- Second quarter revenues increased 7.0% sequentially to $2,172
million; up 27.6% year-over-year
- Gross margin reached 37.4% for the second quarter, up from 35.4%
in the prior quarter and 35.7% in last year's second quarter
- Second quarter net income increased to $148 million, up 91.7%
sequentially and 85.7% year-over-year
Geneva, July 21, 2004 - STMicroelectronics (NYSE: STM) reported
financial results for the second quarter and first half ended June 26,
2004.
Second Quarter 2004 Financial Results
Net revenues for the second quarter were $2,172 million, up 7.0% sequentially
from the $2,029 million reported in the prior quarter, and 27.6% above
the $1,702 million of last year's second quarter. Revenues from Application
Specific Products were $1,126 million, or 51.8% of 2004 second quarter
net revenues. Differentiated product revenues were $1,400 million, or
64.4% of net revenues for the period.
Gross profit was $812 million, up 13.2% sequentially from the prior
quarter's $718 million, and 33.8% above last year's second quarter gross
profit of $607 million. Gross margin was 37.4%, a 200 basis point improvement
over the prior quarter's 35.4%. Gross margin was 35.7% in last year's
second quarter.
Pasquale Pistorio, President
and Chief Executive Officer, commented, "We are very pleased
by ST's ability to significantly raise profitability levels in the second
quarter by posting a 13.2% sequential increase in gross profit on a
7.0% sequential revenue gain. Second quarter revenues of $2.17 billion
were within our guidance range and could have been higher, had it not
been for some order push-outs in the computer peripherals market and
short term testing bottlenecks affecting our ability to ship certain
products. Gross margin of 37.4% exceeded our initial expectations as
a result of higher utilization rates and other manufacturing efficiencies."
Operating income was $179 million in the 2004 second quarter, more than
double the $80 million reported in the prior quarter and 47.5% above
the $121 million reported for the 2003 second quarter.
Net income equaled $148 million in the 2004 second quarter, a 91.7%
increase over the $77 million reported in the 2004 first quarter and
85.7% above the $80 million earned in the 2003 second quarter.
Earnings per diluted share were $0.16 for the 2004 second quarter, compared
to $0.08 in the 2004 first quarter and $0.09 in the 2003 second quarter.
Mr. Pistorio noted, "ST's significant operating leverage in the period
was primarily driven by the 200 basis point sequential increase in gross
margin. Additionally, R&D and SG&A expenses moderated as a percentage
of net revenues."
In the 2004 second quarter, research and development expenses were
$384 million, 5.9% above the $363 million expended in the prior quarter,
and 28.9% above the $298 million reported in the comparable year-ago
period. R&D costs represented 17.7% of net revenues in the 2004 second
quarter compared to 17.9% of net revenues in the prior quarter, and
17.5% of net revenues in the year-ago quarter.
Selling, general, and administrative expenses were $239 million for
the 2004 second quarter, 4.0% above the prior quarter's $230 million,
and 25.1% above the $191 million incurred in the comparable year-ago
period. As a percentage of net revenues, SG&A expenses decreased to
11.0%, from 11.3% in the prior quarter, and 11.2% in last year's second
quarter.
For ST, the average exchange rate of the Euro versus the U.S. dollar
in the 2004 second quarter was approximately $1.20 to €1, compared to
$1.26 to €1 in the first quarter of 2004 and $1.13 to €1 in last year's
second quarter.
Summarizing, Mr. Pistorio said, "ST's second quarter sequential revenue
growth was broad-based with four out of our five targeted market segments
showing quarter-over-quarter improvement. As anticipated, the Automotive,
Consumer, and Industrial markets were the strongest contributors. Telecom,
including wireless and networking ASICs, was up over 2004 first quarter
levels, but softness in hard disk drive applications caused Computer
to post a moderate sequential decline. Flash memory product sales increased
9.7% sequentially to $304 million."
"Effective resource allocation and cost control enabled ST to report
substantial sequential increases in operating income and net income
for the period, while continuing to invest in technology, product development,
and worldwide marketing programs," Mr. Pistorio said.
