STMicroelectronics N.V. (STM)

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STMicroelectronics NV (STM)

Q4 2013 Earnings Call

January 28, 2014 5:00 am ET


Tait Sorensen - Group Vice President of Investor Relations

Carlo Ferro - Chief Financial Officer

Jean-Marc Chery - Chief Manufacturing & Technology Officer, Executive Vice President, General Manager of The Embedded Processing Solutions Segment and Vice Chairman of Corporate Strategic Committee

Georges Penalver - Chief Strategy Officer, Executive Vice President and Member of Corporate Strategic Committee

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


Dan Gardiner - Arete Research Services LLP

Andrew M. Gardiner - Barclays Capital, Research Division

Amit B. Harchandani - Citigroup Inc, Research Division

Stephane Houri - Natixis S.A., Research Division

J├╝rgen Wagner - MainFirst Bank AG, Research Division


Tait Sorensen

So good morning, everyone. My name is Tait Sorensen, I'm the Vice President of Investor Relations for STMicroelectronics. Thank you very much for joining us today for our Q4 and Full Year 2013 Results Presentation here in Paris, France. Hosting our event today, of course, is our CEO, Carlo Bozotti.

So I'd like to start off with just the main presentation slide. You can see the schedule. We'll have 3 executive presenters today, which hopefully will give you all the information that you'll need. We'll have a Q&A session as well and then also a lunch with plenty of time to interact and get any additional questions you may have. And we'll try and honor our time commitment.

So this presentation 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 the event.

This presentation 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 last night and also ST's most recent regulatory filings for a full description of these risk factors. In addition to today's presentation, we will host our usual investor call at 3:00 p.m. CET time today for those that were also unable to attend.

So it is now my pleasure to invite Carlo Ferro, Chief Financial Officer, Executive Vice President, Finance, Infrastructure, Legal and Services -- messed that up, to speak about ST's Q4 and full year results, business and financial performance. So thank you, Carlo.

Carlo Ferro

Thank you, Tait. Good morning, everyone. Good morning also to all other participants to this event by webcast live for the STMicroelectronics Year-end Conference. And also, I have to thank those that put stand [ph] here for -- recognizing I have left the first door [ph] as [indiscernible]. Thank you very much for the -- to the organizer.

So in my presentation, I'd like to give you some introduction on the business, on the company organization; to discuss the financial performance for 2013; and to see and to brief on where we stand in the execution of our financial model.

Many of you are familiar with the company. Let me just give you a quick overview. ST is a global leader in semiconductor with over $8 billion revenues generated in all the main regions. About 60% of our sales are shipped to Asia, but U.S.A. and Europe, I would say Europe and the U.S.A. are the largest contributors to the design activity for the company. We are the largest European semiconductor company, encompassing all the capabilities from conceiving a product to delivery of the product to the customer. And this is thanks to a very substantial effort in research and development with leverage on world-class technologies and leveraging the -- on a unique know-how and set of competencies of 9,600 people that are working in research and development at ST.

ST is everywhere microelectronics make a positive contribution to the people's lives. This is the company vision. This is the ground of our product portfolio, which is focused on 5 growth drivers: Smart Power, MEMS and sensors, Automotive, microcontroller, Digital Convergence. So you may see our products are a bit everywhere and looks to make easier, richer, safer, healthier everyday life. So in life.augmented, which is our brand.

I'm sure that likely, from this morning to now, you have already experienced some benefits from several of our products in your home, in your car, in your portable device, perhaps in your wrists now. And indeed, ST is #1 in MEMS, encompassing motions, acoustic and environmental MEMS to serve smartphone and portable devices, wearable devices and now entering automotive. ST is #1 in set-top boxes, excluding [ph] the U.S. market, now focusing on set-top box and the Home Gateway as well as on ASIC and FD-SOI technology.

ST was #4 in microcontroller. Possibly, we are becoming #2 in combined general-purpose and secure microcontrollers. ST is #2 in industrial electronics. ST is established leader among the 3 top players in the industries in Automotive where we serve all the applications from powertrain to body and safety to infotainment.

