Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

STMicroelectronics Gets Back to Growing Sales

By Anders Bylund - Oct 29, 2019 at 7:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After working through overflowing inventories in its distribution pipeline, the company is back to chasing market share in the industrial computing sector.

Semiconductor supplier STMicroelectronics ( STM -1.61% ) published its third-quarter earnings report last Thursday. Investors embraced a return to sales growth, albeit a mild one, sending share prices higher on the news.

Here's a closer look at STMicro's results.

STMicroelectronics' third-quarter results by the numbers

Metric

Q3 2019

Q3 2018

Change

Net revenues

$2.55 billion

$2.52 billion

1.2%

Net income

$302 million

$369 million

(18%)

GAAP earnings per share (diluted)

$0.34

$0.41

(17%)

Data source: STMicroelectronics. GAAP = generally accepted accounting principles.

What's up with STMicroelectronics?

  • Sales rose 8% year over year in the analog, microelectromechanical, and sensors division. STMicro enjoyed rising demand for custom analog chips and specialized imaging sensors.
  • The microcontrollers and digital integrated circuits department posted 4% lower revenues, reflecting weak order flows across the entire portfolio in this sector.
  • Automotive computing and discrete components issued a mixed report, as automotive sales flagged while component demand increased. Overall, this segment saw sales falling by 1%.
  • Guidance for the third quarter pointed to revenues near $2.51 billion at a gross margin of roughly 37.5%. The actual results landed just north of these targets, including a gross margin of 37.9%.
A person in face mask and safety goggles holds up a fully packaged semiconductor, using a pair of tweezers.

Image source: Getty Images.

What management had to say

On the earnings call, CEO Jean-Marc Chery offered the following view of the market for industrial computing, which STMicro treats as an important growth vector:

"The inventory correction at distributors, which has been impacting our general purpose microcontrollers business for several quarters, is now over. This business grew over 25% sequentially," Chery said. "The positive signs we started to see since March for the point-of-sales increase at distributors worldwide are still there, with the exception of Europe."

STMicro is targeting this market with specific investments such as a system-on-a-chip product that combines data processing with an embedded 5G wireless modem. That development effort is a direct play on 5G connectivity playing an important role in the next generation of large-scale industrial computing systems, an end market that's projected to grow from $2.8 billion this year to $9 billion in five years.

Looking ahead

In the fourth quarter, STMicro's management expects revenues to land in the neighborhood of $2.68 billion. That would be 1% above the sales seen in the fourth quarter of 2018. Gross margins should stop at approximately 38.2%, an expansion from this report's final reading but below the 40% figure seen in the year-ago period.

STMicro suffered in 2018, closing that year out 37% lower. The tables have turned in 2019 and the stock has gained 65% year to date. That includes a 12% boost since this solid earnings report was published. Even so, the stock remains fairly affordable as it trades for just 17 times forward earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

STMicroelectronics N.V. Stock Quote
STMicroelectronics N.V.
STM
$48.34 (-1.61%) $0.79

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
145%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.