STMicroelectronics (STM) 6-KCurrent report (foreign)

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________

Our Management’s Discussion and Analysis of Financial Position and Results of Operations (“MD&A”) is provided in addition to the accompanying Unaudited Interim Consolidated Financial Statements (“Consolidated Financial Statements”) and Notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

There were no material changes in the first nine months of 2024 to the information provided under the heading “Critical Accounting Policies Using Significant Estimates” included in our Form 20-F for the year ended December 31, 2023, as described in Note 5, Recent Accounting Pronouncements, of the Consolidated Financial Statements for the three and nine months ended September 28, 2024.

Under Article 35 of our Articles of Association, our fiscal year extends from January 1 to December 31. The first quarter of 2024 ended on March 30, the second quarter ended on June 29 and the third quarter ended on September 28. The fourth quarter will end on December 31, 2024. Based on our fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to a different number of days in the various quarters of the fiscal year and can also differ from equivalent prior-years’ periods, as illustrated in the below table for the years 2024 and 2023.

Our results of operations for each period were as follows:

Our total available market is defined as “TAM”, while our serviceable available market is defined as “SAM” and represents the market for products sold by us (i.e., TAM excluding major devices such as microprocessors, GPU/AI accelerators, DRAM and flash-memories, optoelectronics devices other than optical sensors, video processing and wireless application specific market products, such as baseband and application processors).

Based on industry data published by World Semiconductor Trade Statistics, on a sequential basis, semiconductor industry revenues in the third quarter of 2024 increased by approximately 11% for our TAM and increased by approximately 9% for our SAM to reach approximately $166 billion and $64 billion, respectively. On a year-over-year basis, our TAM increased by approximately 23% and our SAM decreased by approximately 2%.

The new organization we announced on January 10, 2024 resulted in a change in our segment reporting from three to four reportable segments. Prior-year comparative information has been adjusted accordingly.

On a year-over-year basis, third quarter net revenues decreased 26.6% with lower sales in all reportable segments. AM&S revenues decreased 13.3%, P&D revenues decreased 18.4%, MCU revenues decreased by 43.4% and D&RF revenues decreased 29.7%.

Our revenue performance was below the SAM on a sequential and a year-over-year basis.

Our effective average exchange rate for the third quarter of 2024 was $1.08 for €1.00, compared to $1.08 in the second quarter of 2024 and $1.09 in the third quarter of 2023. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates”.

Our third quarter of 2024 gross profit was $1,228 million and gross margin was 37.8%, broadly in line with the mid-point of our business outlook range. On a sequential basis gross margin decreased 230 basis points mainly due to product mix and higher unused capacity charges. On a year-over-year basis, gross margin decreased 980 basis points, mainly due to product mix and, to a lesser extent, sales price and higher unused capacity charges.

Our aggregated selling, general & administrative (“SG&A”) and research & development (“R&D”) expenses amounted to $877 million, compared to $954 million and $926 million in the prior and year-ago quarters, respectively. On a sequential basis, operating expenses decreased by $77 million, thanks to calendar impact, net of vacation, and lower levels of activity. On a year-over-year basis, operating expenses decreased by $49 million, mainly due to lower cost of labor and lower levels of activity.

In the third quarter of 2024, our net cash from operating activities amounted to $723 million. Our net cash used in investing activities was at $601 million compared to $628 million and $1,756 million during prior and year-ago quarters, respectively. Net Capex (non-U.S. GAAP measure) amounted to $565 million in the third quarter of 2024.

Our free cash flow, a non-U.S. GAAP measure, amounted to positive $136 million in the third quarter of 2024 compared to positive $159 million and $707 million in the prior and year-ago quarters, respectively. Refer to “Liquidity and Capital Resources” for the reconciliation of the free cash flow, a non-U.S. GAAP measure, to our consolidated Statements of Cash Flows.

Looking at the fourth quarter, we expect a revenue increase of approximately 2.2% sequentially, plus or minus 350 basis points. Gross margin is expected to be approximately 38%, plus or minus 200 basis points.

On September 24, we introduced our fourth generation STPOWER silicon carbide (SiC) MOSFET technology. The Generation 4 technology brings new benchmarks in power efficiency, power density and robustness. While serving the needs of both the automotive and industrial markets, the new technology is particularly optimized for traction inverters, the key component of electric vehicle (EV) powertrains. We plan to introduce further advanced SiC technology innovations through 2027 as a commitment to innovation.

