STMicroelectronics N.V. (STM) Cash Flow Statement

The OCF/NI ratio of 2.25 in 2026Q2, while superficially strong, is inflated by a $490.6M depreciation charge that is not a cash outflow. This pattern is consistent across the period, with OCF/NI averaging above 2.0 in most quarters, indicating that reported net income understates cash generation due to the capital-intensive IDM model. However, the negative net income in 2025Q2 and 2025Q4, where OCF remained positive, underscores that cash flow is more stable than earnings, but the reliance on D&A to bridge the gap warrants scrutiny.

The FCF margin has been negative or near zero in most quarters, with 2026Q2 at -3.5%, a stark contrast to the 27.5% FCF margin reported by Texas Instruments. This volatility is driven by lumpy capex, which ranged from $380M to $1.2B per quarter, and inconsistent operating cash flow. The recent revenue rebound has not translated into sustained FCF generation, suggesting that the company is still in a reinvestment phase or facing margin headwinds that limit cash conversion.

The elevated capital intensity, with CapEx/Revenue reaching 37.0% in 2025Q4, suggests STM is prioritizing capacity expansion, likely for silicon carbide and 300mm wafer production. While this may position the company for future growth, it currently consumes a significant portion of operating cash flow, leaving little for shareholder returns. The negative FCF in several quarters, including 2026Q2, indicates that the investment cycle is not yet self-funding, and investors should monitor whether these investments yield the expected margin expansion.

The persistent negative working capital changes, such as -$228M in 2025Q4 and -$207M in 2024Q2, indicate that STM is investing in inventory or facing delayed receivables, which is typical during a demand trough. This trend is concerning because it suggests that even as revenue recovers, cash conversion is being held back by operational needs. The 2026Q1 positive $147M change was an anomaly, and the reversion to negative in 2026Q2 implies that working capital remains a structural drag on free cash flow.

The company has consistently paid dividends, but the amounts are modest relative to cash flow, and buybacks have been zero in recent quarters, a shift from the $92M quarterly buybacks seen in 2024. This suggests management is preserving cash for capex and debt reduction, consistent with the low debt-to-equity ratio of 0.12%. While this approach supports balance sheet strength, it may disappoint income-focused investors, especially when FCF is negative, as in 2026Q2.

The cumulative gap between OCF and net income is substantial, with OCF totaling $5.93B versus net income of $1.98B, a ratio of 3.0x. This divergence is primarily driven by cumulative depreciation and amortization of $4.19B, which is a non-cash expense. While this suggests that earnings quality is high in terms of cash backing, it also highlights the capital-intensive nature of the business, where significant reinvestment is required to maintain the asset base. Investors should recognize that this cash generation is not entirely distributable, as a large portion must be reinvested to sustain operations.