Vision and strategy: looking forward to 2006

ST is one of the world's largest semiconductor companies, a leader in developing and supplying technology for the broad spectrum of microelectronics applications. Here we examine how ST competes in its markets, and the issues of corporate responsibility this raises for the company.

The pace of change in all technological sectors seems to accelerate almost daily, and at a global level. And the semiconductor market is one of the most competitive markets in the world. It's therefore no wonder that incoming CEO Carlo Bozotti called for maximum speed and efficiency in executing ST's change programs. In his words: "If we blindly oppose all change we will ... be washed away by the advancing wave of innovation." This is the very challenging environment facing companies like ST.

Competing in this rapidly changing environment formed the centerpiece to Mr Bozotti's presentation when, as our new CEO, he toured the world visiting ST sites. He made clear his pride in the traditions he was inheriting in a company that had fought its way into the rankings of the biggest and best, and introduced the concept of Execution Excellence. By this, he meant the collective sense of responsibility and accountability for results, the discipline of acting flawlessly on decisions taken, and the sense of urgency required for success in ST's markets.

So, how did ST become one of the biggest and best? Well, since the company was formed almost 20 years ago, its mission has been to grow as a profitable and viable broad-range semiconductor supplier. It has succeeded in this aim through focusing on innovation, time to market, cost-effectiveness, creating a world-class manufacturing machine, and building alliances to share the high level of Research & Development (R&D) expenditure. ST's success also depends on its ability to reach a critical mass, which is why the company has focused on high-growth market segments such as telecommunications, digital consumer, computer peripherals, automotive, and industrial.

Within the context of this strategic direction, and to accelerate the pace of change in ST, Carlo Bozotti announced three major initiatives that were rolled out during the year:

• Sales expansion: focusing on new major key accounts and on the mass market, while reorganizing to strengthen efforts in China and Japan
• R&D effectiveness: improving time to market for technologies and products by redeploying resources and increasing the focus on program selection and execution, while launching an ambitious initiative to improve product quality
• Cost reduction: wide-ranging programs that include cutting manufacturing and purchasing costs, as well as some restructuring initiatives affecting mostly European and Moroccan sites.

Much of this strengthening and reshaping has been implemented in 2005. But for a company whose aim is to be a top-three semiconductor manufacturer, it is only the start. The task facing ST is huge, especially given a further tenet of its strategy – the belief that long-term viability is linked to understanding its stakeholders' expectations, and its ability to create value for all of them.

In this respect, implementing strategy may raise issues such as:

• The effect on our European workforce of balancing development between the company's historical roots in Europe and fast-growing markets in Asia
• The advocacy for labor rights when expanding activities and developing connections with suppliers in emerging countries
• The availability of financial resources to reduce the company's environmental footprint while increasing its production volumes by more than 10% a year
• The capacity to maintain and develop an experienced and permanent workforce while adapting the company's activity to the cyclical nature of the semiconductor market.

However, as Carlo Bozotti acknowledged: "The attention of our whole team is dedicated to bringing the company's financial performance back to the levels where we all want them to be. But the values we share are there, strong and solid as ever… Just as in the past, we will do business with integrity, and we will be aware of our responsibility toward our stakeholders."

So, it is clear that, whatever the difficulties, ST will be guided by its values. In a most challenging market, top management is constantly attentive to reinforcing the company's historical culture in order to achieve long-term success.