IMS (Industrial and Multisegment Product Sector) second quarter net revenues increased 56.3% year-over-year to $945 million, driven by strong growth in all product groups and in distribution. Sequentially, IMS grew net revenues 16.6% led by microcontrollers and analog and power discrete products. IMS operating income continued to increase, reaching $137 million in the second quarter, and compares to income of $92 million in the prior quarter and a loss of $22 million in the year-ago quarter. Second quarter IMS operating margin improved sequentially to 14.4% from 11.3%.
Mr. Bozotti commented, "Innovative products continue to drive revenue momentum. In the second quarter, several new product areas, including advanced 55nm set-top-box solutions that offer our customers top performance at low power and leading-edge functionality, such as 3D graphics and 3D video; 32-bit microcontrollers; as well as power and analog grew significantly.
"Important milestones and design wins were also achieved in the quarter such as our gyroscope family entering volume production. Our gyroscope technology is quite broad with target applications including smartphones, robotics, navigation, cameras, gaming and medical devices. In addition, our automotive 32-bit MCU family had continued success with major design-wins, including a body electronics platform from a leading OEM. We also enlarged our general-purpose 32-bit MCU family, sampling to lead customers the STM32L series, the industry's first ultra-low-power ARM® Cortex™-M3 microcontroller delivering industry-leading energy-saving performance."
(a)Reflecting the transfer of a small business unit from ACCI to IMS as of January 1, 2010, the Company has reclassified prior period revenues and operating income results of ACCI and IMS.
(b) Starting February 3, 2009, "Wireless" includes the portion of sales and operating results of the ST-Ericsson joint venture as consolidated in the Company's revenues and operating results, as well as other items affecting operating results related to the wireless business.
(c) Net revenues of "Others" includes revenues from sales of Subsystems, assembly services and other revenues.
(d) Operating income (loss) of "Others" includes items such as unused capacity charges, impairment, restructuring charges and other related closure costs, start-up and phase-out costs, and other unallocated expenses such as: strategic or special research and development programs, certain corporate-level operating expenses, patent claims and litigations, and the other costs that are not allocated to product groups, as well as operating earnings or losses of the Subsystems and Other Products Group. "Others" includes $0 million, $1 million and $123 million of unused capacity charges in the second and first quarters of 2010 and second quarter of 2009, respectively; and $12 million, $33 million and $86 million of impairment and restructuring charges in the second and first quarters of 2010 and second quarter of 2009, respectively.
Wireless net revenues in the second quarter decreased 19.3% year-over-year to $525 million, reflecting ST-Ericsson's continued portfolio transition, weaker-than-expected performance in Asia and some supply limitations, which were only partially offset by positive performance of certain EDGE products. Wireless operating loss in the second quarter was $137 million compared to an operating loss of $116 million and $126 million in the prior and year-ago quarters, respectively, due to lower revenues which were partially mitigated by restructuring initiatives completed to date. Wireless operating loss in the second quarter of 2010 excludes $6 million in restructuring charges related to ST-Ericsson.
ST recorded $74 million of income in the second quarter of 2010, $72 million and $109 million in the prior quarter and year-ago period, respectively, reflecting the net results attributable to non-controlling interest, mainly related to the ST-Ericsson joint venture. This amount is posted below operating results in ST's Consolidated Income Statement and reflects Ericsson's 50% share in the joint venture's results, as consolidated by ST.
For additional information, including key design wins, on ST-Ericsson, see www.stericsson.com
ST reported a net gain of $264 million on equity investments and divestiture mainly due to the sale of the Company's 48.6% stake in Numonyx to Micron Technology.
In connection with the sale, the Numonyx senior credit facility that was supported by ST's guarantee of $225 million was repaid. Looking forward, ST expects to benefit from the release of $250 million of cash that is currently restricted and the future opportunity to monetize the shares of Micron stock.
ST reported net income of $356 million in the second quarter of 2010, or $0.39 per diluted share, compared to a net income of $57 million in the prior quarter and a net loss of $318 million in the year-ago period. On an adjusted basis, excluding restructuring charges and the net gain on the Numonyx divestiture, ST reported second quarter 2010 net income of $159 million, or $0.18 diluted per share compared to $62 million, or $0.07 diluted per share in the first quarter of 2010.*
For the 2010 second quarter, the effective average exchange rate for the Company was approximately $1.35 to euro 1.00 compared to $1.39 to euro 1.00 for the 2010 first quarter and $1.34 to euro 1.00 for the 2009 second quarter.
Cash Flow and Balance Sheet Highlights
Net operating cash flow was $212 million, including the sale of $67 million of receivables by ST-Ericsson, and increased significantly in comparison to the year-ago period total of $45 million. For the first half of 2010, net operating cash flow was $388 million.*
Capital expenditures were $134 million during the second quarter of 2010 compared to $74 million in the year-ago period. For the 2010 first half, capital expenditures totaled $313 million, somewhat below the Company's targeted level, due to extended lead times for capital equipment.
Inventory was $1.30 billion at quarter end, compared to $1.27 billion at March 27, 2010 and $1.45 billion at June 27, 2009. In the second quarter inventory turns improved to 4.8 compared to 4.6 and 4.1 in the prior and year-ago quarter, respectively.
(*)Adjusted net earnings, net operating cash flow, net financial position and RONA attributable to ST are non-U.S. GAAP measures. For additional information, please refer to Attachment A.
Excluding Micron shares currently held as marketable securities, ST's net financial position significantly improved to a net cash position of $702 million at June 26, 2010 compared to $566 million at March 27, 2010 and $205 million at June 26, 2009. ST's cash and cash equivalents, short-term deposits, marketable securities (current and non-current, excluding Micron shares) and restricted cash equaled $2.73 billion.
Excluding cash and cash equivalents and marketable securities of $40 million related to ST-Ericsson as consolidated by ST, $250 million restricted cash deposit as collateral for the Hynix-Numonyx loan and $57 million of non-current marketable securities, the Company's liquidity totaled $2.38 billion . Total debt was $2.03 billion . Total equity was $7.84 billion , including non-controlling interest of $1.04 billion . Based on net asset turns of approximately 1.5, the Company posted a return on net assets (RONA) attributable to ST in the second quarter of 11.9%.*