Business Outlook
Mr. Bozotti stated, "As we enter the third quarter, we are encouraged as our backlog, including frame orders, is higher than it was when we entered the second quarter of 2009. Based on current booking activity and visibility, we expect to register solid sequential revenue growth in all market segments and geographies. Additionally, we expect our gross margin to increase sequentially due to partially recovered operating efficiencies, an increase in fab utilization to about 75%, still leading to some further reduction in inventory, and an improved product mix. Early booking indicators for the fourth quarter are positive, but the global economic situation is still uncertain and we remain vigilant and prepared to adjust our manufacturing loading to meet changing demand.
"Finally, we are driving down the Company's break-even point through the previously announced one billion dollar savings and productivity plan. This broad-reaching plan encompasses manufacturing, the rationalization of sites, and capturing synergies in wireless. We are in-line with our plan to lower costs by $750 million in 2009 and expect a majority of those savings to be realized in the second half of 2009."
For the third quarter of 2009, ST expects:
-- Revenue: $2.07 billion to $2.27 billion, up sequentially between about
4% to 14%
-- Gross margin: 31%, plus or minus two percentage points
This outlook is based on an assumed effective currency exchange rate of approximately $1.37 = euro 1.00 for the 2009 third quarter, which reflects an assumed exchange rate (about $1.41 = euro 1.00) combined with the impact of existing hedging contracts (hedged rate: $1.33 = euro 1.00) .
Key Information on Consolidation / Deconsolidation
ST completed the deconsolidation of its Flash Memory Group (FMG) segment and took an equity interest in Numonyx on March 30, 2008, which is reported under the equity method of valuation with a one quarter lag in reporting.
ST-NXP Wireless, a joint venture initially owned 80% by ST, began operations on August 2, 2008 and was fully consolidated into ST's operating results. On February 1, 2009 and prior to the closing of the merger of ST-NXP Wireless and Ericsson Mobile Platforms to create ST-Ericsson, ST exercised its option to buy out NXP's 20% ownership stake of ST-NXP Wireless.
ST-Ericsson, a joint venture owned 50% by ST, began operations on February 3, 2009 and is consolidated into ST's operating results as of that date. ST-Ericsson is led by a development and marketing company and is consolidated by ST. A separate platform design company providing platform designs mostly to the development and marketing company is accounted for by ST using the equity method.
Recent Corporate Developments
On May 20, ST announced that all of the proposed resolutions were approved at the Company's Annual General Meeting (AGM), which was held in Amsterdam, the Netherlands, on May 20, 2009.
The main resolutions, proposed by the Supervisory Board, and approved by shareholders were:
-- Approval of the Company's 2008 statutory accounts reported in accordance
with International Financial Reporting Standards (IFRS);
-- The reappointment for a three-year term, expiring at the 2012 Annual
General Meeting, of the following members of the Supervisory Board: Mr.
Doug Dunn and Mr. Didier Lamouche; and
-- The distribution of a cash dividend of US$0.12 per share, to be paid in
four equal quarterly installments.
On June 25, ST announced the publication of the Company's 2008 Corporate Responsibility Report. The report, which covers all of ST's activities and sites in 2008, contains detailed indicators of the Company's performance across the full range of Social, Environmental, Health & Safety, and Corporate Governance issues and reaffirms ST's long-established commitment to serving its stakeholders with integrity, transparency and excellence.
Q2 2009 Products, Technology and Design Wins
Automotive, Consumer, Computer and Communication Infrastructure (ACCI)
Product Highlights
-- In automotive powertrain and safety applications, ST gained two design
wins for collision-warning applications, including a 26GHz transceiver
kit from a major European OEM and a radar-companion ASIC from a major
American OEM. ST also collected another design win for its video
processor family, developed in cooperation with Mobileye. ST saw further
success in China with two important design wins for
Power-architecture-based chipsets: the first for a powertrain chipset
and a smart-power kit for a 4-cylinder application from a fast-growing
car maker; and the second for an automatic transmission controller
chipset and smart-power kit for a major car maker.
-- In car-body applications, ST achieved several design wins including
intelligent power switches for front- and rear-light modules from an
important tier-one OEM in Europe and various wins for body-control
modules in China and India. Additionally, leading European car makers
have awarded contracts to two of ST's automotive OEM customers for
platforms based on ST's chipset for door modules and body-control
modules.
-- In car multimedia, ST received a design win from a major OEM in Japan
for a new car-radio audio processor, with production expected to start
in Q3 2010. An ST audio power IC was also selected by a major Japanese
OEM for a leading Japanese car maker. Additionally, ST received its
first orders for a new highly integrated AM/FM tuner IC from several car
radio makers in China.
-- In set-top-boxes (STBs), ST gained design wins in multiple markets, most
significantly for two new deployments for IPTV platforms in Europe. For
cable, ST gained a major high-definition PVR (Personal Video Recorder)
design win from a major European cable operator. Also, ST's latest
single-chip cable-STB decoder is now in volume manufacturing for several
operators in China. For satellite, ST gained multiple design wins and
production starts for standard- and high-definition STB deployment in
regions such as Mexico, the Middle East and the Caribbean.
-- In digital TV applications, ST increased its penetration in flat-panel
TVs with major design wins for a video-display processor from tier-one
OEMs. And in monitors, ST's highly-integrated premium monitor scaler
gained two design wins from leading OEMs. Additionally, ST's
DisplayPort-to-VGA Converter product, which enables seamless
connectivity between legacy VGA monitors and projectors with
DisplayPort-based PCs and notebooks, gained design wins with three
tier-one OEMs. Volume ramp-up is expected in Q3 09 for all these TV and
monitor design wins.
