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Geneva, April 25th, 2006 - STMicroelectronics (NYSE: STM) reported
financial results for the first quarter ended April 1, 2006.
Revenues, Gross Profit, and Margin Review
Net revenues for the first quarter were $2,364 million, 13.5% above
the $2,083 million reported in last year’s first quarter. This
year-over-year growth was driven by double-digit sales increases in
automotive and wireless applications. Wireless revenues grew over 40%
compared to the year-ago quarter. Sequentially, net revenues declined
1.1% from the $2,389 million reported in the prior quarter. Sequential
sales performance was driven by growth in automotive and digital consumer
applications. In addition wireless application revenues, while lower
sequentially, experienced less seasonality than originally expected.
Gross profit was $837 million for the 2006 first quarter, an increase
of $152 million from $685 million in last year’s first quarter.
Gross margin was 35.4% in the first quarter, an increase of 2.5 percentage
points from 32.9% in last year’s first quarter. On a sequential
basis, gross profit and gross margin decreased from the fourth quarter
levels of $872 million and 36.5%, respectively, largely reflecting seasonal
factors.
Operating Expenses
Combined selling, general, & administrative and research & development
expenses represented 28.1% of net revenues in the first quarter, compared
to 32.1% in the year-ago quarter and 27.7% in the fourth quarter of
2005. R&D expenses of $409 million in the first quarter were slightly
higher than the $402 million in the prior quarter while SG&A expenses
were $256 million for the 2006 first quarter compared to $259 million
in the fourth quarter of 2005.
Operating Income, Net Income, and Earnings per Share
For the 2006 first quarter, the Company reported operating income of
$140 million and net income of $132 million, or $0.14 per share. In
the year-ago quarter, the Company reported an operating loss of $68
million and a net loss of $31 million or $-0.03 per share. In the prior
quarter, the Company reported operating income of $197 million and net
income of $183 million or $0.20 per share.
The Company posted $13 million of impairment, restructuring charges,
and other related closure costs during the 2006 first quarter, representing
an after-tax earnings per share impact of approximately $0.01. In the
prior quarter, restructuring-related expenses were $16 million. In the
year-ago quarter, the Company incurred $78 million in impairment, restructuring
charges, and other related closure costs. First quarter of 2006 results
included $4 million in pre-tax, stock-based compensation expenses versus
$9 million in the prior quarter.
In the first quarter of 2006, the effective average exchange rate for
the Company was approximately $1.20 to €1.
Cash Flow and Balance Sheet Highlights
Net cash from operating activities in the first quarter was
$577 million compared to $555 million in the prior quarter. Capital
expenditures were $297 million in the 2006 first quarter, compared to
$230 million in the prior quarter. Net operating cash flow* was $187
million for the first quarter, compared to $-216 million in the year-ago
quarter, and $290 million in the prior quarter.
At April 1, 2006, reflecting the completion of a convertible note and
bond issuance, ST’s cash and short-term deposits grew to $3.73
billion and total debt was $3.33 billion. Net financial position** improved
by approximately $600 million over the prior year quarter, to a net
cash position of $400 million. Shareholders’ equity was $8.8 billion
at April 1, 2006.
(*) Net operating cash flow is defined as net cash from operating activities
($577 million in the first quarter of 2006) minus net cash used in investing
activities excluding payments for purchase of and proceeds from the
sale of marketable securities and short-term deposits ($390 million
in the first quarter of 2006).
(**) Net financial position is defined as cash, cash equivalents and
short-term deposits ($3,734 million) minus total debt (bank overdrafts
$0 million + current portion of long-term debt $1,509 million + long-term
debt $1,825 million).
President and CEO Remarks
Carlo Bozotti, President
and CEO, commented, “ST had a very solid
start to the year, with revenues coming in at the top end of our objectives.
The Company’s sequential sales performance benefited from growth
in digital consumer and automotive as well as stronger wireless results
than we initially expected. Furthermore, year-over-year ST grew revenues
on a double-digit basis, which we believe is a good indicator that 2006
will be a year of market- share gains for the Company.
“Supporting our view is an expanding customer base and stronger
product pipeline for 2006, where we expect to introduce major new products
for our key platforms in each quarter of the year. We are already seeing
the first benefits of our new digital consumer offerings and, looking
ahead, we plan to begin shipping our Nomadik multimedia processor to
our first wireless customer in the second quarter. We expect to finish
2006 with a much stronger product portfolio, which has important implications
for our gross and operating margins over the medium term as planned.
“In summary, we continue to execute on our corporate performance
roadmap put in place one year ago and are well on track with our initiatives
across the Company. These efforts are resulting in improved earnings
per share and cash flow.”
