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Star Power: A fusion of key strengths driving our growth.
Our future growth will be driven by our ongoing execution against the same four fundamental strategies that have produced our great track record. While our people will continue to be very creative in how we execute those strategies, we will remain highly disciplined to their strategic intent. Those four strategies are clear to us. We have a very different view of globalization, and we will continue to expand thoughtfully in a way that benefits both our business and our society. Our marketplace results are the direct offspring of pragmatic innovation, and because that innovation is integrated at every level of our business, strategic advantage comes from strong emphasis on manufacturing science. And because we understand the power of truly allying with other great enterprises, our business exceeds our Company because of our strategic partnerships.
STMicroelectronics NV is one of the world's leading semiconductor manufacturing companies. The company holds the top spot among European chip makers and as high as the number three position (according to Gartner Dataquest in 2001) among the global top ten. ST manufactures a broad range of semiconductor products, with an emphasis on a variety of niche categories. ST is the world's leading manufacturer of analog ICs (integrated circuits) and MPEG-2 decoder chips, used to provide video decompression for DVD players and digital television set-top boxes. ST is also the world's second-leading maker of nonvolatile memories, and the number four producer of Flash memory. These specialties have given the company leading positions in a variety of product markets: the global leader for set-top boxes and hard drives; number two maker of chips for DVDs and smart cards; the number three maker of ICs for the automotive industry; and the number four position as a chip supplier to the mobile telephone and other telecommunications applications. The Franco-Italian company, based in Geneva, Switzerland, is listed on the New York, Euronext Paris, and Borsa Italiana (Milan) stock exchanges. The French and Italian governments remain major shareholders in the company, formed by the merger of the formerly state-owned SGS Microelettronica and Thomson-CSF semiconductor business in 1987. ST continues to be led by Pasquale Pistorio, who has overseen the company's development from a money-losing, debt-ridden lightweight to a solidly profitable industry heavyweight.
The Pride of the European Semiconductor Industry in the 1980s
The merger of Italy's SGS Microelettronica and France's Thomson-CSF's semiconductor operations was greeted with ridicule by many industry observers. Neither company had succeeded in imposing itself on the global semiconductor market, by then dominated by the United States and Japan. SGS Microelettronica, although profitable, was crippled by a heavy debt load, while the Thomson-CSF business had long been losing money. Meanwhile, neither company had been able to keep apace with the rapid technological developments of the era, as semiconductor manufacturers began investing heavily in new DRAM (random-access memory chip) technologies. Yet both companies were strongly backed by their respective governments, which were eager to maintain their own--and Europe's--presence among the world's semiconductor industry.
SGS Microelettronica had been started up in the 1950s, when then-Olivetti subsidiary Telectro began its own semiconductor manufacturing operations to supply its parent company, then undergoing its own transformation as an electronics company, and others. Telectro established a new subsidiary, Société Generale Semiconductor, in 1957 and acquired a license to produce chips from Fairfield Semiconductor. SGS Microelettronica, helped along by Olivetti's own expansion, became a major European chip maker, yet remained dwarfed by such industry giants as Intel and Texas Instruments.
By the end of the 1970s, SGS, like the rest of its European counterparts, was losing money--with losses reaching as high as 25 percent of the company's revenues. After Telectro had been acquired by France's Alcatel, ownership of SGS was transferred to the Italian government, becoming part of Finmeccanica, itself a subsidiary of the Italian government industrial holdings vehicle IRI. In 1980, SGS's new owners brought in Pasquale Pistorio, who had served as a vice-president at Motorola, to try to resurrect the sagging semiconductor business. Pistorio pushed through a number of reforms, including convincing workers to allow the company to go to a seven-day-per-week schedule, as well as allowing its female workers to join the night shift. These and other reforms soon bore fruit; by 1983, SGS Microelettronica had turned a profit, achieving the distinction of becoming the only profitable European semiconductor company.
To compete on a global level, however, Pistorio recognized that SGS would have to grow much larger. By the mid-1980s, Pistorio had set a target of achieving a 5 percent share of the world semiconductor market, a target that necessitated a tripling of SGS's revenues, which stood at just $400 million in 1983. SGS began to look about for suitable acquisition targets to help it gain scale. The company also at this time began its first moves toward the specialization of its semiconductor production--unable to compete on the so-called "commodity" market, dominated by Asian manufacturers, and lagging far behind DRAM production, then the fastest-growing segment with the arrival of the personal computer, Pistorio began to lead SGS into newer niche categories, such as SOCs (system on a chip) and EPROM (electronically programmable read-only memory) and the erasable EEPROM variant. Pistorio wagered that the future of the semiconductor industry resided beyond the personal computer in a broader range of consumer appliances and applications.
