STMicroelectronics Reports Strong Q3 Revenue and Earnings Gains
19 October 1999
STMicroelectronics Reports Strong Third Quarter Revenue and Earnings Gains; Net Revenues Increase 22.6%; Net Income up 33.2%; Diluted Earnings Per Share Increases 31.4% to $ 0.46
GENEVA--Oct. 19, 1999--STMicroelectronics reported financial results for the third quarter and nine months ended October 2, 1999.Third Quarter Results
Net revenues for the 1999 third quarter reached $1,274.2 million, which represented a 7% sequential increase over second quarter 1999 levels and a 22.6% gain over last year's comparable period. Revenues from differentiated products were $793.6 million and accounted for 62.3% of third quarter 1999 revenues.
Commenting on these results, Mr. Pasquale Pistorio, President and Chief Executive Officer said, "We are very pleased by third quarter revenue performance as it reflects the strength of ST's strategic position during this period of market recovery. Additionally, our significant sequential revenue increase was accomplished despite the capacity constraints we identified in mid-July and the seasonal factors that generally affect third quarter sales."
Gross profit for the period was $507.4 million, an increase of 28.2% over the comparable year-ago quarter, and 7.8% above the prior quarter. Gross margin was 39.8% compared to 38.1% in last year's third quarter and 39.5% in the prior quarter.
Operating income reached $170.1 million, posting increases of 31.9% and 11.5%, respectively over year-ago and prior quarter levels. Third quarter operating margin was 13.3%.
Net income for the period reached $135.3 million, 33.2% above year-ago third quarter levels and a sequential increase of 10.4% over the $122.5 million reported for the second quarter of 1999. Diluted earnings per share for the 1999 third quarter was $0.46 compared with $0.35 for the corresponding 1998 period and $0.42 for the prior quarter. All per share figures have been adjusted to reflect the 2-for-1 stock split effected in June 1999.
Mr. Pistorio commented, "Revenue momentum and manufacturing efficiencies resulted in significant operating leverage in the third quarter. This enabled ST to achieve a 33.2% year-over-year increase in net income on a 22.6% revenue gain."
Research and development costs increased modestly on a sequential basis to $205.5 million, but decreased as a percentage of net revenues to 16.1%. Selling, general and administrative expenses were $136.8 million, or 10.7% of net revenues. Capital expenditures in the third quarter totaled $399.2 million, approximately equal to the level of spending in the first six months of 1999 ($412.2 million).
Summarizing third quarter performance, Mr. Pistorio stated, "Sequential and year-over-year gains were recorded in all major product groups and applications, reflecting primarily increases in unit volume. At the same time, the Company was able to maximize the utilization of its worldwide manufacturing machine."
Nine Months Results
Net revenues for the nine months ended October 2, 1999 increased 14.9% to $3,578.1 million, compared to $3,115.1 million in the 1998 nine-month period. Net income increased 25.4% to $363.0 million, or $1.24 per diluted share, up from $289.4 million or $1.02 per diluted share in the year-ago period. All per share figures have been adjusted to reflect the 2-for-1 stock split effected in June 1999.
Gross profit increased 18.1% to $1,406.0 million in the 1999 period, compared to $1,190.7 million for the comparable period of 1998. Gross margin improved to 39.3%, compared to 38.2% in the year-ago period.
Research and development expenditures increased 17.9% to $601.8 million, and represented 16.8% of net revenues in the 1999 nine-month period.
Selling, general & administrative expenses increased 5.5% to $386.2 million in the 1999 nine-month period. These expenses declined, however, to 10.8% of net revenues from 11.8% in the year-ago period.
The Company posted a 23.2% increase in operating income primarily reflecting higher revenue and an improving gross margin. Specifically, operating income was $454.0 million or 12.7% of net revenues in the 1999 period, up from $368.6 million, or 11.8% of net revenues in the year-ago period.
At October 2, 1999, shareholders' equity was $4,481.1 million; cash and cash equivalents and marketable securities totaled $2,025.3 million; long-term debt was $1,434.1 million (a large portion of which consists of convertible debt). ST's net financial position was $511.1 million. Capital expenditures were $811.4 million for the 1999 nine-month period, compared to $662.8 million in the first nine months of 1998.
