STMicroelectronics Reports 2011 Second Quarter and First Half Financial Results

ACCI second quarter net revenues increased 6% and 9% compared to the prior and year-ago quarters, respectively, mainly driven by strong growth in Automotive and Imaging. ACCI operating margin was 10.9% compared to 11.0% and 9.8% in the prior and year-ago period, respectively.

_____________

(a) Reflecting the transfer of a small business unit from ACCI to AMM as of January 1, 2011, the Company has reclassified prior period revenues and operating income results from ACCI to AMM.

(b) Wireless includes the portion of sales and operating results of ST-Ericsson 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, phase out and 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 product groups, as well as operating earnings or losses of the Subsystems and Other Products Group. "Others" includes $31 million, $24 million, and $12 million of impairment, restructuring charges and other related closure costs in the second and first quarters of 2011 and second quarter of 2010, respectively.

AMM second quarter net revenues decreased by 0.6% in comparison to the prior period mainly due to customer demand changes, microcontrollers and adjustments linked to the supply-chain disruption as a result of the crisis in Japan. On a year-over-year basis, AMM revenues increased by 17.9%. AMM operating margin was 21.2% in the 2011 second quarter, compared to 22.0% and 15.6% in the prior and year-ago quarters, respectively.

PDP second quarter net revenues increased 1.4% sequentially, principally reflecting continued momentum in power MOSFETs and IGBTs. On a year-over-year basis, PDP revenues increased 1.8%. In the 2011 second quarter, PDP operating margin was 11.8%, negatively impacted by substantially weaker demand from a major customer and related impact on manufacturing, compared to 15.1% and 11.1% in the prior and year-ago quarters, respectively.

Wireless net revenues in the second quarter decreased 9.7% sequentially and 33.9% year-over-year. As anticipated, the lower second quarter revenues were mainly due to the continued decline in sales of ST-Ericsson's legacy products. Wireless operating loss, excluding non-controlling interest, was $102 million in the second quarter compared to a loss of $91 million and $65 million in the prior and year-ago quarters, respectively.

ST-Ericsson is currently in a transition from legacy to new products, which in the quarter represented more than 45% of total sales. The Company's innovative product roadmap continues to gain traction with customers. Additionally, ST-Ericsson continues to make progress on their NovaThor(TM) U8500 platform, although initial volumes will be somewhat lower than initially expected due to reduced demand at certain customers. Lately, the short to midterm uncertainty in the wireless market has increased due to changes in the business environment and has reduced demand for legacy products. In the event of a significant worsening of the current market conditions or a lack of results, the value of ST-Ericsson for ST could decrease to a value lower than the current carrying amount of the investment on our books.

ST recorded $109 million of income for non-controlling interest in the second quarter of 2011 compared to $87 million and $74 million in the prior and year-ago quarters, respectively, mainly related to the ST-Ericsson joint venture. Non-controlling interest is recorded below operating results in ST's Consolidated Income Statement and reflects primarily Ericsson's 50% share in the joint venture's results, as consolidated by ST.  

For additional information, see ST-Ericsson's Q2 2011 earnings results press release at www.stericsson.com

Cash Flow and Balance Sheet Highlights

Reflecting the Company's particularly intense level of investment in the first half to support capacity expansion for selected product initiatives and the situation at ST-Ericsson, free cash flow was negative at $250 million in the second quarter compared to a positive $51 million and a positive $212 million in the prior and year-ago quarters, respectively.* Capital expenditures were $332 million during the second quarter of 2011 compared to $466 million and $134 million in the prior and year-ago quarters, respectively.

Inventory was $1.76 billion at quarter end compared to $1.67 billion at April 2, 2011. In the second quarter inventory turns were 3.6.

ST's net financial position was a net cash position of $1.07 billion at July 2, 2011 compared to $1.14 billion at April 2, 2011 and $702 million at June 26, 2010.  In the second quarter, ST received a $357 million cash payment from Credit Suisse. The amount received represents the full and final payment for the settlement of all outstanding litigation concerning auction-rate securities and fully covers all losses and costs associated with the litigation. ST's cash and cash equivalents, short-term deposits, marketable securities and restricted cash equaled $2.94 billion and total debt was $1.87 billion at July 2, 2011.*

__________

(*)Free cash flow and net financial position are non-U.S. GAAP measures. For additional information, please refer to Attachment A.

Total equity, including non-controlling interest, was $8.84 billion at quarter end.

In the 2011 second quarter the Company posted a return on net assets (RONA) attributable to ST of 12.9%*

First Half 2011 Results

Net revenues for the first half of 2011 increased 5% to $5.10 billion from $4.86 billion in the year-ago period mainly due to an improved product portfolio and continued strength in Automotive, MEMS, Microcontrollers and Imaging applications. ST wholly-owned businesses net revenues increased 17% for the 2011 first half.

Gross margin was 38.6% of net revenues, compared to 38.0% of net revenues for the 2010 first half, reflecting improved fab loading and performance of the product portfolio. Net income, as reported, was $590 million in the first half of 2011, or $0.65 diluted per share, compared to net income of $413 million, or $0.46 diluted per share in the first half of 2010. On an adjusted basis, net of related taxes, ST reported non-U.S. GAAP diluted net earnings per share of $0.34 in the first half of 2011 compared to $0.25 per share in the first half of 2010.*

The effective average exchange rate for the Company was approximately $1.35 to euro 1.00 for the first half of 2011, compared to $1.37 to euro 1.00 for the first half of 2010.

First Half 2011 Revenue and Operating Results by Product Segment


In Million US$

First Half 2011

First Half 2010

Product Segment

Net Revenues

Operating
Income

(Loss)

Net Revenues

Operating
Income

(Loss)

ACCI

2,170

237

1,915

149

AMM

1,505

325

1,183

164

PDP

670

90

612

62

Wireless

731

(386)

1,112

(253)

Others

25

(65)

34

(51)

TOTAL

5,101

201

4,856

71





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