President and CEO, Carlo Bozotti, commented: “In 2011, our wholly-owned businesses delivered a solid performance throughout the year, within the backdrop of a severe slowdown in the broader semiconductor market as the year evolved. ST’s wholly-owned businesses delivered revenue of $8.2 billion and an operating margin of 11.4 percent.
“Moreoever, we expected to see strong growth during 2011 in two of our key strategic product areas and we are particularly proud of our achievements there. Our MEMS sales nearly doubled to over $600 million. Our automotive business reported record revenues, with sales up 18 percent during 2011, on top of sales growth of over 40 percent during 2010. In both areas, revenue growth was also accompanied by a significant expansion of the operating profitability of these product groups.
“We also continued to maintain a strong financial position and sharp focus on capital management. Exiting the year, our financial resources totaled $2.3 billion and our net financial position was about $1.17 billion, as adjusted, taking into account the 50 percent of ST-Ericsson’s debt. As anticipated, we saw an improvement in the fourth quarter in inventory levels and inventory turns and capital expenditures are back down to much lower levels as planned.
“For ST-Ericsson, managing the wireless joint venture’s shift from a legacy portfolio to the new product roadmap has proven more challenging than expected given the change in the business of one of their largest customers and its evolving plans. While the new portfolio is beginning to ramp, the current results of ST-Ericsson are still distant from the financial prospects we are envisioning. Therefore, ST-Ericsson is now in a crucial phase focusing on improving execution, lowering its break-even point and reviewing its roadmap to sustainable profitability. We are confident that the newly appointed CEO of ST-Ericsson is the appropriate leader to drive this turnaround.”
Source: ST, France.Q4 review
ST’s fourth quarter net revenues decreased 10.3 percent on a sequential basis, within our guidance, with all regions down sequentially. The Americas decreased 4.6 percent, Japan & Korea and Greater China & South Asia each were down about 7.5 percent and EMEA decreased 20.7 percent.
On a year-over-year basis, ST’s net revenues decreased 22.6 percent, with Analog, MEMS and Microcontrollers (AMM) and Automotive, Computer, Consumer and Communications Infrastructure (ACCI), led by Automotive, performing better than the other segments, in particular Wireless.
As expected, gross margin decreased 240 basis points compared to the prior quarter, principally due to lower volumes that were associated with the reduction in inventory that resulted in the underloading of ST’s wafer fabs. On a year-over-year basis, gross margin declined by 650 basis points also mainly due to lower volumes, and related charges for unused capacity.
Combined SG&A and R&D expenses of $894 million in the fourth quarter were substantially flat compared to the prior quarter. On a year-over-year basis, combined expenses decreased $20 million reflecting the restructuring at ST-Ericsson, among other factors. Combined operating expenses, as a percentage of sales, were 40.8 percent in the 2011 fourth quarter compared to 36.8 percent and 32.3 percent, in the prior and year-ago quarters, respectively.
Due to market conditions driving lower volumes and the resulting unsaturation, operating margin before restructuring attributable to ST was about break-even in the 2011 fourth quarter compared to 4.3 percent and 12.4 percent in the prior and year-ago quarters. Income tax in the fourth quarter includes a $92 million charge for a valuation allowance related to ST-Ericsson's accumulated Net Operating Losses.
As this allowance does not relate to ST’s investment in ST-Ericsson, minority interests increases by the same amount of $92 million, with no impact to ST's consolidated income. Absent this allowance, the ST tax rate for the fourth quarter would be 15 percent.
Fourth quarter net loss was $11 million or $(0.01) per share, compared to net income of $0.08 and $0.24 per diluted share in the prior and year-ago quarters, respectively. On an adjusted basis, net of related taxes, ST reported non-US GAAP net loss per share of $(0.01) in the fourth quarter, compared to net income of $0.09 and $0.27 per diluted share in the prior and year-ago quarters, respectively.
For the 2011 fourth quarter, the effective average exchange rate for the company was approximately $1.36 to €1.00 compared to $1.40 to €1.00 for the 2011 third quarter and $1.34 to €1.00 for the 2010 fourth quarter.
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