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STMicroelectronics has reported its financial results for the third quarter and first nine months ended 25th September 2004.
Net revenues for the third quarter were $2,231 million, up 2.7% sequentially from the $2,172 million reported in the prior quarter, and 23.7% above the $1803 million of last year's third quarter.
Revenues from application specific products were $1163 million, or 52.1% of 2004 third quarter net revenues.
Differentiated product revenues were $1451 million, or 65.0% of net revenues for the period.
Gross profit was $845 million, up 4.0% sequentially from the prior quarter's $812 million, and 33.6% above last year's third quarter gross profit of $632 million.
Gross margin was 37.9%, higher than the prior quarter's 37.4% and the 35.1% reported for last year's third quarter.
Pasquale Pistorio, President and Chief Executive Officer, commented: "ST continued to improve profitability levels in the third quarter".
"Despite a progressive decline in market demand that was characterised by shortened lead times and backlog adjustments, our revenues came in within the guidance parameters we provided at the time of our 2004 second quarter earnings announcement".
"We are especially pleased that gross margin reached 37.9% for the period, the high end of our guidance range, benefiting from sequential improvements in product mix and manufacturing efficiencies".
Operating income increased 19.1% to $213 million, or 9.6% of net revenues, in the 2004 third quarter, up from the $179 million, or 8.3% of net revenues, reported in the prior quarter.
In the 2003 third quarter, impairment, restructuring charges and other related closure costs resulted in an operating loss of $64 million.
Before impairment, restructuring charges and other related closure costs, the company posted 2003 third quarter operating income of $129 million, which equated to 7.1% of net revenues.
Net income equalled $189 million in the 2004 third quarter, a 28.4% increase over the $148 million reported in the 2004 second quarter.
In the 2003 third quarter, the company's net loss was $50 million.
Before impairment, restructuring charges and other related closure costs, and a non-operating pre-tax charge of $22 million related to bond repurchases, last year's third quarter net income was $102 million.
Earnings per diluted share were $0.20 for the 2004 third quarter, up 25% from the $0.16 earned in the 2004 second quarter.
In the 2003 third quarter, the company incurred a per share loss of $0.06.
Before impairment, restructuring charges and other related closure costs, the company had earnings per diluted share of $0.09 in the year-ago quarter.
Pistorio noted: "In the 2004 third quarter, we kept the dollar amount of R and D spending at the same level as the prior quarter, and we succeeded in reducing SG and A costs by 2.6% on a sequential basis".
"In the aggregate, R and D and SG and A expenses accounted for 27.6% of third quarter net revenues, a sequential reduction of 110 basis points".
"This was accomplished while maintaining the accelerated pace of our product design and development activities".
In the 2004 third quarter, research and development expenses were $384 million, flat with the $384 million expensed in the prior quarter, and 26.7% above the $302 million reported in the comparable year-ago period.
R and D costs represented 17.2% of net revenues in the 2004 third quarter compared to 17.7% of net revenues in the prior quarter, and 16.8% of net revenues in the year-ago quarter.
Selling, general, and administrative expenses were $233 million for the 2004 third quarter, 2.6% below the prior quarter's $239 million, and 21.5% above the $191 million incurred in the comparable year-ago period.
As a percentage of net revenues, SG and A expenses decreased to 10.4%, from 11.0% in the prior quarter, and 10.6% in last year's third quarter.
For ST, the average exchange rate of the Euro against the US dollar in the 2004 third quarter was approximately $1.21 to Eur 1, compared with $1.20 to Eur 1 in the second quarter of 2004 and $1.12 to Eur 1 in last year's third quarter.
Summarising, Pistorio said: "Year-over-year revenue increases were achieved by all of our product groups and targeted market segments".
"As anticipated, third quarter sequential revenue growth was driven primarily by a broad range of digital consumer applications and application specific ICs serving wireless, data storage and certain automotive/audio applications".
"Revenues from Flash memory products were basically flat at $306 million, increasing by $2 million from the $304 million reported in the prior quarter".
"Importantly, all four of our major product groups produced operating profits in the 2004 third quarter, and three out of four posted sequential increases in operating income, enabling ST to significantly improve its profitability for the period and contributing to the company's sequential increases of 19.1% in operating income, 28.4% in net income and 25.0% in earnings per diluted share", Pistorio said.
At 25th September 2004, ST had cash, cash equivalents, and marketable securities of $1.63 billion.
Total debt was $1.83 billion; shareholders' equity was $8.3 billion.
Net cash from operating activities equalled $1697 million for the first nine months compared with $1,142 million in last year's first nine months.
Capital expenditures were $719 million in the 2004 third quarter and $1,627 million for the first nine months.
Net operating cash flow was favourable by $3 million for the first nine months of 2004.
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