STMicroelectronics N.V. (STM)

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STMicroelectronics NV (STM)

UBS European Technology Conference Call

March 8, 2012 03:45 am ET

Executives

Franki D'Hoore - Director, IR

Analysts

Presentation

Unidentified Analyst

Thank you very much for coming and Philippe as you know now is the head of strategy at Europe, so (inaudible) and Philippe thank you very much for coming this morning. I appreciate your time. So over to you.

Philippe Lambinet

Thank you very much. Okay, I will go pretty quickly on the slides and then leave as much time as possible for the Q&A.

Okay. Let's go through this in [indeed]. I hope not to give you too many forward-looking statements today, but ST for those who don't know roughly a $10 billion company in 2011, 50,000 employees, a lot of R&D and manufacturing sites all over the world mainly in Europe, but also in Singapore and China for assembly. And a 25-year old company now. So it’s a very important anniversary for us.

So let's dive quickly in the results of 2011 in particular Q4. As you well know 2011 was quite an interesting year. It started well and then a lot of disasters happened, starting from that tsunami in Japan and also the floods in Thailand affected our industry. And ST had to face particular headwinds linked to the performance of our number one customer. So we went through pretty rough times starting in the middle of 2011. However we managed to perform quite well on the core business, the wholly-owned business with profitability in line with the models we had anticipated. The situation at our 50-50 subsidiary, ST Ericsson has been much more challenging. And the transition from our legacy product and legacy customers particularly Nokia and Sony Ericsson has proven to be more difficult than we felt and although we are developing a lot of new customers, the poor performance of the traditional customer has been affecting the results.

In Q4 we did publish results in line with the guidance, however we had to face pretty severe fab underloading. So our fabs were not full and therefore this affected our gross margin in a very significant way. Now all in all, we have a very strong financial position and our own financial position is close to $1.3 billion net cash.

So it was tough environment, but we have managed to adapt and keep a very strong financial position. This is the way our business is organized. I am in charge of the digital sector, so that part of the company plus Corporate Strategy Officer and we have also the automotive business, the analog and microcontroller business which includes what we call extreme analog, the MEMS and also we have the power discrete and the wireless business is what we have in our joint venture with Ericsson

Total revenue, you can see here a lot of structural changes in the way our business has been structured. The pink part here is the former Flash Memory Business which has been carved out first in a joint venture with Intel, (inaudible) and then acquired by Micron.

So we’re totally out of the Flash Memory Business and here you see the 2009 crisis and the proportion of wireless going down basically in our portfolio, so a very strong 2010 year. You see the whole-owned business growth was really very strong in 2010.

You see a stable 2011 wholly-owned business and slight growth even despite the very tough market condition. However, you see a continuous decrease of the wireless business, the ST Ericsson business. So that slide shows really the few, very few graphs, the fundamental evolution of our business.

So the challenge of course is to continue to outperform the market on the wholly-owned business and to turnaround the ST Ericsson business. That’s the job in front of us.

Coming back to the wholly-owned business, we actually performed in a very rough environment in 2011. We performed quite well. You see here the evolution of the market which went down in 2011. And our core business went slightly up. So we gained market share as represented in this chart. We went from 5.7% to 5.8% market share in 2011. So we did perform well in our wholly-owned business.

However, of course, as you know the ST Ericsson side of the business did not perform as well. This is the split of our business by segment, by industry segment. Automotive, a very strong part of our core business. We're well positioned geographically. We’re number three worldwide, but we’re number one in China, where the growth is actually the fastest. In computer peripherals, number one in print head, that is a very nice business of ours and number two in the multi control for printers and hard disk drives.

In consumer we are number two worldwide and number one outside of the US where the growth is happening. So we continue to enjoy here, nice growth in emerging markets such as China and India where ST has a very strong leadership. Industrial and others were number three worldwide, communications number three worldwide, however this is the problem area of the company through our joint venture with Ericsson and in distribution 23% of our business, that’s also an area for future growth.

So these are the revenues by product segment, product organizations finally and this mimics pretty much the segment revenues as I described in the previous slide. By the way, regarding the wireless activity here, this is the proportion of our business. However this is the consolidated result, we consolidate a 100% of the results of ST Ericsson. However at the earnings level, it was a 50-50 share with Ericsson. So the exposure we have at earnings level to the wireless business is actually 9%.

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