STMicroelectronics (ST) reported financial results for the third quarter and nine months ended September 29, 2007. On May 22, 2007, ST, in conjunction with Intel and Francisco Partners, announced a definitive agreement to create an independent semiconductor company, with ST contributing its Flash Memories Group (FMG). Since January 1, 2007 ST’s NOR and NAND Flash businesses have been organized into a stand-alone segment, in anticipation of strategic repositioning.
Net revenues for the third quarter increased 6.1% sequentially to $2,565 million from the $2,418 million reported in the prior quarter, with growth led by application-specific wireless and computer products. Excluding FMG, net revenues also increased 6.1% sequentially.
In the 2007 third quarter, following a comprehensive review of employee benefit plans, the company revised its accounting for a seniority award program existing at a large affiliate since 1986. Historically, charges were expensed when incurred and are now accrued over the service period of the employee. In connection with this change the company incurred a one-time, non-cash, pre-tax charge for past periods of about $21 million, of which more than $7 million are in cost of goods sold, more than $8 million are in R&D and nearly $5 million are in SG&A expenses. This revision to methodology had no material impact on prior periods.
Gross profit was $902 million for the 2007 third quarter and the gross margin was 35.2%. Before the seniority program charge, gross margin was 35.5%. Sequentially, both gross profit and gross margin improved from the prior quarter levels of $838 million and 34.7%, respectively. Excluding FMG, gross profit was $865 million for the 2007 third quarter, representing a gross margin improvement to 39.1%, compared to 37.8% in the second quarter. Gross margin improvement in the quarter reflected better mix and manufacturing performance, while only incorporating a portion of the recent exchange rate degradation. In the year-ago quarter, the gross profit for the entire company was $904 million and the gross margin was 36.0%.
