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STMicroelectronics Reports 2008 Third Quarter and Nine-Month Revenues and Earnings (Revenue up 11%)

GENEVA, Oct. 28 /PRNewswire/ -- -- Third quarter net revenues increased 2.7% sequentially and 10.9% year-over-year to $2.46 billion excluding NXP Wireless and Flash Memory Group (FMG)

 

 

-- Gross margin was 37.2% before NXP Wireless integration

 

GENEVA, Oct. 28 /PRNewswire-FirstCall/ -- STMicroelectronics (NYSE: STM) reported financial results for the 2008 third quarter and nine months ended September 27, 2008.

 

ST completed the deconsolidation of its FMG segment and took an equity interest in Numonyx on March 30, 2008, with an anticipated one quarter lag in reporting.

 

ST-NXP Wireless, a joint venture owned 80% by ST, began operations on August 2, 2008 and is fully consolidated into ST's operating results. The third quarter 2008 financial review includes the ST-NXP Wireless joint venture except where noted.

 

The third quarter 2008 reported financial statements include several non-recurring items in connection with the above transactions. In addition, some of the actual results are reported at constant business perimeter for comparability purposes to prior quarter and to Q3 2008 guidance. For this purpose, this press release includes below certain adjustments to reported numbers. Please refer to the reported results (Revenues of $2,696 million and Net Loss of $289 million) in the enclosed Financial Statements and described in detail on pages 3 and 4 of this press release.

 

Third Quarter 2008 Financial Review

 

Summary Financial Highlights Before Inclusion of NXP Wireless:

 

 

    In Million US$ and %          Q3 2008     Q2 2008    Q3 2007 ex FMG
    --------------------          -------     -------    --------------
    Net Revenues                  2,455       2,391           2,213

    Gross Profit                    913        880              865

    Gross Margin                   37.2%      36.8%            39.1%

    Effective Exchange Rate
     $/euro (a)                    1.54       1.55             1.36

    (a) The Company's effective exchange rate reflects actual exchange rate
        levels combined with the impact of hedging programs.

 

 

ST's net revenues for the third quarter increased 2.7% sequentially driven by high single-digit growth in Computer and Telecom but mitigated by a high single-digit decrease in Automotive reflecting the significant downturn in the automotive industry as a whole. On a year-over-year basis, ST's net revenues grew 10.9% before including revenue from NXP Wireless, led by 16% and 19% gains in Telecom and Industrial, respectively, and was well-supported by mid- to high single digit growth in Computer and Consumer.

 

Gross margin in the third quarter of 2008, before the positive effect of the wireless addition and the adverse impact of purchase accounting adjustments, improved to 37.2% from 36.8% in the prior quarter with minimal currency effect. The quarter-to-quarter gross margin improvement was due to an enhanced product mix and manufacturing efficiencies. In the third quarter of 2007, gross margin was 35.2%, or 39.1% excluding FMG. The Company estimates that year-over-year currency changes negatively impacted the Q3 2008 gross margin of 37.2% by approximately 250 basis points.

 

 

Summary Financial Highlights Including NXP Contribution to Wireless JV:

 

 

    In Million US$ and %    Q3 2008        Q2 2008       Q3 2007 ex FMG
    ------------------      -------        -------       --------------

    Net Revenues             2,696         2,391               2,213

    Gross Profit (a)         1,016           880                 865

    Gross Margin(a)           37.7%         36.8%               39.1%

    Effective Exchange Rate
     $/euro                   1.54          1.55                1.36

    (a) Third quarter 2008 excludes the one-time, non-cash $57 million
        purchase accounting adjustment related to the inventory step-up of the
        former NXP Wireless business.

 

 

President and CEO Carlo Bozotti commented, "The third quarter reflected continued focus on both our operating and strategic initiatives. From a financial perspective, our third quarter performance demonstrated further progress in strengthening our market position, building on the results of the first half of this year. Before including the additional revenue from the recently created ST-NXP Wireless joint venture, net revenues increased 12.4% year-to-date.

 

"We are gaining share overall, in particular in our areas of focus: multimedia convergence applications and power solutions. Indeed, we continued to harvest the benefits of our sales expansion initiatives and we increased our sales to new target key accounts by 16.0% on a sequential basis.

 

"We continue to build scale in the critical area of wireless applications with our joint announcement in August with Ericsson to form a joint venture composed of Ericsson Mobile Platforms and ST-NXP Wireless. We believe this new leader will have the industry's strongest product offering in semiconductors and platforms for mobile applications and will be well positioned to continue and extend customer relationships with the most innovative players in the wireless industry."

 

 

 

Summary Financial Highlights - As reported

 

 

    In Million US$ and %    Q3 2008       Q2 2008       Q3 2007
    --------------------    -------       -------       -------

    Net Revenues             2,696          2,391         2,565

    Gross Profit               959            880           902

    Gross Margin             35.6%          36.8%         35.2%

 

 

Reported earnings in the third quarter of 2008 also included some specific pre-tax quarter-related accounting factors, namely:

 

    --  The purchase accounting for the ST-NXP Wireless JV resulted in a $57
        million inventory step-up charged to Cost of Goods Sold and a $76
        million in-process R&D write-off. In addition, $12 million of
        recurring amortization is included in operating expenses.
    --  A non-cash charge of $344 million related to the Numonyx equity
        investment including $300 million of impairment to reflect deteriorated
        conditions in both the equity market multiples for comparable companies
        and the memory industry and $44 million of equity loss on Numonyx's Q2
        2008 results, mostly reflecting stand-up and purchase accounting items
        at Numonyx.
    --  Other impairment and restructuring charges of $22 million in operating
        profit and other-than-temporary impairment charges on financial assets
        of $14 million.