We design, develop, manufacture and market a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full-custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, we further participate in the manufacturing value chain of smartcard products, which includes the production and sale of both silicon chips and smartcards.

Net revenues of “Others” include revenues from sales assembly services and other revenues. For the computation of the segments’ internal financial measurements, we use certain internal rules of allocation for the costs not directly chargeable to the segments, including cost of sales, SG&A expenses and a part of R&D

expenses. In compliance with our internal policies, certain costs are not allocated to the segments, but reported in “Others”. Those comprise unused capacity charges, including incidents leading to power outage, impairment and restructuring charges, management reorganization expenses, start-up and phase-out costs, and other unallocated income (expenses) such as: strategic or special R&D programs, certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to reportable segments, as well as operating earnings of other products. Finally, public grants are allocated to our segments proportionally to the incurred expenses on the sponsored projects.

By market channel, our third quarter net revenues in distribution amounted to 24% of our total consolidated net revenues, decreasing from 27% and 33% in the prior and year-ago quarter respectively.

On a sequential basis, EMEA revenues decreased 11.1%, mainly due to lower sales in ADAS & Infotainment, Analog and General-Purpose Microcontrollers. Americas revenues increased 6.9% due to higher sales mainly in Power & Discrete and RF & Communication. Asia Pacific revenues increased 4.1% due to higher revenues in Imaging and General-Purpose Microcontrollers.

On a year-over-year basis, EMEA revenues decreased 39.3%, mainly driven by lower sales in General-Purpose Microcontrollers and ADAS & Infotainment. Americas revenues decreased 21.2%, mainly due to lower sales in General-Purpose Microcontrollers and Power & Discrete. Asia Pacific revenues decreased 21.9%, mainly due to lower sales in General-Purpose Microcontrollers, Power & Discrete and Imaging.

As a percentage of net revenues, our operating expenses amounted to 27.1% in the third quarter of 2024, decreasing compared to 29.4% and increasing compared to 20.9% in the prior and year-ago quarters, respectively.

In the third quarter of 2024, operating income was $381 million, compared to an operating income of $375 million and $1,241 million in the prior and year-ago quarters, respectively.

On a sequential basis operating income remained substantially flat. On year-over-year basis, operating income was mainly impacted by decreased gross margin profitability, partially offset by lower operating expenses.

The following table sets forth certain financial data from our Unaudited Interim Consolidated Statements of Income:

By market channel, distribution decreased to a 27% share of total revenues in the first nine months of 2024, compared to 35% in the first nine months of 2023.

By location of shipment, EMEA revenues decreased by 30.6%, mainly driven by lower sales in General-Purpose Microcontrollers, ADAS & Infotainment and Power & Discrete. Americas revenues decreased 24.4%, mainly

due to lower sales in General-Purpose Microcontrollers and Power Discrete. Asia Pacific revenues decreased 19.7%, mainly due to lower sales in General-Purpose Microcontrollers, Imaging and Power Discrete.

Gross margin was 39.9% for the first nine months of 2024, decreasing by approximately 880 basis points compared to the year-ago period, mainly due to the combination of sales price and product mix and higher unused capacity charges.

Our operating expenses decreased by $11 million compared to the year-ago period.

As a percentage of net revenues, our operating expenses amounted to 28.0%, increasing from 21.5% in the year-ago period.

In the first nine months of 2024, other income and expenses, net, amounted to a $123 million income, increasing by $79 million from $44 million income during the first nine months of 2023, mainly due to higher income from public funding and lower start-up costs.

In the first nine months of 2023, we registered an income tax expense of $547 million.

Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimates on our tax provisions. For 2024, it also takes into account the estimated impact of Pillar Two taxes. Our income tax amounts and rates also depend on our loss carry-forwards and their relevant valuation allowance, which are based on estimated projected plans and available tax planning strategies. In the case of material changes in these plans, the valuation allowance could be adjusted accordingly, with an impact on our income tax expense. In

addition, our annual income tax expense includes the estimated impact of provisions related to potential tax positions which have been considered as uncertain.

For the first nine months of 2024, we reported net income of $1,216 million, representing diluted earnings per share of $1.29, compared to a net income of $3,135 million in the prior year period, representing diluted earnings per share of $3.32.

Our results of operations and financial condition can be significantly affected by material changes in the exchange rates between the U.S. dollar and other currencies, particularly the Euro.

As a market practice, the reference currency for the semiconductor industry is the U.S. dollar and the market prices of semiconductor products are mainly denominated in U.S. dollars. However, revenues for some of our products are quoted in currencies other than the U.S. dollar, such as Euro-denominated sales, and consequently are directly affected by fluctuations in the value of the U.S. dollar. As a result of currency variations, the appreciation of the Euro compared to the U.S. dollar could increase our level of revenues when translated into U.S. dollars or the depreciation of the Euro compared to the U.S. dollar could decrease our level of revenues when reported in U.S. dollars. Over time and depending on market conditions, the prices in the industry could align to the equivalent amount in U.S. dollars, except that there is a lag between the changes in the currency rate and the adjustment in the price paid in local currency, which is proportional to the amplitude of the currency fluctuations, and such adjustment could be only partial and/or delayed, depending on market demand. Furthermore, certain significant costs incurred by us, such as manufacturing costs, SG&A expenses and R&D expenses, are largely incurred in the currency of the jurisdictions in which our operations are located. Given that most of our operations are located in the Eurozone and other non-U.S. dollar currency areas, our costs tend to increase when translated into U.S. dollars when the U.S. dollar weakens, or to decrease when the U.S. dollar strengthens.

Our principal strategy to reduce the risks associated with exchange rate fluctuations is to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of materials, purchases and services from our suppliers denominated in U.S. dollars, thereby reducing the potential exchange rate impact of certain variable costs relative to revenues. Moreover, in order to further reduce the exposure to U.S. dollar exchange fluctuations, we hedge certain line items on our Consolidated Statements of Income, in particular with respect to a portion of cost of sales, most of R&D expenses and certain SG&A expenses, located in the Eurozone, which we designate as cash flow hedge transactions. We use two different types of hedging instruments: forward contracts and currency options (including collars).

The assets and liabilities of subsidiaries whose functional currency is different from the U.S. dollar reporting currency are, for consolidation purposes, translated into U.S. dollars at the period-end exchange rate. Income and expenses, as well as cash flows, are translated at the average exchange rate for the period. These currency translation effects have been, and may be, significant from period to period since a large part of our assets and liabilities and activities are accounted for in Euros as they are located in jurisdictions where the Euro is the functional currency. Adjustments resulting from the currency translation are recorded directly in equity and are reported as “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity. As of September 28, 2024, our outstanding indebtedness was denominated mainly in U.S. dollars and in Euros.

For a more detailed discussion, see Item 3. “Key Information — Risks Related to Our Operations” in our Form 20-F, which may be updated from time to time in our public filings.

Interest rates may fluctuate upon changes in financial market conditions and material changes can affect our earnings and financial condition, since these changes can impact the total interest income received on our cash and cash equivalents, short-term deposits and marketable securities, as well as the total interest expense paid on our financial debt.

Our interest income, net, as reported in our Unaudited Interim Consolidated Statements of Income, is the balance between interest income received from our cash and cash equivalents, short-term deposits and marketable securities, and interest expense recorded on our financial liabilities, including bank fees (including fees on committed credit lines or on the sale without recourse of receivables, if any). Our interest income is dependent upon fluctuations in interest rates, mainly in U.S. dollars and Euros, since we invest primarily on a short-term basis; any increase or decrease in the market interest rates would mean a proportional increase or decrease in our interest income. Our interest expenses are also dependent upon fluctuations in interest rates,

since our financial liabilities include European Investment Bank (“EIB”) and Cassa Depositi e Prestiti SpA (“CDP SpA”) Floating Rate Loans at Euribor plus variable spreads. See Note 22 to our Consolidated Financial Statements.

As of September 28, 2024, we did not hold any significant investments in equity securities with a material exposure to equity price risk. However, on these equity investments, carrying value could be reduced due to further losses or impairment charges. See Note 19 and Note 20 to our Consolidated Financial Statements.

