(*)Adjusted earnings per share is a non-U.S. GAAP measure. For additional information please refer to Attachment A.
First Quarter 2010 Business Outlook
Mr. Bozotti stated, "We started the first quarter with a solid backlog and we are working to serve our customers' demand. In-line with historical trends, we expect to register a sequential net revenue decrease between about -7% and -13% which equates to a positive 35% to 45% when compared to the year-over-year period. However, we expect a better than historical evolution in our gross margin to about 37.5%, plus or minus 1 percentage point thanks to better manufacturing loading and efficiency and an improved product mix.
"Looking forward, we believe ST is well positioned to benefit from the industry upturn because of the important work we have done in product and technology innovation. We plan to deliver the benefits of our innovation to our customers and we also expect ST-Ericsson to execute on its plan to transition to the new portfolio strategy they have devised for their next generation offering. ST's recent design-wins for digital consumer platforms, ASICs, and automotive products and our many promising offerings including 32-bit microcontrollers, MEMS, with our new families of gyroscopes and active microphones, and low-power sensors for healthcare and building automation applications support our efforts to continuously improve our product portfolio.
"In summary, we are excited about the many opportunities ahead of us. While we continue to make solid progress on reducing our cost structure, our innovative product portfolio is positioning us well to achieve sustainable profitability and cash flow generation."
This outlook is based on an assumed effective currency exchange rate of approximately $1.42 = 1.00 euro for the 2010 first quarter, which reflects an assumed exchange rate of $1.44 = 1.00 euro combined with the impact of existing hedging contracts averaging a hedged rate of about $1.41 = 1.00 euro. In addition, the first quarter will close on March 27, 2010.
Recent Corporate Developments
On December 3, 2009, ST announced changes to its global sales and marketing organization, aimed at better serving its customers and improving the overall effectiveness of its sales and marketing structure. The moves, which became effective January 1, 2010, included the consolidation of ST's regions in Asia to two regions from three: Greater China & South Asia and Japan & Korea. The Greater China and South Asia region is now led by Corporate Vice President Francois Guibert and the Japan and Korea region is led by Corporate Vice President Marco Cassis. Corporate Vice President Bob Krysiak, moving from Greater China, is now leading the Americas region.
On January 4, 2010, ST, Enel Green Power and Sharp signed an agreement for the manufacture of triple-junction thin-film photovoltaic panels in Italy. The factory, located in Catania in the existing M6 facility to be contributed by STMicroelectronics, is expected to have an initial production capacity of 160 MW per year. The plant's capacity is targeted to be gradually increased to 480 MW per annum over the next years and right from its start will represent the single most important production facility for solar panels in Italy.
On January 14, 2010, ST completed a program to repurchase a portion of its outstanding Zero Coupon Senior Convertible Bonds due 2016 ("2016 Bonds"). A total of $298,174,000 nominal value of 2016 Bonds were repurchased representing approximately 30.6% of the total amount originally issued. The Company paid $314.6 million from outstanding cash to repurchase 2016 Bonds with an accreted value of $316.0 million. The repurchased Bonds have been cancelled in accordance with their terms.
Q4 2009 Products, Technology and Design Wins
Automotive, Consumer, Computer and Communication Infrastructure (ACCI)
- In automotive electronics, ST gained a major design win from a world-leading US car maker for a 32-bit microcontroller (MCU) based automatic-transmission platform to be deployed across all its models. The 32-bit Power Architecture MCU implements ST's leading-edge proprietary embedded-Flash technology. Together with Freescale, ST also introduced a dual-core Power Architecture MCU family designed for functional safety applications.
- In the powertrain arena, ST achieved a design win for a single-chip smart-power actuator chip, manufactured in ST's proprietary BCD technology, from a major tier-one OEM in Europe for deployment in Europe and America. ST also gained important design wins from major tier-one OEMs in Europe and Japan for smart-IGBT based Electronic Ignition Drivers, satisfying the stringent requirements of space, cost, and enhanced functionality and diagnostics. Market demand for ST's world-leading expertise in smart power technology is increasingly being driven by the CO2 reduction plans currently being executed by car makers.
- In car body applications, ST consolidated its leadership position in 'door zone' applications, such as controls for windows, mirrors and side-impact airbags, with a design win from a major OEM in Europe for the market's largest generic platform, including all variants from low- to high-end solutions.
- In automotive infotainment, ST gained an important design win for its second generation of highly integrated car-radio receiver ICs from a leading car-infotainment manufacturer in Japan, with production to start in H2 2010. ST also achieved a key design win, for its leading-edge multi-standard tuner DSP family, from a leading infotainment OEM in Europe. Additionally, ST gained an important design win for its GPS solutions for road-tolling equipment in Germany from a leading European manufacturer.
- In home entertainment applications, ST announced its adoption of the ARM® Cortex™-A9 MPCore™ processor, in addition to the Mali®-400 graphics processor, for its upcoming set-top-box and digital TV System-on-Chip (SoC) ICs. The Cortex-A9 processor will provide the scalable high performance required to enable the high-bandwidth broadband and broadcast content being streamed into homes, while also enabling ST to leverage its expertise in mobile markets, in close cooperation with ST-Ericsson, to deliver world-class power efficiency.
- In set-top-box (STB) applications, ST has several projects in development with key players, based on the STi7105 HD decoder running middleware from NDS, allowing ST to gain an important piece of this market. ST is also winning new designs on the STi7105, including, most recently, a key broadcaster in France. ST also announced that its highly integrated STi5197 cable STB decoder is now shipping in high volume to leading STB makers in China.
- Also in STBs, ST's satellite front-end STB demodulator ICs are now being used by a leading US broadcaster in outdoor dish units, which gives it the potential to be installed in every new subscriber's home in the US. ST also achieved EuroDOCSIS 2.0 certification for its production-ready reference design for feature-rich cable STBs using the STi7141 SoC.
- In digital TV chips, ST launched a new generation of high-performance, full high-definition (HD) H.264/MPEG SoCs with world-class Faroudja™ video/audio enhancements, delivering full high-definition processing and accelerated Internet-TV support for the next-generation of integrated broadcast and broadband digital TVs. The new 'Freeman' SoCs will enable compelling services and new business models for premium content, and will deliver a rich and intuitive user experience. Additionally, ST gained a design win for an advanced H.264/MPEG decoder to increase its penetration of the emerging ISDB-T DTV market in Latin America.
- In multimedia display chips, ST announced two new families of Faroudja-based LCD controller SoCs with advanced color processing and DisplayPort and HDMI receivers to support full-HD sources, such as Blu-ray. The DisplayPort-based STDP8028 SoC is being designed into multi-function monitors and public displays by leading OEMs around the world, with two tier-one manufacturers starting mass production in the quarter. In addition, two tier-one makers also started production with the new STDP6000 SoC.