STMicroelectronics' CEO Discusses Q1 2012 Results - Earnings Call Transcript

STMicroelectronics NV (STM)

Q1 2012 Earnings Call

April 24, 2012 9:00 am ET

Executives

Tait Sorensen - Director, IR

Carlo Bozotti - President and CEO

Philippe Lambinet - CSO and EVP, Digital Sector

Mario Arlati - CFO

Carmelo Papa - EVP, Industrial and Multi-segment Sector

Jean-Marc Chery - EVP, Manufacturing, Technology and R&D

Lorenzo Grandi - Corporate VP, External Reporting

Claudia Levo - Corporate VP, Communications

Carlo Ferro - COO, ST-Ericsson

Analysts

Sandeep Deshpande - JPMorgan

Simon Schafer - Goldman Sachs

Stephane Houri - Natixis

Francois Meunier - Morgan Stanley

Janardan Menon - Liberum Capital

Amit Harchandani - Citigroup

Jerome Ramel - BNP Paribas

Gareth Jenkins - UBS

Jürgen Wagner - MainFirst

Kai Korschelt - Deutsche Bank

Martin O'Sullivan - Cenkos

Presentation

Operator

Welcome to the STMicroelectronics first quarter 2012 earnings results conference call. (Operator Instructions) 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 to everyone for joining our first 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, Philippe Lambinet, Chief Strategic Officer and Executive Vice President of the Digital Sector; 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 and R&D; Lorenzo Grandi, Corporate Vice President, External Reporting; and Claudia Levo, Corporate Vice President, Communications; and finally joining us is Carlo Ferro, Chief Operating Officer of ST-Ericsson.

The 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.

Carlo Bozotti

Thank you, Tait, and thank you all of you for joining us on today's conference call. Over the last two days there has been important announcement related to ST. first, ST-Ericsson guideline of its new strategic direction with the sharper end market and for the focus, and it blends to right-size its business.

Second, ST also announced a partnership with ST-Ericsson for the development of future application processes. And third, yesterday evening, both ST and ST-Ericsson announced first quarter 2012 financial results. I want to cover each of these and then open to your questions. In addition to STs top management that we are meeting today as they just said, we also have from ST-Ericsson Carlo Ferro, Chief Operating Officer.

To begin with ST-Ericsson, our joint venture unveiled a new strategy base on repositioning the whole business to play seat on the appropriate track towards excellent in execution, leadership and the sustainable profitability. Also, the joint venture needs to be right-sized in a meaningful to align its topline potential which is not what we had organically expected even as recent as a few months ago and Carlo Ferro of taking with a sense of great urgency the proper actions to resize the company.

Yesterday ST-Ericsson stock about $320 million in annualized cost reduction to come by the end of 2013 giving further color to the ongoing and proposed SG&A savings and site reductions to ensure more R&D working synergies.

We expected ST-Ericsson savings will fully benefits STs consolidated results starting in Q3 2012 through the completion of the saving plans by the end of 2013. These savings are based on three key initiatives. First, the R&D size rationalization; second, about 25% SG&A reduction and third, our partnership in application processes.

The savings is specifically related to the partnership will be achieved in two steps. One, the transitional cost sharing model for the current generation of application processor and two, synergies related to a common ecosystem which for us is ARM-based. In addition, royalties would be paid by ST-Ericsson to ST to integrate the next-generation application processor into their ModAp platform.

Overall, this initiative is an important first step in ST-Ericsson move towards leadership and improved financial returns. We will see measurable progress in reducing the quarterly operating losses at ST-Ericsson in the second half of this year, leading to a significant reduction in losses as we exit the year.

Now let me give you additional details on the partnership announced with ST-Ericsson for the application processor, which is start of our plans to advance our multimedia convergence strategy. It is very clear that deliver a similar experience across multiple screens is what service and content providers are looking for. So what might seem to be individual markets are actually very related markets as consumers expect their Smart TV, car, smartphones and tablets to offer them the same experience.

ST is being given unique and competitive advantage by unifying these application processor platforms. As we outlined yesterday in our press release, we are adding the wireless application processor now within ST-Ericsson through the extensive multimedia capabilities ST has already developed within its digital sector for set top boxes and TV.

Now, let's turn to the first quarter financial results. ST performed in line with our guidance again this quarter. Revenue at $2.02 billion was near the midpoint of our business outlook and so was our gross margin excluding the impact of the one-time arbitration award.

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