Additional First Quarter 2006 Financial and Operating Data
The following table and commentary provide a breakdown of revenues and
operating income (loss) by product segment
.
Net Revenues and Operating Income (Loss) by Product Segment:
| In Million
US$ |
Q1
2006 |
| Segment |
Net Revenues |
% of Net Revenues |
Operating income
(loss) |
| Application Specific Product Group* |
$1,317 |
55.7% |
$95 |
| MPA (Micro, Power & Analog)** |
491 |
20.8% |
64 |
| MPG (Memory Products Group) |
539 |
22.8% |
1 |
| Others (1)(2) |
17 |
0.7% |
(20) |
| TOTAL |
$2,364 |
100.0% |
$140 |
* Automotive; Computer Peripheral; and Home, Personal, and Communication
products
** Effective January 1, 2006 the Microcontroller, Linear and Discrete
(MLD) Group was renamed as the Micro, Power and Analog (MPA) product segment
to better reflect product portfolio focus and increased capabilities in
advanced Analog. No change occurred in the Group’s perimeter or
organization.
(1) Net revenues of “Others” include revenues from sales of
Subsystems and other products not allocated to product segments.
(2) Operating loss of “Others” 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, certain
patent claims and litigations, and other costs that are not allocated
to the product segments, as well as operating earnings or losses of the
Subsystems and Other Products segment. Certain costs, mainly R&D,
formerly in the “Others” category, have been allocated to
the segments.
Sequentially, Application Specific Product Group revenues increased 0.9%,
MPA sales were lower by 0.5%, and MPG sales declined 5.9%. Operating profit
decreased seasonally for all segments with operating income of $95 million,
$64 million, and $1 million for Application Specific Product Group, MPA,
and MPG, respectively. Flash memory sales decreased 3.9% sequentially
to $407 million.
Q1 2006 Net Revenues by Market Segment
The following table estimates, within a variance of 5% to 10% in the
absolute dollar amount, the relative weighting of each of the Company’s
target market segments in the first quarter of 2006.
| % of Net Revenue |
|
| Automotive |
15% |
| Consumer |
16% |
| Computer |
17% |
| Telecom |
38% |
| Industrial & Other |
14% |
Four of the five market segments experienced sequential sales declines
with decreases of approximately 2% for Telecom, Consumer, Industrial &
Others; and slightly over 1% for Computer. Automotive net revenues increased
nearly 4% sequentially.
Outlook
Mr. Bozotti stated, “Looking at the semiconductor market
for 2006, we still see a year of high single-digit growth compared to
2005, a healthy level that will allow for a continuing expansion of our
industry. For ST, we continue to see strong order flow. As a result we
expect sequential sales growth in the range of 2% to 8%. Additionally,
we expect to see sequential improvement in our gross margin, although
some of our progress will not be visible in our reported gross margin
figure in the second quarter, largely reflecting the final period of 6-inch
manufacturing inefficiencies as we phase out three fab lines.
Therefore, we believe it is appropriate to set a gross margin objective
of about 35.8% plus or minus 100 basis points for the second quarter.”
This guidance is based on an effective currency exchange rate
for the Company of approximately $1.21 = €1. Our effective exchange
rate includes the impact of existing hedging contracts.
Other Corporate Developments
During the first quarter of 2006, ST issued debt instruments
of approximately $1.6 billion, prior to the anticipated redemption of
the Company’s 2013 bond. The transactions consisted of a convertible
bond, due 2016, with gross proceeds of $974 million including the exercise
of the over-allotment option and the Company’s debut offering in
the Eurobond market for €500 million of floating-rate bonds.
Products, Technology and Design Wins
Application-Specific Product Highlights
- In mobile communications, ST announced the STn8815, the third generation
of Nomadik™ mobile multimedia application processor family,
and an endorsement from Nokia. The Nomadik family also gained an automotive
design win, in an application to deliver video over DMB (Digital Multimedia
Broadcast) in the car, from a European OEM.
- ST announced volume production of its STLC4370 Wireless LAN (WLAN)
IEEE802.11g solution, designed for cellular handsets. This low-power
solution has already been designed into several Wi-Fi-enabled cellular
handsets.
- ST started sampling its next-generation Bluetooth device to several
tier-one mobile phone customers. The new product combines Bluetooth
with FM and RDS (Radio Data System) functionality and is believed
to offer the world’s lowest power consumption together with
the lowest number of required external components.
- Maintaining the momentum that propelled ST to the number one position
for mobile phone camera modules, ST launched two more important imaging
devices: the STV0984 image system controller supports two SMIA-compliant
sensors with resolution of up to 2 megapixels in an ultra-low-power
imaging solution and the VS6624 single-chip 1.3-megapixel camera subsystem
integrates a CMOS sensor with a digital image processor and analog
system functions in a tiny package for high-volume mobile applications.