The organization is based on 2 pillars: the Sense & Power and the Automotive Products, which represents 40% -- 60% of total revenues and includes Analog, MEMS and Sensors, Automotive, Industrial & Power Discrete; the Embedded Processing Solutions, which represents 40% of the total revenues and includes 3 product groups going forward, Digital Convergence, Imaging and Microcontrollers. The former ST-Ericsson legacy products are progressively phasing out and will be from now included in the Digital Convergence group. Each of these product segments is accountable for profitability and for cash flow generation, and each of the segment as -- is on objective to contribute to the company reaching its financial model. We will see it later.

You see here the revenues break down by product group. The larger groups are Industrial & Power Discrete, Automotive and Microcontroller. Interesting to note, those are the groups servicing the applications that are enjoying the largest growth in the industry and those are the groups that are delivering to ST a profitability which is higher, well higher, than the average margin of the company.

As mentioned, ST has exited the Wireless IC platform business by splitting up ST-Ericsson in 2013. I want to be clear on this point. ST is not exiting the Wireless market, which is among the fastest-growing part of the semiconductor universe. Going forward, ST will continue to be present in mobile phones and portable devices, including power management solutions, imaging solutions, MEMS and sensors, general-purpose and secure microcontrollers, protection devices, tunable antenna, so on and so forth. And you will see about our product offering for mobile and portable device in a few weeks at the world mobile congress.

So our focus during 2013 has been on implementing the new strategic plans, including as a key priority the exit from ST-Ericsson joint venture. I believe we can say today that this has been accomplished well on time, smoothly under social [ph] impact, ensuring a supply continuity to customers and requiring much less cash than initially planned. ST has taken over the existing ST-Ericsson products and the related businesses, excluding the LTE modem business as well as equipment and tools in back end in Asia. The ST-Ericsson legacy product generated $133 million revenues in the fourth quarter last year. And given their low margin, reflecting the maturity of this product, they have diluted their consolidated gross margin by over 1 percentage point. These revenues, as you know, are progressively phasing out.

Also, ST has taken on board 1,000 people with competencies in the areas of software development in analog like radio frequency and power management, in other design for embedded processing. And all of these resources are now contributing across all the product groups of ST to boost future revenues growth. ST-Ericsson itself is no longer an operating company and the ST-E exposure is now limited to covering 50% of its needs to complete the wind-down, which are estimated in the range of $30 million to $40 million for each of the partner. And then maybe depending on the results of the process of selling patents ongoing, this estimation could be possibly less. So definitively, ST-Ericsson is no longer a risk to the ST's cash position.

One year ago, I was not at this meeting. 1 year ago, Carlo, with the chief executive of Ericsson, agreed to drive the joint venture to that complex transition. And today, I'm glad to be back in ST after having accomplished that mission that, believe me, has been miseries [ph] are pleasant [ph] but a mandatory cornerstone to support and to sustain the future of our company.

So back to the core business of ST. The market we serve is large. It is $159 (sic) [$139] billion market. And after 3 years, the market is now expected in 2014 to return to a structural trend of growth. So whether -- in 2013, it declined. It declined by about 1.7% based on WSTS preliminary statistics. The decrease was pretty broad in across all the applications, except Automotive which delivered a solid performance. When we talked to you in October, we communicated about a short-term demand correction, and we are experiencing it. We have seen recent signs of progressive recovery in demand. Our booking improved substantially from Q3 into Q4 but remain, in Q4, below the level of the second quarter. The good news now, entering in 2014, is that the forecast of semiconductor growth -- of semiconductor market is a growth in the mid-to-single-digit range. Indeed, WSTS anticipates 4.2% growth.

Our second key priority in 2013 was to grow faster than our service market. We did it. Based on WSTS data at the end of November, those at the end of December are not available yet, ST's market share on the service market increased by 22 basis points in the period January-November 2013 compared to the same 11 months of the prior year. The chart on your right further shows that almost all the product groups contributed to our market share gain, with the largest gain by our microcontroller, both general-purpose and secure; and gain in Automotive, in analog and MEMS and so on, so forth. However, there is a disappointing effect on this performance, and this is the fact that the overall market declined rather than grew as initially planned, as well as planned 1 year ago in our financial planning. And these resulted in a level of revenues exiting 2013 much lower than what we did anticipated 1 year ago.

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