The last category brought it into contact with the semiconductor manufacturing wing of France's Thomson-CSF, as the two companies formed an EPROM development partnership. SGS and Thomson-CSF had already gained experience working together at the beginning of the 1980s. As the two sides met to work on the EPROM project in 1987, their government parents began to discuss a marriage between the two companies.
By then, the Thomson-CSF semiconductor operation had been losing money for years. Yet that company had long been at the forefront of France's technological efforts, particularly since the merger of Thomson-Brandt and Compagnie Generale de Telegraphie San Fils in 1968, which formed the high-technology group Thomson-CSF. That company emerged as a leading European semiconductor maker, but, like SGS, suffered from its relatively small size. Government-ownership, which had led to a highly inefficient management organization in parent Thomson-Brandt, also crippled the company's ability to achieve scale. Nonetheless, Thomson-CSF attempted to build up its semiconductor division in the mid-1980s, especially through the acquisition of Mostek, based in the United States. The Thomson-CSF company also played a pioneering role in a number of future technologies, including smart card technologies that were to take off in the next decade.
In 1987, the French and Italian governments decided to merge the Thomson-CSF and SGS Microelettronica semiconductor businesses, creating SGS Thomson, with Pasquale Pistorio placed as its CEO. The newly enlarged group was created with a great deal of skepticism, and even ridicule, particularly as its combined losses topped $200 million on revenues of just $850 million. A strong proportion of SGS Thomson's losses were due to its debt load of some $630 million. The company also suffered from overcapacity, with some 22 manufacturing facilities in operation, the majority of which were woefully out of date. Over the next two years following the merger, SGS Thomson continued to lose money.
Yet Pistorio began restructuring SGS Thomson's operations, shutting down seven of its manufacturing facilities. The company also began construction of a new, state-of-the-art production plant in Grenoble, France, which brought the company up-to-date in the early 1990s. Meanwhile, SGS Thomson continued emphasizing its specialized product development, particularly its SOC technology. Among the company's first products were new smart power products, which became essential ingredients in new electronic ignition systems for the automotive industry, among others.
SGS Thomson achieved a new breakthrough in 1989 when it produced a new chip for Finland's Nokia, then in the process of reinventing itself as a major telecommunications player. SGS Thomson's chip combined power supply and power management features on a single chip, enabling Nokia's phones to achieve standby battery life cycles of more than 60 hours. Nokia remained a major SGS Thomson customer, accounting for as much as 11 percent of the company's sales.
Developing World Dominance in the 1990s
Another area in which SGS Thomson became an early player was its development of MPEG decompression chips. The company's dedication to MPEG technology was risky, as a number of other digital video decompression schemes were competing for what promised to be a huge market in the future. SGS Thomson gained an early lead in the MPEG market, however, releasing its first Motion Estimation Processor in 1990. By 1993, the company had debuted its "multimedia" chip, capable of decompressing digital video files for display on a television set. This chip helped the company take a major position in the new set-top box market, starting with supplying the chip for the Hughes digital satellite television set-top box. Meanwhile, the company's history of developing EPROMs and EEPROMs had given it the outright lead in both categories as these chips took on increasing importance.
In 1993, SGS Thomson's plants adopted 0.5 micron technology, placing it on the same level as its major competitors. The company, which until then remained more or less focused on the European market--which accounted for more than half of the company's sales--began making moves to balance its geographic mix. In that year the company expanded its U.S. operations with the purchase of TAG Semiconductors. At the same time, SGS Thomson government owners provided the company with some $1 billion, enabling the company to pay down its debt.
Both the Italian and French governments were by then undergoing a privatization drive, and in 1994, SGS Thomson was taken public, listing on both the New York and Paris stock exchanges. While both governments remained major shareholders, the newly privatized SGS Thomson set out to achieve Pistorio's long-held goal of building a 5 percent share of the world's semiconductor market. That goal still appeared far off, however, as the company's 2.8 percent of the market left it below the industry top ten.
SGS Thomson's investments in its specialized technologies began to pay off by the mid-1990s. Smart cards, that is, credit-like cards with embedded microchips, were gaining wide acceptance in a variety of areas, including telephone cards and the pay television market--by 1996, SGS Thomson had shipped more than one billion of its EEPROM-based smart card devices. The company launched another innovative product, the so-called PC-on-a-chip, which presented a single chip design combining memory, processing, graphics, and sound capability. At the same time, the company extended its interest in the telecommunications sector as it began developing chips for ADSL and DSL broadband devices. In 1996, also, the company launched its latest EEPROM development, superflash memory, which combined flash memory technology with the flexibility of EEPROM technology.