Treasury activities are regulated by our policies, which define procedures, objectives and controls. Our policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office. The majority of our cash and cash equivalents are held in U.S. dollars and Euros and are placed with financial institutions rated at least as single A long-term rating from two of the major rating agencies, meaning at least A3 from Moody’s Investors Service (“Moody’s”) and A- from Standard & Poor’s (“S&P”) or Fitch Ratings (“Fitch”). Marginal amounts are held in other currencies. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in our Form 20-F, which may be updated from time to time in our public filings.

We maintain an adequate cash position and a low debt-to-equity ratio, to provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.

During the first nine months of 2024, our cash and cash equivalents decreased by $145 million. The components of the net cash variation for the first nine months of 2024 and the comparable period are set forth below:

We present Net Capex as a non-U.S. GAAP measure, to take into consideration the effect of advances from capital grants received on prior periods allocated to property, plant and equipment in the reporting period. Net Capex is reported as part of our Free Cash Flow (non-U.S. GAAP measure).

Net Capex, a non-U.S. GAAP measure, is defined as (i) Payment for purchase of tangible assets, as reported plus (ii) Proceeds from sale of tangible assets, as reported plus (iii) Proceeds from capital grants and other contributions, as reported plus (iv) Advances from capital grants allocated to property, plant and equipment in the reporting period.

We believe Net Capex provides useful information for investors and management because annual capital expenditures budget includes the effect of capital grants. Our definition of Net Capex may differ from definitions used by other companies.

Free Cash Flow is determined from our unaudited interim consolidated statements of cash flows as follows:

Free Cash Flow was positive $160 million in the first nine months of 2024, compared to positive $1,122 million in the prior-year period.

Our Net Financial Position as of September 28, 2024, was $3,181 million, increasing compared to $3,156 million and $2,463 million as of December 31, 2023 and September 30, 2023 respectively.

Cash and cash equivalents amounted to $3,077 million as of September 28, 2024.

Short-term deposits amounted to $977 million as of September 28, 2024 and consisted of available liquidity with maturity over three months and below one year.

Marketable securities amounted to $2,242 million and consisted of U.S. Treasury Bonds and U.S. Treasury Bills classified as available-for-sale financial assets.

The EIB loans are comprised of three long-term amortizing credit facilities as part of R&D funding programs. The first, signed in August 2017, is a €500 million loan, in relation to R&D and capital expenditures in the European Union, fully drawn in Euros, of which $279 million was outstanding as of September 28, 2024. The second one, signed in 2020, is a €500 million credit facility agreement with EIB to support R&D and capital expenditure programs in Italy and France. The amount was fully drawn in Euros representing $390 million outstanding as of September 28, 2024. In 2022, we signed a third long-term amortizing credit facility with EIB of €600 million, out of which, €300 million was withdrawn in Euros and $300 million in U.S Dollars, representing $635 million outstanding as of September 28, 2024.

The CDP SpA loans are comprised of two long-term credit facilities. The first, signed in 2021, is a €150 million loan, fully drawn in Euros, of which $84 million were outstanding as of September 28, 2024. The second one, signed in 2022, is a €200 million loan, fully drawn in Euros, of which $154 million were outstanding as of September 28, 2024.

As of September 28, 2024, debt payments at redemption value by period were as follows:

In the above table, our 2020 Senior Unsecured Convertible Bonds are presented at their principal amount with original maturity date of 2025 for Tranche A and 2027 for Tranche B, in line with contractual terms.

Our current ratings with the two major rating agencies that report on us on a solicited basis, are as follows: S&P: “BBB+” with stable outlook; Moody’s: “Baa1” with positive outlook.

Our policy is to modulate our capital spending according to the evolution of the semiconductor market. We confirm our Net Capex (non-U.S. GAAP measure) plan for 2024 of about $2.5 billion focusing on our strategic manufacturing initiatives.

A large portion of Net Capex (non-U.S. GAAP measure) will be devoted to support our strategic programs, selected capacity additions and mix change in our manufacturing footprint, in particular for our wafer fabs:

The most important 2024 capital investments for our back-end facilities will be: (i) capacity growth on certain package families, including PLP / Direct Copper Interconnect technology and automotive related packages, (ii) the new generation of Intelligent Power Modules for Automotive and Industrial applications, and (iii) specific investments in innovative assembly processes and test operations.

The remaining part of our capital investment plan covers the overall maintenance and efficiency improvements of our manufacturing operations and infrastructure, R&D activities, laboratories as well as the execution of our carbon neutrality programs.

