Q Financial Results

Transcription

1 Q Financial Results

2 Preliminary Comments The ST-NXP Wireless JV began operations on August 2, It is owned 80% by ST - It is fully consolidated into ST s operating results as of August 2, 2008 From Q308, ST is reporting its business along three product segments - ACCI (Automotive, Consumer, Computer and Telecom Infrastructure Product Group) - IMS (Industrial & Multisegment Sector) - WPS (Wireless Product Sector) ST completed the deconsolidation of its Flash Memory Group (FMG) segment and retained a minority interest in Numonyx on March 30, ST is accounting for its ownership in Numonyx as an equity investment with an anticipated one quarter lag in reporting - The reported Q307 figures include FMG 2

3 STMicroelectronics Global Presence* Q308 Revenues = $2.7B 11% North America Carrollton Phoenix Malta Morocco 28% Europe 26% Greater China France (Crolles I & II, Rousset, Tours) Italy (Agrate, Catania) Malaysia China 23% Asia Pacific Philippines Singapore 5% Japan 16 main production sites Listed on NYSE Euronext (New York & Paris), Borsa Italiana 7% Emerging Markets** * Sales by region of destination as % of Q308 sales (Percentages may not equal 100% due to rounding) ** India, Russia, Africa, Latin America, Middle East 3

4 Gaining Market Share ST excluding Flash and NXP Wireless sales 20% 15% 10% 10.9% 12.4% 5% 2.0% 4.0% 0% Q308/Q307 9M08 / 9M07 Total Available Market Estimates ST Source: ST 4

5 Q308 Highlights Revenues +2.7% sequentially, +10.9% y-o-y to $2.46B excluding NXP Wireless and FMG +12.8% sequentially, +21.8% y-o-y to $2.70B including NXP Wireless and excluding FMG Gross margin 37.2%, clean 37.7%, including NXP Wireless before purchase accounting 35.6%, as reported, net of purchase accounting inventory stepup Non-recurring, non-cash purchase accounting and impairment impact related to NXP Wireless and Numonyx 5

6 ST Total Revenues Excluding FMG Q308 Revenues = $2.7B +12.8% vs. Q208; +21.8% vs. Q307 NXP Wireless 2 months*: $241 M 3,000 US$M 2,500 2,000 1,500 1, * NXP Wireless contribution starting August 2, 2008 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Q308 NXP Wireless 6

7 Revenues by Market Segment* Including NXP Wireless Q308 Sales: $2.7B 13% 40% 16% 16% 15% Y-o-Y Growth ex FMG Telecom +16% (+50% including NXP Wireless) Industrial +19% Consumer +8% Computer +5% Automotive +1% Automotive Computer Consumer Industrial Telecom * The above chart estimates, within a variance of 5% - 10% in the absolute dollar amount, the relative weighting of each of the Company s target market segments 7

8 Revenues by Product Group* Q Q ST Wireless 16% Other 1% IMS 31% WPS 26% Other 1% IMS 33% ACCI 38% FMG 14% ACCI 40% *Starting August 2, 2008, following the addition of the wireless business from NXP, the Company introduced a new product segment to report the sales and operating results of the newly created Wireless Product Sector, which includes ST s wireless business for the full quarter and the results of the joint venture created with NXP since August 2, The results of ST s wireless business were previously included in the Application Specific Groups (ASG) segment, which has been revised to reflect the change. The newly created ACCI (Automotive, Consumer, Computer and Telecom Infrastructure) Product Groups segment includes the former ASG segment less the ST wireless business contributed to the ST-NXP Wireless joint venture. 8

