(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 of the Subsystems and Other Products Group. "Others" includes $16 million, $71 million and $6 million of unused capacity charges in the second and first quarters of 2012 and second quarter of 2011, respectively; and $56 million, $18 million and $31 million of impairment, restructuring charges and other related closure costs in the second and first quarters of 2012 and second quarter of 2011, respectively.
Automotive (APG) second quarter net revenues increased 3.4% sequentially, mainly driven by market share gains and market improvement in China, Japan and the U.S. APG second quarter operating margin was 9.4%, stable compared to the prior quarter.
Analog, MEMS and Microcontrollers (AMM) second quarter net revenues increased 2.2% sequentially driven by analog and microcontroller applications. AMM operating margin was 12.6% in the 2012 second quarter, compared to 13.1% in the prior quarter.
Digital second quarter net revenues increased 4.9% sequentially principally due to higher demand for set-top-box products. Digital operating margin was negative 10.3% in the 2012 second quarter, compared to negative 11.2% in the prior quarter.
Power Discrete (PDP) second quarter net revenues increased 12.3% sequentially due to higher demand for Power MOSFET and IGBT. PDP returned to profitability registering an operating margin of 1.6% in the 2012 second quarter compared to negative 2.6% in the prior quarter.
Wireless net revenues in the second quarter increased 18.6% compared to the prior quarter due to a significant ramp of volumes of NovaThor™ platforms shipping to ST-Ericsson's major customers. Wireless operating loss was $240 million in the second quarter, or $113 million after considering non-controlling interest, compared to a loss of $293 million, or $135 million after considering non-controlling interest, in the prior quarter.
Our joint venture ST-Ericsson is still in a challenging situation. The company continues to focus on securing the successful execution and delivery of its NovaThor ModAps platforms and Thor modems to customers while executing on company transformation aiming at lowering its break-even point.
For additional information, see ST-Ericsson's Q2 2012 earnings results press release at www.st.com and at www.stericsson.com
Cash Flow and Balance Sheet Highlights
Free cash flow was negative $129 million in the second quarter mainly due to the results of ST-Ericsson and the one-time payment of $60 million to NXP following an arbitration award. In the prior quarter free cash flow was positive $98 million.*
Capital expenditures net of proceeds from sale were $70 million during the second quarter of 2012 compared to $125 million in the prior quarter.
Inventory decreased by $19 million to $1.49 billion at quarter end.
In the second quarter, dividends paid to shareholders were $89 million. In addition, the Company paid $6 million to redeem the entire residual outstanding 2016 convertible bonds.
ST continued to maintain a strong net financial position with a net cash position of $1.15 billion, as adjusted, taking into account the 50% of ST-Ericsson's debt, at June 30, 2012 compared to $1.17 billion at December 31, 2011. ST's cash and cash equivalents, marketable securities and restricted cash equaled $2.07 billion and total debt was $1.54 billion, including $619 million of short-term debt by ST-Ericsson to Ericsson, at June 30, 2012.*
Total equity, including non-controlling interest, was $7.01 billion at quarter end.
In the 2012 second quarter the Company posted a return on net assets (RONA) attributable to ST of negative 1.7%.*
(*)Free cash flow, net financial position and RONA attributable to ST are non-U.S. GAAP measures. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.
First Half 2012 Results
Net revenues for the first half of 2012 decreased approximately 18% to $4.16 billion from $5.10 billion in the year-ago period mainly due to lower volumes, including a significant drop in sales at our former largest customer, and much weaker market conditions.
Gross margin was 32.0% of net revenues, compared to 38.6% of net revenues for the 2011 first half. The first half 2012 gross margin was negatively impacted by a one-time $53 million charge to ST's cost of sales due to an arbitration award and unsaturation charges of $87 million compared to unsaturation charges of $8 million in the prior period. Net income, as reported, was negative $252 million in the first half of 2012, or ($0.28) per share, compared to a net income of $590 million, or $0.65 diluted earnings per share in the first half of 2011. On an adjusted basis, net of related taxes, ST reported a non-U.S. GAAP net loss per share of ($0.19) excluding impairment, restructuring charges and one-time items in the first half of 2012 compared to a net income of $0.34 diluted earnings per share in the first half of 2011.*
(*) Adjusted net earnings per share is a non-U.S. GAAP measure. For additional information and reconciliation to U.S. GAAP, please refer to Attachment A.
The effective average exchange rate for the Company was approximately $1.32 to EUR 1.00 for the first half of 2012, compared to $1.35 to EUR 1.00 for the first half of 2011.
First Half Revenue and Operating Results by Product Segment
Operating Segment First Half First Half First Half First Half
(In Million US$) 2012 2012 2011 2011
Net Operating Net Operating
Revenues Income Revenues Income
(Loss) (Loss)
---------- ---------- ---------- ----------
Automotive (APG) 795 75 891 141
Analog, MEMS & Microcontrollers
(AMM) 1,532 197 1,775 343
Digital 689 (74) 1,009 78
Power Discrete (PDP) 494 (2) 670 90
Wireless 635 (533) 731 (386)
Others 20 (222) 25 (65)
TOTAL 4,165 (559) 5,101 201
