17.9%. 

Operating income for RF & Optical Communications declined 37.2% to $60 million. Embedded Processing posted a margin of 13.5%, compared to 13.8% a year earlier.

Revenue from original equipment manufacturers fell 15.3%, and distribution revenue dropped 12%. 

The company said gross margin declined 660 basis points from a year earlier due to an unfavorable product mix, manufacturing inefficiencies and higher unused capacity charges.

Inventory rose to $3.27 billion from $2.81 billion, with days sales of inventory increasing to 166 from 130. 

Operating cash flow declined to $354 million from $702 million. Free cash flow was negative $152 million, compared to positive $159 million in the same quarter last year. Capital expenditures totaled $465 million.

STMicroelectronics ended the quarter with a net financial position of $2.67 billion, down from $3.08 billion in the first quarter. 

Adjusted net financial position, which includes capital grants not yet used, stood at $2.31 billion. The company returned $81 million to shareholders via dividends and repurchased $92 million in shares under its buyback program.

For the third quarter, the company guided to net revenue of $3.17 billion, up 14.6% sequentially but down 2.5% from a year earlier. 

Gross margin is expected to remain at 33.5%, reflecting approximately 340 basis points of unused capacity charges. The outlook assumes an exchange rate of $1.14 to the euro and reflects the effect of existing hedging contracts.

Jefferies analysts said second-quarter results were in line with pre-announced figures but noted that gross margin guidance for the third quarter came in well below the 37% consensus. 

The brokerage flagged continued underutilization, with 340 basis points of charges expected, up from 290 basis points in the second quarter, indicating a slower-than-expected recovery in factory utilization and profitability. 

Jefferies also pointed to a reduction in full-year capital expenditure guidance to $2.5 billion, down from a previously planned $2.8 billion.