(*) Adjusted gross margin is a non-U.S. GAAP measure. For additional information please refer to Attachment A.
Operating Results Review
In the 2009 first quarter, combined SG&A and R&D expenses of $837 million compared to $876 million in the prior quarter and $813 million in the year-ago period. First quarter 2009 operating expenses included the impact of the wireless transactions, including $23 million in recurring amortization charges. In comparison to the year-ago quarter, excluding FMG, the wireless additions were partially offset by favorable currency effects and cost reduction efforts.
SG&A expenses totaled $280 million in the first quarter of 2009, compared to $304 million in the prior quarter and $304 million in the year-ago period. R&D expenses in the first quarter 2009 totaled $557 million, compared to $572 million, in the prior quarter and $509 million, including one-time, in-process R&D charges of $21 million, in the year-ago period.
Significantly benefiting from the signature of the framework agreement of the 2008-2012 French R&D Program, Other Income and Expenses registered income of $63 million in the first quarter of 2009.
The Wireless Product Segment (WPS) has been adjusted to reflect the consolidation of the ST-Ericsson joint venture. WPS is now Wireless and includes the portion of sales and operating results of the ST-Ericsson joint venture as consolidated in the Company's revenue and operating results starting in the beginning of February 2009 and the results of ST-NXP Wireless' business in January as well as other margin related to the wireless business.
Given the unusually high amount of unused capacity charges, the charges are reflected in the segment "Others" in the first quarter of 2009 and prior quarters have been restated accordingly.
Operating Q1 2009 Q4 2008 Q1 2008
Segment Q1 2009 Operating Q4 2008 Operating Q1 2008 Operating
(In Million Net Income Net Income Net Income (Loss)
US$ and %) Revenues (Loss) Revenues (Loss) Revenues ex FMG
ACCI 627 (35) 899 18 1,045 25
IMS 499 12 791 101 772 95
Wireless
(a)(b) 518 (107) 575 (77) 348 (10)
Others
(c)(d) 16 (263) 11 (181) 14 (214)
(a) Net revenues of "Wireless" in the first quarter of 2009 includes
revenues from ST-NXP Wireless' business in January and the sales of
the ST-Ericsson joint venture starting in the beginning of February
2009.
(b) Operating income (loss) of "Wireless" includes the operating results
from ST-NXP Wireless' business in January, the operating results of
the ST-Ericsson joint venture starting in the beginning of February
2009 and other items affecting operating results related to the
wireless business.
(c) Net revenues of "Others" include revenues from sales of Subsystems,
assembly services and other revenues.
(d) Operating income (loss) of "Others" includes items such as unused
capacity charges, 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 first quarter 2009 "Others" includes $139
million of unused capacity charges and $56 million of impairment and
restructuring charges.
ACCI's (Automotive/Consumer/Computer/Telecom Infrastructure Product Groups) net revenues declined 40% year-over-year to $627 million. On a sequential basis, ACCI's net revenues decreased 30.2%. ACCI's operating results posted a loss of $35 million, compared to income of $17 million in the year-ago period due to lower sales volume and prices, offset in part by mix improvements.
IMS' (Industrial and Multisegment Product Sector) net revenues decreased 35.5% year-over-year to $499 million, reflecting a general decline in multisegment market conditions. MEMS was a particular bright spot. First quarter IMS sales comprised $322 million of ICs which decreased 32.8% year-over-year and $177 million of discrete products which decreased 39.7% year-over-year. On a sequential basis, IMS' net revenues decreased 37.0%. IMS operating profit was $12 million, compared to $90 million in the year-ago quarter reflecting decreases in both volumes and prices offset in part by mix improvements.
Wireless net revenues increased 49.1% year-over year to $518 million but decreased sequentially by 9.9%. For the first quarter of 2009, Wireless net revenues results reflected two months of operations of the ST-Ericsson joint venture. Net sales reflected the economic downturn that led to weaker consumer demand especially in Europe, mainly in the feature phones segment, reinforced by overall inventory reduction in the handset supply chain.
Wireless operating losses in the first quarter were $107 million as a consequence of both the low level of sales and of price pressure on margins, partially offset by already planned reductions in operating expenses related to the cost synergies program previously announced by ST-NXP Wireless in November 2008. Noncontrolling interests of $54 million, mainly related to the ST-Ericsson joint venture, are posted below operating loss as an income in the Company's Consolidated Income Statement.
ST-Ericsson announced today that a restructuring plan is being launched for immediate execution and is due to be completed by the second quarter of 2010. This plan is incremental to the $250 million cost synergies program announced by ST-NXP Wireless in November 2008. Annualized savings of the new restructuring plan are expected to be approximately $230 million upon completion. Restructuring costs are estimated in the range of $70 - 90 million, of which the majority is expected to be recorded during the second quarter of 2009. The main assumptions of the restructuring plan are: a re-alignment of product roadmaps to create a more agile and cost-efficient R&D organization; a reduction in workforce of 1,200 worldwide to reflect further integration activities following the merger, lower sales volumes and limited visibility on the timing of market recovery.
For additional information on ST-Ericsson, see www.stericsson.com
First quarter 2009 restructuring and impairment charges totaled $56 million and were mainly related to the phase-out of wafer manufacturing operations in Carrollton, Texas and assembly operations in Ain Sebaa, Morocco and the Company's recently committed cost savings initiatives.
