(b) Net revenues of "Others" includes revenues from sales of Subsystems, assembly services and other revenues.
(c) 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, NXP arbitration award 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 $71 million, $99 million and $2 million of unused capacity charges in the first quarter of 2012 and fourth and first quarters of 2011, respectively; and $18 million, $9 million and $24 million of impairment, restructuring charges and other related closure costs in the first quarter of 2012 and fourth and first quarters of 2011, respectively.
Automotive (APG) first quarter net revenues increased 2% sequentially, mainly driven by market share gains and market improvement in the U.S. and Japan. APG operating margin was 9.4% compared to 10.5% in the prior quarter.
Analog, MEMS and Microcontrollers (AMM) first quarter net revenues increased 1.5% sequentially driven by a solid recovery of Microcontrollers and benefiting from an expanding product portfolio. AMM operating margin was 13.1% in the 2012 first quarter, compared to 15.5% in the prior quarter.
Digital first quarter net revenues decreased 13.2% sequentially principally due to a significant decrease in imaging revenues related to certain wireless customers and to a lesser extent seasonality. Digital operating margin was negative 11.2% in the 2012 first quarter, compared to positive 2.4% in the prior quarter.
Power Discrete (PDP) first quarter net revenues decreased 8.2% sequentially principally reflecting a wireless customer specific situation and still weak market conditions. PDP operating margin was negative 2.6% in the 2012 first quarter due to manufacturing inefficiencies resulting from low fab loading compared to positive 6.4% in the prior quarter.
Wireless net revenues in the first quarter decreased 29% compared to the prior quarter due to a drop in sales of new products at one of ST-Ericsson's largest customers, in addition to the usual seasonal effect and to the continued decline of ST-Ericsson's legacy products. Wireless operating loss was $293 million in the first quarter, or $135 million after considering non-controlling interest, compared to a loss of $211 million, or $93 million after considering non-controlling interest, in the prior quarter.
For additional information, see ST-Ericsson's Q1 2012 earnings results press release at www.stericsson.com
Cash Flow and Balance Sheet Highlights
Free cash flow was $98 million in the first quarter compared to $47 million in the prior quarter.*
Capital expenditure payments were $125 million during the first quarter of 2012 compared to $76 million in the prior quarter.
Inventory decreased by $23 million to $1.51 billion at quarter end.
In the first quarter, dividends paid to shareholders were $88 million. In addition, the Company paid $213 million to redeem nearly the entire residual outstanding 2016 convertible bonds.
ST continued to maintain a strong net financial position with a net cash position of $1.27 billion, as adjusted, taking into account the 50% of ST-Ericsson's debt, at March 31, 2012 compared to $1.17 billion at December 31, 2011. ST's cash and cash equivalents, marketable securities and restricted cash equaled $2.2 billion and total debt was $1.4 billion at March 31, 2012.*
Total equity, including non-controlling interest, was $7.84 billion at quarter end.
In the 2012 first quarter the Company posted a return on net assets (RONA) attributable to ST of negative 11.2%.*
(*)Free cash flow, net financial position and RONA attributable to ST are non-U.S. GAAP measures. For additional information and a reconciliation to U.S. GAAP, please refer to Attachment A.
Second Quarter 2012 Business Outlook
Mr. Bozotti stated, "While there are still macro-economic uncertainties, we believe billings have bottomed in the first quarter. Bookings have improved across the board during the course of the first quarter.
"Based on current visibility, we expect broad-based growth in all product segments during the second quarter leading to revenue growth of about 7.5 percent at the mid-point of our guidance. Looking further ahead we also anticipate broad-based revenue growth with a strong acceleration in MEMS and Analog in the second half of 2012 thanks to our new and innovative products and our expanding customer base."
The Company expects second quarter 2012 revenues to grow sequentially in the range of about +7.5%, plus or minus 3 percentage points. As a result, gross margin in the second quarter is expected to be about 34.4%, plus or minus 1.5 percentage points, and assumes an improvement from the first quarter amount from fab loading and manufacturing performance.
This outlook is based on an assumed effective currency exchange rate of approximately $1.33 = euro 1.00 for the 2012 second quarter and includes the impact of existing hedging contracts. The second quarter will close on June 30, 2012.
Recent Corporate Developments
- Corporate Knights, Inc. named ST to its "Global 100 Most Sustainable Corporations" list for the third consecutive year. One of only three semiconductor companies so recognized, ST advanced 8 places to 75th place from its 83rd ranking in 2011.
- ST assigned Carlo Ferro to ST-Ericsson as Chief Operating Officer to focus, along with ST-Ericsson President and CEO Didier Lamouche, on the turnaround of ST-Ericsson. Mario Arlati, formerly ST's Chief Accounting Officer and head of corporate external reporting, was appointed chief financial officer.
- On April 5, an arbitration tribunal set up according to the rules of the International Chamber of Commerce, ordered ST to pay approximately $59 million to NXP Semiconductors B.V. concerning a dispute related to a claim from NXP for underloading charges to be included in the price of wafers which NXP supplied to ST's wireless JV. The tribunal chose not to address certain issues raised by ST that will be part of a second arbitration between the same ICC tribunal scheduled for June 2012, with a final decision coming within 12 months. Though the award has been recognized in these Q1 results, ST intends to vigorously pursue its claims in the second arbitration aiming to convince the tribunal to reverse the economic effect of its first arbitration award.
- On April 16, ST announced the main resolutions to be submitted for shareholder approval at the Company's Annual General Meeting, which will be held in Amsterdam on May 30, 2012. The main resolutions, proposed by the Supervisory Board, include:
- The appointment of Ms. Martine Verluyten as a new member of the Supervisory Board for a three-year term, expiring at the 2015 Annual General Meeting, in replacement of Mr. Doug Dunn whose mandate will expire;
- Approval of the Company's 2011 accounts reported in accordance with International Financial Reporting Standards (IFRS); and
- The distribution of a cash dividend of US$0.40 per share, to be paid in four equal quarterly installments in June, August and December 2012 and February 2013 to shareholders of record in the month of each quarterly payment.