STMicroelectronics Reports 2011 Third Quarter and Nine Month Financial Results

SEOUL--(Korea Newswire)--STMicroelectronics (NYSE: STM) reported financial results for the third quarter and nine months ended October 1, 2011.

President and CEO Carlo Bozotti commented, “We entered the third quarter preparing to face a difficult market environment and much weaker than planned business with a major customer as well as ongoing inventory adjustments. Reflecting these factors, our third quarter results were substantially in line with the business outlook we provided with net revenues decreasing 4.9% sequentially and gross margin at 35.8%. During the third quarter we have seen further deterioration in the semiconductor market environment amid macro-economic uncertainty and we are now experiencing a much weaker demand across a broader range of products.

While the current market conditions are difficult, it is clear that the investments we made over the last several years in our two strategic pillars, Sense & Power and Multimedia Convergence applications, have strengthened our market position, growth trajectory and profitability. ST’s wholly-owned businesses revenue growth of 9.3% for the first nine months of 2011 demonstrates the progress made, in spite of the changing market environment over this timeframe. In particular, we saw growth in MEMS, automotive ICs, microcontrollers and imaging products, and these sales advances have translated into improved profitability with ACCI, AMM and PDP delivering operating income growth and operating margin expansion on a year-to-date basis.

“With respect to our wireless joint venture, ST-Ericsson’s third quarter revenues came in slightly ahead of expectations. The Company continues to make progress as more devices with ST-Ericsson’s new platforms are entering the market and in the quarter, the first smartphone using ST-Ericsson’s NovaThorTM platform has ramped with one leading manufacturer. Nonetheless, ST-Ericsson’s operating loss remains substantial while it transitions to its new product portfolio.”

ST’s third quarter net revenues decreased 4.9% on a sequential basis, with all regions down sequentially except the Japan & Korea region which was up 6.7%. EMEA, Greater China & South Asia and Americas each decreased about 7%. On a year-over-year basis, ST’s net revenues decreased 8.1%, with the Americas down by 1.2%, Japan & Korea by 5.6%, EMEA by 8.8% and Greater China & South Asia by 10.6%. Sequentially, Wireless led all product segments with third quarter revenues up 18.8% while Automotive, Consumer, Computer, Communication Infrastructure (ACCI), Power Discrete Products (PDP), and Analog, MEMS and Microcontrollers (AMM) net revenues were down 12.3%, 6.2% and 4.0%, respectively.

Gross margin, as expected, decreased 230 basis points compared to the prior quarter, principally due to prices, the underloading of ST’s wafer fabs with consequent unused capacity charges and unfavorable currency effect that were partially offset by better mix. On a year-over-year basis, gross margin declined by 340 basis points mainly due to prices, lower volumes and related charges for unused capacity and unfavorable currency effect.

As anticipated, combined SG&A and R&D expenses were $898 million compared to $895 million in the prior quarter with positive seasonal effects more than offset by a lower level of sales of R&D services at ST-Ericsson. On a year-over-year basis, combined expenses increased $59 million mainly due to unfavorable currency effects and a lower level of sales of R&D services at ST-Ericsson. Combined operating expenses, as a percentage of sales, were 36.8% in the 2011 third quarter compared to 34.9% and 31.6% in the prior and year-ago quarters, respectively.

Operating margin before restructuring attributable to ST in the 2011 third quarter was 4.3% compared to 9.1% and 11.6% in the prior and year-ago quarters, principally reflecting lower volumes and increased losses at ST-Ericsson.

Third quarter net income was $71 million or $0.08 per diluted share, compared to $0.46 and $0.22 per diluted share in the prior and year-ago quarters, respectively. On an adjusted basis, net of related taxes, ST reported non-U.S. GAAP diluted net earnings per share of $0.09 in the third quarter, compared to $0.14 and $0.23 per share in the prior and year-ago quarters, respectively.

For the 2011 third quarter, the effective average exchange rate for the Company was approximately $1.40 to €1.00 compared to $1.37 to €1.00 for the 2011 second quarter and $1.34 to €1.00 for the 2010 third quarter.

The sequential net revenues decrease of 4.9% was due to sales declines in all market segments except Telecom, which increased 6% sequentially. Automotive, Industrial & Other, Consumer and Computer were lower by 10%, 8%, 4% and 3%, respectively. Distribution decreased by 17%. On a year-over-year basis net revenues were lower by 8.1% with sales in Industrial & Other and Automotive up 14% and 11%, respectively, while Consumer, Telecom, and Computer were down 30%, 17% and 5%, respectively. Distribution declined 8%.

ACCI third quarter net revenues decreased 12.3% compared to the prior quarter principally due to weak industry conditions and ST’s planned exit from hard disk drive system-on-chip. On a year-over-year basis, ACCI revenues decreased by 7.9% with growth in Automotive and Imaging more than offset by weakness in Consumer and Computer. ACCI operating margin was 7.1% compared to 10.9% and 12.0% in the prior and year-ago quarters, respectively.