Balance Sheet Highlights at June 26, 2004
At June 26, 2004, ST had cash, cash equivalents, and marketable
securities of $2.69 billion. Total debt was $2.76 billion; shareholders'
equity was $8.04 billion.
Net cash from operating activities equaled $1,061 million for the first
half compared to $776 million in last year's first half. Capital expenditures
were $587 million in the 2004 second quarter and $908 million for the
first half. Net operating cash flow ( ) was $119 million for the 2004
first half.
Additional Second Quarter 2004 Financial and Operating Data
The following tables and commentary provide a breakdown of revenues
and operating income by product group and segment revenues by product
category, targeted market, and geographical region.
Second Quarter 2004 Net Revenues and Operating Income by Product
Group:
| Group |
Revenue(Million
US$) |
% of Net Revenue |
Operating IncomeQ1
2004(Million US$) |
| Telecommunications, Peripherals and Automotive (TPA) |
$842 |
38.8% |
$109 |
| Discrete and Standard ICs (DSG) |
419 |
19.3% |
92 |
| Memory Products (MPG) |
509 |
23.4% |
39 |
| Consumer and Microcontroller (CMG) |
386 |
17.7% |
22 |
| OTHER* |
16 |
0.8% |
(83) |
| TOTAL |
$2,172 |
100.0% |
$179 |
(1) Net revenues of "Other" include revenues from sales of Subsystems
and other revenues.
(2) Operating income of "Other" includes items such as impairment, restructuring
charges, and other related closure costs, start-up costs, and other unallocated
expenses such as: strategic or special research and development programs,
certain corporate level operating expenses, patent claims and litigations,
and other costs that are not allocated to the product groups, as well
as operating earnings or losses of the Subsystems and Other Products Group.
Revenues of all key product groups were above the prior quarter and the
comparable year-ago period. On a sequential basis, DSG and MPG posted
double-digit revenue growth of 17.5% and 12.8%, respectively. CMG increased
5.7% and TPA was up 0.2%. Operating profits were reported by all major
product groups with solid sequential improvement achieved by MPG, DSG,
and CMG.
Q2 2004 Revenue Breakdown by Product Category
| |
Revenue(Million US$) |
% of Net Revenue |
| Differentiated Products |
$1,400 |
64.4% |
| Standard & Commodities |
108 |
5.0% |
| Micro & Memories |
341 |
15.7% |
| Discretes |
323 |
14.9% |
All product categories recorded sequential and year-over-year revenue
growth. On a sequential basis, Discretes and Micros & Memories increased
19.0% and 18.1%, respectively. Standard and Commodities were up 11.7%,
and Differentiated Products increased 2.0% over the prior quarter.
Q2 2004 Revenue Breakdown by Market Segment
The following table estimates, within a variance of 5% - 10% in the absolute
dollar amount, the relative weighting of each of the Company's target
market segments in the second quarter of 2004.
| MarketSegment |
% of Net Revenue |
| Automotive |
15% |
| Consumer |
21% |
| Computer |
16% |
| Telecom |
31% |
| Industrial & Other |
17% |
Automotive and Consumer were each up approximately 10% on a sequential
basis, and revenues from Industrial increased by more than 15%. Telecom
reported low to mid single-digit growth, and Computer declined by a few
percentage points from the prior quarter. Strong year-over-year growth
was achieved across all targeted market segments.
Q2 2004 Geographic Revenue Breakdown
| By Customers' Region of Origin |
By Location of Order Shipment |
| |
Revenue(Million US$) |
% of Net Revenue |
|
Revenue(Million US$) |
% of Net Revenue |
| Europe |
$998 |
45.9% |
Europe |
$587 |
27.0% |
| North America |
567 |
26.1% |
North America |
318 |
14.6% |
| Asia/Pac |
395 |
18.2% |
Asia/Pac |
923 |
42.5% |
| Japan |
134 |
6.2% |
Japan |
101 |
4.7% |
| Emerging Markets |
78 |
3.6% |
Emerging Markets |
243 |
11.2% |
First Half 2004 Results
Net revenues for the first half were $4,201 million, an increase
of 26.5% over the 2003 first half. Gross profit was $1,530 million, or
36.4% of net revenues, compared to $1,174 million or 35.3% of net revenues
for the 2003 first half. Operating income was $259 million, compared to
$245 million in last year's first half. Net income was $225 million, or
$0.24 per diluted share, compared to net income of $159 million, or $0.18
per diluted share in last year's first half.
