STMicroelectronics N : Q4/20 Earnings Conference Call Remarks

STMicroelectronics

Jean-Marc Chery - President & CEO

Q4 & FY 2020 Financial Results

January 28, 2021 - Final

Good morning and thank you for joining ST for our Q4 and full year 2020 earnings conference call.

Let me begin with some opening comments.

Starting with Q4:

• As announced on January 8, net revenues, at $3.24 billion, were up 21.3% sequentially, significantly above the high end of our guidance. Our engaged customer programs in Personal Electronics, as well as continuous acceleration in demand especially of Automotive products and Microcontrollers, were the main factors that contributed to this result.
• Q420 gross margin was 38.8%, 30 basis points above the mid- point of our guidance.
• Our operating margin was 20.3% and our net income was $582 million.

Moving to the full year 2020:

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• Net revenues increased 6.9% to $10.2 billion for 2020, progressively strengthening versus the expectations we provided during the year. This was due to the stronger, and faster than expected, restart of demand during the second half.
• FY20 gross margin was 37.1%. Operating margin was 12.9% and net income $1.1 billion.
• Free cash flow for the year was $627 million, and CAPEX was $1.28 billion. Our net financial position increased to $1.1 billion at December 31, 2020, from $672 million one year earlier.

On Q1 2021:

• At the mid-point, our first quarter business outlook is for net revenues of $2.93 billion, representing a year-over-year increase of about 31.2%; the gross margin is expected to be about 38.5%.

For the full year 2021:

• We plan for solid revenue growth, outperforming the markets we serve.
• Smart mobility, power and energy management, the IoT and 5G are driving demand for semiconductor content and these trends have accelerated during 2020. ST's strategy stems from these

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long-term enablers and we are very well positioned to support our customers across them.

• We plan to invest about $1.8 billion to $2.0 billion in CAPEX, in order to support the strong market demand as well as our strategic initiatives.

Now, let's move to a detailed review of the fourth quarter.

During Q4, market demand accelerated sharply versus expectations. As we pre-announced on January 8th, net revenues came in 580 basis points above the high end of our outlook range.

On a sequential basis, net revenues increased 21.3%, with all three product groups performing above expectations: AMS was up 42.4%, ADG up 12.1% and MDG up 5.3%.

On a year-over-year basis, Q4 net revenues increased 17.5%, driven by all product sub-groups, with only RF Communications decreasing, as expected, affected by the US-China trade war. AMS grew 30.8%, MDG grew 15.7% and ADG saw a return to year-over- year growth, increasing 3.2%.

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Our gross profit was $1.25 billion, an increase of 16.0% year-over- year.

Gross margin was 38.8%, 30 basis points above the mid-point of our guidance. In comparison to the year-ago quarter, the gross margin decrease of 50 basis points was mainly due to usual price pressure and negative currency effects, net of hedging, partially offset by improved mix and lower unloading charges.

Net operating expenses were $598 million. Included in this amount, Other Income and Expenses improved to a net income of $131 million, compared to a net income of $54 million in the year-ago quarter, mainly due to a non-recurrent favorable impact of some R&D grants catch-up.

Q4 operating margin was 20.3%, up 800 basis points sequentially.

On a year-over-year basis, Q4 operating margin was up 360 basis points, with an improvement in AMS and MDG partially offset by a decline in ADG.

Net income was $582 million and diluted earnings per share were 63 cents.

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