Semiconductor supplier STMicroelectronics (NYSE:STM) 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.