STM upgraded recently by JP MORGAN
Lynn, STM thread may be dead because STM is European Company but they are flying. Look at increase in earnings in Asia-Pacific region. And they have poured more money into research and development.
STMicroelectronics Reports Fourth Quarter
Earnings Per Diluted Share of $0.84 on Net Revenues
of $1,132.7 Million
- Earnings per diluted share up 20% over 1998 third quarter on 9% revenue growth - Full year 1998 revenues increase 5.7% over 1997
GENEVA--(BUSINESS WIRE)--January 26, 1999-- STMicroelectronics (NYSE: STM - news) today reported financial results for the fourth quarter and year ended December 31, 1998.
FOURTH QUARTER RESULTS
Net revenues for the fourth quarter were $1,132.7 million, representing an increase of 9% over third quarter net revenues of
$1,039.4 million and an increase of 2.6% in comparison to net revenues of $1,104.4 million in the 1997 fourth quarter.
In the 1998 fourth quarter, sales of differentiated products increased in both dollar amount and as a percent of net revenues in
comparison to the year-ago period. Sales of differentiated products rose 16.8% to $718.7 million in the 1998 fourth quarter,
up from $615.6 million in the 1997 period. Differentiated products represented 63.5% of net revenues in the fourth quarter
compared to 55.7% of net revenues in the year-ago quarter.
Gross profit for the 1998 fourth quarter was $434.1 million, comparable to the $434.9 million reported in the year-ago period.
In the year-ago quarter, revenues and gross profit included $13.1 million of license fees, compared to no license fees in the
1998 fourth quarter. In comparison to the third quarter, gross profit increased 9.7%. The gross margin was 38.3% in the
recently completed quarter, compared to 38.1% in the 1998 third quarter and 38.7% (net of licensing revenues) in the 1997
fourth quarter.
Net income for the fourth quarter was $121.8 million, or $0.84 per diluted share, compared to $126.3 million, or $0.90 per
diluted share, in the 1997 fourth quarter. The benefits of the fourth quarter increase in net revenues and lower SG&A
expenditures were offset by a record level of investment in research and development for new products and technologies. In
addition, weighted average shares outstanding increased 5.4% in the 1998 fourth quarter compared to the 1997 fourth quarter.
On a sequential quarterly basis, STMicroelectronics posted a sharp increase in net income. Specifically, fourth quarter net
income increased 20%, up from $101.6 million, or $0.70 per diluted share, in the 1998 third quarter.
Mr. Pasquale Pistorio, President and Chief Executive Officer of STMicroelectronics, commented, ''ST showed progressive
improvement in financial performance during the fourth quarter. The strong quarter-over-quarter increase in net income reflects
higher revenues, a stable gross margin and a higher operating margin.''
The Company experienced strong sequential sales gains over third quarter levels across all product groups. The Dedicated
Products Group led the way with an increase in sales of nearly 12%, reflecting the strength in sales of ICs for hard disk drives,
digital cellular phones and automotive applications. The Memory Products Group also experienced double-digit growth, with
net sales increasing 11%, attributable to a strong rebound in flash memories. The Programmable Products Group had a solid
quarter with an increase of 5.8% in sales. The Discrete and Standard Products Group also experienced improvement with sales
increasing just under 2%.
In comparison to the year-ago quarter, Programmable Products' sales increased 16.7%, Dedicated Products' sales increased
7.4%, and Memory Products increased 3.6%. The Discrete and Standard Products Group's sales decreased by 13.4%.
The Company's revenue gains were achieved throughout geographic regions with Asia/Pacific recording increases of 12.7%
and 13.2%, over the prior and year-ago quarters, respectively. For the 1998 fourth quarter, Europe accounted for 39.7% of
revenues; America was 21.7%;
Asia/Pacific was 31.2%; Japan was 4.7% and Region 5, which represents emerging world markets, was 2.7%.
All key applications contributed significantly to fourth quarter sequential revenue gains, with automotive and computer
peripherals registering gains of 17.9% and 10.5%, respectively.
''During the quarter, we announced our intention to proceed with two acquisitions that will extend our expertise in key products
and technology in both our Dedicated Products and Programmable Products Group. We believe the acquisition of the
Peripherals Technology Solutions group from Adaptec, which was completed in mid-January, further strengthens our position in
the hard disk drive market. We are also proceeding with a recommended cash offer for Vision Group, a leading designer and
supplier of CMOS image sensors.
''With this added know-how, ST is positioned to extend its System- On-Chip leadership in the priority applications we have
selected, including Computer Peripherals, Digital Consumer, Telecommunications and Networking, Automotive and Smart
Cards, '' Mr. Pistorio added.
