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STMicroelectronics NV (STM - Snapshot Report) reported second quarter 2010 earnings from continuing operations of 18 cents per share, beating the Zacks Consensus Estimate of 14 cents.

STMicroelectronics' net revenues for the reported quarter were $2,531 million, up 8.9% sequentially. The increase primarily reflects better than seasonal sequential revenue growth trends in ACCI and IMS product segments. However, revenue of STMicroelectronics' Wireless segment decreased by 10.5%.

On a sequential basis, all market segments except Telecom, posted growth with Computer increasing by 6%, Industrial by 11%, Automotive by 10%, and Consumer by 15%. Distribution increased 22%, reflecting strong demand and improving market conditions. Telecom declined sequentially by 2%.

Gross margin in the quarter was 38.3%, higher by 60 basis points sequentially due to manufacturing efficiencies and product innovation.

In the second quarter, STMicroelectronics continued certain ongoing restructuring activities and headcount-reduction programs to streamline its cost structure. Related to the company's cost-realignment initiatives, STMicroelectronics posted second quarter restructuring and impairment charges of $12 million.

Segment Overview

ACCI (Automotive/Consumer/Computer/Communication Infrastructure Product Groups) second quarter net revenues increased 46.8% year over year to $1,045 million, mainly driven by strong demand in all product groups.

IMS (Industrial and Multisegment Product Sector) second quarter net revenues increased 56.3% year over year to $945 million, driven by strong growth in microcontrollers, analog, smartcards and power discrete products and reflected improved market conditions and solid growth in the multi-segment market and in distribution.

Wireless net revenues in the second quarter declined 19.3% year over year to $525 million. This was the result of ST-Ericsson's continued portfolio transition, weaker-than-expected performance in Asia and supply limitations.

Product Innovation

During 2009, STMicroelectronics introduced 32-bit microcontrollers for industrial, Smartcards and the automotive markets. The company remains focused on delivering energy efficient platforms and recently demonstrated 11 new products including its next-generation recorders, which include its 3D video and graphics ready devices.

It has introduced many power-saving and energy efficient devices. Its MEMS division has aggressively expanded its leadership by introducing new families of gyroscopes, accelerometers and active microphones. MEMS offer significant opportunities for the company as it targets a wider base of customers with very high volume applications.

Balance Sheet and Cash Flow

Net cash flow from operations was $212 million, including the sale of $67 million of receivables by ST-Ericsson and increased significantly in comparison with the year-ago period of $45 million.

Capital expenditures were $134 million during the quarter compared with $74 million in the year-ago period.

Inventory was $1.30 billion at quarter end, compared with $1.27 billion at the end of the prior quarter and $1.45 billion at the end of the prior-year quarter.

ST's cash and cash equivalents, marketable securities (current and non-current), short-term deposits and restricted cash equaled $2.38 billion. Total debt was $2.03 billion whereas total equity was $7.84 billion.

Outlook

For the third quarter of 2010, the company expects sequential revenue growth of 2% to 7%, which translates to a growth of 13% to 19% compared with the year-over-year period. Gross margin is expected to touch 38.8%.

STMicroelectronics N.V., an independent semiconductor company, together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products used in various microelectronic applications, including automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation, and control systems. The company’s major competitor is Texas Instruments Inc. (TXN - Analyst Report).

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