STMicroelectronics N.V. (STM)

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STMicroelectronics N.V. (STM)

Q3 2012 Earnings Call

October 24, 2012 9:00 am ET

Executives

Carlo Bozotti – President and Chief Executive Officer

Mario Arlati – Chief Financial Officer

Carmelo Papa – Executive Vice President of the Industrial and Multi-Segment Sector Jean-Marc Chery – Executive Vice President, Manufacturing & Technology R&D and General Manager of the Digital Sector

Lorenzo Grandi – Corporate Vice President, External Reporting

Analysts

Simon Schafer – Goldman Sachs

Amit Harchandani – Citigroup

Stephane Houri – Natixis

Francois Meunier – Morgan Stanley

Jerome Ramel – Exane BNP Paribas

Janardan Menon – Liberum Capital

Andrew Gardiner – Barclays Capital

Didier Scemama – Bank of America/Merrill Lynch

Sandeep Deshpande – JPMorgan

Gareth Jenkins – UBS

Kai Korschelt – Deutsche Bank

Peter Knox – Societe Generale

Lee Simpson – Jefferies & Company, Inc.

Presentation

Operator

Ladies and gentlemen, good morning or good afternoon. Welcome to the STM Third Quarter 2012 Earnings Results Conference Call and live webcast. I am Julia, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. After the presentation, there will be a Q&A session. (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, Director, Investor Relations. Please go ahead, sir.

Tait Sorensen

Thank you, and thank you to all for joining our third quarter 2012 conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining Carlo on the call today are George Penalver, Executive Vice President, Chief Strategic Officer; Mario Arlati, Chief Financial Officer; Carmelo Papa, Executive Vice President of the Industrial and Multi-Segment Sector; Jean-Marc Chery, Executive Vice President, Manufacturing & Technology R&D and General Manager of the Digital 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, 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 for joining us for our third quarter conference call. Today, in addition to reviewing our third quarter, there are several important topics that I would like to address. Before going into detail in each of these areas, let me share some key points.

First, looking at our financial results both revenue and gross margin were within our guidance range. The demand environment remains weak at the macro level and this is since June. But importantly, in spite of this, three of ST’s five product segments showed sequential revenue growth again this quarter; our Analog, MEMS & Microcontrollers, Power Discrete and Wireless, highlighting the traction of our new product portfolio.

Second, there is a major positive dynamic underway at ST as our innovative product portfolio is driving an expansion of our strategic relationships with market leaders. For example, in automotive we just announced a strategic partnership with Audi to co-develop semiconductor solutions in three key areas of automotive design; reduction of CO2 emissions, safety and security, and infotainment and comfort.

Third, we are taking steps to improve our net financial position in the fourth quarter with a strong focus on containing capital spending and a major inventory reduction plan.

Fourth, in our earnings release last evening, we announced a new $150 million annualized saving planning in ST’s Digital sector to be completed by the end of 2013.

And fifth, the third quarter restructuring and impairment charges significantly increased to $715 million. As part of our annual impairment test and based upon our assessment of the Wireless segment plan updated in Q3 2012, and the evolving dynamics of the smartphone industry, we posted a non-cash charge of $690 million. This charge reflects our current best estimate of the fair market value of our Wireless business.

Turning now to the third quarter in detail, the market environment was weak throughout the quarter tracking generally to what we had been seeing since June, when the recovery started to deflate, uncertainty in customers demand increased and visibility decreased.

Our third quarter revenue and gross margin results were within the outlook we shared with you in July. Our wholly-owned businesses were relatively flat to the second quarter. Nevertheless, new product momentum was clearly evident as anticipated with MEMS, microcontrollers, Power MOSFET and IGBT demonstrating sequential progression. Wireless revenue grew 4% including revenues from IP licensing of $35 million.

In a weak semiconductor environment globally, we were able to show progressing key areas, with margin improvement, significantly lower operating expenses, lower losses and progression towards returning to a cash flow positive situation in the fourth quarter. Overall, I think this is a positive statement about our new product trajectories and traction.

So as I said earlier, three of our five product groups reported sequential revenue growth. First, Analog, MEMS and Microcontrollers, revenue increased about 4% sequentially. Our MEMS and sensors business continued its outstanding traction. ST won the accelerometer and gyroscope socket for a new smartphone from a leading consumer electronics manufacturer and was awarded the dual-core gyroscope by a major mobile vendor. Our microphones earned a socket in a popular tablet from a major US corporation and our pressure sensors started shipping in a high profile smartphone.

Second, Power Discrete saw revenue growth of over 5%, here due to higher demand for Power MOSFET and IGBT. And third, wireless revenue increased about 4% from the ramp of NovaThor platforms and IP licensing. ST-Ericsson continues to expand its relationship with Samsung and just recently announced that Samsung is using the NovaThor platform for its new Galaxy S III mini smartphone.

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