STMicroelectronics N.V. (STM)

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STMicroelectronics NV (STM)

Q1 2013 Earnings Call

April 23, 2013 9:00 am ET


Tait Sorensen - Group Vice President of Investor Relations

Carlo Bozotti - Chairman of Management Board, Chief Executive Officer and President

Lorenzo Grandi - Corporate Vice President and Corporate Control

Celine Berthier - Director of Investor Relations


Stephane Houri - Natixis S.A., Research Division

Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division

Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division

Francois Meunier - Morgan Stanley, Research Division

Didier Scemama - BofA Merrill Lynch, Research Division

Andrew M. Gardiner - Barclays Capital, Research Division

Simon F. Schafer - Goldman Sachs Group Inc., Research Division

Jerome Ramel - Exane BNP Paribas, Research Division

Gareth Jenkins - UBS Investment Bank, Research Division

Kai Korschelt - Deutsche Bank AG, Research Division

Guenther Hollfelder - Baader Bank AG, Research Division



Ladies and gentlemen, good morning or good afternoon. Welcome to the STMicroelectronics First Quarter 2013 Earnings Results Conference Call and Live Webcast. I'm Goran, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Mr. Tait Sorensen, Group Vice President, Investor Relations. Please go ahead, sir.

Tait Sorensen

Thank you, Goran. Thank you for joining our first quarter 2013 conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer.

Joining Carlo on the call today are Georges Penalver, Executive Vice President, Chief Strategic Officer; Mario Arlati, Executive Vice President, Chief Financial Officer; Carmelo Papa, Executive Vice President of the Industrial and Multisegment Sector; and Lorenzo Grandi, Corporate Vice President, External Reporting.

This call is being broadcast live over the web and can be accessed through ST’s website. A replay will be available shortly after the conclusion of this call.

This call will include forward-looking statements that involve risk factors that could cause ST’s results to differ materially from management’s expectations and plans. We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results last night and also in ST’s most recent regulatory filings for a full description of these risk factors. As a reminder, ST will host its Annual Investors and Analysts Day in London on May 16. We hope you can attend and please let us know if you need additional information.

So turning back to our call, please limit yourself to 1 question and a brief follow-up. And now I'd like to turn the call over to Carlo Bozotti, ST's President and CEO. Carlo?

Carlo Bozotti

Thank you, Tait, and many thanks to all of you for joining us today.

First of all, I would like to focus my comments on 4 principal areas: our first quarter review and product highlights, the progress towards our first quarter 2014 net operating expenses goal and the ST-Ericsson exit, our cash flow and net financial position and, of course, our outlook.

Let me begin with a brief summary. First, our net revenues and gross margin were well aligned with the outlook we shared with you last quarter and were at the midpoint of our guidance range. Excluding Wireless, our revenues expected better than normal seasonal performance -- sorry, our revenues experienced better than normal seasonal performance in the fourth quarter and again in the first quarter.

Second, we are putting in place a new product segment organization beginning with the 2013 first quarter, aligned to our new strategy, sharpening our focus around 5 main growth drivers within 2 product segments: Sense & Power and Automotive, representing about 56% of net revenues and Embedded Processing Solutions, representing about 44% of net revenues.

Third, in March, we signed an agreement with Ericsson to split-up the ST-Ericsson joint venture. Subject to regulatory approvals, we expect the closing to occur during the third quarter as already anticipated.

Now while the closing is in the third quarter, we have each begun to fund our respective parts as of March 2, and jointly fund the wind down activities. So this entails Ericsson assuming the funding of the LTE Modem development activity, while ST is assuming the funding of the existing products and related business, as well as certain assembly and test facilities. And together we are jointly and equally funding the wind down related activities.

This was an important position and the key part to our cost reduction. Now we can intensify our efforts and focus on the other parts of our new strategic plan.

In the first quarter, we repaid our maturing debt, and also entered into a new credit facility with European Investment Bank, which was undrawn at the quarter end, further strengthening the company's financial flexibility.

Finally, touching briefly on our outlook, we continue to see some positive signals in the marketplace and anticipate sequential growth and gross margin improvement. More importantly, with our key products growth drivers, we see ST gaining shares in 2013 in our target growth areas independent of the market environment.

Turning now to the first quarter. Our revenue results came in at $2.01 billion. Excluding ST's Wireless product line, our product portfolio saw a year-over-year increase of 1.3% and on a sequential basis, we saw better than normal seasonality as we had anticipated, with a decrease of 3.4%.

Looking first at Sense & Power and Automotive products, net revenues decreased 4.8% sequentially. We did see growth in Automotive and Industrial & Power Discrete products. And as expected, there were lower MEMS product sales. With respect to Automotive, the market is still soft in certain regions, but this is a market where we are very well positioned from a leadership view in the largest market, from a product portfolio offering, and from a content perspective, where we are adding more content per car. Importantly, we have also expanded our presence among the top automotive OEMs as we have discussed, including with Audi and with Hyundai.

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