Recent Development
The Company completed public offerings of common stock and zero-coupon convertible Liquid Yield Option(TM) Notes in September 1999. Net proceeds to the Company from the two offerings totaled approximately $925 million. Common shares outstanding at October 2, 1999 totaled 288.8 million.
Outlook
Looking ahead, Mr. Pistorio noted, "We continue to see strong order rates and extended lead times in virtually every product category and application served. While increasing capacity, over the short term, we are continuing to maintain the maximum utilization of our manufacturing infrastructure in an effort to respond to customer demand."
"The start-up of the new 8-inch modules in Rousset (France) and Agrate (Italy) will significantly improve our production capacity, with impact starting in Q1 2000 and accelerating in the following quarters of 2000. In the meantime we are complementing our internal capacity with some external foundry service. This will further strengthen STMicroelectronics' competitive position during this initial phase of the market recovery," Mr. Pistorio added.
Products, Technology and Design Wins
Although the third quarter is traditionally a quiet one in terms of new product introductions, the Company continued to introduce new devices that reinforced its strengths, both in commodity and differentiated products. It also secured numerous important design wins across the broad spectrum of applications it serves.
A notable introduction in the memory field was the first in a new range of serial EEPROMs housed in the SBGA Chip Scale Package. This device offers probably the smallest package dimensions on the market, with an area of just 3.3mm2 and a height of only 0.7mm, making it particularly attractive for all portable consumer goods.
Another important new memory product was a device that combines the functions of an 8Mbit Flash memory and a 1Mbit SRAM in a single Chip Scale Package. The small footprint of only 12x10mm occupies approximately 60% less space than separate Flash and SRAM devices, making it ideal for use in GPS and navigation systems, cellular phones and many other portable embedded applications.
In the field of differentiated products, one of the most significant new product introductions was the TDA7500, a digital baseband processor designed to replace traditional analog solutions in future AM/FM car stereos. The TDA7500 contains two 24-bit DSP cores with a combined processing power of 86MIPS and performs the FM, AM and stereo decoder functions plus all of the volume, balance, fader, loudness and tone controls using purely digital processing. ST has been a leading supplier of analog car radio devices for many years, and its early introduction of DSP-based devices will enable the Company to maintain its position in this market.
The explosive growth of Internet data traffic (doubling every 100 days) has increased demand for Internet-related products such as ADSL and USB Modem chips, as well as devices for SDH/SONET optical links. Reinforcing its position as the world's leading supplier of ADSL chipsets, ST announced the joint development with Virata of a complete Ethernet/USB reference design that enables ADSL modem manufacturers to reduce their time-to-market. The reference design uses ST's Tosca(TM) ADSL chip set. Tosca is based on proven ADSL technology and is already being used in equipment currently installed by several telecommunications companies in North America, Singapore and Europe.
In the field of wireless communications, ST is ramping up the volume of radio frequency designs in BiCMOS6 technology and has started to install a Silicon-Germanium technology design kit at a key customer, with the first designs using this technology scheduled for the second quarter of 2000. The Company has also established a partnership with Dot Wireless, a California company specializing in Code Division Multiple Access (CDMA) technology, the technique used in advanced digital cellular phones, to co-develop baseband IP, embedded protocol software and transceiver reference designs for third-generation (3G) cellular phones.
By combining the proven CDMA expertise of Dot Wireless with ST's advanced ST100 Digital Signal Processor core, 0.18 micron technology and extensive system IP, the partnership will accelerate the development of advanced system-on-chip solutions for the next generation of cellular phones.
The automotive segment continues to be a successful arena for ST, both in terms of current sales and future prospects based on major design-in successes. Among the automotive design wins, one of the most important was a contract with Ford Visteon to develop the digital core for the next generation Driver Information System. This system-on-chip solution, based on the ST9 and ST10 microprocessor cores with embedded Flash memory, will be deployed in 40% of Driver Information Systems fitted in Ford models commencing in 2003. In addition, production samples of an Electronic Power Steering (EPS) IC have been delivered to a Japanese customer and a monolithic charging system for high current generators for direct injection engines has been delivered to Valeo for production starting Q4.
