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."
