ST's Q3-09 and nine month financial results

INDIA: STMicroelectronics reported financial results for the 2009 third quarter and nine months ended September 26, 2009.

President and CEO Carlo Bozotti commented: “The third quarter progressed well in line with our expectations, with strong sequential sales growth, a significant reduction in our inventory and continued improvement in operating cash flow.

“On a sequential basis, net revenues increased 14 percent, coming in at the high end of our outlook range. We are encouraged as growth restarted in America and Europe and continued to be strong in Asia Pacific and Greater China. As anticipated, all market segments contributed to the sequential revenue growth, with the computer and automotive markets growing the fastest.

“We improved our net financial position* to $266 million net cash, thanks to our significant increase in net operating cash flow, reflecting the major strides we have made in executing and advancing our lighter asset and inventory-management strategies.

“Inventory declined by $150 million in the third quarter and turns increased to 4.8. While having completed this phase of our inventory-adjustments affecting fab loading, we will continue to focus on accelerated inventory turns.

“In summary, our efforts to navigate the industry downturn and protect our cash position were successful and we are well positioned to take advantage of the market recovery.”

Q3 review
ST’s net revenues for the third quarter of 2009 total $2,275 million and include sales recorded by ST-Ericsson as consolidated by ST. Net revenues increased 14 percent sequentially, reflecting an increase in demand across all of ST’s served market segments, as well as in all regions, with particular strength in Asia Pacific and Greater China.

Sequential revenues growth has restarted in America and Europe, reflecting improved market conditions. Net revenues declined in comparison to the year-ago quarter in all market segments and in all regions except Asia Pacific, due to weaker business conditions.

On a sequential basis, all market segments posted growth, with Computer increasing by 21 percent, Automotive by 18 percent, Telecom by 14 percent, Consumer by 11 percent and Industrial by 9 percent. Distribution increased 20 percent, reflecting the better alignment of the company’s inventory to current demand levels and improving market conditions.

In comparison to the year-ago quarter, all market segments decreased with Industrial down by 35 percent, Consumer by 28 percent, Automotive by 19 percent, Telecom by 8 percent and Computer down by 5 percent. Distribution decreased 19 percent in comparison to the year-ago period reflecting a destocking of this channel and weaker industry conditions.

Gross margin in the third quarter of 2009 was 31.3 percent, significantly higher than the 26.1 percent reported in the second quarter of 2009, due to improved volumes and increased fab loading, as well as cost reduction measures. The gross margin in the third quarter was still penalized by the continued underloading of ST’s wafer fabs with consequent unused capacity charges and manufacturing inefficiencies.

Furthermore, as strong revenue growth continued in Greater China, the mix of products negatively impacted the third quarter gross margin. In comparison to the year-ago period, the significant decline in gross margin was due to lower volumes and related charges for unused capacity, manufacturing inefficiencies, as well as declining prices that more than offset the positive effects from currency and the consolidation of the wireless businesses.

In the 2009 third quarter, combined SG&A and R&D expenses were $885 million, compared to $896 million in the prior quarter and $899 million in the year-ago quarter, which did not include the activities related to Ericsson Mobile Platforms.

As anticipated, combined SG&A and R&D expenses in the third quarter declined due to seasonality and ongoing cost-reduction programs, but were partially offset by a negative currency impact in the third quarter.

In the third quarter, ST continued certain ongoing restructuring activities and headcount-reduction programs to streamline its cost structure. The Company confirmed that the ongoing $1 billion savings and productivity plan, encompassing manufacturing, the rationalization of sites and capturing synergies in wireless, is on track for completion in mid-2010.

The $250 million cost-synergies program defined by ST-NXP Wireless was substantially completed at the end of the quarter while the $230 million restructuring plan, announced by ST-Ericsson on April 29, 2009 and currently in progress, had a limited benefit to the third quarter results.

Related to the Company’s cost-realignment initiatives, ST posted third quarter restructuring and impairment charges of $53 million, of which $17 million are related to ST-Ericsson, compared to $86 million and $22 million in the prior quarter and year-ago period, respectively.