Merrill Lynch TMT Conference. Alain Dutheil Chief Operating Officer

Transcription

1 Merrill Lynch TMT Conference Chief Operating Officer London, June 7, 2006

2 Progress Achieved in the Last 12 Months Completed Organizational Structure Changes Expanded Marketing Efforts Customer Base Expansion China & Japan Focused R&D Process Wave of New Products Implemented Cost Reduction Initiatives Steady Progress in Financial Return

3 2005: Reshaping the Company President & CEO C. Bozotti COO A. Dutheil CEO C. Bozotti SALES & MARKETING MANUFACTURING & TECHNOLOGY R&D PRODUCT GROUPS STAFF FUNCTIONS Asia Pacific J.C. Marquet Back-End Manufacturing J. See Automotive (APG) U. Carena CFO C. Ferro Emerging Markets F. Guibert FE Technology R&D & Manufacturing (FTM) L. Bosson Computer Periph. (CPG) G. Bertino Communication C.E. Ottaviani Europe E. Villa Home Personal Comm. (HPC) P. Geyres Human Resources P. Chastagner Japan M.L. Cassis Memories (MPG) M. Licciardello Infrast. & Services O. Kosgalwies North America R. Kazerounian Micro Linear Discrete (MLD) C. Papa Strat & System Tech. A. Cuomo Greater China R. Krysiak Promotion New organization TQCR G. Auguste Member of the Executive Committee

4 Financial Performance Starts at the Top Line Sequentially: ST vs Total Available Market (TAM) 15 ST: +13.5% Y/Y TAM: +7.3% Y/Y % Q105 Q205 Q305 Q405 Q106 Q206e* ST TAM (WSTS) *ST: Midpoint of Q206 revenue guidance (+2%/+8%) provided on April 25, TAM: ST estimate.

5 Building on Our Historical Strengths 2005 Rankings Mixed Signal, Analog & Power #1 in ASIC Analog #1 in Application Specific Analog #1 in CMOS Sensors #2 in Analog Sales #2 in Total Discrete Non-Volatile Memory #1 in EEPROM #2 in EPROM #3 in NOR Flash Memory #4 in Smartcards Within the TOP 3 on over 80% of sales Source: isuppli, March 2006

6 Revenues by Application and Ranking US$M Q Q Q Q Q Ranking * in Application Markets Wireless #3 #4 #3 Digital Cons. #3 #3 #3 Automotive #3 #3 #3 Digital Consumer Automotive Wireless Source :Dataquest, Gartner, isuppli March 2006

7 Positive Momentum: Key Customers and Regions New major key accounts 12 OEMs targeted: 6 in Asia 4 in US 2 in Europe Over $40 billion in semiconductor TAM China Q106 sales up 36% Y-o-Y Japan Q106 sales up 11% Y-o-Y and 3% sequentially

8 Targeted Customers US$M Sales to Current Strategic Partners* and New Major Key Accounts % Q1 05 Q4 05 Q1 06 Strategic Partners New Major Key Accounts New major key accounts +12% sequentially +66% year-over-year * Strategic partners list now at 11, with unidentified partner removed due to industry consolidation

9 Sales and Marketing - Customer Base Expansion US$M Sales to Customers Outside the Traditional Top 50 (Mass Market) Q1 05 Q4 05 Q : Inventory correction 2006: New product mix expands opportunities Target: Significantly exceed 40% of total sales

10 Consistent Investments in R&D 20 technology and product programs selected and reviewed monthly by ST s Executive Committee US$M % % % % 0 Q105 Q205 Q305 Q405 Q % R&D in $ as % of sales

