IMS (Industrial and Multisegment Product Sector) first quarter net revenues increased 60% year-over-year to $811 million, driven by strong growth in microcontrollers, analog and power discrete products and again reflected solid growth in the multi-segment market and in distribution. IMS operating income continued to increase to $92 million in the first quarter, and compares to income of $85 million in the prior quarter and income of $5 million in the year-ago quarter. First quarter IMS operating margin was 11.3%.
Mr. Bozotti commented, "Our sustained R&D efforts are now resulting in many new product introductions and important design wins with major companies across the market segments we serve. In the area of MEMS we have two new families, gyroscopes and active microphones, which recently won key design wins at several well-known portable consumer device manufacturers. We have important families of 32-bit microcontrollers for automotive, including several design wins at tier-one OEMs in Europe and the US, and industrial and security applications and new complex digital ASICs for computer peripherals and communication infrastructure, in which we recently won 3 major design wins in 32nm process technology. Focusing on 3D graphics and 3DTV applications and offering low power performance, we are introducing a new generation of set-top box and TV products. And in the area of advanced analog and smart-power and power we are introducing a large number of new products."
Wireless net revenues in the first quarter increased 13% year-over-year to $587 million. Net revenues were driven by solid demand in Asia. Wireless operating loss in the first quarter increased to $116 million compared to an operating loss of $48 million and $107 million in the prior quarter and year-ago quarter, respectively, driven by lower revenues but partially mitigated by restructuring initiatives completed to date. Wireless operating loss in the first quarter of 2010 excludes $25 million in restructuring charges related to ST-Ericsson.
ST recorded $72 million of income in the first quarter of 2010, $59 million and $54 million in the prior quarter and year-ago period, respectively, reflecting the net loss attributable to non-controlling interest, mainly related to the ST-Ericsson joint venture. This amount is posted below operating results in ST's Consolidated Income Statement and reflects Ericsson's 50% share in the joint venture's loss, as consolidated by ST.
For additional information, including key design wins, on ST-Ericsson, see www.stericsson.com
Net Results
Income tax in the first quarter was $10 million of tax benefit, mainly reflecting a limited tax benefit from ST-Ericsson's results.
ST reported net income of $57 million in the first quarter of 2010, or $0.06 per diluted share, compared to a net loss of $70 million and $541 million in the prior quarter and year-ago period, respectively. On an adjusted basis, ST reported a first quarter of 2010 net income, excluding impairment, restructuring charges and other related closure costs attributable to parent Company's shareholders, of $62 million, or $0.07 per share compared to $36 million, or $0.04 per share in the fourth quarter of 2009.*
For the 2010 first quarter, the effective average exchange rate for the Company was approximately $1.39 to euro 1.00 compared to $1.43 to euro 1.00 for the 2009 fourth quarter and $1.33 to euro 1.00 for the 2009 first quarter.
Cash Flow and Balance Sheet Highlights
Net operating cash flow was $176 million and increased significantly in comparison to the year-ago period total of ($139) million, excluding M&A transactions and disposal of a financial instrument.*
Capital expenditures were $179 million during the first quarter of 2010, principally related to an increase in capacity. In the year-ago quarter, capital expenditures were $89 million.
Inventory was $1.27 billion at quarter end, down from $1.28 billion at December 31, 2009 and $1.66 billion at March 28, 2009. In the first quarter inventory turns were 4.6, in line with the Company's targeted range of 4.5 to 5.0 turns.
ST's net financial position improved significantly to a net cash position of $566 million at March 27, 2010 compared to $420 million at December 31, 2009 and $254 million at March 28, 2009.* ST's cash and cash equivalents, marketable securities (current and non-current) and restricted cash equaled $2.76 billion. Excluding cash and cash equivalents and marketable securities of $118 million related to ST-Ericsson, a $250 million restricted cash deposit as collateral for the Hynix-Numonyx loan and $47 million of non-current marketable securities, the Company's liquidity totaled $2.34 billion. Total debt was $2.19 billion. Total equity was $8.04 billion, including non-controlling interest of $1.13 billion.
With respect to the previously disclosed portfolio of unauthorized asset-backed securities, the recent ruling of the federal district court in New York granted the Company's petition to confirm the FINRA award and required Credit Suisse to satisfy fully its obligations to ST under the award. Based on the ruling, which can still be appealed by Credit Suisse, the Company is entitled to receive an additional amount of approximately $354 million.
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(*)Adjusted earnings per share, net operating cash flow and net financial position are non-U.S. GAAP measures. For additional information please refer to Attachment A.
Second Quarter 2010 Business Outlook
Mr. Bozotti stated, "Turning to the second quarter, based upon our current assessment of demand and backlog, revenues should show a solid progression driven by IMS and ACCI. We expect, therefore, to see sequential revenues growth of between 6% and 12%, which equates to solid growth of 24% to 31% when compared to the year-over-year period. Based upon the anticipated mix of revenue, the gross margin should improve slightly to about 38%, plus or minus 1 percentage point.
"As the market momentum is stronger than expected, we are committed to serve the robust demand of our customers, boosting our revenues growth and continuing to improve our net earnings through the next quarters.
"Additionally, based upon the Company's strong financial foundation, our confidence in the Company's ability to generate solid free cash flow and the expected proceeds of our product portfolio reshaping, our Supervisory Board has recommended to shareholders an increase in our annual cash dividend to 28 cents per share, which represents a yield of about 2.7%."
This outlook is based on an assumed effective currency exchange rate of approximately $1.38 = euro 1.00 for the 2010 second quarter, which reflects an assumed exchange rate of $1.34 = euro 1.00 combined with the impact of existing hedging contracts. The second quarter will close on June 26, 2010.
Recent Corporate Developments
On April 20, ST announced the main resolutions to be submitted for shareholder approval at the Company's Annual General Meeting, which will be held in Amsterdam on May 25, 2010 . The main resolutions, proposed by the Supervisory Board, include:
