Bozotti identifies four priorities at ST

PARIS — Shortly after STMicroelectronics NV (Geneva, Switzerland) reported a third quarter net loss of $289 million, Carlo Bozotti, president and CEO of ST, highlighted four key priorities for the group.

At an analysts' conference on Wednesday (Oct. 29), Bozotti noted that because the market environment has changed quickly, the first priority for ST will be to continue to take the appropriate actions to navigate through this downturn. "Importantly, we have the financial strength and resources needed to both manage through and emerge as a strong industry player," he stated.

Several times in the context of the conference, Bozotti put an emphasis on the stronger dollar and its effects. The dollar has indeed gained 27 percent in value against the euro since ST last reported its earnings in July. Also present at the analysts' conference, Carlo Ferro, ST's chief financial officer, said the stronger dollar is already sustaining margins. Full benefits should be visible in the second quarter of 2009, he continued.

As he moved to the second priority, Bozotti however proved cautious as he declared: "Even though we are benefiting from a stronger dollar, we will continue to optimize our cost structure improving our manufacturing efficiencies and advance our asset-lighter structure. Our plans to rationalize our manufacturing operations are well underway but we have not yet reached agreements to sell."

He added: "Our priority to sell the fabs is an ongoing concern but, under the current difficult market conditions, we will move forward with our original plan while attempting to find other potential solutions."

In a move to further optimize asset utilization and enhance performance for shareholders and customers, following the decision to deconsolidate its Flash memory business, ST announced in July 2007 would rationalize three of its manufacturing operations, namely its 6-inch (150 mm) wafer fab in Carrollton, Texas, its 8-inch (200 mm) fab in Phoenix, Arizona, and its back-end packaging and test facility in Ain Sebaa, Morocco.

As for the third priority, Bozotti said with respect to ST's wireless business, the company is moving forward on an accelerating timeline to capture the identified synergies. "At the same time, our goal is to complete the ST-Ericsson joint venture as soon as feasible and to have a clear roadmap to drive success upon closing of the joint venture," he added.

In August, ST and Ericsson indeed agreed to merge ST-NXP Wireless and Ericsson Mobile Platforms (EMP) and into a 50/50 joint venture. Under the terms of the transaction, Ericsson's contribution represents $1.1 billion in cash. This will be used to pay $700 million to ST in exchange for ST-NX, and to provide a cash buffer of $400 million for the new venture. ST is expected to exercise its option to buy NXP's 20 percent stake in ST-NXP Wireless before the closing of the transaction.

The fabless joint venture is set to employ about 8,000 people and have estimated annual revenue of $3.7 billion.

The fourth priority, said Bozotti, is to continue to leverage the company's key assets, in particular in power solutions. He stated: "Our presence in MEMS, analog and microcontrollers, to name just a few of our many products, are important contributors to our performance. Our new products have enabled us to increase our position with our new key target customers."

In his conclusion, Bozotti stressed on ST's strong financial position. He commented: "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 market. We are very proud of our accomplishments in the first nine months of 2008 and we are well-positioned to face the downturn in the market."