STMicroelectronics Reports 2008 Second Quarter and First Half Revenues and Earnings

- Second quarter net revenues increased 9.7% sequentially and 14.6% year-over-year to $2.39 billion - Gross margin was 36.8% - Diluted EPS of $0.18 before restructuring and impairment charges

GENEVA, July 22 /PRNewswire-FirstCall/ -- STMicroelectronics (NYSE: STM) reported financial results for the 2008 second quarter and six months ended June 28, 2008.

ST, in conjunction with Intel and Francisco Partners, completed their previously announced agreement to create Numonyx, an independent semiconductor company, with ST contributing its Flash Memories Group (FMG). The transaction was completed on March 30, 2008. In this press release the income statement for the Q2 2008 period reflects the deconsolidation of the FMG segment. Accordingly, all comparisons of Q2 2008 results, both sequential and year-over-year, exclude FMG, except as noted.

Second Quarter Net Revenues and Gross Profit Review

ST's net revenues for the second quarter increased 9.7% sequentially to $2.39 billion driven by double-digit sales growth in the Telecom (wireless), Industrial and Consumer market segments. On a year-over-year basis, ST's net revenues grew 14.6%, led by nearly 20% gains in both the Industrial and Telecom (wireless) segments.

Application Specific Product Group's (ASG's) net revenues grew 8.4% sequentially and 15.9% year-over-year to $1.51 billion and were driven in both comparisons by strong wireless performance led by 3G digital baseband and device unit growth in connectivity and imaging. On a sequential basis, Consumer market segment posted double-digit sales growth, primarily driven by portable navigation device shipments. Industrial and Multisegment Sector (IMS) net revenues of $865 million grew 11.9% sequentially and 12.8% year-over-year led by MEMS, Advanced Analog and Smartcards/Microcontrollers for both comparisons. Q2 2008 IMS sales were composed of $531 million of ICs and $334 million of discrete products, which grew 20% and 4% respectively year-over-year.

Gross profit was $880 million for the 2008 second quarter compared to $820 million in the prior quarter, and posted a 12% improvement in comparison to the $788 million in the year-ago quarter. Gross margin was 36.8%. The Company estimates that currency negatively impacted gross margin by over 300 basis points year-over-year.

Operating Expenses

Combined Q2 2008 SG&A and R&D expenses were $751 million equal to 31.4% of net revenues compared to 33.3% of net revenues (excluding the one-time $21 million in-process R&D charge) in the prior quarter, despite the negative effects of currency.

R&D and SG&A expenses were $470 million and $281 million, respectively, in the second quarter of 2008. On a year-over-year basis, R&D costs increased about 8.6% net of currency impacts reflecting increased costs associated with the Genesis and wireless IC design-team acquisitions, while SG&A increased 3% excluding currency impacts.

In the second quarter of 2008, the effective average exchange rate for the Company was approximately $1.55 to euro 1, compared to $1.47 to euro 1 in the first quarter of 2008 and $1.33 to euro 1 in the year-ago quarter. The Company's effective exchange rate reflects actual exchange rate levels combined with the impact of hedging programs.

President and CEO Carlo Bozotti commented, "ST's top-line performance in the second quarter clearly demonstrates the significant improvement in our product portfolio, which is leading to market-share gains for ST. Moreover, we believe ST will continue these market-share gains as we move through the remainder of 2008.

"Our more competitive product line-up and marketing initiatives drove an increase in net revenues of approximately 10% on a sequential basis. And, for the first half of 2008, sales increased by 13.2% in comparison to the 2007 first half.

"On top of strong revenue results, our gross margin and operating expenses were essentially in-line with our initial expectations. In combination this led to a sequential improvement in our comparable operating margin to 6.7%, from the 4.6% in the prior quarter, and resulted in diluted earnings per share of $0.18, before charges."

Constant Currency Analysis

Management believes that the currency impact on operating performance is an important element in comparing operating results. The following table illustrates estimated year-over-year currency impacts.

    In Million US$ and %
                          Q2 2008   Q2 2007    Estimated impact on selected Q2
                            As     Excluding           2008 results at
                         reported     FMG          Q2 2007 exchange rates*
     Effective Euro/USD    $1.55     $1.33
                                                Estimated   Estimated Q2 2008
                                                 Adverse         results
                                                  Impact       at constant
    Net Revenues           2,391     2,087
    Gross Profit             880       788          75              955
       Gross margin                              310 basis
                            36.8%     37.8%       points           39.9%
    R&D                     (470)     (397)         39             (431)
    SG&A                    (281)     (243)         29             (252)
    **Pro-forma Operating
     income: excluding
     & Restructuring
     charges                 159       159         134                      293

        *    These  columns  reflect  non-GAAP  best  estimates  of  exchange-rate  impact
              on  selected  financial  metrics  for  ST,  and  are  based  upon  a  US
              dollar-to-Euro  effective  exchange  rate  of  $1.33  per  Euro  and  $1.55  per
              Euro  for  Second  Quarter  2007  and  Second  Quarter  2008,  respectively.  Net
              revenues  impact  is  based  on  the  assumption  that  industry  prices  adjust
              to  equivalent  US$  prices  with  a  delay  of  one  quarter  which  is
              incorporated  into  estimated  amounts.
        **  Pro-forma  Operating  income  excluding  Impairment  and  Restructuring
              charges  is  a  metric  management  believes  represents  a  meaningful
              comparison  of  operating  performance.  The  Q2  2007  amount  is  derived  by
              adding  $906  million  in  impairment  and  restructuring  charges  to  the
              reported  operating  loss  (excluding  FMG)  of  $747  million;  while  the  Q2
              2008  amount  comes  from  the  addition  of  $185  million  in  impairment  and
              restructuring  to  the  reported  operating  loss  of  $26  million.


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