11 Recent and Upcoming New Products: 1/1 Application Processor Nomadik 8810 available in handsets in H & 8815 significant revenue take off in 2007 Extending to feature phones (mobile TV) Digital Base Band Design win in 3G and 3.5G Connectivity Bluetooth EDR STLC2500C in volume in > 20 phones WLAN b,g in volume with a top-tier OEM Mobile TV : SiP DVB-H available Q1-07 Imaging 3Mpx camera module available Q4-06 5Mpx camera module sampling Q4-06 Mobile Display Drivers Sampling.18µ product line since Feb 06; volumes to start Q4-06 In design at tier-1s in Korea, Japan and Taiwan

12 Recent and Upcoming New Products: 1/2 STB 7100 family : world s first single-chip for H.264 and VC customers : Philips, Sagem, Dish, Samsung, Thomson, 7200 : next generation platform in 65nm, sampling mid-06, ramp H1-07 Digital TV Integrated TV solutions based on STD2000/1000; production Q3-06 Major design wins in Korea, Japan and China Data Storage In production with 130nm SoC for high end desktop and server markets Sampling the first 90nm SoC; 65nm IP under development Printers 110nm ASIC SoC in production since Q1-06 Accelerating 90nm ASIC introduction; 65nm in development SPEAr, the first configurable ASSP SoC for inkjet and laser markets: 90nm version under development

13 Strategic Actions and Profitability Drivers RESULTS ACHIEVED Q106 vs Q105 Revenues ST +13.5% > TAM +7.3% ST China +36%, New key accounts +66% Sales Expansion Redeployed 10% of R&D workforce R&D expenses flat in ($) R&D Focus EPS RONA Cash Flow Cost Reduction Annual savings of >$400M Euro exposure reduced Asset Management CapEx / Sales (05-06) ~17% NAT accelerated to 1.14

14 Strategic Actions and Profitability Drivers FUTURE BENEFITS New major key accounts Mass market Japan and Greater China regions Coming wave of new products in high growth market segments R&D Focus Sales Expansion EPS RONA Cash Flow Cost Reduction Annualized savings of >$200M to come Depreciation down about $150M in 06 Leverage on revenue growth Asset Management Inventory turns target: Cash generation

15 Quarterly Financial Performance: Steady Progress = Improved EPS, RONA and Cash Flow (As reported in US$M, except EPS amounts) Q105 Q205 Q305 Q405 Q106 Net Revenues 2,083 2,162 2,247 2,389 2,364 Gross Margin 32.9% 33.0% 34.1% 36.5% 35.4% Operating Margin (*) -3.2% 0.6% 4.5% 8.2% 5.9% Net Income (*) EPS Diluted (*) RONA (excluding restructuring) 0.5% 1.6% 5.3% 10.2% 7.4% Net Operating Cash Flow (**) (*) After pre-tax restructuring charges (**) Net operating cash flow is 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 short-term deposits.

16 Quarterly Progression of Net Earnings US$M Q1 Q2 Q3 Q4 Q

17 Operating Expense Control (SG&A and R&D as Reported in US$M) Target: Less than 28% of sales % % 30% 28% 26% 0 24% Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206e Q306e R&D SG&A Operating Expenses as % of Sales Q406e

18 Cost Reduction Initiatives 6 Restructuring Confirm pre-tax savings of $150M annualized Benefit to GM currently offset by temporary inefficiencies related to phase-out Incremental COGS savings from Q106 to Q406 is about $36M per quarter, about 150 bps of gross margin evolution from Q106 to Q Savings per Quarter (US$M) Headcount Restructuring Confirm pre-tax savings of about $90M annualized Approximately 50% savings achieved in Q106 Program completion on track for mid-2006 Restructuring charges managed to be on the low end of the range; about $100M Q105 Q205 Q305 Q405 Q106 Q206e Q306e Q406e COGS Gross Savings: Savings driven by the transfer of wafers to Singapore COGS Net Savings: Savings realized after temporary inefficiencies related to phase-out at three 6 fab lines Deferred P&L/COGS Impact: Due to time difference between manufacturing and selling products Q105 Q205 Q305 Q405 Q106 Q206e Q306e Q406e COGS : Savings related to COGS Expenses: Savings related to Opex

