Thursday, wireless chip maker ST-Ericsson reported a net loss of $213 million for the second quarter of 2009. The company posted net sales of $666 million boosted by the strong momentum in China with its leading customers. Noting that its restructuring and realignment plans are proceeding as per schedule, the company announced a new organization to accelerate the execution of new product strategies.
ST-Ericsson was established as a 50/50 joint venture by Swiss semiconductor product maker STMicroelectronics NV (STM) and Swedish telecom equipment giant LM Ericsson Telephone Co. (ERIC) by bringing together their ST-NXP Wireless and Ericsson Mobile Platforms units. ST-Ericsson is a key supplier to four of the industry's top five handset manufacturers, who together represent about 80% of global handset shipments. The company started operations on February 2, 2009.
For the second quarter, the Geneva, Switzerland-headquartered ST-Ericsson posted a net loss of $213 million. Actual net loss for the first quarter, which include only two months of operations, February and March, amounted to $89 million.
Operating loss as reported for the second quarter was $224 million, as against the second-quarter pro forma operating loss of $94 million. First-quarter pro forma operating loss was $179 million, whereas operating loss for the February-March period was $98 million.
Operating loss as reported takes into account a $24 million amortization of acquisition-related intangibles, which includes an around $20 million non-recurring items linked to the start-up of the company together with a $35 million restructuring charge in the second quarter of 2009.
Excluding the aforementioned items, operating loss for the 2009 second quarter amounted to $165 million, with 2008 second-quarter pro-forma operating loss at $69 million. First-quarter adjusted pro forma operating loss amounted to $149 million, whereas adjusted operating loss in the February-March period was $78 million.
Second-quarter net sales, based on US GAAP, totaled $666 million versus second-quarter 2008 pro-forma sales of $966 million. First-quarter pro forma sales amounted to $562 million, with the February-March period recording sales of $391 million. Pre-merger, the businesses individually generated combined pro-forma revenues of about US$3.6 billion in 2008.
The company noted that net sales in the second quarter of 2009 were higher than normal seasonal patterns and showed a progress of 18.5% compared to the 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, as well as to the alignment of inventory to demand levels across the handset supply chain.
Inventory at the end of the second quarter 2009, stood at $325 million, showing a sequential decline of $109 million and reflected a tight control on the supply chain. Net cash at the end of the same period totaled $326 million.
In addition, the company stated that it has kept a strong focus on its restructuring and realignment plans. Providing an update on these plans, the company noted that the $250 million cost synergies program, defined by ST-NXP Wireless in the 2008 third quarter, is proceeding as planned and is forecast to be completed by the end of this year. This program envisages a workforce reduction of 500 worldwide.
The company further noted that the new restructuring plan of $230 million cost synergies, which was announced at April end, has been initiated. The plan envisages a workforce reduction of 1,200 worldwide upon completion of negotiations and consultations, and is seen to be completed by the second quarter 2010.
In a separate press release, ST-Ericsson announced the formation of a new organization to further strengthen its technological leadership and accelerate execution of new product strategy.
The new organization will be centered around three product groups and will focus on the following areas, the company noted. LTE and HSPA-Connected Devices, which will be headed by Vice President Magnus Hansson; 3G-Multimedia Platforms, which will be under the control of Vice President Marc Cetto; and finally, 2G, EDGE, TD-SCDMA and Connectivity, to be led by Vice President Thierry Tingaud, with the support an R&D shared services organization headed by Vice President Philippe Berger.
The organization will also have Jörgen Lantto, who has been newly appointed as Executive Vice President, Chief Technology Officer, and Head of Strategy; while Pascal Langlois has been hired as Chief Sales and Marketing Officer.
Commenting on the new development, President and Chief Executive Officer Alain Dutheil, CEO, said, "The new organization we are announcing today will allow us to timely and successfully execute on our new product strategy, based on the future convergence to one 3G roadmap, a continued commitment on 2G/EDGE and connectivity, as well as a strong focus on TD-SCDMA and on fast growing next generation access technologies such as LTE. Additionally, it will enable us to complete the integration of the different businesses we merged five months ago and provide our customers with a world-leading and even more compelling portfolio."
ST-Ericsson also announced a number of impending management changes. Tommi Uhari will become Senior Advisor to the chief executive officer, in place of Monica de Virgiliis, who has has decided to leave the company to pursue other career opportunities. Robert Puskaric, deputy chief executive officer & executive vice president, will resign and go over to Ericsson.
Looking ahead, Dutheil noted, "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."
ST-Ericsson's parent companies, STMicroelectronics is scheduled to release its second-quarter results on July 28, while LM Ericsson is slated to announce its second-quarter results on July 24.
ERIC closed Wednesday's regular trading on Nasdaq at $10.24, up $0.10, on a volume of 5.69 million shares.
STM closed in NYSE the same day at $7.86, $0.04 higher on day, with 1.55 million shares traded.
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