STMicroelectronics N.V. (STM)

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STMicroelectronics N.V. (STM)

Q1 2011 Earnings Call

April 27, 2011 9:00 PM ET

Executives

Tait Sorensen – Director, IR

Carlo Bozotti – President and CEO

Carlo Ferro – CFO

Didier Lamouche – COO

Carmelo Papa – SVP, Industrial and Multisegment Sector

Philippe Lambinet – Chief Strategic Officer and SVP, Home Entertainment and Displays

Analysts

Sandeep Deshpande – JPMorgan

Jerome Ramel – Exane BNP Paribas

Stéphane Houri – Natixis

Niels de Zwart – ING

Guenther Hollfelder – UniCredit

Manish Goyal – TIAA-CREF

Gunnar Plagge – Nomura

Gareth Jenkins – UBS

Kai Korschelt – Deutsche Bank

Didier Scemama – RBS

Janardan Menon – Liberum Capital

Presentation

Operator

Good morning or good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the STMicroelectronics First Quarter 2011 Earnings Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Mr. Tait Sorensen, Director, Investor Relations. Please go ahead, sir.

Tait Sorensen

Thank you, Dino, and thank you for joining our first quarter 2011 conference call. Today Carlo Bozotti will be hosting, ST’s President and Chief Executive Officer. Joining him on the call are Didier Lamouche, Chief Operating Officer; Carlo Ferro, Chief Financial Officer; Carmelo Papa, Senior Executive Vice President of the Industrial and Multisegment Sector; and Philippe Lambinet, Chief Strategic Officer and Senior Executive Vice President of Home Entertainment and Displays.

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 release last night and also in ST’s most recent regulatory filings for a full description of these risk factors.

As a reminder, ST-Ericsson will host a conference call shortly after the conclusion of our call. Also please limit yourself to one question and a brief follow-up call. Now I’d like to turn the call over to Carlo Bozotti. Carlo?

Carlo Bozotti

Thank you, Tait. And thank you for joining us today to discuss STMicroelectronics financial results for the 2011 first quarter. Overall, it was a solid quarter of financial performance. On a year-over-year basis total revenues was higher by 9% to $2.53 billion, gross margin was higher by 140 basis points to 39.1%, net income was up significantly from $57 million to $170 million, and operating margin before restructuring attributable to ST more than doubled to 9.9%. As anticipated, our net financial position remained strong at $1.14 billion.

Both total revenues and gross margin were within our guidance range. Revenue results were below the midpoint of our sequential guidance due to wireless legacy sales falling off at a faster rate than anticipated as at ST-Ericsson and the weak demand at the single customer. All other areas of our product portfolio performed as expected, even slightly better. Our gross margin was just above the midpoint of our guidance and our operating profitability progressed over last year.

Looking beyond the headline figures, we had strong year-over-year growth across many areas of our product portfolio, demonstrating the momentum we are seeing with our new products and the success with the expansion of our customer base as we address critical blocks helping to drive our customers’ success.

So it is clear our R&D investments have been the right ones as we demonstrate more and more innovation in our product portfolio. Our marketing and sales initiatives have been equally well focused as we engage with more industry leaders as customers across our product portfolio. Also, our temporary pickup of capital investment is designed to support areas of growth in 2011 and well beyond.

We’re progressing with our strategic manufacturing and product initiatives. With respect to reshaping our business portfolio, we completed the sales of our Micron shares received in connection with our former Flash business. In the first quarter, we realized net proceeds of $195 million from selling all the remaining shares of Micron. And in total we received net proceeds of $514 million, including the payment to the equity partner.

With respect to our manufacturing restructuring in the first quarter, we completed the closure of our Phoenix fab. So with this action, we have substantially completed the restructuring of our manufacturing operation. We are now well positioned with eight fabs, down from 17 fabs in 2005.

In line with our product initiatives, we continue to make selective capacity additions in 2011 to support growth in three key blocks. First, smart power products, particularly for the automotive industry. Second, MEMS and the third is to prepare for the launch of the ST-Ericsson’s new products targeting the smartphone and the tablet market that are ramping in the second half of this year. And I would like to reinforce here that we continue to outsource a significant portion of our advanced CMOS technology requirement, and for other technologies such as advanced analog technologies, we are providing the capacity internally.

As a result of the capacity additions and the ramp of new products, we are in a temporary period of heavy investment. This is visible in our cash flow figures that have declined with respect to the prior quarter and will decline again in the second quarter. While we are facing this reduction in cash flow by strategic design, we remain committed to our asset-lighter strategy. Our overall cash flow generation trajectory has enabled us to have a strong net cash position. In turn this has given us the ability to focus on several key priorities, enhancing our future opportunities through critical investment to support new products and enhancing our returns to shareholders.

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