Selling, general and administrative expenses were $121.9 million, or 10.8% of net revenues, for the fourth quarter, compared to
$126.7 million, or 11.5% of net revenues in the prior year period and $120.1 million, or 11.6% of net revenues in the third
quarter.
Research and development costs in the 1998 fourth quarter were $179.2 million, representing increases of 8% and 7%,
respectively, over the fourth quarter of 1997 and the third quarter of 1998.
FULL YEAR RESULTS
Mr. Pistorio commented, ''ST distinguished itself during 1998 by the solid performance that we achieved during this
unprecedented downturn in the semiconductor industry, and we increased our market share during the year as a result of strong
performance in all our key strategic products.
''ST experienced revenue growth of approximately 6%, while the industry, as a whole is expected to report a decline in
revenue of approximately 9%. And, notwithstanding economic concerns surrounding Asia/Pacific, we posted our strongest
sales growth in this region, illustrating our ability to serve multinational customers on a worldwide basis. We believe our financial
results reflect the strength and soundness of our business strategy, including the high level of differentiated products within our
product portfolio, our focus on high growth markets and our geographic balance.
''As a result of this performance ST, according to leading market analysts Dataquest Inc., is now the ninth largest
semiconductor company in the world moving up from tenth position in 1997. Moreover, ST's revenue growth performance in
1998 ranks the Company second among the top ten semiconductor companies worldwide.''
Net revenues for 1998 increased 5.7% to $4,247.8 million, compared to $4,019.2 million in 1997. In 1998 net income
increased slightly to $411.1 million, compared to $406.6 million in 1997. Earnings per diluted share totaled $2.89 on a 2.9%
increase in weighted average shares outstanding, compared to earnings per diluted share of $2.91 in 1997.
In comparison to the previous year, Programable Products' sales increased 22% and Dedicated Products' sales increased
10%, while Memory Products decreased 6.9%, and the Discrete and Standard Products Group's sales were down 2.1%.
Overall, Differentiated products represented 62.4% of net revenues in 1998, up from 56.6% in 1997.
Gross profit increased 4.0% to $1,624.8 million for the year ended December 31, 1998, compared to $1,561.8 million in
1997. During 1998 the gross profit margin of 38.3% was approximately equal to the 1997 gross margin of 38.4% (net of
licensing revenues).
Selling, general and administrative expenses increased 7.4% in 1998 to $488.1 million, compared to $454.3 million in 1997.
SG&A expenses were 11.5% of net revenues in 1998, increasing slightly from 11.3% of net revenues in 1997.
Research and development costs increased 12.9% in 1998 to $689.8 million, or 16.3% of net revenues, compared to $610.9
million, or 15.2% of net revenues in 1997. ST filed a record number of 671 new patent applications in 1998, compared to 561
in 1997. The new inventions protected with these filings covered a wide range of technologies, products and applications,
in-line with the broad range supplier mission of the Company.
In 1998 operating profit was $523.4 million, or 12.3% of net revenues, compared to $519.8 million, or 12.9% of net revenues
in 1997.
Capital expenditures totaled $284.5 million in the 1998 fourth quarter and $947.3 million for the year, representing a decrease
from both the fourth quarter and full year ended December 31, 1997. Capital expenditures were $367.9 million in the 1997
fourth quarter and $1,035.4 million for 1997.
At December 31, 1998, cash, cash equivalents and marketable securities totaled $1,100.7 million and shareholders' equity was
$4,083.3 million. Total debt was $947.0 million, including $755.8 million of long-term debt.
OUTLOOK
''Looking ahead,'' Mr. Pistorio noted, ''We believe that ST is entering 1999 in a strong competitive position with a product
portfolio that is both balanced and focused. The market for standard products remains very competitive and visibility is still
quite limited. Our Differentiated Products, however, have been enhanced by continued synergistic cooperation with strategic
allies and by the Company's heavy R&D spending.
Additionally, we have already made the investments in the buildings and facilities that will enable ST to have the capacity to
respond to a market recovery. Within this context, we expect that ST will be able to continue in 1999 to outperform the
markets it serves'', Mr. Pistorio concluded.
TECHNOLOGY, PRODUCTS AND DESIGN WINS
During the quarter, ST launched a number of highly innovative products that are the first of their kind on the market and
continued to form cooperative relationships with other industry leaders for the development of new devices.
In November, ST won two of the prestigious European IT Prizes awarded by the European Commission. ST was the only
semiconductor manufacturer among the prize winners and was the only company to win two prizes. The winning ST
developments were the STi5500 OMEGA chip for use in set-top boxes and the ST19 family of chips for embedding in
smartcards. These applications are both in high growth markets which depend critically on the use of leading-edge silicon chip
technology.
