STMicroelectronics N.V. Q1 2010 Earnings Call Transcript

STMicroelectronics N.V. Q1 2010 Earnings Call Transcript
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STMicroelectronics N.V. (STM)

Q1 2010 Earnings Call Transcript

April 23, 2010 9:00 am ET

Executives

Tait Sorensen – Director, IR

Carlo Bozotti – President and CEO

Carlo Ferro – EVP and CFO

Alain Dutheil – COO

Carmelo Papa – EVP, Industrial & Multisegment Sector

Philippe Lambinet – EVP and General Manager, Home Entertainment & Displays Group

Analysts

Gunnar Plagge – Nomura

Tristan Gerra – Robert Baird

Sandeep Deshpande – JP Morgan

Didier Scemama – RBS

Jerome Ramel – Exane BNP Paribas

Simon Schafer – Goldman Sachs

Gareth Jenkins – UBS

Glen Yeung – Citigroup

Janardan Menon – Liberum Capital

Adrien Bommelaer – Piper Jaffray

Presentation

Operator

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Good morning or good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the STMicroelectronics first quarter 2010 results conference call. As a reminder all participants are in a 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. Thank you for joining our first quarter 2010 conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining him on the call are Alain Dutheil, Chief Operating Officer; Carlo Ferro, Chief Financial Officer; Carmelo Papa, Executive Vice President of the Industrial and Multisegment Sector; and Philippe Lambinet, Executive Vice President of Home Entertainment and Displays.

This call is being broadcast live over the web and can be accessed through ST's Web site. 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

Well, thank you, Tait. Thank you for joining us on today’s call and for your interest in STMicroelectronics. We are pleased with the results for the first quarter. The numbers are in line with our expectations, are improving with a return to positive earnings and continued strong cash flow from operations. In the current environment, and we are working hard to start increasing the demand from our customers, and we are focusing on the very significant opportunity to improve the profitability of the company.

Our product innovation is in full swing with among others key design wins in microcontrollers, MEMS, and ASIC, plus the new portfolio transition underway at ST-Ericsson. We are also seeing good momentum with customers, including our 19 new key accounts. Net revenues for the first quarter increased 40% thanks to IMS with 60% revenue growth, and ACCI with 47% growth in comparison to the year ago timeframe.

These figures reflect both the significant rebound from the economic downturn as well as solid demand for our products. Regionally, the strongest results came out of greater China, South Asia and America, with 60% and 49% revenue growth respectively. Sequential our revenues were down 10% reflecting fewer days in the first quarter. Our financial performance reflects a significant turnaround in the bottom line results following the deep downturn of early 2009.

Last year we focused on important strategic actions to reshape our product portfolio and improve the efficiency of our operations. As a result, we are very happy to have returned the company to profitability. We achieved net income of $57 million or 6% per share; despite the first quarter revenues are 20% lower than the Q3 2008 pro forma peak of the company, and the losses incurred by ST-Ericsson.

Our earnings have improved substantially and we are focused on growing them substantially as we progress through this year. Mainly driven by the high fab loading, our first quarter gross margin of 37.7%, increased 1,140 basis points compared to the year ago quarter and 70 basis points sequentially. This sequential growth was in contrast to our historical seasonal decrease.

As I mentioned on our last call, this is the first time since 2002 that our first quarter gross margin grew sequentially. Now let us turn to a review of our businesses.

ACCI net revenues $909 million. Its 47% year-over-year growth was led by automotive, set-top box and computer peripherals products and reflected continued improvement in industry conditions. ACCI posted operating income of $48 million, representing an operating margin of 5.3%. In particular, the operating market segment grew an impressive 61% compared to the year ago quarter, and we believe we are gaining market share as we did last year according to iSuppli.

IMS net revenues increased 60% year-over-year to $811 million, driven by strong growth in microcontrollers, analog and power discrete products and reflected solid growth in the multi-segment market and in distribution. IMS operating income increased to $92 million and its operating margin continued to expand to 11.3%.

Turning to wireless, our net revenues in the first quarter increased 13% year-over-year to $587 million driven by the solid demand in Asia. Wireless operating loss in the first quarter was $116 million mitigated by the $72 million of income to reflect minority interest in the joint venture. Operating results were mainly due to lower revenues, but partially mitigated by the ongoing restructuring initiatives at ST-Ericsson. ST-Ericsson is focused on achieving the competitive cost structure, and at the same time it is progressively launching many new and leading-edge platforms.

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