9 Revenues by Product Segment Excluding FMG WPS: +70% Q/Q, +72% Y-o-Y, Double-digit growth in both cases excluding NXP Wireless ACCI: -1% Q/Q, +10% Y-o-Y, with Consumer and Computer growth offset by weak Automotive performance sequentially IMS: +4% Q/Q, +12% Y-o-Y, driven by MEMS, IPAD, Smartcards and Microcontrollers US$M Q105 Q106 Q107 Q108 Q205 Q206 Q207 Q208 Q305 Q306 Q307 Q308 Wireless ASG/ACCI (**) IMS Other * Based on mid-point of company guidance ** New product segments organization highlighted for Q307 and Q308 Q405 Q406 Q407 Q408est. (*) 9

10 Key Customers & Regions Q308 Results, Excluding FMG and NXP Wireless Improvement in key sales initiatives New Major Key Accounts Japan Sales: +16% sequentially +47% Y-o-Y Sales: +14% sequentially +53% Y-o-Y Mass Market Greater China Sales: -2% sequentially +16% Y-o-Y Sales: +5% sequentially -2% Y-o-Y* * Transnational customer request to change shipment location from Greater China region 10

11 New Products: Wireless Wireless Multimedia 3G Digital Baseband EMP DBB: 3X unit growth expected in 2008 ST continues to be a strategic partner to EMP in technology nodes beyond 90nm Analog Baseband Working to develop a future high-volume EMP platform Application Processor Ramping in mobile phone and automotive applications Platforms Started large volume shipments of 3G and GSM singlechip solutions to Samsung Connectivity Improved market position Integrating roadmaps Diverse customer base 11

12 MORE New Products Digital Consumer Set-top Box H.264 (SD/HD) transition continues throughout 2008 Digital TV Addressing market with STB plug-in solutions (SD/HD) Genesis integration ongoing; integrating image and video processors into ST s product offering Computer Peripherals Data Storage Important design win for a 65nm SoC for Enterprise Applications by a major HDD customer Imaging Moving to higher resolution sensor Design win for 5MP sensor Expanding customer base 12

13 MORE New Products MEMS Ultra compact gyroscope for enhanced-gps car navigation applications Design win for 3-axis accelerometer with several mobile phone makers in Asia and China Introducing MEMS to several Industrial applications, reaching out through distribution Industrial Advanced Analog reset and temperature sensors designed-in at a major HDD maker and real-time clock IC for a major GPS and PC manufacturers Multiple MOSFETs design wins for lighting and powersupply applications including PC motherboard maker Automotive Important design win from a key European tier-one supplier for smart-power products in power management and external light control Design win from a major Japanese player for an alternator platform 13

14 Financial Performance In US$M, except EPS Q307 Q208 Q308 As reported Q308 Business Operation (1) Net Revenues Net Revenues excl. FMG and NXP Wireless 2,565 2,213 2,391 2,391 2,696 2,455 2,696 2,455 Gross Margin 35.2% 36.8% 35.6% 37.7% Operating Profit 181 (26) Net Income 187 (47) (289) 178 EPS Diluted Clean EPS Diluted (0.05) 0.18 (0.32) 0.19 na 0.19 RONA (2) 10.4% 8.6% ns 10.5% Effective Exchange Rate / $ (1) ST Business Operations is a non-us GAAP measure and defined as the financial results of operations in the third quarter of 2008 excluding the effects of non recurring items related to the purchase accounting of ST-NXP Wireless JV, the impairment and loss related to Numonyx, other restructuring, and impairment charges and other-than-temporary impairment charges. The impact of these non-recurring elements on net earnings is net of applicable tax. (2) RONA is not a US GAAP measure and is considered by company management to be the key financial and economic metric to measure the return on invested capital. RONA as the ratio between the operating income (excluding impairment and restructuring and in-process R&D charges) and average net assets used during the period. ST defines average net assets as average total assets net of total liabilities as reported in our consolidated balance sheet excluding all items related to our financial position such as cash and cash equivalents, marketable 14 securities, short term deposits, bank overdrafts, current portion of long term debt and long term debt.

