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We also recorded a special
inventory charge for obsolescence of $70.7 million in cost of sales in the
second quarter 2001 due to significant cancellations of customers’ orders
that resulted in unus-able quantities of work in process and finished goods
inventories. As anticipated, during the 2002 first quarter there was a
sequen-tial decline in our net revenues from the 2001 fourth quarter, which was
primarily attributable to seasonal factors as well as pricing pressures
resulting from industry-wide overcapacity. Net revenues for the 2002 first
quarter were $1,355.2 million, repre-senting a 6.4% sequential decline from the
2001 fourth quarter. During the 2002 first quarter we reached a beneficial
level of operating leverage from our fabrication facilities, illustrated by a
sequential gross margin increase from 31.7% in the 2001 fourth quarter to 33.4%
in the 2002 first quarter. This performance resulted from significant yield
improvements and higher overall wafer fabrication plants utilization rates.
During the 2002 first quarter we continued to tightly control discretionary
spending while maintaining programs that will fuel our future growth. In the
aggregate, our selling general and administrative expenses totalled $365.2
million, virtually flat on a sequential basis. At the same time, we continued
to fund our research and development programs, our 300mm wafer projects and the
expansion of our leading-edge technology capacity. Net order flow accelerated
significantly in the last month of the 2002 first quarter, during which time we
also experienced a degree of price stabilization that benefited memory and
other product families. Based upon available backlog information and order rate
trends, we believe that we are positioned to post double-digit sequential net
revenue growth of approximately 10% in the 2002 second quarter. This projected
net revenue gain is expected to reflect strengthened demand from virtually all
of our end-markets, which would significantly increase our overall wafer
fabrication plants utilization rates. Within this scenario, our ability to
leverage our infrastructure could add 200 to 300 basis points to gross margin
in the 2002 second quarter as compared with the 2002 first quarter. Such
performance could affect the 2002 second quarter earnings to an even greater
extent reflecting the benefits of our reduced cost structure. Over a
longer-term horizon, we believe that we enjoy a very favorable competitive
position in those tar-geted applications which are likely to lead the market in
unit growth. Thus, while global economic and business conditions remain the key
variables affecting semiconductor industry per-formance, we believe that we
will continue to gain market share in the markets we serve.
Our capital
expenditures for 2002 are expected to be approxi-mately $1.2 billion, one half
of which is related to maintenance and optimization of existing plants. The
remaining amount will be primarily allocated to the 300mm wafer projects and
the expansion of leading-edge technology capacity. These invest-ments, in
concert with ongoing product development and strategic initiatives, are
expected to strengthen our ability to gain additional and profitable market
share as global economic and business conditions improve.
OTHER DEVELOPMENTS
We completed our plan to
repurchase our shares announced during September 2001. As of December 31, 2001
9,400,000 shares of our common stock totalling $233.3 million have been
repurchased and are reflected at cost as a reduction of shareholders’
equity.
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The repurchased shares have been
des-ignated to fund our most recent employee stock option plan. On March 1,
2002, we announced our intention to proceed with a further repurchase of a
maximum amount of 4,000,000 shares, in order to fund further stock option
grants under our most recent employee stock option plan. The 4,000,000 shares
have been totally acquired in the market in early May 2002.
On December
11, 2001, our principal shareholder, STMicroelectronics Holding II B.V.,
completed the private placement of 69 million of our common shares, for the
benefit of Finmeccanica and France Telecom, two of our indirect shareholders.
France Telecom also completed the offering of EUR 1.5 billion notes
exchangeable into 30 million of our exist-ing common shares held by
STMicroelectronics Holding II B.V. on or after January 2, 2004.
After
these operations, STMicroelectronics Holding N.V., the parent company of
STMicroelectronics Holding II B.V., was owned 49% by FT1CI, a French holding
company owned by Areva and France Telecom, and 51% by Finmeccanica, an Italian
holding company. In connection with the operation, the shareholders of
STMicroelectronics Holding II B.V. signed a new shareholders agreement on
December 10, 2001 to restructure their holdings in STMicroelectronics Holding
II B.V. The agreement permits the share-holders to restructure the holding
companies, provides for new corporate governance principles, and for the terms
and conditions of future disposals of common shares in STMicroelectronics, and
contains provisions relating to stability in the shareholding struc-ture and
future flexibility. Under the new shareholders agreement, the parties have
agreed to modify the governance rights within the holding company so that they
will be shared equally by FT1CI and Finmeccanica, despite the difference in
percentage ownership, for 24 months after the date of the new shareholders
agreement plus the three-month period thereafter. The new shareholders
agreement also states that France Telecom intends to dispose as soon as
possible of its indirect interest in the shares, while Areva has expressed its
interest in obtaining the option of liquidating its stake after a 24-month
period from the date of such agreement. The new shareholders agreement provides
that Finmeccanica will have the right to sell additional shares during such
24-month period so that it may sell a total number of shares equal to the
amount sold by France Telecom. Any such transaction, or publicity concerning
such potential transaction, could affect the market price of STMicroelectronics
and cause the market price of our shares to drop significantly.
During
2001, we have finalized the acquisition of Ravisent and Veridicom and the
formation of SuperH, Inc., a joint venture with Hitachi, Ltd. These
transactions were conducted in order to strengthen our activities in technology
and design.
In March 2002, we announced an agreement with Royal Philips
Electronics and Taiwan Semiconductors Manufacturing Company Ltd. (TMSC) for the
joint development of advanced process technologies at the 300mm wafer
fabrication facility “Crolles 2” site in our Crolles, France,
research and develop-ment center. In April, we announced that Motorola had
signed a memorandum of understanding to join. There can be no assur-ance,
however, that we will be able to finalize the terms of the alliance or that it
will succeed. |