Research and development expenses were $747 million, compared to $581
million in the 2003 first half. Selling, general, and administrative expenses
were $469 million compared to $366 million in the 2003 first half.
In the 2004 first half, the average exchange rate of the Euro versus the
U.S. dollar was approximately $1.23 to €1, compared to $1.10 to €1 in
last year's first half.
Update on the Manufacturing Restructuring Plan
On October 22, 2003, ST defined a manufacturing restructuring plan that
was to be substantially completed within 18 months. Customer service requirements
during the recent period of tight capacity have caused the plan's substantial
completion date to be pushed back. To date, the Company has incurred approximately
$250 million of the $350 million in pre-tax charges associated with this
restructuring plan and related manufacturing initiatives. It is expected
that an additional $20 million to $30 million in pre-tax charges will
be incurred in the second half of 2004, with the remainder taken in 2005.
In the second half of 2004, ST will realize the first meaningful cost
savings of this plan, which should amount to approximately $25 million
for the period. In 2005, these savings should accelerate to about $80
million, with the full projected $120 million in annualized after-tax
cost savings being realized in 2006.
Outlook
Looking ahead, Mr. Pistorio commented, "Based upon current visibility,
we expect 2004 to continue to be a year of progressive growth in revenues
and profitability for ST."
"For the third quarter," Mr. Pistorio said, "we anticipate that revenues
will increase by 2% to 8% on a sequential basis, which equates to a year-over-year
increase of between 23% and 30%. This growth is expected to be driven
by a broad range of key applications including: wireless, networking,
data storage, and most of the digital consumer and automotive applications
that we serve. Additionally, sales of Flash memory products should continue
to grow at a rate that exceeds the Company average."
"Third quarter guidance is based on an average Euro to U.S. dollar exchange
rate of $1.23 to €1, or about 2.5% above that of the 2004 second quarter.
The third quarter gross margin benefit from ST's expected sequential revenue
growth is likely to be offset by the negative currency impact and the
cost of technical problems which occurred at the end of the second quarter.
Although these technical problems have been resolved, their effect and
that of the currency fluctuation are expected to penalize third quarter
gross margin by approximately 100 basis points. Given these factors, and
assuming a modest sequential decline in prices, we anticipate that third
quarter gross margin will approximate 37.5%, plus or minus 50 basis points,"
Mr. Pistorio noted.
"Assuming a currency scenario similar to what we have used for the 2004
third quarter, currently available backlog data, together with our expectations
for a more favorable product mix, and the resumption of manufacturing
efficiencies, particularly associated with the migration to finer geometries,
confirm ST's roadmap to reach gross margin of at least 40% in the fourth
quarter of this year," Mr. Pistorio said.
"Additionally," he concluded, "ST should be competitively well-positioned
to fully optimize specific market opportunities in 2005, when we will
have a significantly enhanced product portfolio addressing high growth
applications and an expanded customer base, plus the benefit of an improved
cost structure."
Recent Corporate Developments
On April 23, 2004, STMicroelectronics announced that all of the proposed
resolutions were approved at its Annual General Shareholders' Meeting
held in Amsterdam, including the distribution of the cash dividend of
$0.12 per share, representing a 50% increase over last year's dividend
that was paid on May 24, 2004. Among the other resolutions, the Annual
General Shareholders' Meeting endorsed the corporate governance charter
proposed by the Supervisory Board. Furthermore, after the Annual General
Shareholders' Meeting, the Supervisory Board, chaired by Bruno Steve,
convened and agreed to the appointment of Gérald Arbola as Vice Chairman
of the Supervisory Board.