 

 

Q3 2008 SG&A expenses totaled $297 million, or 11.0% of net revenues, compared to 11.8% of net revenues in the prior quarter. The SG&A-to-sales ratio increased slightly from the 10.6% of the year ago quarter, reflecting about 100 basis points of estimated negative currency impact. R&D expenses in the third quarter 2008 totaled $602 million, including the one-time, non-cash $76 million charge for in-process R&D. Excluding the impact of this incremental expense, the R&D-to-sales ratio at 19.5% was essentially flat with the prior quarter. The ratio increased from 17.2% in the year ago quarter including an estimated negative currency impact of about 120 basis points.

 

Including restructuring, impairment and non-recurring purchase accounting effects, reported operating income was $55 million. Excluding these effects, the Q3 2008 operating margin improved from 6.7% in the prior quarter to 7.8%. The Company reported a net loss of $289 million or $0.32 per diluted share.

 

 

 

Operating Income and Earnings Reconciliation for Q3 2008

 

The table below illustrates the negative impact on our operating income, net earnings and earnings per share of certain exceptional one-time items incurred in Q3 2008.

 

 

    In US$M except EPS    Operating          Net          Diluted
                            Income       Earnings(a)       EPS(a)
    ------------------    ---------      -----------      -------

    Q3 2008 as reported       55            $(289)         $(0.32)

    NXP Wireless
     Purchase Accounting
     Adjustments(a)         (133)             (99)         $(0.11)

     Numonyx Impairment /
      Loss(a)                  0             (344)         $(0.39)

    Restructuring,
     Impairments, One-time
     & Other-than-temporary
     charges(a)              (22)             (24)         $(0.02)

    Q3 2008 ST Business
     Operations(b)          $210             $178           $0.19
    Margin (as a % of
     Sales)                  7.8%

    (a) The computation of net earnings and EPS for each line is based on an
        estimated effective tax rate applicable to each operating loss item.
        Furthermore, the computation of EPS in each line is based on the share
        count of 890.3 million shares applicable in case of all of the loss
        items; or 937.2 million shares for net earnings resulting from the
        reconciliation; this different applicable share count is due to our
        outstanding convertible bonds and justifies the difference of $0.01 of
        the sum of the items in respect to reported EPS. Diluted EPS is
        rounded to the $ cent and adjusted to sum to EPS as reflected. The
        Company believes that the foregoing EPS reconciliation is an
        appropriate analysis demonstrating the per share impact of the
        exceptional one-time events incurred in Q3 2008. However, due to the
        US GAAP requirement of applying a different share count for the
        purpose of calculating losses or earnings per share, the
        reconciliation necessarily involves some approximation.
    (b) ST Business Operations is a non-US GAAP measure and defined as the
        financial results of operations in the third quarter of 2008 excluding
        the effects of non recurring items related to the purchase accounting
        of ST-NXP Wireless JV, the impairment and loss related to Numonyx,
        other restructuring, and impairment charges and other-than-temporary
        impairment charges. The impact of these non-recurring elements on net
        earnings is net of applicable tax.

 

 

 

 

Cash Flow and Balance Sheet Highlights

 

Net cash from operating activities was $414 million in the 2008 third quarter. Net operating cash flow* was ($1.38) billion or $140 million, excluding $1.52 billion paid for M&A transactions, compared to $255 million in the year-ago quarter. For the first nine months, net cash from operating activities was $1.33 billion and net operating cash flow was $487 million, excluding the $1.69 billion paid for M&A transactions.

 

Capital expenditures were $247 million during the third quarter of 2008, compared to $272 million in the prior quarter and $228 million in the year-ago quarter. For the 2008 first nine months, capital expenditures were $777 million, or 10.3% of net sales, compared to $735 million or 10.1% of net sales in the first nine months of 2007. The Company reconfirms its goal to be at a capex-to-sales ratio of about 10% for the full year 2008.

 

In the 2008 third quarter, ST repurchased $148 million of common stock under the most recently approved plan, as well as paid $80 million in dividends. For the fourth quarter 2008 the global ex-dividend date will be November 24, 2008 and the dividend of $0.09 is planned to be paid on or after this date, in accordance with the schedule previously announced on April 2, 2008.

 

Inventory was $1.79 billion at quarter end including wireless inventory acquired from NXP. Excluding the NXP Wireless inventory and reflecting favorable currency translation, inventory decreased sequentially by $29 million, with inventory turns accelerating from 3.8 to 4.0.

 

At September 27, 2008, ST's cash and cash equivalents, marketable securities (current and non-current), short-term deposits and restricted cash equaled $2.14 billion. Total debt was $2.55 billion. ST's net financial position** was a net debt of $409 million. Shareholders' equity was $8.77 billion.

 

*Net operating cash flow is a non-US GAAP metric, which the Company's management utilizes as a measure of cash-generation capability. It is defined as net cash from operating activities ($414 million in the third quarter of 2008) minus net cash used in investing activities (-$1,664 million in the third quarter of 2008) excluding payments for purchase of and proceeds from the sale of marketable securities ($127 million in the third quarter of 2008), proceeds from matured short-term deposits and restricted cash.

