STMicroelectronics N.V. (STM)

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STMicroelectronics NV (STM)

Q2 2013 Earnings Call

July 23, 2013 9:00 am ET

Executives

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

Analysts

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

Francois Meunier - Morgan Stanley, Research Division

Andrew M. Gardiner - Barclays Capital, Research Division

Amit B. Harchandani - Citigroup Inc, Research Division

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

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

Didier Scemama - BofA Merrill Lynch, Research Division

Stephane Houri - Natixis S.A., Research Division

Kai Korschelt - Deutsche Bank AG, Research Division

Janardan Menon - Liberum Capital Limited, Research Division

Jerome Ramel - Exane BNP Paribas, Research Division

Presentation

Operator

Ladies and gentlemen, good morning or good afternoon. Welcome to the STMicroelectronics Second Quarter 2013 Earnings Results Conference Call and Live Webcast. I'm Goran, 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, and thank you to all for joining our second 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 and Chief Strategy Officer; Jean-Marc Chery, Executive Vice President and General Manager of the Embedded Processing Solutions segment; Mario Arlati, Executive Vice President and Chief Financial Officer; Carmelo Papa, Executive Vice President, Industrial & Power group; 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, please limit yourself to one 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 thank you very much for joining us today. Let me share some brief summary comments and then we'll go into a detailed review of the quarter.

First, I am encouraged by the progress we are making with regard to each of the 3 objectives: sales growth, gross margin improvement and expense reduction. With respect to sales growth, we had a strong quarter excluding our Wireless product line. From a gross margin perspective, we came in above the midpoint, thanks to manufacturing efficiencies and higher volumes. And with regard to expense reduction, you can see the substantial progress quarter-on-quarter and compared to the year-ago timeframe.

Second, we will discuss the product portfolio shortly. But here, let me highlight the sales initiatives to strengthen our geographical coverage, greatly expanding our small to midsize customer base, as well as expanding our sales through distribution. In the second quarter, distribution represented 26% of sales, up about 4 points from last year, and some further improvement from the prior 2 quarters. Our midterm goal is to move closer to 30%.

Third, while market uncertainty continues, we saw a progressive improvement in bookings in the second quarter, although we experienced a softening in the smartphone market also impacting ST products towards the end of the second quarter.

And fourth, we anticipate the ST-Ericsson transaction to close early August.

So let's begin the detailed review with our second quarter sales result. We delivered revenues in line with our outlook, with total revenues growing 1.8% sequentially to $2.05 million, even with the 31% decrease in existing product sales at ST-Ericsson.

Net loss attributable to ST was $152 million, reflecting a onetime noncash charge of $69 million on ST's equity value in 3Sun due to the impairment charges reported by the 3Sun joint venture.

We saw solid sequential sales growth of 6.8% in our product portfolio, excluding the Wireless product line. The increase came from several key areas: Microcontrollers, Industrial & Power, Automotive and Imaging saw progress in both of our product segments, Sense & Power and Automotive, as well as Embedded Processing Solutions.

Turning first to Sense & Power and Automotive products, revenues increased 7.3% sequentially. Automotive had a good sequential sales evolution, and it was broad in terms of sales growth across all of the regions.

Second, and in the second half, should see further progress for Automotive with a strong backlog, thanks to our broader customer base and ST's increasing content within cars. We also saw a good sequential progression for Industrial & Power products.

MEMS continue to grow sequentially, but was somewhat impacted by softness in the smartphone market. Sense & Power and Automotive products' operating margin decreased to 3.5%, reflecting in part the wind-down process for the ST-Ericsson joint venture, as we assume certain costs for R&D activities for the people who will be moving to ST as we strengthen our efforts on new product development. The decrease also reflects price pressure mainly impacting MEMS and a less favorable product mix.

Looking at our Embedded Processing Solutions group, there were some encouraging signs demonstrating that our goal to improve performance in this group is gaining some traction. Second quarter revenues, excluding the Wireless product line, increased 6.6% sequentially. In Imaging, we saw an increase of about 29% on a sequential basis, and we are on track to see a further ramp in the second half of this year. So the recovery is clearly moving forward for Imaging.

Read the rest of this transcript for free on seekingalpha.com