In the audio segment, ST has established a strong position in the booming market for MP3 music players. The Company's MP3 decoder IC has been selected by major manufacturers of "compact flash"-based MP3 players, generally considered to be the winning solution for the next holiday season, and many of these customers have adopted ST's full system solution including ST7 or ST9 microprocessors. The USB ST9 microprocessor chosen by a major Taiwanese manufacturer of MP3 players has also been designed in by a French manufacturer of smartcard readers, while the MP3 decoder device, in a BGA packaged version, has also been adopted by a European manufacturer for a GSM cellular phone application.
Also in the audio field, Altec Lansing has selected ST's Euterpe(TM) digital voice processor for its "Intellimic" project as a part of its Clarix(TM) technology for PC audio and automotive applications. In addition, a BCD high voltage (170V) driver for hybrid high power audio amplifiers has been designed in at a major Japanese manufacturer for application in Home Theater and "minicompo" small stereo systems.
In the $6.9 billion market for disk drive chips, ST also announced that the new generation read/write channel chip called Giorgione(TM), which began sampling in April, entered volume production in September. Combining high performance, cost effectiveness and low power consumption, the Giorgione chip brings significant performance increases in data storage environments typically dominated by media noise. During the quarter, ST began sampling a new chip for driving piezoelectric actuators for dual-stage head positioning servos, a new technology that allows greater track density on the disk. This product has attracted the interest of major disk drive makers. In addition, ST delivered samples of a rotational accelerometer, the first Micro-Electro-Mechanical System (MEMS) product designed for this market, and started the design of a new custom hard disk controller that will include two of the Company's embedded cores, the ST10 and the ST100.
In early October, ST announced with Hitachi the SH-5 64-bit microprocessor architecture, which the two companies have been jointly developing for the past two years. The companies' long-term alliance also includes the joint development of a state-of-the-art 0.15 micron process with six layers of copper interconnect that will be used to manufacture SH-5 based products.
The SH-5 architecture, which was developed within shared engineering facilities in San Jose, California, ST's facility in Bristol, UK, and Hitachi's facility in Tokyo, Japan, will be the basis for ST's forthcoming ST50 series of processor cores. These will be software-compatible with the Company's current ST40 products and will offer an unparalleled combination of low price, low power consumption and high performance for applications such as home networking, residential gateway, set-top box and processing-intensive multi-media/video applications, as well as high-end portable applications.
Forward Looking Statements
Some of the above statements are forward-looking statements that involve a number of risks and uncertainties. In addition to factors discussed above, among the other factors that could cause actual results to differ materially are the following: general business and economic conditions such as possible future financial turbulence; the cyclicality of the semiconductor and electronic systems industries; capital requirements and the availability of funding; competition; excess or obsolete inventory and variations in inventory valuation; new product development and technological change, including acceptance of new products by particular market segments; manufacturing risks; changes in customer order patterns, including loss of key customers, order cancellations or reduced bookings; intellectual property developments; international events and currency fluctuations; problems in obtaining adequate raw materials on a timely basis; the loss of key personnel; and the impact on the Company's business due to internal systems or systems of suppliers and other third parties adversely affected by year 2000 problems. Unfavorable changes in the above or other factors listed under "Risk Factors" from time to time in the Company's SEC reports, including the Prospectus dated September 16, 1999 could materially affect the Company. -More- STMicroelectronics N.V. Page Nine
STMicroelectronics (formerly SGS-THOMSON Microelectronics) is a global independent semiconductor company, whose shares are traded on the New York Stock Exchange, on the ParisBourse and on the Milan Stock Exchange. The Company designs, develops, manufactures and markets a broad range of semiconductor integrated circuits (ICs) and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems. Further information on ST can be found at www.st.com.