 

**Net financial position is a non-US GAAP metric used by the Company's management to help assess financial flexibility. It is defined as cash and cash equivalents, marketable securities (current and non-current), short-term deposits and restricted cash ($2,141 million) minus total debt (current portion of long-term debt $63 million plus long-term debt $2,487 million).

 

"Thanks to our systematic ability to generate operating cash flow and our solid capital structure we have been able to advance our strategic initiatives independent of the uncertainties in the financial markets. During 2008 these strengths have enabled ST to complete the deconsolidation of Numonyx, fund $1.7 billion of acquisitions, maintain a solid credit rating, pay increased cash dividends and initiate a share buyback program, all while increasing our return on invested capital" said Mr. Bozotti.

 

Net Revenues by Market Segment for Q3 2008

The following table estimates, within a variance of 5% to 10% in the absolute dollar amount, the relative weighting of each of the Company's target market segments for the 2008 third quarter. For comparison purposes, the table incorporates the effect of the former NXP Wireless business since August 2, 2008.

 

 

    As % of Net Revenues         Q3 2008            Q3 2008
    Market Segment             ST excluding        ST including
                               NXP Wireless        NXP Wireless

    Automotive                      15%                 13%
    Consumer                        17%                 16%
    Computer                        17%                 15%
    Telecom                         34%                 40%
    Industrial & Other              17%                 16%

 

In comparison to the year-ago quarter, all market segments posted growth, led by Telecom which increased 16% (50% including NXP Wireless), Industrial which increased 19%, followed by Consumer, Computer and Automotive, which increased approximately 8%, 5% and 1%, respectively.

 

Sequentially, performance was led by Telecom which increased 8% (39% including NXP Wireless) and Computer by 8%. Consumer was up 2%, while Industrial and Automotive declined by 1% and 8%, respectively, from the prior quarter.

 

Financial and Operating Data by Product Segment for Q3 2008

 

Starting August 2, 2008, following the addition of the wireless business from NXP, the Company introduced a new product segment to report the sales and operating results of the newly created "Wireless Product Sector," which includes ST's wireless business for the full quarter and the results of the joint venture created with NXP since August 2, 2008. The results of ST's wireless business were previously included in the Application Specific Groups (ASG) segment, which has been revised to reflect the change. The newly created ACCI (Automotive, Consumer, Computer and Telecom Infrastructure) Product Groups segment includes the former ASG segment less the ST wireless business contributed to the ST-NXP Wireless joint venture.

 

    --  ACCI (Automotive, Consumer, Computer and Telecom Infrastructure Product
        Groups)
    --  IMS (Industrial & Multisegment Product Sector)
    --  WPS (Wireless Product Sector)

 

 

The following table provides a breakdown of revenues and operating income by product segment.

 

 

    In Million US$ and %                         Q3 2008
                                                            Operating
    Product Segment                  Net      % of Net        income
                                   Revenues    Revenues       (loss)

    ACCI (Auto/Cons./Comp./Telecom
     Infra. Product Groups) (a)     $1,085        40.2%         $58
    IMS (Industrial and
     Multisegment Product
     Sector)                           901        33.4          152
    WPS (Wireless Product
     Sector)                           696        25.9           22
    Others (b) (c)                      14         0.5         (177)

    TOTAL                           $2,696         100%         $55

    (a) ACCI is the former ASG (Application Specific Groups) less the ST
        wireless business contributed to the ST-NXP joint venture.
    (b) Net revenues of "Others" include revenues from sales of Subsystems and
        other revenues.
    (c) Operating income (loss) of "Others" includes items such as impairment,
        restructuring charges, and other related closure costs, start-up
        costs, and other unallocated expenses such as: strategic or special
        research and development programs, acquired in-process R&D and
        other purchase accounting impacts, certain corporate-level operating
        expenses, patent claims and litigations, and the other costs that are
        not allocated to product groups, as well as operating earnings or
        losses of the Subsystems and Other Products Group. The third quarter
        2008 "Others" include a $133 million charge due to purchase accounting
        items and $22 million of impairment and restructuring charges.

 

 

Automotive, Consumer, Computer and Telecom Infrastructure Product Groups' (ACCI's) third quarter 2008 net revenues declined 1.4% sequentially reflecting a decrease in Automotive due to tough automotive market conditions while Consumer and Computer both increased sequentially. ACCI grew 9.6% year-over-year to $1,085 million on strong growth of both automotive and digital consumer products. ACCI's operating profit improved sequentially largely due to mix improvement, while declining on a year-over-year basis driven by a combination of factors including negative currency effects and increased R&D efforts.

Third quarter 2008 Industrial and Multisegment Product Sector (IMS) net revenues of $901 million grew 4.2% sequentially and 12.0% year-over-year led by MEMS, IPAD, Smartcards and Microcontrollers for both comparisons. Q3 2008 IMS sales were composed of $574 million of ICs which grew 8% sequentially and 21% year-over-year and $326 million of discrete products which decreased 2% sequentially and 1% year-over-year. IMS operating profit was $152 million, improving both sequentially and year-over-year, reflecting improved volume, mix -- notably driven by product innovation focused on Advanced Analog and ICs -- and efficiency, which more than offset currency impacts.

 

Wireless Product Sector (WPS) net revenues in the third quarter of 2008 were $696 million. Excluding the NXP Wireless business contribution, wireless sales increased 10.8% sequentially and 12.5% in comparison to the year-ago quarter, reflecting improvements in product mix and an expanded customer base. WPS' Q3 2008 operating profit was $22 million, lower than the prior year but sequentially improving, despite challenging market conditions.