From May 19, 2004 through May 27, 2004, ST repurchased a total of $306,851,000
nominal value of its Zero Coupon Senior Convertible Bonds due 2010 ("2010
Bonds"), representing 14.30% of the total amount originally issued, for
a total amount of $244 million. Since March 2003, ST had repurchased 92.28%
of the total amount originally issued of its 2010 Bonds.
On July 9, 2004, ST redeemed all of its remaining outstanding Zero Coupon
Senior Convertible Bonds due 2010 (the "2010 Bonds") for a cash amount
of $131 million.
Products, Technology and Design Wins
- ST and Nokia completed a jointly developed comprehensive specification
for camera modules, aimed at standardizing this increasingly important
component in mobile devices. The specification, called Standard Mobile
Imaging Architecture, or SMIA, will cover all aspects of the modules,
including their electrical, mechanical, and functional interfaces,
and also address other areas such as characterization, optical performance,
and reliability. To accelerate its adoption, Nokia and ST are making
the specification available free of charge to the mobile-imaging industry.
- ST and TI announced sampling of the industry's first standard cdma2000®
1xEV-DV solution. The 1xEV-DV standard provides users with broadband
capabilities via their cell phones, PDAs, and other mobile devices.
- ST won a GSM/GPRS platform design in China. The multi-million unit
win is ST's first GPRS design win in China and highlights ST's cost
effectiveness and the completeness of its hardware and software offering
for this market. Deliveries will begin in Q4 2004.
- ST announced availability of its next-generation multi-mode wireless
LAN chipset enabling a wide range of low-cost IEEE802.11a/b/g systems,
including wireless ADSL gateways, broadband routers, access points,
media servers, bridges, and print servers, as well as personal computing
equipment and other wireless modules.
- ST began sampling a single-chip product for handheld-terminal applications
that adds full Bluetooth v1.2 function and capability with superior
radio performance and very low power consumption. The device has been
certified for Bluetooth qualification.
- ST announced the availability of an advanced ADSL2+ chipset for
Customer Premises Equipment (CPE) and sampling of the world's first
ADSL2+ chipset for Central Office (CO) equipment. The two chipsets
together create the first end-to-end solution that delivers tested
bandwidth above 24-Mbps downstream while supporting all standards
and all annexes, making it a universal solution that can support the
demand for triple-play functionality - data, voice, and video. ST's
CPE chipsets are currently being shipped to over 20 customers worldwide.
ST has also collected major design wins for the CO chipset.
- Together with Microsoft, ST is developing a series of ICs for consumer
electronics manufacturers. These components will extend the reach
of high-quality, secure, Windows Media® 9 Series content, in both
standard and high definition, to devices such as set-top boxes (STBs)
and DVD players.
- ST introduced a complete hardware and software set-top-box reference
design targeting the expanding market for digital TV services requiring
the DVB-MHP (Digital Video Broadcast
- Multimedia Home Platform) middleware. ST also announced that it
has developed and will make available to broadcast equipment manufacturers,
a modulator design that is compliant with the new DVB-S2 specification
for satellite broadcasts.
- ST introduced a high-performance secure MPEG-2 decoder for set-top
boxes in all low-cost cable, satellite, and terrestrial TV markets.
The new device will allow consumers to add peripherals, such as a
hard-disk drive, to gain Digital Video Recorder (DVR) capabilities
on a low-cost set-top box.
- In the printer arena, ST was awarded a major contract for the next
generation digital ASIC for 2006 mid-range platforms. ST will cover
platforms from low- to middle/high-end multifunction products. A linear
piezo head driver contract was also awarded to ST for a new high-volume
printer platform.
- ST announced a new read-write channel technology for hard-disk
drives that achieves speeds up to 1.4-Gbit/s and power dissipation
below 1.5W in Read mode at maximum speed. The new read/write channel
can be fabricated in 130nm CMOS technology and offers an improved
signal-to-noise ratio for next-generation hard-disk drives that will
support capacities in excess of 120-Gbyte/platter and rotation speeds
up to 10,000rpm.
