Evolving product portfolio delivers strong results

STMicroelectronics has reported financial results for the fourth quarter and full year ended 31st December 2006.

STMicroelectronics has reported financial results for the fourth quarter and full year ended 31st December 2006.

Net revenues for the fourth quarter were US $2483 million, representing an increase of 3.9% over the $2389 million reported in last year's fourth quarter.

Year-over-year growth was driven by double-digit increases in the industrial and consumer market segments.

Sequentially, net revenues decreased 1.2% from the $2513 million reported in the prior quarter, largely reflecting lower wireless sales.

President and CEO Carlo Bozotti commented: "Looking at the fourth quarter and near-term environment, the current market correction underway in some of the key applications we serve is more pronounced than forecasted".

"Our wireless results, in particular, came in well below historical seasonal revenue patterns and were also negatively impacted by product mix shift towards the low end, which put additional pressure on our margins and operating performance in the quarter".

Net revenues for the year ended 31st December 2006 were $9854 million, an increase of 11% over the $8882 million recorded in 2005.

Strong growth in revenues was driven by double-digit increases in wireless and industrial, with mid-single digit contributions from the automotive, consumer and computer segments.

Carlo Bozotti continued: "For the full year, ST achieved double-digit, year-over-year sales growth in a market that appears to be growing in the high single digits".

"This is a clear signal that the evolution of our product portfolio is delivering results - with higher revenues, improved profitability, better leverage of our R and D and capital investments, and expansion of our market share".

Gross profit was $901 million for the 2006 fourth quarter up from the $872 million in last year's fourth quarter and a slight decrease from $904 million in the prior quarter.

The gross margin was 36.3% in the fourth quarter, showing some improvement from the 36.0% reported in the prior quarter, despite the negative impact of fab closures and sequentially lower revenue.

In the more favourable currency environment for the year-ago quarter, the gross margin was 36.5%.

For the full year, gross profit increased 16% to $3523 million, from $3037 million in 2005.

The gross margin improved by 160 basis points in 2006 to 35.8% from 34.2% in 2005.

Combined selling, general and administrative and research and development expenses represented 28.6% of net revenues in the fourth quarter, compared with 27.2% in the third quarter of 2006, with the sequential increase largely coming from the anticipated additional $12 million in stock-based compensation expenses.

R and D expenses were $430 million in the fourth quarter versus the $421 million in the prior quarter.

SG and A expenses reached $281 million for the 2006 fourth quarter compared with $264 million in the third quarter.

For the full year, combined SG and A and R and D expenses improved to 27.7% of net revenues versus 29.9% in 2005.

Research and development expenses were $1667 million and $1630 million in 2006 and 2005, respectively.

Selling, general and administrative expenses were $1067 million and $1026 in 2006 and 2005, respectively.

For the 2006 fourth quarter, the company reported operating income of $173 million and an operating margin of 7.0% (7.4% excluding restructuring and impairment charges).

In the prior quarter, the company reported operating income of $194 million and an operating margin of 7.7% (8.5% excluding restructuring and impairment charges).

In the year-ago quarter, the company reported operating income of $197 million, equal to an operating margin of 8.2% (8.9% excluding restructuring and impairment charges).

For the full year 2006, operating income increased to $677 million, compared with $244 million in 2005.

The operating margin for 2006 expanded over 400 basis points to 6.9% from 2.7% in the prior year.

For the 2006 fourth quarter net income totalled $276 million, or $0.30 per diluted share, compared with the prior quarter net income of $207 million or $0.22 per diluted share and the year-ago quarter where net income totalled $183 million or $0.20 per share.

2006 fourth quarter income tax benefited from the favourable resolution of a tax claim by approximately $90 million, or $0.10 per diluted share, as well as from the beneficial impact of an adjustment to the full year effective tax rate.

Net results included $10 million of impairment, restructuring charges, and other related closure costs during the 2006 fourth quarter, representing an after-tax impact of approximately $0.01 per share.

In the prior quarter, restructuring-related expenses were $20 million ($0.02 per share impact) and $16 million ($0.01 per share impact) in the year-ago quarter.

Other income and expenses, net, in the 2006 fourth quarter amounted to a $7 million loss, due to a combination of lower than anticipated grant income and higher legal costs.

For 2006 net income increased to $782 million, or $0.83 per diluted share, compared with net income of $266 million, or $0.29 per share in 2005.

Net income included impairment, restructuring charges and other related closure costs of $77 million and $128 million in 2006 and 2005, respectively, representing after-tax impacts of approximately $0.07 for 2006 and $0.13 per share for 2005.

In the fourth quarter of 2006, the effective average exchange rate for the company was approximately $1.28 to the Euro, compared with $1.255 to the Euro in the third quarter of 2006 and $1.20 to the Euro in the year-ago quarter.

For the full year 2006, the effective average exchange rate for the company was approximately $1.24 to the Euro, compared with $1.28 to the Euro in 2005.

The company's effective exchange rate reflects actual exchange rate levels combined with the impact of hedging programmes.

Carlo Bozotti, President and CEO, stated: "During 2006 ST made significant headway in delivering on our most important business and strategic imperatives".

"Our product portfolio continues to strengthen".

"I believe we are developing the strongest pipeline of new products in our history, with important implications for both our market share and margins".

"We are driving a significant reduction in our capital intensity".

"This is visible in our 2006 results, with our capex to sales ratio down to 15.6% from over 20% just a few years ago".

"Further, we have initiated a new target of 12% through a combination of a less capital-intensive product portfolio, increased usage of foundries for nonproprietary technologies and optimisation of our manufacturing facilities".

"As of 1st January 2007, we have organised our NOR and NAND Flash business into a stand-alone segment and are moving ahead on creating a separate legal entity in connection with our strategic repositioning of this business".

"And, we generated well over $650 million in net operating cash flow during the year".

"In summary, we achieved our primary objectives for 2006: gaining market share while simultaneously improving financial performance in terms of return on assets and cash flow"".

"Bozotti added: "Notwithstanding the current tougher environment as the market works through inventory in selected applications in the first half of 2007, ST is poised to make further important progress in our ongoing key initiatives for sales expansion, new product introduction and asset leverage, which will strengthen the company's market opportunities and financial position".

"For the first quarter, we expect sales to sequentially decline in the range between -3% and -11%".

"This sales range, coupled with our intention to control the absolute level of inventory, will result in adverse fab loading conditions in the quarter, leading to a first quarter gross margin of about 35% plus or minus one percentage point".

"In 2007, we are currently budgeting about $1.2 billion for ST's capital spending which is expected to further reduce the company's capex to sales ratio from the 2006 level".

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