 

First Nine Months 2008 Results

 

The following income statement for the first nine months of 2008 incorporates the former NXP Wireless business since August 2, 2008 and FMG for the first three months of 2008 and the first nine months of 2007.

 

 

    Net Revenues

    (In Million US$ and %)    First Nine   First Nine   Year-over-Year
                              Months 2008  Months 2007      Growth

    ST as reported              $7,566       $7,258          4.2%

    ST ex FMG and
     NXP Wireless               $7,026       $6,252         12.4%

 

 

Net revenues for the first nine months were $7,566 million compared to 2007 first nine months revenues of $7,258 million, as reported. Excluding FMG and NXP Wireless, net revenues grew 12.4% in the similar period. Gross margin, excluding the inventory step-up from the addition of NXP Wireless increased to 36.9% of net revenues, compared to 34.9% of net revenues for the 2007 first nine months. Excluding FMG and NXP Wireless, gross margin for the similar period decreased from 38.0% to 37.2% reflecting an estimated negative currency impact of 250 basis points. Operating loss, as reported, was $59 million, compared to operating loss of $529 million in last year's first nine months. Net loss was $421 million, or $-0.47 per share, compared to a net loss of $496 million, or $-0.55 per share for the 2007 first nine months. Net loss included pre-tax restructuring and impairment charges, in-process R&D costs, other-than-temporary impairment charge on financial assets and the impairment related to the Numonyx equity investment of $869 million ($0.97 per diluted share impact) and $949 million ($1.05 per diluted share impact) for the 2008 and 2007 first nine months results, respectively.

 

Research and development expenses were $1,581 million, including $97 million of in-process R&D charges, associated with the acquisition of Genesis Microchip and the addition of NXP Wireless, compared to $1,322 million in the 2007 first nine months. Selling, general, and administrative expenses were $882 million compared to $803 million in the 2007 first nine months, increasing primarily due to adverse currency effects.

 

In the 2008 first nine months, the effective average exchange rate for the Company was approximately $1.52 to euro 1.00, compared to $1.33 to euro 1.00 for the 2007 first nine months.

 

The Company estimates that currency rates adversely impacted operating income in the first nine months year-to-date comparison by about $340 million or approximately 450 basis points.

 

First Nine Months 2008 Financial and Operating Data by Product Segment

 

The following table provides a breakdown of revenues and operating income by product segment.

 

 

    In Million US$ and %                     First Nine Months 2008
    Product Segment                                              Operating
                                         Net        % of Net       income
                                       Revenues     Revenues       (loss)

    ACCI (Auto/Cons./Comp./Telecom
     Infra. Product Groups) (a)          $3,231         42.7%        $110
    IMS (Industrial and
     Multisegment Product Sector)         2,538         33.5          374
    WPS (Wireless Product Sector)         1,454         19.2           12
    FMG (Flash Memories Group) (d)          299          4.0           16
    Others (b)(c)                            44          0.6         (571)

    TOTAL                                $7,566          100%        $(59)

    (a), (b) and (c) defined in earlier table.
    (d) Operating income for FMG in the period reflects the benefit of
        suspended depreciation for Assets Held For Sale.

 

 

Outlook

 

Mr. Bozotti stated, "While ST has performed very well in the first nine months of 2008, we are not immune to the major challenges the global economy faces today. We are well positioned in our key markets and we continue to execute on our strategy but we are facing the ongoing industry downturn. Comprehensive measures have been taken and fab loadings are being reduced to control inventory. We expect ST's sequential net revenue to be in the range between flat and -8%. This represents for FY 2008 net revenue growth between 6.2% and 8.6%, excluding FMG and the former NXP Wireless business. Despite the estimated sequential quarterly decline in sales, the 2008 fourth quarter gross margin is expected to improve sequentially to about 38.8%, plus or minus one percentage point reflecting improved operational factors and a more favorable currency rate, partially offset by reduced fab loading."

 

This outlook is based on an assumed effective currency exchange rate of approximately $1.40 = euro 1.00 for the 2008 fourth quarter, which reflects current exchange rate levels combined with the impact of existing hedging contracts. Additionally, this outlook includes the results of the ST-NXP Wireless joint venture for the full quarter, which began operations on August 2, 2008 but excludes an estimated $30 million cost in fourth quarter 2008 due to inventory step-up purchase accounting adjustment related to the former NXP Wireless business.

 

Recent Corporate Developments

 

    --  On July 28, 2008, ST and NXP announced the closing of the deal bringing
        together key wireless operations of both companies into ST-NXP Wireless,
        a deal they announced on April 10, 2008. The joint venture, 80% owned by
        ST,  started operations on August 2, 2008 and launched as a solid
        top-three industry player with a complete wireless product and
        technology portfolio and as a leading supplier to major handset
        manufacturers who together ship more than 80% of all handsets. ST-NXP
        Wireless will be among the few companies with the R&D scale and
        expertise to meet customer needs in 2G, 2.5G, 3G, multimedia,
        connectivity and all future wireless technologies.

 

 

    --  On August 20, 2008, ST and Ericsson announced an agreement to merge
        Ericsson Mobile Platforms and ST-NXP Wireless into a joint venture. The
        50/50 joint venture would have the industry's strongest product offering
        in semiconductors and platforms for mobile applications and will be an
        important supplier to Nokia, Samsung, Sony Ericsson, LG and Sharp. The
        fabless joint venture would employ almost 8,000 people with pro-forma
        2007 sales of $3.6 billion. ST is expected to exercise its option to buy
        NXP's 20 percent of ST-NXP Wireless before the closing of this
        transaction.

