ACCI fourth quarter net revenues decreased about 10% compared to the prior quarter and about 21% on a year-over-year basis, which was also negatively impacted by ST's planned exit from hard disk drive system-on-chip. Despite the lower level of revenues, ACCI operating margin was 6.1% compared to 7.1% and 12.1% in the prior and year-ago quarters, respectively.
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(a) Reflecting the transfer of a small business unit from ACCI to AMM as of January 1, 2011, the Company has reclassified prior period revenues and operating income results from ACCI to AMM.
(b) Wireless includes the portion of sales and operating results of ST-Ericsson as consolidated in the Company's revenues and operating results, as well as other items affecting operating results related to the wireless business.
(c) Net revenues of "Others" includes revenues from sales of Subsystems, assembly services and other revenues.
(d) Operating income (loss) of "Others" includes items such as unused capacity charges, 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 or losses of the Subsystems and Other Products Group. "Others" includes $99 million, $42 million and $2 million of unused capacity charges in the fourth and third quarters of 2011 and fourth quarter of 2010, respectively; and $9 million, $10 million and $32 million of impairment, restructuring charges and other related closure costs in the fourth and third quarters of 2011 and fourth quarter of 2010, respectively.
AMM fourth quarter net revenues decreased by approximately 12% compared to the prior quarter. On a year-over-year basis, AMM revenues decreased by about 19%. AMM operating margin, showing resilience, was 17.7% in the 2011 fourth quarter, compared to 19.9% and 24.4% in the prior and year-ago quarters, respectively.
PDP fourth quarter net revenues decreased 20% sequentially and 31% on a year-over-year basis, reflecting mainly weak market conditions. In the 2011 fourth quarter, PDP operating margin was 6.4% compared to 10.6% and 17.2% in the prior and year-ago quarters, respectively, mainly due to lower volumes and price erosion.
Wireless net revenues in the fourth quarter decreased 0.8% sequentially and 27% year-over-year. In the fourth quarter, Sharp announced new smartphones based on ST-Ericsson's Thor™ modem and Nokia selected the NovaThor™ platform for future devices based on the Windows Phones mobile platform. Wireless operating loss was $211 million in the fourth quarter, out of which $93 million is for ST's competence, compared to an operating loss of ST's competence of $106 million and $64 million in the prior and year-ago period, respectively. Non-controlling interest is recorded below operating results in ST's Consolidated Income Statement and reflects primarily Ericsson's 50% share in the joint venture's results, as consolidated by ST.
ST-Ericsson is currently in a shift from legacy to new products. Though their path to success is challenging, ST-Ericsson is continuing to focus on securing the successful execution and delivery of their new products to customers while lowering its break-even point.
The changes in the business environment at a large customer during 2011 have reduced demand for legacy products and are delaying the ramp of new products with that customer. As ST-Ericsson does not yet have the adequate level of sales, the company's path to improve its financial performance is expected to take longer. Additionally, ST-Ericsson has recently increased its focus on execution.
ST-Ericsson's very recently appointed Chief Executive Officer and leadership team have been requested by the Parent Companies to review its strategic plan and financial prospects. ST, together with our partner Ericsson, is firmly committed to support ST-Ericsson in the transition to turn-over to sustainable profitability and cash generation.
As a result of this strategic review we may consider additional actions to solidify and accelerate ST-Ericsson's path to profitability. In such an event, or in case of a significant worsening of business prospects, the value of ST-Ericsson for ST could decrease to a value significantly lower than the current carrying amount of ST-Ericsson on our books and we may be required to take an impairment charge.
We will continuously monitor ST-Ericsson's business evolution and we will evaluate their progress on a regular basis.
For additional information, see ST-Ericsson's Q4 2011 earnings results press release at www.stericsson.com.
Cash Flow and Balance Sheet Highlights
Free cash flow improved sequentially to positive $47 million in the fourth quarter, principally due to lower capital expenditures and the reduction of inventory and despite the results of ST-Ericsson, compared to a negative $136 million and a positive $349 million in the prior and year-ago quarters, respectively.*
As anticipated, capital expenditures in the fourth quarter decreased significantly to $76 million compared to $384 million and $423 million in the prior and year-ago quarters, respectively.
Inventory decreased by $170 million to $1.53 billion at year end. In the fourth quarter inventory turns improved to 3.8.
In the fourth quarter, dividends paid to shareholders were $89 million. In addition, the Company paid $199 million to redeem a portion of its 2016 convertible bond.
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(*)Free cash flow is a non-U.S. GAAP measure. For additional information, please refer to Attachment A.
ST's net financial position, adjusted taking into account our 50% investment in ST-Ericsson, was a net cash position of $1,167 million at December 31, 2011 compared to $1,134 million at October 1, 2011 and $1,227 million at December 31, 2010. ST's cash and cash equivalents, short-term deposits, marketable securities and restricted cash equaled $2.33 billion and total debt, including 100% of ST-Ericsson's debt, as consolidated by ST, was $1.57 billion at December 31, 2011.*
Total equity, including non-controlling interest, was $8.0 billion at year end.
In the 2011 fourth quarter the Company posted a return on net assets (RONA) attributable to ST of negative 0.3%*
Summary Financial Highlights for 2011
|
(In Million US$) |
Full Year 2011 |
Full Year 2010 |
|
Net Revenues (a) |
9,735 |
10,346 |
|
Gross Margin |
36.7% |
38.8% |
|
Operating Income (Loss), as reported |
46 |
476 |
|
Non-U.S. GAAP Operating Income (Loss) before restructuring* |
121 |
580 |
|
Non-U.S. GAAP Operating Margin before restructuring* Non-U.S. GAAP Operating Margin before restructuring attributable to ST* |
1.2% 6.0%
|
5.6% 9.2%
|
|
Net Income |
650 |
830 |
