ST-Ericsson reports second quarter 2009 financial results

23 July 2009 No Comment

Net sales $666 million; 18.5% sequential increase
Adjusted operating loss $165 million
Strong momentum in China with leading customers
New organization announced to accelerate execution of new product strategy

ST-Ericsson, a joint venture of STMicroelectronics (NYSE:STM) and Ericsson (NASDAQ:ERIC), reported financial results for the second quarter 2009.

President and CEO, Alain Dutheil, commented: “During the second quarter our sales performed above normal seasonal patterns. This was due to the destocking phase in the channels being over, to the pick-up of demand in China, and to our steady execution on our commitments towards our customers.

We have kept a strong focus on our restructuring and realignment plans. The $250 million cost synergies program, defined by ST-NXP Wireless in the third quarter 2008, is expected to be completed by year-end according to schedule. The new restructuring plan of $230 million cost synergies, announced at the end of April, has been initiated and is expected to be completed by the second quarter 2010.

Today we have also announced our new organization, aligned to our product strategy, to further strengthen our technological leadership and complete the integration.”

Financial results based on US GAAP

Net sales in the second quarter were higher than normal seasonal patterns and showed a progress of 18.5% compared to first quarter 2009 pro-forma sales. This was mainly due to the higher demand in China – driven by TD-SCDMA- and in the rest of Asia-Pacific and to the alignment of inventory to demand levels across the handset supply chain.

The $165 million operating loss, excluding amortization of acquisition-related intangibles and restructuring charges, compares to a $149 million operating loss in the first quarter 2009 pro-forma and it includes approximately $20 million of non-recurring items linked to the start-up of the company.

Inventory declined sequentially by $109 million reaching $325 million at the end of the second quarter 2009, reflecting a tight control of the supply chain.

Net cash was $326 million at the end of second quarter 2009.

Update on restructuring plans

The $250 million cost synergies program defined by ST-NXP Wireless in the third quarter 2008 is in line with plans. The program envisaged a workforce reduction of 500 worldwide.

The $230 million restructuring plan announced on April 29 has been initiated. The associated restructuring charges were $35 million for the second quarter 2009. The plan envisages a reduction in workforce of 1,200 worldwide, upon completion of negotiations and consultations with Work Councils and employee representatives that have already started in all affected sites and organizations.

Market evolution

“While more normal seasonal market trends are likely to be confirmed in the next quarter, primarily driven by Asia, including China, the business environment remains uncertain in the medium term,” said Alain Dutheil. “We will continue to drive the execution of our realignment and restructuring plans with a strong focus on providing our customers with solutions spanning across all existing and next-generation access technologies.”

Q2 2009 highlights – products, technology and wins

In May, ST-Ericsson announced a strategic partnership with China Mobile to drive development of both high-end and low-cost handsets, based on 3G standard TD-SCDMA. Within this agreement, ST-Ericsson will also support four of its customers to commercialize their mobile phones during 2009-2010.

In June, the company strengthened its partnership with Samsung by providing an innovative platform for its first high-end TD-SCDMA/EDGE device for China’s mobile broadband market.

The company also announced mass production of its highly integrated RF transceiver solution to reduce cost and system footprint in 3G handsets. ST-Ericsson’s Aero4228 solution eliminates the need for expensive external filter components typically required to complete today’s mobile handset designs.