- In communications infrastructure markets, ST announced its turnkey
solution for the new ‘mobile WiMAX’-standard (802.16e)
base-station modems and consolidated its worldwide leadership in high-speed
BiCMOS technologies by launching a partnership with Finisar, the market
leader in the high-speed transceivers solutions for optical communications.
Finisar will use ST’s BiCMOS technology for all its new optical
module development.
- ST launched the STi5188 low-cost satellite set-top box (STB) decoder
chip for high-volume free-to-air (FTA) markets in Asia, the Middle
East, Africa, South America, and Europe. This highly integrated device
enables digital receivers to compete in cost with analog sets. ST
also announced with AMD the commitment to bring immersive digital
entertainment to advanced TVs; the first step in this effort is a
network-connected STB reference design based on the STB7100 single-chip
HDTV solution.
- ST introduced the DTV100, a high-performance dual-channel digital
TV solution. The Company simultaneously announced a worldwide-standard-compliant
reference design based on the STD2000, ST’s latest single-chip
high-definition TV processor, which can decode and display analog
and digital broadcasts.
- ST gained an important design win for the STV82x8 family of digital
audio decoder/processor chips, which it announced this quarter. The
device will be used in a flat-panel TV project at Samsung. ST also
started volume delivery of its STA323W digital-input Class-D power
amplifier to all the main flat-panel TV customers including Samsung,
LG, Panasonic, and Humax.
- ST and Freescale announced a wide-ranging initiative covering high-performance,
cost-effective 32-bit microcontrollers. The initiative focuses on
automotive applications and includes the creation of a joint design
team to develop products to address powertrain, safety, navigation
and multimedia applications, based on aligned 90nm embedded Flash
process technology, and also the supply of ST’s high-voltage
power MOSFET and IGBT chips with the possible future transfer of the
underlying technologies.
- In powertrain and safety, ST gained several design wins: a Japanese
OEM selected an ST kit for electronic power steering for a 2008 model-year
car; a tier-one European customer chose an ST powertrain kit for a
US car maker’s 2009 model-year vehicle; and a major Chinese
OEM awarded ST a major kit for engine control.
- In telematics, ST captured a design win for a CD servo IC with
MP3 decoder from a major Chinese OEM, two important design-ins for
custom SoCs for GPS applications, and consolidated its strong position
in the digital satellite radio market by sampling three new chips,
implemented in 90nm technology, for production in Q4 2006.
- In automotive body applications, ST’s market leadership in
intelligent high power modules was strengthened by several design
wins from major OEMs in Europe and the US. ST also achieved design
wins in smart power ICs with major OEMs in China.
- In computer systems, ST gained two design wins at a leading printer
manufacturer: the first for a mixed-signal ASIC for use in a number
of new models of an inkjet printer family; the second for a 90nm digital
ASIC for use in the mid-range models in multifunction printer and
photo printer families.
- In data storage, ST achieved a design win for its next-generation
90nm SoC solutions with a major hard-disk drive (HDD) manufacturer
for mobile and desktop HDD applications. Already in production with
a 130nm solution, the new family expands the portfolio of SoCs based
on ST-developed Intellectual Property specifically for read-channel
and serial interface chips.
• ST’s innovative In-Check Lab-on-Chip continues to attract
developers. ST and Veredus Laboratories announced efforts to develop
a fast, point-of-need diagnostic product to enable health-care practitioners
to detect strains of Avian Flu and other influenza viruses within
approximately one hour of testing.
Multi-Segment Product Highlights
- In Flash memory, at the International Solid State Circuits Conference
(ISSCC), ST unveiled details of an advanced 4 Gigabit Multi-Level
Cell NAND Flash memory that achieves 50% greater throughput than any
previous results from any company. Additionally, ST released details
of a new MCP (Multi-Chip Package) NAND Flash portfolio for multimedia
applications in 3G and CDMA mobile phones and other portable devices.
- ST also announced a new 128-Mbit Serial Flash device, the M25P128,
which is intended principally for code storage in a broad range of
high performance, cost sensitive, computer and consumer applications.
- To address the fast-growing ZigBee wireless networking market for
remote monitoring, control, and sensor-network applications, ST signed
an agreement with Ember to jointly develop a complete roadmap of next-generation
ZigBee solutions, including hardware, software, and tools.
- ST launched the ST7FLITEUS series of 8-bit microcontrollers, which
includes a full set of peripherals, in tiny 8-pin packages. These
MCUs suit simple, cost-sensitive applications such as security, lighting,
and motor control. ST also introduced a series of low-cost microcontrollers
within the ST7Lite family and larger SRAM versions of the high-performance
8051-based uPSD3400 Turbo Plus microcontroller series.
