STMicroelectronics reported financial results for the third quarter and nine months ended September 29, 2012. On a sequential basis, third quarter net revenues increased 0.9% to $2.17 billion and gross margin improved to 34.8%. Net loss attributable to parent company was $478 million, mainly due to a non-cash charge of $690 million for the impairment of Wireless goodwill.
President and CEO Carlo Bozotti commented, “Our third quarter revenue and gross margin results delivered sequential improvements. Overall, the strength of our product portfolio enabled us to manage the current weak demand environment. As anticipated, we benefited from the revenue growth of our MEMS, microcontrollers, Power MOSFET and IGBT businesses, which continue to expand into new applications, and we continue to strengthen relationships with key market leaders, such as Audi and Samsung. ST’s wholly-owned businesses operating margin improved, on a sequential basis, to 5.8%, mainly driven by improvements in our Power Discrete (PDP) segment. We have already been taking a number of important steps to advance our key priorities.
“In December, we will present our new strategic plan which will accelerate the roadmap towards our previously announced financial model and ensure the future success of both our Analog and Digital businesses and, therefore, of our company as a whole. Through this process we are progressing in moving our digital businesses towards self sustainability and we are announcing today a new $150 million annual savings plan at the ST level: a part of the savings coming from the identified initiatives to leverage on the synergies of our Unified Processing Platform approach announced in April, and the remainder of the savings coming from other new initiatives, such as efficiencies in our process technology development model and expenses related to design outsourcing. Our Wireless segment delivered strong progress during the third quarter; however, the segment’s operating loss and negative cash flows still remain significant. As part of our annual impairment test and based upon our assessment of the Wireless segment plan, updated in Q3 2012, and the evolving dynamics of the smartphone industry, we posted a non-cash charge of $690 million. This charge reflects our current best estimate of the fair market value of our Wireless business,” Bozotti concluded.
Third Quarter Review
ST’s third quarter net revenues increased 0.9% on a sequential basis, with ST’s wholly-owned businesses stable and the Wireless product segment increasing by about 4%, including revenue from IP licensing of $35 million. The EMEA region grew sequentially 5%, while Greater China & South Asia, the Americas, and Japan & Korea were relatively flat.
Third quarter gross margin increased 50 basis points sequentially to 34.8% mainly due to improved manufacturing efficiencies, a favorable product mix and currency effects. Unsaturation charges in the third quarter were $19 million compared to $16 million in the second quarter.
Combined SG&A and R&D expenses decreased 6% to $852 million compared to $909 million in the prior quarter due to positive seasonal and currency effects and ST-Ericsson’s ongoing cost-realignment initiatives. Combined operating expenses as a percentage of sales, improved to 39.3% in the 2012 third quarter compared to 42.3% in the prior quarter.
Restructuring and impairment charges significantly increased to $713 million compared to $56 million in the prior quarter, mainly due to the non-cash impairment charge of Wireless goodwill.
Reflecting losses at ST-Ericsson, operating margin before impairment, restructuring and one-time items attributable to ST improved to 0.3% in the 2012 third quarter compared to negative 1.3% in the prior quarter.
In the third quarter of 2012, net loss attributable to non-controlling interests was $351 million, which mainly included the 50% owned by Ericsson in the ST-Ericsson joint venture, as consolidated by ST. In the second quarter of 2012, the corresponding amount was $160 million.
Third quarter net loss attributable to parent company was $478 million or $(0.54) per share, compared to a net loss of $(0.08) per share and diluted earnings of $0.08 per share in the prior and year-ago quarters, respectively. On an adjusted basis, net of related taxes, ST reported a non-U.S. GAAP net loss per share of $(0.03), excluding impairment, restructuring charges and one-time items in the third quarter, compared to a net loss of $(0.05) per share and diluted earnings of $0.09 per share in the prior and year-ago quarters, respectively.
Net Revenues by Market Segment / Channel
On a sequential basis, Computer, Consumer and Industrial & Other grew 3%, 1% and 1%, respectively, while Automotive and Telecom decreased 3% and 8%, respectively. Distribution increased 6%.
Revenues and Operating Results by ST Product Segment
Commencing January 1, 2012, the Company began reporting the former ACCI Product Segment(Automotive/Consumer/Computer/Communication Infrastructure) into the other segments. The new product segments are Automotive Segment (“APG”) and Digital Sector (“Digital”) comprised of the Digital Convergence Group (“DCG”) and Imaging, BiCMOS ASIC and Silicon Photonics Group (“IBP”).
Automotive (APG) third quarter net revenues decreased 3.1% sequentially, mainly due to weak market trends. APG third quarter operating margin was 8.6%, compared to 9.4% in the prior quarter.
Analog, MEMS and Microcontrollers (AMM) third quarter net revenues increased 3.9% sequentially driven by analog and microcontroller applications. AMM operating margin was 12.6% in the 2012 third quarter, stable compared to the prior quarter.
Digital third quarter net revenues decreased 7.8% sequentially principally due to weak demand from specific Imaging customers leading to a sequential revenue decrease of the Imaging, Bi-CMOS ASIC and Silicon Photonics (IBP) division to $85 million from $124 million in the previous quarter. Digital operating loss was reduced to negative $30 million in the 2012 third quarter, compared to a loss of $36 million in the prior quarter.
Power Discrete (PDP) third quarter net revenues increased 5.2% sequentially due to higher demand for Power MOSFET and IGBT. PDP operating margin increased to 6.4% in the 2012 third quarter compared to 1.6% in the prior quarter.
Wireless net revenues in the third quarter increased 4.3% compared to the prior quarter reflecting ST-Ericsson’s continued ramp of NovaThor platforms as well as revenues from IP licensing. Wireless operating loss was $184 million in the third quarter, or $98 million after considering non-controlling interest, compared to a loss of $240 million, or $113 million after considering non-controlling interest, in the prior quarter.