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STMicroelectronics distinguished itself in
several ways during 2001, which turned out to be the worst year in the history
of the semiconductor industry. Within the context of 32% and 24% declines,
respectively, for the total industry (TAM) and our served market (SAM), ST's
revenues declined 18.6% on a year-over-year basis.
IMPORTANTLY, ST WAS ABLE TO:
• report a $257 million net profit, while
the industry as a whole was heavily in the red;
•
increase market share by 0.7 percentage points to 4.5%;
• generate $225 million of net
operating cash flow; and
• strengthen an already solid balance sheet,
bringing the net financial debt-to-equity ratio to 0.07.
Our Company has a long track record of
market outperformance. This trend is particularly impressive when viewed from
1998, which was the trough of the prior cyclical industry downturn, through
2001. Over that four-year period ST's revenues grew at a compounded annual rate
of 14.4%, while the industry's growth was only 3.7%.
As a result of our comparatively strong
revenue performance, several industry research reports have ranked ST among the
world's top five semiconductor companies for 2001, up from the number 6
position in 2000. We are pleased by ST's progression, particularly as our
revenues have been derived exclusively from organic growth. By the same token,
we want to stress that ST's priority is excellent customer service, and we view
our industry ranking as a consequence of our success in this area, rather than
an objective in itself.
Of course, size and stature bring with them
important advantages, enabling ST to leverage its R&D spending and product/
application leadership as well as to position itself to benefit from the
inevitable industry consolidation that we expect to occur over the next several
years.
Importantly, ST's market share gains were
not achieved at the expense of the Company's profitability. In the face of
sharply declining demand and pricing pressures relating to industry-wide
overcapacity, we undertook a broad range of corporate initiatives to ensure
positive bottom-line results.
Capital expenditures were pared back by
almost 50% as compared with previous year, and by the fourth quarter of 2001
selling, general and administrative costs had been cut by 27% from the
comparable period in 2000. We announced the closure of two 6" wafer fabs and
implemented shorter work weeks and temporary closings at other of our
manufacturing facilities. In addition to a hiring freeze, normal attrition and
a focus on "insourcing," ST's top 350 senior managers voluntarily took mid-year
salary cuts ranging from 5% to 10%. All the above actions enabled the Company
to avoid the massive personnel layoffs that characterized much of our industry
and to maintain strategic research and development programs and leading-edge
wafer fab projects.
With the integrity of the organization
intact, ST will have the people in place to effectively serve our customers as
macroeconomic and business conditions rebound. And, by firmly tightening our
belts in all areas, ST has the financial resources to move ahead with programs
that are strategically important to our future growth.
In 2001, no core R&D programs were cut;
we started modest volume production in our state-of-the-art 8" wafer fab in
Singapore; construction on a 12" wafer pilot line was well underway in Crolles,
France; and construction began on the Company's future 12" wafer fab in
Catania, Italy.
THESE DECISIONS, WHEN TAKEN TOGETHER WITH ST'S LONG-STANDING
EMPHASIS ON:
• a diversified
product portfolio featuring differentiated products;
• selected, high-growth applications within
key market segments;
• strategic customer alliances; and
• efficiently located global design and
manufacturing capability;
add to the Company's ability to anticipate
and rapidly respond to the emerging trends that are changing the complexion of
our marketplace.
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Application convergence will be an
important growth driver for the semiconductor industry in the coming years, and
ST has already taken a leadership position in this area by mastering its key
components, namely: mobility, connectivity, multimedia, storage and security.
The convergence era is a direct outgrowth of System-on-Chip (SoC), both
requiring a broad range of capabilities–including technology, system
know-how, strategic alliances, intellectual property portfolio, etc.–that
ST and only a few other companies in the world possess. For SoC we needed the
ability to put different intellectual property blocks on one chip. Convergence
requires this and more–the ability to put different IPs relating to
different applications on a single chip.
From a consumer standpoint, convergence
means that we will be able to use a new generation of electronic
appliances–which will evolve from today's mobile phones, televisions, PCs
and laptops–each capable of performing a myriad of functions such as
accessing the Internet, listening to music, sending multimedia messages and
elaborating data. The evolution of application convergence will give many of us
more freedom to manage our business and personal lives, providing greater
functionality to each of the electronic devices we use.
For those semiconductor companies that can
master its key elements, convergence promises a compounded annual growth rate
that substantially exceeds the industry average. Therefore, while 2001 was, in
fact, a dismal year for the sector, we envision a bright future for those
companies that, like ST, are well positioned to take advantage of emerging
trends. In our financial statements you will find the facts and figures
relating to our performance in 2001, and comparative financial data for prior
years.
When I reflect on ST's ability to navigate
through the difficult market conditions of 2001, I conclude that once more the
difference is in our execution, driven by our people, and our corporate
culture. This encompasses the Total Quality Management (TQM) that we embraced
several years ago and has now become an integral part of our business
philosophy, as well as ST's commitment to remain socially responsible corporate
citizens. I am very proud to say that ST has been, is, and will remain a
champion of environmental responsibility and sustainable development, having
proven that contributing to a better world can also enhance business
performance and profitability. From the social point of view, ST has always
endeavored to bring the highest standard of behavior to every part of the world
in which we operate. We bring education. We bring technology. And, now we are
among the leading participants in working to bridge the digital divide between
the technological "haves" and "have nots."
All indications are that 2002 will be
another challenging period as industry-wide overcapacity will cause continued
pricing pressure at least in the first half of the year, even as end-market
demand improves. In addition to adhering to what, to date, has been a winning
strategy, ST's management and employees will be working hard in 2002 to
profitably build market share and take advantage of opportunities to leverage
our strong product and application positions. By emphasizing growth at a rate
beyond that of the industry, we look forward to enhancing value for all
shareholders and stakeholders.
Sincerely,
PASQUALE PISTORIO
President and Chief Executive Officer
March 27, 2002 |
