STMICROELECTRONICS : Q116 Earnings Conference Call Remarks

ST Q116 CEO Remarks - Final Carlo Bozotti, President and Chief Executive Officer, STMicroelectronics Wednesday, April 27, 2016 - Final

Thank you for joining us this morning on our first quarter earnings' conference call.

Today's agenda includes an overview, followed by a detailed discussion of our results and product groups, an update on the market environment and our outlook for the second quarter.

So let's begin.

We have started the year by putting in place the key initiatives to improve our market presence and financial performance - and, in turn, we have delivered some initial, encouraging results.

First, we have started to execute on our strategic focus, with people, resources and investments centered in two areas: Smart Driving, enabled by digitalization and electrification of the car subsystems, and

the Internet of Things, which includes consumer devices as well as smart home, city and industry applications.

Second, the new go-to-market organization we put in place in January is now fully operational. Our product portfolio is well structured into three groups to reflect our focus and, importantly, to leverage the synergies of working together with: the Automotive and Discrete Group, ("ADG") which includes all of our automotive ICs, both digital and analog, and our discrete products; the Microcontrollers and Digital ICs Group ("MDG") which includes our general purpose and secure microcontrollers, our E2PROM memories and all of our digital ICs outside of automotive ICs; and the Analog and MEMS Group ("AMG") which includes our low-power analog ICs, smart power products for industrial and power conversion and all of our MEMS activity.

Third, two major product areas accounting for about 50% of our 2015 revenues, Automotive and Microcontrollers, delivered year-over-year growth: this is an important first result towards a more broad-based revenue growth. As we move further into the year, and based on today's visibility, we expect to see a larger proportion of our businesses driving growth.

Fourth, aligned with our sharpened focus, is the set-top box restructuring plan targeting $170 million in savings on an annualized basis. We expect to progressively capture these savings, generating about $145 million in 2017. The remaining savings will depend on the lifespan of the residual products. During the first quarter we recorded restructuring charges of $26 million related to the set-top box plan, and we expect to be on track with our timing exiting the second quarter.

Now let's turn to the first quarter results.

Q1 was aligned with our guidance. Total revenue came in at $1.613 billion, representing a sequential decrease of 3.3%. We saw better than normal seasonality, despite entering the quarter with a volatile macro- economic scenario and mixed industry dynamics.

Looking at our revenue results on a year-over-year basis, our goal to return to growth met with some promising indicators: Automotive, driven by our pervasiveness in all domains, and Microcontrollers, driven by the STM32 family, both grew above 4% excluding negative currency effects.

Our gross margin came in at 33.4% in the first quarter, better than the mid-point of our guidance of about 33%. Unused capacity charges were still meaningful, as they negatively impacted gross margin by about 60 basis points.

Operating expenses were well aligned with our plans, with combined R&D and SG&A of $571 million, compared to $591 million in the year- ago quarter. As we progress through 2016, our set-top box restructuring plan will further reduce our cost structure.

We had an operating loss of $5 million before impairment and restructuring charges. On a year-over-year basis, ADG and MDG operating results improved while AMG registered lower profitability mainly due to lower revenues.

Our free cash flow was positive at $31 million.

Also in the first quarter, ST's Supervisory Board proposed to resolve at ST's Annual General Meeting of Shareholders to be held on May 25, the distribution of a cash dividend of $0.24 per share to be distributed in quarterly installments of $0.06 per share in each of the second, third and fourth quarters of 2016 and first quarter of 2017.