 

 

Q3 2008 Products, Technology and Design Wins

 

Automotive, Consumer, Computer and Telecom Infrastructure (ACCI) Product Highlights

 

    --  In digital consumer, ST announced the sampling of the STi7105
        high-definition (HD) video decoder, with enhancements for higher
        performance, lower power, and lower bill-of-materials costs in set-top
        boxes (STBs) and home media servers. ST also bolstered its leadership in
        DVB-S2 digital satellite broadcast with a new 'front-end' STB chipset
        for digital satellite HDTV equipment. The use of DVB-S2 by consumer
        equipment manufacturers is increasing rapidly in a wide range of
        applications, including Pay-TV and free-to-air STBs, integrated digital
        TVs (iDTVs), PC TV cards and HD Blu-ray Disc equipment.

 

 

    --  Also in STBs, ST announced that Proview will use the STi7101 HDTV
        decoder in its new XPS-1000 set-top box, which employs the SBTVD digital
        terrestrial standard, for deployment in Brazil. Additionally, ST started
        production for two new IPTV STB designs in France and a new
        standard-definition H.264 satellite STB for deployment in India.

 

 

    --  In consumer audio, ST gained two design wins in Korea for its
        SoundTerminal family of high-efficiency power ICs that integrate DSP
        capabilities for flat-panel TV applications. The device is the latest in
        the SoundTerminal family and integrates standard features along with the
        industry-first inclusion of a dual-band dynamic-range compressor for
        Hi-Fi audio and thin-TV loudspeaker protection.

 

 

    --  In communications infrastructure applications, ST gained two design wins
        for ASICs that will be used by a world-leading manufacturer in its
        enterprise switching products. In computer applications, ST gained an
        important design-win for a 65nm SoC for a second-generation enterprise
        hard disk drive (HDD) from a major HDD maker. ST also won a socket in
        the data-security environment from a leading manufacturer, based on the
        Company's high-security solution for HDDs that meets the FIPS 140-2
        level 3 standard. In addition, ST successfully demonstrated at IDF the
        world's first MIPHY (Multi Interface PHY) Physical Layer interface for
        the new 6Gbit/s Serial ATA (SATA) technology.

 

 

    --  In automotive powertrain and safety applications, ST gained a design win
        from a major Japanese player for an alternator platform. The first
        application will be in Europe with other car makers expected to use it
        in Q4 2008. ST also made strong gains in low- and mid-end powertrain
        applications, supplying smart power ICs and microcontrollers (MCUs) to a
        major Asian car maker for 1- and 2-cylinder vehicles for emerging Asian
        markets, and to a major European car maker for 4-cylinder vehicles for
        the Russian market.

 

 

    --  In car-body applications, ST achieved a very important design win from a
        key European tier-one supplier for smart-power products in power
        management and external light control. Additionally, ST's market
        introduction of next-generation 8- and 32-bit MCUs has led to numerous
        design wins in many countries.

 

 

    --  In car multimedia, ST gained a couple of key design wins for car-radio
        kits. For the first, a leading European OEM chose an ST MCU, tuner IC,
        audio processor and power amp, for a new after-market radio which has
        been chosen by a car maker in China; the second kit was selected by a US
        maker and includes audio processor and power amp, tuner IC and CD/MP3
        decoder chip. Additionally, a leading automotive OEM in Europe selected
        ST's STA2500D Bluetooth IC for use in Telematic platforms for two
        leading car makers.

 

 

Industrial and Multi-Segment (IMS) Product Highlights

 

    --  In microcontrollers, ST extended its library of functions supporting
        vector control of electric motors using the 32-bit Cortex-M3 based STM32
        MCU, which has already been designed into approximately 40 customer
        motor-control applications.

 

 

    --  In non-volatile memory, ST introduced 1MHz two-wire serial EEPROMs in
        256-Kbit, 512-Kbit and 1-Mbit densities, allowing data rates up to
        2.5-times faster than the I2C Fast-mode.

 

 

    --  In MEMS motion sensors, ST gained design wins for its three-axis
        accelerometers with several mobile phone makers in China and a major
        Asian player. The Company also gained significant business from a
        worldwide leader in the portable MP3 player market and also won a
        significant contract with another of the major players in the gaming
        market -- ST already supplies MEMS accelerometers for the Nintendo Wii.
        Additionally, ST's complete free-fall detection solution, which consists
        of a 3-axis motion sensor and software, was chosen to protect user data
        stored on HDDs in the new ESPRIMO Mobile family of professional
        notebooks from Fujitsu Siemens Computers.

 

 

    --  Also in MEMS, ST launched an ultra-compact gyroscope that provides a
        choice of analog or digital absolute angular-rate outputs, and measures
        fast angular displacements in applications such as intuitive man-machine
        interfaces or enhanced-GPS for car navigation.

 

 

    --  In power conversion, ST introduced a new Pulse Width Modulation
        controller, the first integrated device optimized for soft-switching
        asymmetrical half-bridge converters. The company also gained a design
        win from a major player in the PC market for two voltage-regulator
        modules for the CPU power supply in a desktop reference design; in
        addition to another design win for a new powerline communication
        transceiver with a manufacturer in China for a sub-metering application.
        ST is also ramping up production of: a new power management controller,
        for a major Taiwanese motherboard OEM; and a DC/DC switching regulator,
        for a major Japanese brand digital-still-camera.