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STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME
(In millions of U.S. dollars, except per share data ($) )
Three Months Ended Nine Months Ended
------------------ -----------------
Oct. 2, Oct. 3, Oct.2, Oct.3,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $1,266.5 $1,028.2 $3,552.5 $3,086.9
Other revenues 7.7 11.2 25.6 28.2
-------- -------- -------- --------
NET REVENUES 1,274.2 1,039.4 3,578.1 3,115.1
Cost of sales (766.8) (643.7) (2,172.1) (1,924.4)
-------- -------- -------- --------
GROSS PROFIT 507.4 395.7 1,406.0 1,190.7
Selling, general
& administrative (136.8) (120.1) (386.2) (366.2)
Research & development (205.5) (168.0) (601.8) (510.6)
Other income & expenses 5.0 21.4 36.0 54.7
-------- -------- -------- --------
Total operating expenses (337.3) (266.7) (952.0) (822.1)
-------- -------- -------- --------
OPERATING INCOME 170.1 129.0 454.0 368.6
Net interest income (expense) 8.2 5.2 17.9 4.1
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 178.3 134.2 471.9 372.7
Income tax expense (41.6) (32.5) (106.9) (82.7)
-------- -------- -------- --------
INCOME BEFORE MINORITY
INTERESTS 136.7 101.7 365.0 290.0
Minority interests (1.4) (0.1) (2.0) (0.6)
-------- -------- -------- --------
NET INCOME 135.3 101.6 363.0 289.4
======== ======== ======== ========
EARNINGS PER SHARE
(BASIC)(1) 0.47 0.36 1.27 1.03
EARNINGS PER SHARE
(DILUTED)(1) 0.46 0.35 1.24 1.02
NUMBER OF WEIGHTED
AVERAGE SHARES USED IN
CALCULATING DILUTED
EARNINGS PER SHARE 298.7 294.6 297.2 286.0
(1) All per share figures have been adjusted to reflect the 2-for-1
stock split effected in June 1999.
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STMicroelectronics N.V.
CONSOLIDATED BALANCE SHEETS
(In Millions of U.S. dollars)
October 2, December 31,
1999 1998
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,025.3 $ 1,100.7
Trade accounts and notes receivable 851.7 779.5
Inventories 622.7 644.3
Other receivables and assets 558.0 509.1
----------- -----------
Total current assets 4,057.7 3,033.6
Intangible assets, net 122.6 33.6
Property, plant and equipment, net 3,561.3 3,333.0
Investments and other non-current assets 50.1 33.8
----------- -----------
3,734.0 3,400.4
Total assets 7,791.7 6,434.0
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts 20.0 146.0
Current portion of long-term debt 60.1 45.2
Trade accounts and notes payable 859.8 564.5
Other payables and accrued liabilities 424.8 327.7
Accrued and deferred income tax 361.3 345.3
----------- -----------
Total current liabilities 1,726.0 1,428.7
Long term debt 1,434.1 755.8
Reserves for pension and
termination indemnities 112.4 111.8
Other non-current liabilities 14.0 32.4
----------- -----------
1,560.5 900.0
Total liabilities 3,286.5 2,328.7
Minority interests 24.1 22.0
Capital stock 1,109.3 1,096.8
Capital surplus 1,352.6 1,135.5
Accumulated result 2,367.5 2,027.4
Accumulated other comprehensive income (348.3) (176.4)
----------- -----------
Shareholders' equity 4,481.1 4,083.3
----------- -----------
Total liabilities and
shareholders' equity 7,791.7 6,434.0
----------- -----------
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STMicroelectronics N.V.
Selected Consolidated Financial Data
(In Millions of U.S. dollars)
Consolidated Balance Sheet Data Oct. 2, Dec. 31,
(End of Period) 1999 1998
----------- -----------
Cash, cash equivalents and
marketable securities 2,025.3 1,100.7
Working Capital 386.5 695.4
Total Assets 7,791.7 6,434.0
Short-term debt (including current
portion of long-term debt) 80.1 191.2
Long-term debt (excluding current portion) 1,434.1 755.8
Shareholders' equity 4,481.1 4,083.3
Consolidated Operating Data Oct. 2, Oct. 3,
(Nine Months Ended) 1999 1998
----------- -----------
Payment for purchases of tangible assets 811.4 662.8
Net cash from operating activities 1,076.2 642.6
Net operating cash flow 148.1 (44.0)
Depreciation and amortization 590.1 514.3