STMicroelectronics : Reports Fourth Quarter and Full Year 2015 Financial Results

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Press release

PR No. C2792C

STMicroelectronics Reports 2015 Fourth Quarter and Full Year Financial Results

• Fourth quarter net revenues of $1.67 billion and gross margin of 33.5%
• 2015 net revenues of $6.90 billion and net income of $104 million
• Free cash flow* of $148 million in fourth quarter; $327 million in 2015
• ST to discontinue the development of new platforms and standard products for set-top-box and home gateway

Geneva, January 27, 2016 - STMicroelectronics (NYSE: STM), a global semiconductor leader serving customers across the spectrum of electronics applications, reported financial results for the fourth quarter and full year ended December 31, 2015.

Fourth quarter net revenues totaled $1.67 billion, gross margin was 33.5%, and net income was $2 million. For the full year 2015, net revenues totaled $6.90 billion, gross margin was 33.8%, and net income was $104 million.

"Fourth quarter sales and gross margin were well aligned with our guidance within a weak market, enabling ST to deliver a solid cash flow performance in the quarter and for the year in total," commented Carlo Bozotti, STMicroelectronics President and Chief Executive Officer.

"During 2015, we have increasingly focused our R&D and Sales & Marketing efforts on two areas: Smart Driving, enabled by digitalization and electrification, and the Internet of Things, including portable and wearable systems as well as smart home, city, and industry applications. Our products, technologies and system applications competencies are optimized for these areas, which we address with our products for Automotive and Industrial, our microcontrollers and digital ASICs, our analog and power portfolio as well as MEMS and specialized image sensors. The growth recorded in 2015 by our microcontrollers, and the solid performance of our automotive business despite weaker macroeconomic conditions, have been mainly driven by our sharpened, market-driven investment focus.

"Today we are announcing that we will discontinue the development of new platforms and standard products for set-top-box and home gateway. This difficult decision is consistent with our strategy to only participate in sustainable businesses and is due to the significant losses posted by our set-top box business over the past years in an increasingly challenging market."

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(*)Free cash flow is a non-U.S. GAAP measure. Please refer to Attachment A for additional information explaining why the Company believes this measure is important and for reconciliation to U.S. GAAP.

U.S. GAAP (Million US$)	Q4 2015	Q3 2015	Q4 2014	FY 2015	FY 2014
Net Revenues	1,668	1,764	1,829	6,897	7,404
Gross Margin	33.5%	34.8%	33.8%	33.8%	33.7%
Operating Income, as reported	25	91	38	109	168
Net Income attributable to parent company	2	90	43	104	128

Non-U.S. GAAP* Before impairment and restructuring charges (Million US$)	Q4 2015	Q3 2015	Q4 2014	FY 2015	FY 2014
Operating Income	29	102	58	174	258
Operating Margin	1.7%	5.8%	3.2%	2.5%	3.5%

Revi ew of ST' s Set-Top box Business

ST's digital business is at the core of the company's strategy. It represents a significant share of ST's revenues and focuses on growing applications, with a portfolio that includes general purpose and secure microcontrollers, digital automotive products, ASICs and specialized imaging sensors.

After an extensive review of external and internal options for the future of the Company's set-top box business, ST will discontinue the development of new platforms and standard products for set-top-box and home gateway. The slower than expected market adoption of leading-edge products and increasing competition on low-end boxes, combined with the required high level of R&D investment, has led this business to generate significant losses in the course of the last years.

As a result of this, the Company announced a global workforce review, including:

• the redeployment of about 600 employees, currently associated with the set-top-box business, to support principally ST's growth ambitions in digital automotive and microcontrollers;

• a global workforce re-alignment that may affect approximately 1,400 employees worldwide, of which about 430 in France through a voluntary departure plan, about 670 in Asia and about 120 in the US. Deployment of the plan by country or site will be subject to applicable legislation and will depend on local negotiations. In 2016, the workforce re-alignment is anticipated to affect about 1,000 employees, out of which about 150 in France.

Annualized savings are estimated at $170 million upon completion and restructuring costs at about $170 million.

Fourth Quarter Review

Net revenues in the fourth quarter decreased 5.5% sequentially to $1.67 billion. By region of shipment, EMEA, Greater China & South Asia, Japan & Korea, and the Americas decreased by 2.8%, 5.2%, 7.6%, and 8.6%, respectively, on a sequential basis.

On a year-over-year basis, net revenues decreased 8.8% or 5.5% excluding negative currency effects and mobile legacy products.

Fourth quarter gross profit was $559 million and gross margin was 33.5%. On a sequential basis, gross margin decreased 130 basis points, reflecting the impact of unused capacity charges of about 180 basis points and price pressure partially offset by favorable currency effects, net of hedging, manufacturing efficiencies and favorable product mix. On a year-over-year basis, gross margin decreased by 30 basis points, mainly due to price pressure and lower sales of licenses largely offset by favorable currency effects, net of hedging, manufacturing efficiencies and favorable product mix.

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(*)Operating income before impairment and restructuring charges and operating margin before impairment and restructuring charges are non-

U.S. GAAP measures. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.