Digital Consumer
In the Digital Consumer field, the fourth quarter saw ST consolidate its leading position in many key application areas, with
major new design wins and the ramping up to volume production of many earlier design-in successes. For example, in the
Set-Top Box (STB) market, ST confirmed its early leadership in Digital Cable STB by being awarded the next generations of
ICs (Front-end and Back-end) by the leading suppliers of the US cable industry, including the back end of Scientific Atlanta's
second generation STB. Capitalizing on previous design wins in all the major satellite services, ST also shipped large quantities
of STB chips based on its highly successful ST20 core. To date, more than 5 million units have been shipped to customers
around the world, including more than one million of the STi5500 (''OMEGA'') fully integrated STB back-end chips. In
Europe, over 2 million devices were shipped for Canal+ and BSkyB STB systems. Furthermore, Thomson Multimedia began
to successfully ship its Divx(TM) DVD player that is also based on the ST OMEGA Back-End chip.
The ST20 core also achieved a significant design win for a still digital camera.
In October, ST and Live Picture, Inc., a leader in Internet imaging, announced their joint design of the first digital camera
microchip to instantly create 360-degree panoramic photos without additional external support. Market research estimates that
worldwide sales of digital cameras will reach 10 million units by the year 2000.
Computer Peripherals
In the competitive hard disk drive business ST reinforced its traditional strengths with new technologies and extended the
customer base from the well-established partnerships to other companies both in the USA and in Asia. Important new products
included the company's first PRML (Partial-Response Maximum- Likelihood) read/write channel, a BiCMOS circuit that at
425Mbits/s is probably the fastest on the market. Called ''Bellini'', this read/write channel has already been adopted by a major
disk drive maker, generating orders for $30 million for delivery in 1999.
Communications
In the field of Telecommunications ICs, particularly in the dynamic Wireless Terminal segment, the fourth quarter results show
considerable growth compared to the previous year, with ST reinforcing its leadership position in the Energy management field,
expanding into the CDMA (Code Division Multiple Access) field, and gaining significant new designs worth a total of $150
million for radio frequency chips in the next generation. Moreover, in the field of Digital Baseband ICs, ST has begun to work
with selected customers on the next generation of cellular phones.
In November, the Company signed an agreement with XM Satellite Radio for the development of integrated circuits that will be
used in mobile and home radio receivers for the first announced US direct digital satellite radio service. These receivers will be
manufactured by Alpine Electronics, Pioneer Electronic Corporation [NYSE:PIO - news] and the Sharp Corporation and are
expected to be available in the US before the end of 2000. ST was chosen for this project because of its proven track record
in developing a digital satellite receiver chipset for WorldSpace (now entering volume production) and its expertise in the
submicron CMOS technology, radio-frequency technology and decoding of highly compressed data.
ST also built on its long established strength in wireline communications technology, introducing the Tosca (TM) two chip set
for Asymmetric Digital Subscriber Line (ADSL). In 1998, the company delivered more than 300,000 full-rate ADSL chip sets
to the leading equipment manufacturer.
Smartcards
Continuing its tradition of ''firsts'' in the smartcard market, ST announced in November the world's first ISO14443 type B
Contactless Memory. Designed for use in electronic tags, RF ID and similar applications where the memory is powered by the
received carrier electromagnetic wave, the M35101 is a 2048-bit EEPROM memory that is the first in the world to meet the
ISO14443- 2 type B standard for radio frequency power and signal interface.
Also in November, ST introduced the latest addition to the ST19 family of smartcard chips, the ST19SF64. This device is
particularly suited to high-end telecom, Java cards and similar multi-application cards. The ST19SF64 has already been
selected by Schlumberger for its Cyberflex series and will enter volume production in the first quarter of 1999.
Automotive
In the automotive field, ST has now delivered to Pioneer Electronics over one million MOSFET45 audio power amplifier chips.
These devices deliver an unprecedented 45W output power with only 0.006% distortion, a frequency response greater than
20kHz and 20dB less noise than previous devices.
In the emerging world of car multimedia, ST and Delphi announced an agreement to develop ICs for Delphi's Mobile
Multimedia Link (MML) multimedia bus architecture. In the multimedia-equipped cars of the next decade, MML will
interconnect CD/DVD players, video screens, radio/TV receivers and other peripherals. ST is developing a single-chip node
for this network.
For safety and convenience reasons, the cars of the future will make extensive use of voice-based interfaces. Another highlight
of the fourth quarter was therefore the delivery by ST of the first working prototypes of a single-chip system, called Euterpe,
that combines voice recognition, voice synthesis and text-to- speech technologies.
(TM) All brand names are property of their respective owners
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 the current global 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 June 5, 1998 could materially affect the Company.
STMicroelectronics (formerly SGS-THOMSON Microelectronics) is a global independent semiconductor company, whose
shares are traded on the New York Stock Exchange, on the Bourse de Paris 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.
