Net revenues for the 2001 third quarter were $1,400.7 million, firmly within the Company’s guidance range of $1,350 million to $1,430 million provided in its second quarter earnings release of July 12, 2001. Third quarter revenue results represent a 11.8% sequential decline from the $1,587.2 million reported in the prior quarter. In last year’s third quarter, net revenues were $2,042.0 million.
Revenues from differentiated products declined 4.9% on a sequential basis, reaching $ 974.3 million for the period.
President and Chief Executive Officer, commented, As anticipated, market conditions further deteriorated in the third quarter, with pricing pressures driven by industry overcapacity negatively affecting virtually all of ST’s product families. During this time, we believe that ST’s revenue performance was in line with the overall industry average. However, we believe we gained market share in our targeted applications, as illustrated by the strength of the Company’s differentiated product sales.
Differentiated product sales were the major contributors in the 2001 third quarter, accounting for 69.6% of the period’s net revenues. Logic and Memories were $202.3 million, representing 14.4%, of net revenues, after a 33.4% sequential sales decline. Discretes were $142.2 million (10.2% of net revenues) and Standard and Commodities were $81.9 million, 5.8% of net revenues), after posting sequential sales declines of 18.1% and 4.7%, respectively.
Telecom, Consumer and Computer applications registered sequential revenue performance better than that of the Company as a whole. Telecom, which was down 4.2%, accounted for 35.5% of third quarter net revenues; Consumer was down 8.9% and represented 19.9% of net revenues; and Computer, declined 11.3% and was 21% of net revenues. Automotive, while virtually flat on a nine-month comparative basis, declined 12.1% sequentially and represented 11.4% of net revenues. Industrial, which includes smart cards and distribution, accounted for 12.3% of third quarter 2001 revenues after posting a 31.3% sequential sales decline.
The Company posted gross profit for the 2001 third quarter of $462.1 million, and gross margin stood at 33% for the period. In the prior quarter, pro forma gross profit was $603.3 million, or 38% of net revenues, and as-reported gross profit was $532.6 million, or 33.6% of net revenues.
Mr. Pistorio noted Difficult business conditions persisted in the third quarter with several of our end markets being negatively affected by declining product demand exacerbated in certain areas by excess inventory conditions. As expected, gross margin was penalized by reduced revenue levels as well as by our program to decrease inventory levels even at the expense of fab utilization rates.
Mr. Pistorio continued, I am pleased to report that ST was able to post significant sequential declines in SG&A costs and non-core R&D expenditures, which aggregated $62.5 million. These savings resulted from the cost control programs, hiring freeze and optimization activities that were initiated earlier in the year.
Selling, general and administrative expenses declined 20% on a sequential basis to $144.2 million, and represented 10.3% of net revenues compared with $180.2 million, or 11.4% of net revenues, reported in the second quarter of 2001. In the similar year-ago period, the Company’s SG&A expenses were $174.0 million, or 8.5% of net revenues.
Research and development expenses totaled $229.2 million, or 16.4% of net revenues, a 10.4% decline from the $255.7 million reported for the prior quarter. In the 2000 third quarter R&D expenditures were $ 259.8 million, or 12.7% of net revenues.
ST is reviewing its strategy with respect to the Company’s more mature 6 wafer fabs. On May 31, 2001, ST announced the planned closing of its Ottawa fab and the transfer of the related front-end wafer production to its other facilities around the world. With the aim of reducing product costs, the Company has initiated a plan for the closure of its 6 plant in Rancho Bernardo, California. Therefore, in addition to the impairment charge taken in the second quarter relating to this facility, ST accrued a further $23.3 million in impairment charges in the 2001 third quarter.
Future actions may include the sale, wafer production curtailment or closure of other similar facilities.
Operating income for the 2001 third quarter, which included the $23.3 million impairment charge, was $48.2 million. In the prior quarter, pro forma operating income was $190.1 million and the Company incurred an as-reported operating loss of $191.9 million. In the similar year-ago period, the Company reported operating income of $511.8 million.
Net income for the period was $35.8 million, or $0.04 per diluted share. In the prior quarter, the Company reported pro forma net income of $154.5 million or $0.17 per diluted share. On an as-reported basis, ST incurred a net loss of $164.5 million, or $0.18 per diluted share for the 2001 second quarter. In last year’s third quarter, ST posted net income of $415.3 million, or $0.45 per diluted share.
Reviewing third quarter 2001 results, Mr. Pistorio stated, We believe that ST continued to distinguish itself during this period of unprecedented business volatility and industry decline by increasing penetration in the markets we serve while maintaining a solid financial structure. We worked diligently to meet the changing needs of our strategic partners and key customers, efficiently delivering customized and standard products from our worldwide manufacturing facilities.
Net revenues for the nine months ended September 29, 2001 were $4,909.0 million, a decrease of 12.7% from the $5,621.5 million reported in the 2000 nine-month period. Gross profit was $1,921.1 million, or 39.1% of net revenues. Operating income and net income, which include pro forma results for the 2001 third quarter were $673.9 million, and $545.6 million, respectively. On the same basis, nine-month pro forma diluted earnings per share were $0.60.
Research and development costs were $757.0 million, or 15.4% of net revenues compared to $740.0 million in the 2000 nine-months, or 13.2% of net revenues. Selling, general and administrative expenses were $501.1 million, or 10.2% of net revenues compared to $510.6 million, or 9.1% of net revenues in the 2000 period.
Net revenues for the 2001 period were $4,909.0 million. Gross profit was $1,850.4 million, or 37.7% of net revenues. Operating income was $268.6 million, or 5.5% of net revenues. Net income was $212.1 million, or $0.23 per diluted share.
