STMicroelectronics' CEO Discusses Q3 2011 Results - Earnings Call Transcript

STMicroelectronics NV ( STM)

Q3 2011 Earnings Call

October 25, 2011 9:00 AM ET

Executives

Tait Sorensen – Director, Investor Relations

Carlo Bozotti – President and CEO

Didier Lamouche – Chief Operating Officer

Carlo Ferro – Chief Financial Officer

Carmelo Papa – Sr. EVP, Industrial and Multisegment Sector

Philippe Lambinet – CSO and Sr. EVP, Home Entertainment and Displays

Analysts

Stephane Houri – Natixis

Andrew Gardiner – Barclays

Niels de Zwart – ING

Gunnar Plagge – Citi

Jerome Ramel – Exane BNP Paribas

Tristan Gerra – Robert Baird

Francois Meunier – Morgan Stanley

Bernd Laux – Cheuvreux

Didier Scemama – RBS

Guenther Hollfelder – Unicredit

Sandeep Deshpande – JPMorgan

Janardan Menon – Liberum Capital

Gareth Jenkins – UBS

Johannes Schaller – Deutsche Bank

Presentation

Operator

Good morning or good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining STMicroelectronics Q3 and First Nine Months 2011 Earnings Results Conference Call.

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 to all for joining our third quarter 2011 conference call. Hosting the call today is Carlo Bozotti, 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 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 on today’s conference call to discuss our financial results, product advances and outlook. I’d also like to share with you our initial views on the early part of 2012.

Turning first to an overview of the third quarter as you’ve seen from our press release, our third quarter results were substantially in line with the output – with the outlook we had provided.

At that time when we set the third quarter range in July, our outlook may have surprised people, but in fact we were subsequently proven correct by the number of semiconductor companies that pre-released in the September timeframe.

Looking at the ST’s result net revenues decreased 4.9% sequentially other end of our range, reflecting the overall weaker economic situation in different regions and end markets, we had began to note in June as it was further progressive weakening over course of the third quarter.

Gross margin also came within our guidance range, in fact is largely above the midpoint with gross margin of 35.8%, one of the key component of the sequential decrease relates to the anticipated underloading of our wafer fabs and resulting unused capacity charges. Here we are responding to lower demand from a major customer, as well as working to bring down our inventory levels in general due to the softening we were seeing in several product families including digital consumer and microcontrollers.

Beyond revenue and gross margin, our wafers product families revenues and operating results also attract to our expectation.

Inline with our approach to the third quarter let me show our outlook for the third quarter and directionally for the 2012 first quarter. We think it is appropriate to report the broader and more significant weakness in the semiconductor market environment that we are experiencing. Here is a good deal of macro uncertainty and so we think it is reasonable to take this level of caution going into the fourth quarter and the beginning of 2012.

Today our best judgment is that fourth quarter net revenues will decrease sequentially approximately 8%. We’ve seen an overall revenue range of about $2.15 billion to $2.3 billion. We expect weakness in most of our product segments with the exception of wireless, where a slight sequential increase in net revenues by new product penetration is anticipated.

Our fourth quarter gross margin outlook is about 33.5% with plus or minus range of 125 percentage points, compared to our normal 1 percentage point assumption to take into account increased market uncertainties.

Our gross margin outlook mainly reflects lower volumes and further substantial (inaudible) charges higher than those experienced in the third quarter. Our goal had been to bring inventory into full alignment or close there to in the third quarter. While we did make progress even the further weakening of the semiconductor market we are continuing to take aggressive actions.

For example, we have initiated programs to significantly reduce activities at our fabs using the highest flexibility provided by the local levels in each jurisdiction we operate during the fourth quarter to align with where we believe the market will be.

With respect to capital expenditure, we anticipate the second half expenditure in total will be substantially lower than the first half, as we outline last quarter and that remains our expectation. The third quarter level of $384 million reflects the equipment that was delivered in the first half and paid for in the third quarter. So there is some lag to the reduce spending. Looking to the fourth quarter the figure would be very significantly reduced.

Without giving a specific free cash flow outlook, based upon our investment plans and fourth quarter revenue outlook. We anticipate a very substantial improvement in our free cash flow. During the fourth quarter, following the last two quarters of negative of free cash flows.

Based on our experience with the industry cycles, we practically took action steps last quarter to help and navigate through this period and maintain our solid financial position rather than wait for more concrete signs of more then in multi quarters semiconductor inventory correction.

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