STMicroelectronics : Q117 Earnings Conference Call Remarks

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

Our agenda today includes an overview, followed by a detailed discussion of our results, and our outlook for the second quarter. But before starting this detailed review of the quarter, you might have seen that, this morning, we also released the main resolutions proposed to our Annual General Meeting of Shareholders. Among the resolutions, I have accepted the proposal to extend my role as President and CEO for one more year and I am fully committed to drive this company forward with the support of the newly- appointed Deputy CEO Jean-Marc Chery and a strong Executive Team.

Our objective for 2017 is to achieve sustainable revenue growth and margin expansion through our strategic focus on Internet of Things and Smart Driving. The first quarter represented a very good start towards achieving this objective.

• Revenues increased 12.9% year-over-year to $1.82 billion. We saw healthy growth across all of our regions, product groups and sales channels. On a sequential basis, revenues decreased 2.1%; which was 30 basis points better than the mid-point of our guidance.

• Gross margin increased 420 basis points year-over-year to 37.6%. We benefited from a strong improvement in manufacturing efficiencies, a better product mix, lower unused capacity charges and favorable currency effects, partially offset by the normal pricing adjustments at the start of the year. On a sequential basis, gross margin came in 60 basis points better than the mid-point of our range, on better than expected product mix.

• Operating income before impairment and restructuring grew by $139 million year-over-year to $134 million in the first quarter, driven by higher revenues, improved product mix, manufacturing efficiencies, better fab loading and the set-top box restructuring program. In turn, operating margin before impairment and restructuring reached 7.4% of net revenues.

• Net income also saw a very strong year-over-year swing of $149 million to $108 million.

• Free cash flow -of $62 million- doubled over the year-ago quarter, even with the higher capital investments we are making this year to support our growth plans.

• We ended the quarter with a net financial position of $518 million, stable compared to Q416 and up by $79 million from the year-ago quarter: another indicator of our progress.

Now let's move to a detailed review of our product groups beginning with

ADG revenues increased year-over-year by 5.6% reflecting growth in automotive and strong growth in power discrete products. On a sequential basis, ADG revenues posted a better than seasonal result with a decrease of 1.2%.

ADG's operating margin was 5.4% in Q1, substantially stable in comparison to the year-ago period.

Moving to customer activity, bookings in automotive were robust in the first quarter. Thanks to our focus on technologies and products enabling greener driving, we had important design wins related to car electrification, particularly in the area of battery management and on-board charging. A number of OEMs worldwide selected products such as our MOSFETS - both high and low voltage Silicon, as well as Silicon Carbide-, our 32-bit microcontrollers, and a lithium-cell balancing device. We also captured the Body Control Unit for a module from an American Tier-1 and the Power Control Unit for a door zone application at a major European Tier-1.

We also had a number of important wins related to a more connected and safer driving experience. We started production of a 32-bit microcontroller for embedded security in a next generation automotive gateway. We won an award for a seat-belt pre-tensioner application with our 32-bit microcontroller for a major European Tier-1 and we had multiple wins with a parking brake application specific product.

In our infotainment portfolio, we were awarded new business for processors, AM/FM tuners and Class AB amplifiers from Japanese Tier-1s for the Asian market.

In addition, we had design wins with multiple global Tier-1s for rectifiers, protection devices, and automotive-grade IPAD devices for powertrain, on- board charger, ADAS and Safety, and high-speed data-line networks.

Successes in our power discrete business included a number of wins in Asia for both high and low voltage power supply applications and the continued expansion of our business on RF integrated passive devices for the IoT market with several large customers.