Fourth Quarter Review

ST's fourth quarter net revenues decreased 10.3% on a sequential basis, within our guidance, with all regions down sequentially. The Americas decreased 4.6%, Japan & Korea and Greater China & South Asia each were down about 7.5% and EMEA decreased 20.7%. On a year-over-year basis, ST's net revenues decreased 22.6%, with Analog, MEMS and Microcontrollers (AMM) and Automotive, Computer, Consumer and Communications Infrastructure (ACCI), led by Automotive, performing better than the other segments, in particular Wireless.

As expected, gross margin decreased 240 basis points compared to the prior quarter, principally due to lower volumes that were associated with the reduction in inventory that resulted in the underloading of ST's wafer fabs. On a year-over-year basis, gross margin declined by 650 basis points also mainly due to lower volumes, and related charges for unused capacity.

Combined SG&A and R&D expenses of $894 million in the fourth quarter were substantially flat compared to the prior quarter. On a year-over-year basis, combined expenses decreased $20 million reflecting the restructuring at ST-Ericsson, among other factors. Combined operating expenses, as a percentage of sales, were 40.8% in the 2011 fourth quarter compared to 36.8% and 32.3% in the prior and year-ago quarters, respectively.

Due to market conditions driving lower volumes and the resulting unsaturation, operating margin before restructuring attributable to ST was about break-even in the 2011 fourth quarter compared to 4.3% and 12.4% in the prior and year-ago quarters.*

Income tax in the fourth quarter includes a $92 million charge for a valuation allowance related to ST-Ericsson's accumulated Net Operating Losses. As this allowance does not relate to ST's investment in ST-Ericsson, minority interests increases by the same amount of $92 million, with no impact to ST's consolidated income. Absent this allowance, the ST tax rate for the fourth quarter would be 15%.

Fourth quarter net loss was $11 million or $(0.01) per share, compared to net income of $0.08 and $0.24 per diluted share in the prior and year-ago quarters, respectively. On an adjusted basis, net of related taxes, ST reported non-U.S. GAAP net loss per share of $(0.01) in the fourth quarter, compared to net income of $0.09 and $0.27 per diluted share in the prior and year-ago quarters, respectively.*

For the 2011 fourth quarter, the effective average exchange rate for the Company was approximately $1.36 to euro 1.00 compared to $1.40 to euro 1.00 for the 2011 third quarter and $1.34 to euro 1.00 for the 2010 fourth quarter.

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 (*)Operating income before restructuring, operating margin before restructuring, operating margin before restructuring attributable to ST and adjusted net earnings per share are non-U.S. GAAP measures. Please refer to attachment A for additional information explaining why the Company believes these measures are important and for reconciliation to U.S. GAAP.

Net Revenues by Market Segment