STMicroelectronics's CEO Presents At The Morgan Stanley Technology, Media & Telecoms Conference (Transcript)

STMicroelectronics NV (STM)

Morgan Stanley Technology, Media & Telecoms Conference

November 17, 2011 04:20 AM EST

Executives

Carlo Bozotti – President & CEO

Analysts

Unknown analysts

Presentation

Moderator

Thank you. Carlo, CEO of STMicroelectronics, thanks for…

Carlo Bozotti

Good morning to everybody.

Moderator

Coming today. Maybe – we should start maybe with a quick summary of what happened in Q3 for ST Micro and then we start discussing.

Carlo Bozotti

Yes, well, Q3 and Q4 I think we are – clearly the correction started in the second part of the second quarter, accelerated during the course of the third quarter, and is indeed important inventory corrections, but also with some weakness in the underlying demand. And I think moving into Q4, it is now a few weeks that we have seen bookings increasing a little bit. It seems it is bottoming. Our bookings in October was better than in Q3 and the bookings in November is better than in October. But I would say is still too low and is just the start of a new slope and we need to see whether this is sustainable. During Q3 it is clear that the correction was very much across he board, both geographically and also from the market segment’s point of view. So geographically we have experienced weaknesses here in Asia, certain countries in Asia, not only in Europe or in the US, but – and from a segment point of view, well fewer things were not touched, maybe tablets, communication infrastructure, servers.

But most of the things, including industrial, including consumer distribution market, they were all in question. Even automotive it was very strong in the first half of the year. We have countries where performance is pretty poor today, like in a part of Europe, not in Germany, but in a part of Europe and the growth in China in the automotive this year is 2%, 3% and of course this to be compared with last year was 30% growth. So well, let’s see. As I said, we see some better performance in booking and this is recent and we need to understand whether this is sustainable and we need more. We need a stronger positive upside at this stage.

Question-and-Answer Session

Moderator

So basically what you’re saying is that the orders have kind of stabilized and may increase a bit. But visibility remains relatively low and maybe the base line is lower than where it should be for your gross margins to be at a better level?

Carlo Bozotti

Yes, of course I think visibility is very short term. The absolute value of bookings somehow did improve compared to Q3. But of course it’s still at very low level and in terms of priorities for us today, the priority particularly in Q4, but I think if you understand in Q1 is inventory correction. So we have taken important measures to reduce loading in most of our fabs. So there will be a significant reduction of inventory during this quarter and as a consequence a significant improvement of the cash flow performance.

Moderator

Especially because you improve – you lower your CapEx as well in Q4?

Carlo Bozotti

Yes. In Q4 there is also very significant reduction of capital investments and intensity. But we’ll continue also. So I think overall in the year we will be in the range of 1.25 billion. But very much in the first half driven by MEMS. It’s an important investment and it’s also certain, (inaudible) power technologies and some investment also in the area of advanced logic. So there is a significant reduction in the second half and it will be significantly lower next year.

Moderator

So equity opportunity, but MEMs which has been really the big goal driver for ST in the past two years. How is the competitive landscape shaping up ahead of next year? We’ve heard about a new company in the field in the US, also in Asia. I think the key part for ST, especially you own and you manufacture you own MEMS at the moment, and that is probably the strategy long term as well. How do you see the MEMS market in your position doing?

Carlo Bozotti

Yes. I think for us is of course one of the top priority in the company. We have in the first nine months of this year increased by 130%. So overall in the year we’ve basically doubled compared to one year ago. So it’s becoming an important part – important piece of business and we want to make sure that we move on with very innovative technologies, first of all with the capacity that we need to serve our customers and with new products and new applications. And I think in terms of manufacturing capability it is pretty advanced because it is all in 8 inch. These are very, very small packages.

So I believe it’s a very competitive manufacturing machine. And in terms of products there are a lot of new things coming. So we want to continue with this new flow of innovation. We are working on integrated solutions. We have the solution that integrates up to 10 axis in one package. So we can really run now kind of fusion MEMS and we are addressing new applications. It’s not only of course the Smartphone and Tablet, but is many new things, including products for automotive, including products for healthcare application. So I think this is a very important priority for the company.

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