 

 

    --  Also in power conversion, ST introduced into the market a new 10-12A
        overvoltage-protected AC switch series, aimed at helping white goods
        meet the latest energy and safety standards. ST also enlarged its
        high-junction-temperature TRIAC family with a new sensitive series
        dedicated to small appliances and industrial systems.

 

 

    --  In power MOSFETs, ST introduced a 250A power MOSFET with the lowest
        on-resistance in the market and a new family of devices based on the
        company's innovative SuperMESH3 technology to increase the ruggedness,
        switching performance and efficiency of lighting ballasts and
        switch-mode power-supply applications. ST gained multiple design wins
        for its MOSFETs, primarily in lighting and power-supply applications,
        including one with a leading PC motherboard maker. In power bipolar
        devices, ST's low-voltage bipolars were qualified for use by a major
        smart-metering-system customer. And in linear and interface devices, ST
        gained design wins in various markets, including automotive and audio
        applications.

 

 

    --  In advanced analog and logic ICs, ST announced a highly integrated RGB
        LED driver and gained design wins for its logic ICs with major notebook
        PC makers in China and Japan, and with a leading Japanese LCD TV maker.

 

 

    --  In analog and mixed-signal ICs, ST announced a new series of
        clock-distribution ICs and also sampled clock-distribution ICs to two
        major Asian mobile-phone customers. Additionally, reset and temperature
        sensors were designed-in at a major HDD maker and a real-time clock IC
        was designed-in at a major GPS manufacturer.

 

 

 

 

Technology Highlights

 

    --  ST, Infineon Technologies and STATS ChipPAC announced an agreement to
        jointly develop the next-generation of embedded Wafer-Level Ball Grid
        Array (eWLB) technology for use in manufacturing future-generation
        semiconductor packages.

 

 

    --  ST and the Waseda University Humanoid Robotics Institute (HRI) announced
        the development of a high-performance, two-wheel inverted-pendulum
        robot, called WV-1, which is the first result of an ongoing cooperation
        for the research and development of technology and solutions for
        innovative humanoid robots and medical-care robot systems.

 

 

 

All of STMicroelectronics' press releases (including all releases in Q3) are available at www.st.com/stonline/press/news/latest.htm.

 

SuperMESH and SoundTerminal are trademarks of STMicroelectronics. All other trademarks or registered trademarks are the property of their respective owners.

 

 

Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in such statements due to, among other factors:

 

    --  further deterioration on the worldwide financial markets, economic
        recession in one or more of the world's major economies and the effect
        on demand for semiconductor products in the key application markets and
        from key customers served by our products , which in turn makes it
        extremely difficult to accurately forecast and plan future business
        activities;
    --  our ability to adequately utilize and operate our manufacturing
        facilities at sufficient levels to cover fixed operating costs
        particularly at a time of decreasing demand for our products due to
        decline in demand for semiconductor products;
    --  pricing pressures which are highly variable and difficult to predict;
    --  the results of actions by our competitors, including new product
        offerings and our ability to react thereto;
    --  the financial impact of obsolete or excess inventories if actual demand
        differs from our anticipations;
    --  the impact of intellectual-property claims by our competitors or other
        third parties, and our ability to obtain required licenses on reasonable
        terms and conditions;
    --  the outcome of ongoing litigation as well as any new litigation to which
        we may become a defendant;
    --  our ability to close as planned the merger of ST-NXP Wireless with
        Ericsson Mobile Platforms as announced on August 20, 2008;
    --  the effects of hedging, which we practice in order to minimize the
        impact of variations  between the U.S. dollar and the currencies of the
        other major countries in which we have our operating infrastructure in
        the currently very volatile currency environments;
    --  our ability to manage in an intensely competitive and cyclical industry,
        where a high percentage of our costs are fixed, incurred in currencies
        other than US dollars;
    --  our ability to restructure in accordance with our plans  if unforeseen
        events  require adjustments or delays in implementation;
    --  our ability in an intensively competitive environment to secure customer
        acceptance and to achieve our pricing expectations for high-volume
        supplies of new products in whose development we have been, or are
        currently, investing;
    --  the ability of our suppliers to meet our demands for supplies and
        materials and to offer competitive pricing;
    --  significant differences in the gross margins we achieve compared to
        expectations, based on changes in revenue levels, product mix and
        pricing, capacity utilization, variations in inventory valuation, excess
        or obsolete inventory, manufacturing yields, changes in unit costs,
        impairments of long-lived assets (including manufacturing, assembly/test
        and intangible assets), and the timing, execution and associated costs
        for the announced  transfer of manufacturing from facilities designated
        for closure and associated costs, including start-up costs;
    --  changes in the economic, social or political environment, including
        military conflict and/or terrorist activities, as well as natural events
        such as severe weather, health risks, epidemics or earthquakes in the
        countries in which we, our key customers and our suppliers, operate; and
    --  changes in our overall tax position as a result of changes in tax laws
        or the outcome of tax audits, and our ability to accurately estimate tax
        credits, benefits, deductions and provisions and to realize deferred tax
        assets.