- ST was selected as a provider of tuner integrated circuits for analog
and digital car radios by a major manufacturer. ST is further strengthening
its market share in analog and digital tuners for car radios with
new design-wins in Europe and US.
- A new single-chip GPS product with embedded RF and CAN interface
was introduced by ST and is attracting very strong worldwide interest,
especially in Japan.
- ST started to sample 256-Mbit, 2-bit/cell, 130-nm NOR Flash memory,
in both stand-alone and stacked configuration with 64-Mbit PSRAM,
to key customers in the wireless arena. In addition, ST has working
silicon for its new 1-Gbit 90-nm NAND products, which will be sampled
to key customers within the next few weeks.
- ST became the first silicon manufacturer to be certified by MasterCard's
CQM (Card Quality Management) scheme as an approved supplier of secure
microcontrollers for its chip-based debit and credit cards.
- ST introduced a range of 16-bit/32-bit microcontrollers based on
the ARM7™ Thumb® core family from ARM. The products target industrial
control applications, as well as mass-market telecom applications.
- ST announced significant progress in the development of a new type
of electronic memory called Phase-Change Memory in two papers presented
at the 2004 Symposia on VLSI Technology and Circuits. The new technology
is inherently more scalable than Flash and potentially offers better
performance, with benefits such as faster read and write times and
greater endurance. In addition, ST presented seven other papers on
a broad range of next-generation semiconductor technologies.
All statements included in this release and in the related conference
call, other than statements which constitute historical facts are forward-looking
statements which are based on Management's current expectations, views,
beliefs and assumptions as of the date of this release.
Such statements, which include statements referring to anticipated customer
demand for our products in the various applications and markets we address,
the completion of our restructuring plan with anticipated costs and
savings, the expansion and upgrading of our manufacturing capacity,
the enhancement of our product portfolio as well as to an improved cost
structure base are subject to various risks and uncertainties, which
may cause actual results and performance of our business to differ materially
and adversely from the forward-looking statements.
Factors which may cause actual results or performance to differ materially
from the expectations of the Company or its Management include:
- The demand for semiconductor products in the key application
markets and from key customers served by our products;
- Further strong decline in the exchange rates between the US
Dollar and the Euro compared to an average Euro to US Dollar exchange
rate of $1.23 to €1, and the US Dollar and the currencies of the other
major countries in which we have our operating infrastructure;
- The ramp up of volume production in new manufacturing technologies
at our leading edge fabs and at our outside suppliers in time to meet
the demand of our customers;
- The future development of the world semiconductor market, and
the trends in prices for our products;
- Changes in the economic, social, or political environment in
the countries in which we and our key customers operate;
- The anticipated benefits of Research & Development alliances
and cooperative activities.
A more detailed discussion of these factors and the other "Risk
Factors," which may from time to time materially and adversely affect
the Company, is contained in our Annual Report or Form 20-F of the year
ended December 31, 2003, which was filed with the SEC on May 4, 2004.
Conference Call Information
The management of STMicroelectronics will conduct a conference call
on July 22, 2004 at 9:00 a.m. U.S. Eastern Time / 3:00 p.m. CET, to
discuss operating performance for the second quarter of 2004.
The conference call will be available via the Internet by accessing
the following Web address: www.vcall.com.
Those accessing the webcast should go to the Web site at least 15 minutes
prior to the call, in order to register, download and install any necessary
audio software. The webcast will be available until July 30, 2004.
About STMicroelectronics
STMicroelectronics is a global leader in developing and delivering semiconductor
solutions across the spectrum of microelectronics applications. An unrivalled
combination of silicon and system expertise, manufacturing strength,
Intellectual Property (IP) portfolio and strategic partners positions
the Company at the forefront of System-on-Chip (SoC) technology and
its products play a key role in enabling today's convergence markets.
The Company's shares are traded on the New York Stock Exchange, on Euronext
Paris and on the Milan Stock Exchange. In 2003, the Company's net revenues
were $7.24 billion and net earnings were $253 million. Further information
on ST can be found at http://www.st.com
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