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Combined R&D and SG&A in the fourth quarter increased to $583 million from $549 million in the third quarter, principally due to seasonality and a longer calendar partially offset by favorable currency effects, net of hedging. On a year-over-year basis, combined R&D and SG&A expenses decreased by

$28 million mainly due to favorable currency effects, net of hedging, and savings from the EPS restructuring plan.

Other income and expenses, net in the fourth quarter, increased to $53 million from $38 million in the prior quarter, with the $15 million increase mainly reflecting a higher level of R&D funding and the gain realized from the sale of a non-strategic asset. Other income and expenses, net was $50 million in the year-ago quarter.

Impairment, restructuring and other related closure costs for the fourth quarter were $4 million, compared to $11 million and $20 million in the prior and year-ago quarter.

Operating margin before impairment and restructuring charges* decreased to 1.7% in the fourth quarter from 5.8% and 3.2% in the prior and year-ago quarter, respectively, mainly due to lower revenues.

Fourth quarter net income was $2 million, compared to a net income of $90 million and $43 million, or

$0.10 and of $0.05 per share, in the prior and year-ago quarter, respectively.

For the fourth quarter of 2015, the effective average exchange rate for the Company was approximately

$1.11 to €1.00, compared to $1.16 to €1.00 for the third quarter of 2015 and $1.29 to €1.00 for the fourth quarter of 2014.

Net Revenues Summary

Net Revenues By Product Line and Segment (Million US$)	Q4 2015	Q3 2015	Q4 2014	FY 2015	FY 2014
Analog & MEMS (AMS)	207	233	266	968	1,102
Automotive (APG)	408	447	436	1,727	1,807
Industrial & Power Discrete (IPD)	392	437	462	1,706	1,865
Sense & Power and Automotive Products (SP&A)	1,007	1,117	1,164	4,401	4,774
Digital Product Group (DPG) (a)	212	230	259	857	1,086
Microcontroller, Memory & Secure MCU (MMS)	442	412	388	1,616	1,507
Other EPS	-	-	13	-	15
Embedded Processing Solutions (EPS)	654	642	660	2,473	2,608
Others	7	5	5	23	22
Total	1,668	1,764	1,829	6,897	7,404

(a) Effective January 1, 2015, the Digital Convergence Group (DCG) and Imaging, BI-CMOS and Silicon Photonics (IBP) groups were combined under one single organization, called Digital Product Group (DPG). Prior periods have been restated accordingly.

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(*)Operating margin before impairment and restructuring charges is a non-U.S. GAAP measure. For additional information and reconciliation to

U.S. GAAP, please refer to Attachment A.

Net Revenues By Market Channel (%)	Q4 2015	Q3 2015	Q4 2014	FY 2015	FY 2014
Total OEM	67%	67%	68%	68%	69%
Distribution	33%	33%	32%	32%	31%

Quarterly Revenues and Operating Results by ST Product Segment

Operating Segment (Million US$)	Q4 2015 Net Revenues	Q4 2015 Operating Income (Loss)	Q3 2015 Net Revenues	Q3 2015 Operating Income (Loss)	Q4 2014 Net Revenues	Q4 2014 Operating Income (Loss)
Sense & Power and Automotive Products (SP&A)	1,007	36	1,117	102	1,164	98
Embedded Processing Solutions (EPS)	654	(4)	642	-	660	(34)
Others (a)	7	(7)	5	(11)	5	(26)
TOTAL	1,668	25	1,764	91	1,829	38

(a) Net revenues of "Others" include revenues from sales of Subsystems, assembly services, and other revenue. Operating income (loss) of

"Others" includes items such as impairment, restructuring charges and other related closure costs, phase out and start-up costs, and other unallocated expenses such as: strategic or special research and development programs, certain corporate-level operating expenses, patent claims and litigations, and other costs that are not allocated to product groups, as well as operating earnings of the Subsystems and Other Products Group. "Others" includes $4 million, $11 million, and $20 million of impairment, restructuring charges, and other related closure costs in the fourth and third quarters of 2015 and fourth quarter of 2014, respectively.

SP&A segment fourth quarter net revenues decreased 9.9% sequentially mainly due to weak market conditions and the inventory correction in the channel. On a year-over-year basis, SP&A revenues decreased 13.5% mainly due to lower revenues in all product groups, weak market conditions and the slower than expected ramp of microphones.

SP&A operating margin was 3.6% in the 2015 fourth quarter compared to 9.2% in the prior quarter mainly reflecting lower revenues and $16 million of unused capacity charges. SP&A operating margin was 8.4% in the year-ago quarter.

EPS segment fourth quarter net revenues increased 2.0% on a sequential basis mainly driven by general purpose microcontrollers in MMS offset in part by lower DPG sales. On a year-over-year basis, EPS net revenues decreased 0.9% with strong growth in MMS offset by lower DPG sales.

EPS segment posted an operating loss of $4 million in the fourth quarter compared to break-even in the prior quarter mainly reflecting lower revenues and $14 million of unused capacity charges. EPS operating margin was negative 5.1% in the year-ago quarter.

Cash Flow and Balance Sheet Highlights

Free cash flow* was $148 million in the fourth quarter, compared to $85 million and $208 million in the prior and year-ago quarter, respectively. Free cash flow was $327 million in 2015, compared to $197 million in 2014.

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(*)Free cash flow is a non-U.S. GAAP measure. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.