STMicroelectronics Outlines Next Steps to Improve Cost Structure

In a move to further optimize asset utilization and enhance performance for shareholders and customers, following the decision to deconsolidate its Flash memory business, STMicroelectronics (NYSE: STM) today announced that it will rationalize three of its manufacturing operations. Over the next two to three years -- after all products manufactured at these sites are re-qualified at other facilities -- the Company will wind down operations at its 6-inch (150mm) wafer fab in Carrollton, Texas, its 8-inch (200mm) fab in Phoenix, Arizona and its back-end packaging and test facility in Ain Sebaa, Morocco. In executing this plan, ST will focus on customer satisfaction and ensure a seamless transition in the supply of products from different sites.

These measures follow the completion of a program to migrate most of ST’s global 6-inch wafer production to operationally less-expensive 6-inch fabs in Singapore or to finer-geometry 8-inch facilities around the world. As a result of this earlier program, most of ST’s 6-inch fabs in Europe were phased out or converted to 8-inch manufacturing and ST realized savings of more than $150 million per year. ST’s 6-inch wafer manufacturing facility in Carrollton, which was largely spared from this earlier round of consolidation, has been designated for closure this time.
ST’s Phoenix wafer production plant is a relatively small 8-inch facility using mature technology. In light of its size and technology, the fab would require substantial capital expenditure to be upgraded to the state-of-the-art technology necessary to continue efficient operations over the long term. In order to optimize asset utilization and improve its cost structure, ST decided not to expend the resources necessary to upgrade it, and to shift its capacity -- directly or indirectly -- to other plants or subcontractors, in Asia and in Europe.

Also with an eye toward improving cost structure, ST will enhance the utilization of its leading-edge Bouskoura 2000 testing and packaging facility in Morocco by transferring to it most of the operations of the older Ain Sebaa (Casablanca) plant which, due to its age and location, is unsuitable for upgrading and will consequently be progressively phased down and closed. Some mature product lines will be transferred to subcontractors.

“The semiconductor industry requires unrelenting progress and we’re continuing our drive to grow revenue by developing and introducing exciting new products, by emphasizing our existing major-customer initiative, and by expanding our customer base,” said Carlo Bozotti, President and CEO of STMicroelectronics. “Growing revenue is important, but we’re also committed to improving our cost structure by reducing the number of our manufacturing sites and, as a result, trimming excess capacity and lowering manufacturing overhead. We will manage a smooth transition for the benefit of our customers and of the employees affected by these measures.”

Reza Kazerounian, Corporate Vice President and General Manager of ST’s North America Region, stated, “Our commitment to American customers remains stronger than ever. We will concentrate our efforts on supporting customers through our wide-ranging North America-based network of R&D, product development and application centers.”

ST estimates these moves will involve approximately 4000 employees worldwide. The Company expects to offer transfers or transition-based incentives to most of those involved, and anticipates that most will remain in their jobs throughout the transition period.

Once they are completed, the Company expects these measures to generate approximately $150 million per year in savings in the cost of goods sold. The related pre-tax impairment and restructuring charges are expected to be in the range of $270 million to $300 million, including approximately $250 million in cash charges.

Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in such statements due to, among other factors:

future developments of the world semiconductor market, in particular the future demand for semiconductor products in the key application markets and from key customers served by our products;
pricing pressures, losses or curtailments of purchases from our key customers all of which are highly variable and difficult to predict;
our ability to successfully transition production to other facilities in line with customer expectations and demand;
changes in the economic, social or political environment, as well as natural events such as severe weather, health risks or earthquakes in the countries in which we and our key customers operate.
Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “may,” “will,” “should,” “would be” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Further risk factors which may affect our business and results of operations are set forth and are discussed in more detail in “Item 3. Key Information—Risk Factors” included in our Annual Report on Form 20-F for the year ended December 31, 2006, as filed with the SEC on March 14, 2007. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this release to reflect subsequent events or circumstances.

Unfavorable changes in the above or other factors listed under “Risk Factors” from time to time in our SEC filings, including in our Form 20-F, could have a material adverse effect on our business or financial condition.