 

 

Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "may," "will," "should,", "would be" or "anticipates" or similar expressions or the negative thereof or other variations thereof, or by discussions of strategy, plans or intentions. Some of the risk factors we face are set forth and are discussed in more detail in "Item 3. Key Information--Risk Factors" included in our Annual Report on Form 20-F for the year ended December 31, 2007, as filed with the SEC on March 3, 2008. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any information or forward-looking statements set forth in this release to reflect subsequent events or circumstances.

 

Unfavorable changes in the above or other factors listed under "Risk Factors" from time to time in our SEC filings, including our Form 20-F, could have a material adverse effect on our results of operations or financial condition.

 

Conference Call Information

 

The management of STMicroelectronics will conduct a conference call on October 29, 2008 at 9:00 a.m. U.S. Eastern Time / 2:00 p.m. CET, to discuss operating performance for the third quarter of 2008.

 

The conference call will be available via the Internet by accessing the following Web address: http://investors.st.com. Those accessing the webcast should go to the Web site at least 15 minutes prior to the call, in order to register, download and install any necessary audio software. The webcast will be available until November 7, 2008.

 

About STMicroelectronics

STMicroelectronics is a global leader in developing and delivering semiconductor solutions across the spectrum of microelectronics applications. An unrivalled combination of silicon and system expertise, manufacturing strength, Intellectual Property (IP) portfolio and strategic partners positions the Company at the forefront of System-on-Chip (SoC) technology and its products play a key role in enabling today's convergence markets. The Company's shares are traded on the New York Stock Exchange, on Euronext Paris and on the Milan Stock Exchange. In 2007, the Company's net revenues were $10 billion. Further information on ST can be found at www.st.com.

 

 

 

 

    STMicroelectronics N.V.
    CONSOLIDATED BALANCE SHEETS


    As at                           September 27,   June 28,  December 31,
    In million of U.S. dollars           2008        2008         2007
                                     (Unaudited)  (Unaudited)   (Audited)
                                     -----------  -----------   ---------

    ASSETS
    ======
    Current assets:
    Cash and cash equivalents                 868       2,136        1,855
    Marketable securities                     726         898        1,014
    Trade accounts receivable, net          1,520       1,473        1,605
    Inventories, net                        1,787       1,580        1,354
    Deferred tax assets                       252         246          205
    Assets held for sale                        0          61        1,017
    Receivables, net on
     transactions on-behalf                    72
    Other receivables and assets              694         734          612
                                              ---         ---          ---
    Total current assets                    5,919       7,128        7,662

    Goodwill                                1,030         315          290
    Other intangible assets, net              904         309          238
    Property, plant and
     equipment, net                         5,065       5,059        5,044
    Long-term deferred tax assets             370         283          237
    Equity investments                        691       1,032            0
    Restricted cash                           250         250          250
    Non-current marketable securities         297         300          369
    Other investments and other
     non-current assets                       458         377          182
                                              ---         ---          ---
                                            9,065       7,925        6,610
    Total assets                           14,984      15,053       14,272
                                           ------      ------       ------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    ====================================
    Current liabilities:
    Current portion of long-term debt          63         153          103
    Trade accounts payable                  1,156       1,161        1,065
    Other payables and accrued
     liabilities                            1,165         981          744
    Dividends payable to shareholders         163         242            0
    Deferred tax liabilities                   19          10           11
    Accrued income tax                        142         132          154
                                              ---         ---          ---
    Total current liabilities               2,708       2,679        2,077

    Long-term debt                          2,487       2,313        2,117
    Reserve for pension and
     termination indemnities                  301         304          323
    Long-term deferred tax liabilities        109          33           14
    Other non-current liabilities             323         311          115
                                              ---         ---          ---
                                            3,220       2,961        2,569
    Total liabilities                       5,928       5,640        4,646
    Commitment and contingencies
    Minority interests                        290          56           53
    Common stock (preferred
     stock: 540,000,000
     shares authorized, not issued;         1,156       1,156        1,156
    common stock: Euro 1.04 nominal
     value, 1,200,000,000 shares
     authorized, 910,307,305 shares
     issued, 883,460,327 shares
     outstanding)
    Capital surplus                         2,311       2,145        2,097
    Accumulated result                      4,444       4,736        5,274
    Accumulated other
     comprehensive income                   1,276       1,593        1,320
    Treasury stock                           -421        -273         -274
                                             ----        ----         ----
    Shareholders' equity                    8,766       9,357        9,573
                                            -----       -----        -----
    Total liabilities and
     shareholders' equity                  14,984      15,053       14,272
                                           ------      ------       ------



    STMicroelectronics N.V.
    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 Three Months Ended    Nine Months Ended
                                    -------------      -----------------
                                    September 27,  September 27, September 29,
    In million of U.S. dollars           2008          2008          2007
                                     (Unaudited)   (Unaudited)   (Unaudited)
                                      ----------    ----------    ----------

    Cash flows from
     operating
     activities:
      Net loss                              -289          -421          -496
      Items to reconcile net income
       (loss) and cash flows from
       operating activities
        Depreciation and amortization        343         1,009         1,079
        Amortization of discount
         on convertible debt                   4            13            13
        Other-than-temporary
         impairment charge on
         financial assets                     14            82             0
        Other non-cash items                  62            73            78
        Minority interests in
         net income of subsidiaries            9            12             4
        Deferred income tax                  -38           -41           -13
        (Earnings) loss on equity
         investments                         344           350           -12
        Impairment, restructuring
         charges and other related
         closure costs, net of
         cash payments                        -4           333           905
      Changes in assets and liabilities:
        Trade receivables, net                 0           165           -36
        Inventories, net                      46          -133             9
        Trade payables                       -42           101           -45
        Other assets and
         liabilities, net                    -35          -211           -35
                                             ---          ----           ---
    Net cash from operating
     activities                              414         1,332         1,451