19 Cost Reduction Initiatives Depreciation Rollover* and 8 & 12 Improvements Double-digit wafer cost reduction in 8 and 12 target from Q106 to Q406 Approximately 2/3 of savings due to depreciation rollover Approximately 1/3 of cash savings from manufacturing efficiencies $100+ million of additional reduction in depreciation in 2007 Total Depreciation 8 & 12 Wafer Cost Reduction US$M Q105 05: $1,846M Q205 Q305 Q405 Q106 06e: $1,700M Q206e Q306e Q406e COST INDEX - BASE 100 Q Q1 06 Q2 06 Est Q3 06 Est Q4 06 Est 12 INCHES 8 INCHES AVERAGE *Based on approximate 1.25 Euro / $ rate and does not imply any guidance on 2007 CapEx

20 Reducing Currency Exposure Total Costs (COGS+OpEx) By Currency(*) Natural Hedging: Exposure to the Euro* Q103 Q106 mitigated to: About 1/3 of COGS <2/3 of OpEx Financial Hedging: About 50% of Euro / US$ exposure hedged on a (*) 48% $ 40% (*) 43% $ 50% rolling basis up to 6 months Accounting: Functional currency of Other 12% Other 7% manufacturing in Asia and 300mm in Italy shifted to US$ *Euro ( ) includes currencies such as Maltese Lira (pegged) and GBP, CHF, MAD Morocco.

21 Reducing Capital Intensity IDM strategy focused on customers is a competitive advantage Opportunistic use of silicon foundry: Currently about 10% of total silicon Above 40% in applicable technologies (i.e. advanced CMOS logic) Modular approach to invest driven by demand Partnership and manufacturing joint ventures 2006 Plan Confirmed at $1.8 Billion % US$M % 35% 30% 25% AVG % 15% 0 10% e CapEx CapEx as % of Revenues

22 Generating Shareholder Wealth: Return on Net Assets (RONA) 15% 10% 5% 0% Q 204 Q 304 Q 404 Q 105 Q 205 Q 305 Q 405 Q 106 Committed to increase RONA well above our Weighted Average Cost of Capital (WACC) of approximately 10%

23 Committed to our Roadmap Cost Savings / Restructuring Revenue Growth New Products Introduction Depreciation Rollover / Manufacturing Efficiencies to create Shareholder Value

24 Disclaimer This presentation may include statements that are not historical facts and are statements of future expectations and may include other forward looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended) that are based on management's current views and assumptions and that involve known and unknown risks and uncertainties that could cause actual results or performances to differ materially from those in such statements. In particular the following important factors could cause actual results to differ materially from the expectations of the Company or its management: (i) future developments in 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, (ii) pricing pressures, losses or curtailments of purchases from key customers, (iii) the financial impact of inadequate or excess inventories if actual demand differs from our anticipations, (iv) impact of foreign currency fluctuations, in particular a weakening of the U.S. dollar compared to the euro, (v) our ability to be successful in our strategic research and development initiatives to develop new products to meet anticipated market demand, as well as our ability to achieve our corporate performance roadmap by timely and successful completion of our other various announced initiatives to improve our overall efficiency and financial performance, (vi) anticipated benefits of research and development alliances and cooperative activities, (vii) the ability of our suppliers to meet our demands for products and competitive pricing, (viii) changes in the economic, social or political environment, as well as natural events in the counties where we and our key customers operate, (ix) Changes in our overall tax position as a result of changes in tax laws or the outcome of tax audits, (x) product liability or warranty claims for a product containing one of our parts, (xi) our ability to obtain required licenses on third party intellectual property and the outcome of litigation. Unfavorable changes in any of the above or other factors listed under Risk Factors noted from time to time in the Company s SEC reports including the Form 20F, most recently filed on March 3, 2006, and the Company s press release dated April 25, 2006, could materially affect the Company.