15 Financial Performance Operating Income and Earnings Reconciliation In US$M, except EPS Operating Income Net Earnings Diluted EPS Q308 as reported 55 (289) $(0.32) NXP Wireless Purchase Accounting Adjustment (a) Numonyx Impairment / Loss (a) Restructuring, Impairments, One-time & Other-thantemporary charges (a) (133) 0 (22) (99) (344) (24) $(0.11) $(0.39) $(0.02) Q308 ST Business Operations (b) Margin (as a % of sales) % 178 $0.19 (a) The computation of net earnings and EPS for each line is based on an estimated effective tax rate applicable to each operating loss item. Furthermore, the computation of EPS in each line is based on the share count of million shares applicable in case of all of the loss items; or million shares for net earnings resulting from the reconciliation; this different applicable share count is due to our outstanding convertible bonds and justifies the difference of $0.01 of the sum of the items in respect to reported EPS. Diluted EPS is rounded to the $ cent and adjusted to sum to EPS as reflected. The Company believes that the foregoing EPS reconciliation is an appropriate analysis demonstrating the per share impact of the exceptional one-time events incurred in Q However, due to the US GAAP requirement of applying a different share count for the purpose of calculating losses or earnings per share, the reconciliation necessarily involves some approximation.. (b) ST Business Operations is a non-us GAAP measure and defined as the financial results of operations in the third quarter of 2008 excluding the effects of non recurring items related to the purchase accounting of ST-NXP Wireless JV, the impairment and loss related to Numonyx, other restructuring, and impairment charges and other-than-temporary impairment charges. The impact of these non-recurring elements on net earnings is net of applicable tax. 15

16 Currency Impact on Profitability $105M negative impact on Operating Income in Q308 year-on-year $1,75 $1,50 +36% $1,25 $1,00 1,13 1,23 1,28 1,24 1,35 1,55 1,54 $0, Q208 Q308 Effective Exchange Rate ($ to Euro) 16

17 Operating Expense Control (As reported in US$M) Q108 to Q408 recovery targets on track Steady and focused R&D investment Good control maintained despite negative currency impact year-on-year % Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108* Q208 Q308* R&D SG&A % of Sales 32% 30% 28% 26% *Q108 excludes $21M of one-time in-process R&D related to the acquisition of Genesis ** Q308 excludes $76M of one-time in-process R&D related to the ST-NXP Wireless JV creation 17

18 Product Segments: Revenue & Operating Margin Trends ACCI IMS WPS (1) % % % Q307 Q208 Q308 15% 10% 5% 0% Q307 Q208 Q308 15% 10% 5% 0% Q307 Q208 Q308 15% 10% 5% 0% Revenue Operating Margin Revenue Operating Margin Revenue Operating Margin (1) Q307 and Q208 are ST only, Q308 including ex-nxp Wireless from August 2 nd and $12M amortization of intangible acquisition-related and not including non-recurring purchasing accounting items 18

19 Reducing CapEx to Sales Ratio Increasing use of silicon foundry Approximately 9% of wafers out in Q308 Partnership and manufacturing joint ventures IBM Alliance 45% 40% 35% 30% 25% ST Average = 26% 20% 15% 10% 5% Avg.=16% 07= 11.4% 2008e 10% 0% e CapEx as % of Revenues 19

20 Generating Cash US$M Net Operating Cash Flow* % 8% % % 200 2% 0 0% M08 NOCF* NOCF/Sales (%) NOCF* (ex Genesis and NXP Wireless acquisition) *Non US GAAP measure defined as: Net cash from operating activities minus net cash used in investing activities excluding payments for purchase of and proceeds from the sale of marketable securities and proceeds from matured short-term deposits and restricted cash 20

21 Balance Sheet Highlights End of period In US$M 30 Sept June Sept Total Assets 13,998 15,053 14,984 Shareholders Equity 9,324 9,357 8,766 Cash and Cash Equivalents 3,289 3,584 2,141 Net Financial (Debt)/Cash Position 1,116 1,118 (409) Inventory Turns 3.9x 3.8x 4.0x Net Asset Turns