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF INCOME
(In millions of US dollars, except per share data ($)
Three Months Ended Year Ended
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1998 1997 1998 1997
Net sales $ 1,123.7 $ 1,084.4 $4,210.6 $3,969.8
Other revenues 9.0 20.0 37.2 49.4
NET REVENUES 1,132.7 1,104.4 4,247.8 4,019.2
Cost of sales (698.6) (669.5)(2,623.0) (2,457.4)
GROSS PROFIT 434.1 434.9 1,624.8 1,561.8
Selling, general &
administrative (121.9) (126.7) (488.1) (454.3)
Research & development (179.2) (165.7) (689.8) (610.9)
Other income & expenses 21.8 24.3 76.5 23.2
Total Operating Expenses (279.3) (268.1)(1,101.4) (1,042.0)
OPERATING INCOME 154.8 166.8 523.4 519.8
Net interest income
(expense) 4.6 (0.8) 8.7 (2.6)
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 159.4 166.0 532.1 517.2
Income tax expense (37.6) (39.7) (120.4) (113.0)
INCOME BEFORE MINORITY
INTERESTS 121.8 126.3 411.7 404.2
Minority interests 0.0 0.0 (0.6) 2.4
NET INCOME $ 121.8 $ 126.3 $ 411.1 $ 406.6
EARNINGS PER SHARE
(BASIC) $ 0.86 $ 0.91 $ 2.92 $ 2.92
*EARNINGS PER SHARE
(DILUTED) $ 0.84 $ 0.90 $ 2.89 $ 2.91
NUMBER OF WEIGHTED
AVERAGE SHARES USED
IN CALCULATING
DILUTED EARNINGS
PER SHARE $ 147.4 $ 139.8 $ 144.0 $ 139.9
* Diluted earnings per share and the number of weighted average
shares outstanding used in this calculation reflect the impact of the
$431.7 million aggregated initial principal amount of zero coupon
convertible Liquid Yield Option Notes (LYONs TM) issued on June 5,
1998.
STMicroelectronics N.V.
CONSOLIDATED BALANCE SHEETS
(In millions of US dollars)
December 31, December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 1,100.7 $ 702.2
Trade accounts and notes
receivable 779.5 644.0
Inventories 644.3 593.5
Other receivables and assets 509.1 413.9
Total current assets 3,033.6 2,353.6
Intangible assets, net 33.6 26.4
Property, plant and equipment,
net 3,333.0 3,046.8
Investments and other
non-current assets 33.8 18.9
3,400.4 3,092.1
Total assets $ 6,434.0 $ 5,445.7
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts $ 146.0 $ 366.0
Current portion of
long-term debt 45.2 58.6
Trade accounts and
notes payables 564.5 592.3
Other payables and
accrued liabilities 327.7 320.4
Accrued and deferred
income tax 345.3 295.2
Total current liabilities 1,428.7 1,632.5
Long-term debt 755.8 356.4
Reserves for pension and
termination indemnities 111.8 95.0
Other non-current liabilities 32.4 38.6
900.0 490.0
Total liabilities 2,328.7 2,122.5
Minority interests 22.0 15.8
Capital stock 1,096.8 1,074.0
Capital surplus 1,135.5 930.9
Accumulated result 2,027.4 1,616.3
Translation adjustment (176.4) (313.8)
Shareholders' equity 4,083.3 3,307.4
Total liabilities and
shareholders'equity $ 6,434.0 $ 5,445.7
STMicroelectronics NV
Selected Consolidated Financial Data
(In millions of US dollars)
Consolidated Balance Sheet Data December 31, December 31,
(End of Period) 1998 1997
Cash, cash equivalents and
marketable securities $ 1,100.7 $ 702.2
Working capital 695.4 443.5
Total assets 6,434.0 5,445.7
Short-term debt (including current
portion of long-term debt) 191.2 424.6
Long-term debt
(excluding current portion) 755.8 356.4
Shareholders' equity $ 4,083.3 $ 3,307.4
Consolidated Operating Data December 31, December 31,
(Year Ended) 1998 1997
Payment for purchases of
tangible assets $ 947.3 $ 1,035.4
Net cash from operating activities 1,012.5 983.8
Net operating cash flow 46.2 (67.7)
Depreciation and amortization 704.0 608.1
Contact:
Francois Guibert
Group Vice President
Business Planning and Development
Tel: +33.4.50.40.25.59
or
Press: Maria Grazia Prestini
Corporate Press Relations Manager
Tel:+39.3.96.03.59.01
+33.4.50.40.25.32
or
Steve Harrison
Director of Investor Relations, U.S
Tel: 972-466-7699
or
Lynn Morgen/Michele Katz/ Elric Martinez
Press: Brian Maddox/Estelle Bieber
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