- The Company’s STR7 family of 32-bit ARM-based Flash microcontrollers
was adopted by a leading European manufacturer as a general microcontroller
platform for industrial power management, with designs in circuit
breakers, communication modules, and motor-protection equipment.
- Aiming to expand its presence in home- and building-automation
applications and Automatic Meter Reading (AMR) systems, ST announced
the ST7538P and ST7540 power-line transceivers and introduced a motor-control
reference design kit that simplifies the evaluation and implementation
of practical 3-phase BLDC (Brushless Direct Current) and AC drive
applications across three power ranges, up to 3kW.
- In amplifier and linear products, ST announced the TS4962 compact
Class-D audio power amplifier, which gained an important design win
from a major manufacturer for several mobile phone platforms; and
two new 300MHz amplifiers, the TSH340/1, which drive very high-definition
signals on 75-ohm video lines in high-end industrial and medical imaging
systems, and in HDTV-enabled set-top boxes and DVD players.
- In advanced analog, ST gained a design win for real-time clock
ICs and an audio DAC ASIC with a major customer for a multi-function
printer application; and the STM6720 multi-voltage reset IC gained
a design win in a set-top box platform with Scientific Atlanta.
- Following the launch of a worldwide marketing effort, ST secured
a series of design wins for high-voltage IGBTs for various applications,
including air conditioners, lighting, and induction cookers.
All of STMicroelectronics’ press releases (including all Q1 releases)
are available at www.st.com/stonline/press/news/latest.htm
Some of the statements contained in this release that are not
historical facts are statements of future expectations and other forward-looking
statements (within the meaning of Section 27A of the Securities Act
of 1933 or Section 21E of the Securities Exchange Act of 1934, each
as amended) based on management’s current views and assumptions
and involve known and unknown risks and uncertainties that could cause
actual results, performance, or events to differ materially from those
in such statements due to, among other factors:
- future developments of the world semiconductor market, in particular
the future demand for semiconductor products in the key application
markets and from key customers served by our products;
- pricing pressures, losses, or curtailments of purchases from
key customers;
- the financial impact of obsolete or excess inventories if actual
demand differs from our anticipations;
- changes in the exchange rates between the U.S. Dollar and the
Euro, compared to the effective exchange rate of $1.21= €1, and
between the U.S. Dollar and the currencies of the other major countries
in which we have our operating infrastructure;
- our ability to manage our fixed costs structure, including
our ability to adequately utilize our manufacturing facilities at
sufficient levels to cover fixed operating costs in an intensively
competitive and cyclical industry;
- our ability in an intensive competitive environment, to secure
customer acceptance and to achieve our pricing expectations for high
volume supplies of our new products currently under development;
- the anticipated benefits of research & development alliances
and cooperative activities and the continued pursuit of our various
alliances, in the field of development of new advanced technologies
or products;
- the ability of our suppliers to meet our demands for supplies
and materials and to offer competitive pricing;
- changes in the economic, social, or political environment,
as well as natural events such as severe weather, health risks, epidemics
or earthquakes in the countries in which we and our key customers
operate;
- changes in our overall tax position as a result of changes
in tax laws or the outcome of tax audits;
- our ability to obtain required licenses on third-party intellectual
property, the outcome of litigations and the results of actions by
our competitors.
Such forward-looking statements 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. Certain
such forward-looking statements can be identified by the use of forward-looking
terminology such as “believes,” “may,” “will,”
“should,” “would be,” “anticipates,”
or similar expressions, or the negative thereof, or other variations thereof,
or comparable terminology, or by discussions of strategy, plans, or intentions.
Some of these risk factors are set forth and are discussed in more detail
in “Item 3. Key Information—Risk Factors” included in
our Annual Report on Form 20-F for the year ended December 31, 2005, as
filed with the SEC on March 3, 2006. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this release
as anticipated, believed, or expected. We do not intend, and do not assume
any obligation, to update any industry information or forward-looking
statements set forth in this release to reflect subsequent events or circumstances.
Unfavorable changes in the above or other factors listed under “Risk
Factors” from time to time in our SEC filings, including in our
Form 20-F, could have a material adverse effect on our business or financial
condition.
Conference Call Information
The management of STMicroelectronics will conduct a conference call
on April 26, 2006, at 9:00 a.m. U.S. Eastern Time / 3:00 p.m. CET, to
discuss performance for the first quarter of 2006.
The conference call will be available via the Internet by accessing
the following Web address: www.vcall.com.
Those viewing 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 May 5, 2006.
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 2005, the Company’s
net revenues were $8.88 billion and net earnings were $266 million.
Further information on ST can be found at www.st.com.
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