    Cash flows from investing
     activities:
      Payment for purchases of
       tangible assets                      -247          -777          -735
      Payment for  purchases of
       marketable securities                   0             0          -708
      Proceeds from sale of
       marketable securities                 127           287           100
      Proceeds from matured
       short-term deposits                     0             0           250
      Restricted cash for equity
       investments                             0             0           -32
      Investment in intangible and
       financial assets                      -27           -68           -64
      Payment for business
       acquisitions,
       net of cash and cash
       equivalents acquired               -1,517        -1,687             0
                                          ------        ------             -
    Net cash used in
     Investing activities                 -1,664        -2,245        -1,189

    Cash flows from financing
     activities:
      Proceeds from long-term debt           251           387            82
      Proceeds from repurchase
       agreements                            249           249             0
      Extinguishment of
       obligations under
       repurchase agreements                -249          -249             0
      Repayment of long-term debt            -13           -64          -112
      Capital increase                         0             0             2
      Repurchase of common stock            -148          -231             0
      Dividends paid                         -80          -161          -269
      Dividends paid to
       minority interests                      0             0            -6
                                               -             -            --
    Net cash from (used in)
     financing activities                     10           -69          -303
      Effect of changes in
       exchange rates                        -28            -5            32
                                             ---            --            --
    Net cash decrease                     -1,268          -987            -9
                                          ------          ----            --

    Cash and cash equivalents at
     beginning of the period               2,136         1,855         1,659
    Cash and cash equivalents at
     end of the period                       868           868         1,650



    STMicroelectronics N.V.
    Consolidated Statements of Income
    (in million of U.S. dollars, except per share data ($))

                                                      Three Months Ended
                                                      ------------------
                                                  (Unaudited)    (Unaudited)
                                                  -----------    -----------
                                                   September 27, September 29,
                                                      2008           2007
                                                      ----           ----

    Net sales                                        2,687          2,555
    Other revenues                                       9             10
                                                         -             --
      NET REVENUES                                   2,696          2,565
    Cost of sales                                   -1,737         -1,663
                                                    ------         ------
      GROSS PROFIT                                     959            902
    Selling, general and administrative               -297           -272
    Research and development                          -602           -442
    Other income and expenses, net                      17             24
    Impairment, restructuring charges and other
     related closure costs                             -22            -31
                                                       ---            ---
      Total Operating Expenses                        -904           -721
                                                      ----           ----
      OPERATING INCOME                                  55            181
                                                        --            ---
    Other-than-temporary impairment charge on
     financial assets                                  -14              0
    Interest income, net                                 8             22
    Earnings (loss) on equity investments             -344              3
                                                      ----              -
      INCOME (LOSS) BEFORE INCOME TAXES
       AND MINORITY INTERESTS                         -295            206
    Income tax benefit (expense)                        15            -18
                                                        --            ---
      INCOME (LOSS) BEFORE MINORITY INTERESTS         -280            188
    Minority interests                                  -9             -1
                                                        --             --
      NET INCOME (LOSS)                               -289            187
                                                      ====            ===

     EARNINGS (LOSS) PER SHARE (BASIC)               -0.32           0.21
     EARNINGS (LOSS) PER SHARE (DILUTED)             -0.32           0.20

      NUMBER OF WEIGHTED AVERAGE
       SHARES USED IN CALCULATING
       DILUTED INCOME (LOSS) PER SHARE               890.3          945.2



    STMicroelectronics N.V.
    Consolidated Statements of Income
    (in million of U.S. dollars, except  per share data ($))

                                                   Nine Months Ended
                                                   -----------------
                                               (Unaudited)   (Unaudited)
                                               -----------   -----------
                                              September 27, September 29,
                                                    2008          2007
                                                    ----          ----

    Net sales                                      7,528         7,233
    Other revenues                                    38            25
                                                      --            --
      NET REVENUES                                 7,566         7,258
    Cost of sales                                 -4,828        -4,733
                                                  ------        ------
      GROSS PROFIT                                 2,738         2,525
    Selling, general and administrative             -882          -803
    Research and development                      -1,581        -1,322
    Other income and expenses, net                    56            20
    Impairment, restructuring charges
     And other related closure costs                -390          -949
                                                    ----          ----
      Total Operating Expenses                    -2,797        -3,054
                                                  ------        ------
      OPERATING LOSS                                 -59          -529
                                                     ---          ----
    Other-than-temporary impairment
     charge on financial assets                      -82             0
    Interest income, net                              48            57
    Earnings (loss) on equity investments           -350            12
                                                    ----            --
      LOSS BEFORE INCOME TAXES
       AND MINORITY INTERESTS                       -443          -460
    Income tax benefit (expense)                      34           -32
                                                      --           ---
      LOSS BEFORE MINORITY INTERESTS                -409          -492
    Minority interests                               -12            -4
                                                     ---            --
      NET LOSS                                      -421          -496
                                                    ====          ====

      LOSS PER SHARE (BASIC)                       -0.47         -0.55
      LOSS PER SHARE (DILUTED)                     -0.47         -0.55

      NUMBER OF WEIGHTED AVERAGE
       SHARES USED IN CALCULATING
       DILUTED LOSS PER SHARE                      896.8         898.5

 

Web site: http://www.st.com/