We will continue to invest to support revenues growth and new products introduction, taking into consideration factors such as trends in the semiconductor industry, capacity utilization and our goal to become carbon neutral by 2027 on scope 1 and 2 and partially scope 3. We expect to need significant financial resources in the coming years for capital expenditures and for our investments in manufacturing and R&D. We plan to fund our capital requirements with cash provided by operating activities, available funds and support from third parties, and may have recourse to borrowings under available credit lines and, to the extent necessary or attractive based on market conditions prevailing at the time, the issuance of debt, convertible bonds or additional equity securities. A substantial deterioration of our economic results, and consequently of our profitability, could generate a deterioration of the cash generated by our operating activities. Therefore, there can be no assurance that, in future periods, we will generate the same level of cash as in prior-years to fund our capital expenditure plans for expanding/upgrading our production facilities, our working capital requirements, our R&D and manufacturing costs.

We believe that we have the financial resources needed to meet our currently projected business requirements for the next twelve months, including capital expenditures for our manufacturing activities, working capital requirements, approved dividend payments, share buy-backs as part of our current repurchase program and the repayment of our debt in line with maturity dates.

The midpoint of our outlook for the fourth quarter of 2024 translates into full year 2024 revenues of about $13.27 billion, representing a 23.2% year-over-year decrease, and into a gross margin slightly below the indication provided in July of a gross margin of about 40%.

Our contractual obligations, commercial commitments and contingencies are mainly comprised of: long-term purchase commitments for material, equipment and software license, take-or-pay type of agreements to outsource wafers from foundries, and firm contractual commitments related to power purchase and minimum energy efficiency, as part of our actions to become carbon neutral by 2027 on scope 1 and 2 and partially scope 3, commercial agreements with customers, long term debt obligations, pension obligations and other long-term liabilities.

We had no material off-balance sheet arrangements as of September 28, 2024.

See Note 5 Recent Accounting Pronouncements to our Consolidated Financial Statements.

There is no guarantee that any customer will continue to generate revenues for us at the same levels as in prior periods. If we were to lose one or more of our key customers, or if they were to significantly reduce their bookings, not confirm planned delivery dates on frame orders in a significant manner or fail to meet their payment obligations, our operating results and financial condition could be adversely affected.

The evaluation of our Disclosure Controls included a review of the controls’ objectives and design, our implementation of the controls and their effect on the information generated for use in this periodic report. In the course of the controls evaluation, we reviewed identified data errors, errors in process flow or delay in communication, control problems and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed at least on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the Disclosure Controls can be reported in our periodic reports on Form 6-K and Form 20-F. The components of our Disclosure Controls are also evaluated on an ongoing basis by our Internal Audit Department, which reports directly to our Audit Committee. The overall goals of these various evaluation activities are to monitor our Disclosure Controls, and to modify them as necessary. Our intent is to maintain the Disclosure Controls as dynamic systems that change as conditions warrant.

Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this periodic report, our Disclosure Controls were effective.

There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

No system of internal control over financial reporting, including one determined to be effective, may prevent or detect all misstatements. It can provide only reasonable assurance regarding financial statement preparation and presentation. Also, projections of the results of any evaluation of the effectiveness of internal control over financial reporting into future periods are subject to inherent risk that the relevant controls may become inadequate due to changes in circumstances or that the degree of compliance with the underlying policies or procedures may deteriorate.

We have sent this report to our Audit Committee, which had an opportunity to raise questions with our management and independent auditors before we submitted it to the Securities and Exchange Commission.

Some of the statements contained in this Form 6-K that are not historical facts, particularly in “Business Overview” and in “Liquidity and Capital Resources—Financial Outlook: Capital Investment”, are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those anticipated by such statements due to, among other factors:

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain forward-looking statements can be identified by the use of forward-looking terminology, such as “believes”, “expects”, “may”, “are expected to”, “should”, “would be”, “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions.

Some of these risk factors are set forth and are discussed in more detail in “Item 3. Key Information - Risk Factors” included in our Annual Report on Form 20-F for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”) on February 22, 2024. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in our Form 20-F as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this Form 6-K to reflect subsequent events or circumstances.

Unfavorable changes in the above or other factors listed under “Item 3. Key Information - Risk Factors” from time to time in our SEC filings, could have a material adverse effect on our business and/ or financial condition.