AMM third quarter net revenues decreased by 4.0% in comparison to the prior period with growth in MEMS offset by lower demand for analog and microcontroller applications. On a year-over-year basis, AMM revenues increased by 3.9% driven by strong growth in MEMS. AMM operating margin was 19.9% in the 2011 third quarter, compared to 21.2% and 20.9% in the prior and year-ago quarters, respectively.

PDP third quarter net revenues decreased 6.2% sequentially reflecting both a softer than expected market demand in Industrial and the anticipated weak demand from a major customer. On a year-over-year basis, PDP revenues decreased 7.0%. In the 2011 third quarter, PDP operating margin was 10.6% compared to 11.8% and 15.8% in the prior and year-ago quarters, respectively, mainly due to lower volumes and price erosion.

Wireless net revenues in the third quarter increased 18.8% sequentially but declined 24.5% year-over-year. In the third quarter, ST-Ericsson revenues from new products passed the 50% of sales threshold and included the first shipments of the NovaThorTM platform for smartphones. Wireless operating loss, net of $100 million of non-controlling interest, was $106 million in the third quarter compared to a loss of $102 million and $37 million in the prior and year-ago period, respectively. Non-controlling interest is recorded below operating results in ST’s Consolidated Income Statement and reflects primarily Ericsson’s 50% share in the joint venture’s results, as consolidated by ST.

ST-Ericsson is currently in a transition from legacy to new products.The Company’s innovative product roadmap well positions ST-Ericsson for success as an industry leader and will translate our current efforts into a value opportunity in the future. ST-Ericsson’s third quarter results show progress in that respect. Lately, uncertainty has increased due to changes in the business environment and has reduced demand for legacy products, including a much weaker than planned smartphone business with a major customer. In the event of a significant worsening of the current market conditions or a lack of results, we will consider additional actions to improve performance. Also, under these circumstances, the value of ST-Ericsson for ST could decrease to a value lower than the current carrying amount of the investment on our books.

For additional information, see ST-Ericsson’s Q3 2011 earnings results press release at www.stericsson.com

Cash Flow and Balance Sheet Highlights

Free cash flow was negative at $136 million in the third quarter, due to the results of ST-Ericsson, compared to a negative $250 million and a positive $224 million in the prior and year-ago quarters, respectively.

Capital expenditures, still reflecting the particularly intense level of investment in the first half of 2011, were $384 million during the third quarter of 2011 compared to $332 million and $298 million in the prior and year-ago quarters, respectively.

Inventory decreased to $1.70 billion at quarter end compared to $1.76 billion at July 2, 2011. In the third quarter inventory turns were 3.7.

In the third quarter, dividends paid to shareholders were $88 million. In addition, the Company paid $72 million to redeem a portion of its 2016 convertible bond and $77 million to repurchase a portion of its 2013 Eurobonds.

ST’s net financial position was a net cash position of $827 million at October 1, 2011 compared to $1.07 billion at July 2, 2011 and $878 million at September 25, 2010. ST’s cash and cash equivalents, short-term deposits, marketable securities and restricted cash equaled $2.54 billion and total debt, including 100% of ST-Ericsson’s debt, as consolidated by ST, was $1.71 billion at October 1, 2011.

Total equity, including non-controlling interest, was $8.46 billion at quarter end.

In the 2011 third quarter the Company posted a return on net assets (RONA) attributable to ST of 5.6%.

2011 Nine Months Results

Net revenues for the first nine months of 2011 increased 0.4% to $7.54 billion from $7.51 billion in the year-ago period, mainly due to an improved product portfolio with growth driven by Automotive, MEMS, Microcontrollers and Imaging applications, while substantially offset by Wireless. ST wholly-owned businesses’ net revenues increased 9.3% for the first nine months of 2011.

All ST wholly-owned businesses increased revenues and expanded profit in the first nine months of 2011. ACCI’s net revenues increased 5.7% and its operating margin improved to 9.7% compared to 9.3% in the first nine months of 2010. AMM’s net revenues increased 18.6%, accompanied by an increase in its operating margin to 21.0% from 16.5% for the 2010 nine-month period. PDP net revenues increased 3.5% and its operating margin was 12.5%, compared to 12.2% for the first nine months of 2010. Wireless revenues decreased 31.0% and the operating loss increased 73.2%.

Gross margin was 37.7% of net revenues for the first nine months of 2011, compared to 38.4% of net revenues in the year-ago period, mainly due to prices and lower fab loading and unused capacity charges incurred in the 2011 third quarter. Net income, as reported, was $661 million in the first nine months of 2011, or $0.73 diluted per share, compared to net income of $611 million, or $0.68 diluted per share in the first nine months of 2010. On an adjusted basis, net of related taxes, ST reported non-U.S. GAAP diluted net earnings per share of $0.43 in the first nine months of 2011 compared to $0.48 per share in the first nine months of 2010.

The effective average exchange rate for the Company was approximately $1.37 to €1.00 for the first nine months of 2011, compared to $1.36 to €1.00 for the first nine months of 2010.

Website: http://www.st.com

This is a news release distributed by Korea Newswire on behalf of this company.