“We started 2018 with another quarter of double-digit, year-over-year sales growth across all product groups and regions,” commented Carlo Bozotti, STMicroelectronics president and CEO. “On a sequential basis, first quarter results were better than the mid-point of our sales and gross margin guidance. We delivered a better than seasonal performance in Automotive and Industrial, thanks to our application-focused approach on Smart Driving and Internet of Things, despite the anticipated unfavorable seasonal dynamics for smartphone applications.
“On a year-over-year basis, net revenues grew 22.2%, gross margin expanded by 220 basis points to 39.9% and operating margin increased by 480 basis points to 12.1%,” Bozotti added. “Free cash flow, during a quarter of high capital spending to support our growth plans, increased by 53% to $95 million from the year-ago quarter and we exited the quarter with a solid net financial position of $522 million.”
First quarter net revenues decreased 9.8% sequentially, 20 basis points better than the midpoint of the company’s guidance. On a sequential basis, Microcontrollers and Digital ICs Group (MDG) revenues increased 1.3% and Automotive and Discrete Group (ADG) revenues decreased 0.5%, reflecting better than seasonal performance for Smart Driving and Internet of Things applications. Analog, MEMS and Sensors Group (AMS) revenues decreased by 27.4%, principally reflecting unfavorable seasonal dynamics for smartphone applications negatively impacting the company’s Imaging business.
On a year-over-year basis, first quarter net revenues increased 22.2% with all product groups delivering double-digits revenue growth. Specifically, Microcontrollers and Digital ICs Group (MDG) revenues were up 26.6% largely driven by a strong expansion of microcontroller sales; Analog, MEMS and Sensors Group (AMS) revenues increased 26.5% on sharply higher Imaging sales, as well as growth in Analog and MEMS; and Automotive and Discrete Group (ADG) revenues were higher by 15.4% on double-digit growth for both Automotive and Power Discrete products.
First quarter gross profit was $888 million and gross margin was 39.9%, 40 basis points above the midpoint of the company’s guidance. Gross margin increased 220 basis points year-over-year largely driven by improved manufacturing efficiency and better product mix partially offset mainly by normal price pressure as well as negative currency effects, net of hedging.
Operating income in the first quarter was $269 million, equivalent to 12.1% of net revenues, compared to $411 million, equivalent to 16.7% of net revenues, in the 2017 fourth quarter and was up sharply in comparison to the 2017 first quarter operating income of $132 million, equivalent to 7.3% of net revenues. Free cash flow was $95 million, up significantly from $62 million in the year-ago quarter.
“Despite the weak demand we are experiencing for smartphones in the first half of 2018, we anticipate second quarter and first half revenues to grow year-over-year about 17.5% and 19.8%, respectively, at the mid-point of our guidance range,” Bozotti reported. “This will be driven by the continued better than seasonal sales trends in Automotive, Industrial and Internet of Things applications. For the second half of the year, we see healthy demand, with a strong backlog across all our product groups, end markets, including smartphones, and regions.”