22 Outlook Q408 revenues to be in the range between flat and -8% sequentially Represents FY 2008 net revenue growth between 6.2% and 8.6%, excluding FMG and the former NXP Wireless business Q408 gross margin expected to be about 38.8% +/- 1 percentage point 2008 capex to sales ratio at about 10% Q408 outlook based on: An assumed effective currency exchange rate of approximately $1.40 = 1 Includes ST-NXP Wireless JV results for the full quarter, which began operations on August 2, 2008 but excludes an estimated $30 million cost in fourth quarter 2008 due to inventory step-up purchase accounting adjustment related to the former NXP Wireless business. 22

23 Product Portfolio Management Ongoing Actions Thru Active M&A Wireless Mobile Platforms Q108 Q208 Q308 Q408 Q109 Q209 23

24 ST & Ericsson: Creating a New World Leader Merging Ericsson Mobile Platforms and ST-NXP Wireless Industry s strongest product offering Industry s strongest customer base Building on current partnership 50/50 joint venture Strong endorsement from key customers Pro forma sales in 2007 of US$ 3.6 billion About 8,000 employed, majority in R&D 24

25 The Deal Cash payment US$ 0.7B ST-NXP Wireless US$ 1.2B Net assets Cash/Debt free EMP Cash/Debt free Cash payment US$ 1.1B Joint venture Cash of US$ 0.4B 25

26 Forward Looking Statements 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: further deterioration on the worldwide financial markets, economic recession in one or more of the world s major economies and the effect on demand for semiconductor products in the key application markets and from key customers served by our products, which in turn makes it extremely difficult to accurately forecast and plan future business activities; our ability to adequately utilize and operate our manufacturing facilities at sufficient levels to cover fixed operating costs particularly at a time of decreasing demand for our products due to decline in demand for semiconductor products; pricing pressures which are highly variable and difficult to predict; the results of actions by our competitors, including new product offerings and our ability to react thereto; the financial impact of obsolete or excess inventories if actual demand differs from our anticipations; the impact of intellectual-property claims by our competitors or other third parties, and our ability to obtain required licenses on reasonable terms and conditions; the outcome of ongoing litigation as well as any new litigation to which we may become a defendant; our ability to close as planned the merger of ST-NXP Wireless with Ericsson Mobile Platforms as announced on August 20, 2008; the effects of hedging, which we practice in order to minimize the impact of variations between the U.S. dollar and the currencies of the other major countries in which we have our operating infrastructure in the currently very volatile currency environments; our ability to manage in an intensely competitive and cyclical industry, where a high percentage of our costs are fixed, incurred in currencies other than US dollars; our ability to restructure in accordance with our plans if unforeseen events require adjustments or delays in implementation; our ability in an intensively competitive environment to secure customer acceptance and to achieve our pricing expectations for high-volume supplies of new products in whose development we have been, or are currently, investing; the ability of our suppliers to meet our demands for supplies and materials and to offer competitive pricing; significant differences in the gross margins we achieve compared to expectations, based on changes in revenue levels, product mix and pricing, capacity utilization, variations in inventory valuation, excess or obsolete inventory, manufacturing yields, changes in unit costs, impairments of long-lived assets (including manufacturing, assembly/test and intangible assets), and the timing, execution and associated costs for the announced transfer of manufacturing from facilities designated for closure and associated costs, including start-up costs; changes in the economic, social or political environment, including military conflict and/or terrorist activities, as well as natural events such as severe weather, health risks, epidemics or earthquakes in the countries in which we, our key customers and our suppliers, operate; and changes in our overall tax position as a result of changes in tax laws or the outcome of tax audits, and our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets. 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. Such forward-looking statements can be identified by the use of forward-looking terminology such as believes, may, will, should,, would be or anticipates or similar expressions or the negative thereof or other variations thereof, or by discussions of strategy, plans or intentions. Some of the risk factors we face 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, 2007, as filed with the SEC on March 3, 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 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 our Form 20-F, could have a material adverse effect on our results of operations or financial condition. 26