Semiconductor supplier STMicroelectronics (STM +6.73%) 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%.
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.