The company also had continued to make progress on improving its geographic spread, beginning construction on a new production facility in China, which was completed in 1998. Meanwhile, despite a downturn in the semiconductor market, the company pressed on with an aggressive investment drive, adding new facilities in Italy, France, and Singapore before the end of the decade. The company's investment program topped $1 billion per year at the end of the 1990s, and reached $2 billion for 2000 alone.
Thomson sold off its shares in SGS Thomson in 1998, and the company then changed its name to STMicroelectronics. In that year, also, the company listed its shares on the Borsa Italiana stock exchange in Milan as well. By then, ST had gained a solid financial base, with revenues climbing past $4 billion and profits topping $400 million in 1997. The company's investments, particularly the growing importance of its specialized technologies, saw it make rapid gains in the industry at the end of the decade, climbing to eighth place by 1999 and jumping to fourth place in 2001.
In addition to its in-house technology development, ST made a series of add-on acquisitions at the end of the 20th century, including purchasing the United States' Metaflow Technologies Inc., in 1997, in an effort to enter the computer processor market. In 1999, the company added the hard drive division of Adaptec, enabling the company to become a market leader in that sector, as well as Arithmos, which designed chips for digital display terminals. The company took over the Canadian semiconductor business of Nortel Networks in 2000, but shut down that operation a year later because of overcapacity.
By the end of 2001, ST had climbed into the top five--with some analysts granting the company the number three spot among semiconductor companies worldwide. As the rest of the industry faced a dramatic slump in semiconductor sales, ST remained one of a very few in the industry to enjoy strong profits. The company was praised for achieving not only geographic balance--Europe accounted for only 37 percent of sales, the United States for 18 percent, and Asia for 33 percent, with another 6 percent in Japan--but also for its balanced product mix. While ST's competitors suffered from their overexposure to the sluggish DRAM market, ST had instead focused on developing its diversified IC business, which accounted for some 60 percent of its revenues, backed by strong sales in memory and logic products.
ST continued to build onto its holdings, scoring a coup with the announcement in June 2002 of its agreement to acquire the microelectronics operations of France's Alcatel. That deal, worth some $345 million, gave ST the undisputed leadership of the DSL market. The company also had boosted its share of the DSL market with the purchase of Tioga Technologies Ltd. that same year. The formation of ST had been greeted by skepticism by observers who doubted Europe would be able to play a major role in the worldwide semiconductor industry. Still led by Pasquale Pistorio, ST had proven the skeptics wrong, and turned toward the new century and the future as a driving force in its industry.
Principal Subsidiaries: Australia STMicroelectronics PTY LTD (Australia); STMicroelectronics Ltda (Brazil); STMicroelectronics (Canada), Inc. (Canada); Shenzhen STS Microelectronics Co. LTD (China; 60%); STMicroelectronics (Shanghai) Co. LTD (China); STMicroelectronics Design and Application s.r.o. (Czech Republic); STMicroelectronics OY (Finland); STMicroelectronics S.A. (France); STMicroelectronics (Rousset) S.A.S. (France); Waferscale Integration Sarl (France); STMicroelectronics GmbH (Germany); STMicroelectronics LTD (Hong Kong); STMicroelectronics Pvt Ltd. (India); STMicroelectronics Ltd. (Israel); Accent S.r.l. (Italy; 51%); CO.RI.M.ME. (Italy); STMicroelectronics S.r.l. (Italy); STMicroelectronics KK (Japan); STMicroelectronics (Malaysia) SDN BHD (Malaysia); STMicroelectronics SDN BHD (Malaysia); STMicroelectronics LTD (Malta); Electronic Holding S.A. (Morocco); STMicroelectronics S.A. (Morocco); STMicroelectronics ASIA PACIFIC Pte Ltd. (Singapore); STMicroelectronics Pte Ltd. (Singapore); STMicroelectronics S.A. (Spain); STMicroelectronics A.B. (Sweden); STMicroelectronics S.A. (Switzerland); STMicroelectronics E.E.I.G. (U.K.); STMicroelectronics Ltd (U.K.); Inmos Ltd. (U.K.); Thomson Components Ltd. (U.K.); Metaflow Technologies Inc. (U.S.A.); STMicroelectronics (RB), Inc. (U.S.A.); STMicroelectronics Inc. (U.S.A.); STMicroelectronics Leasing Co. Inc. (U.S.A.); The Portland Group, Incorporated (U.S.A.).
Principal Competitors: Intel Corporation; Toshiba Corporation; NEC Corporation; Samsung Electronics Co. Ltd.; Texas Instruments Inc.; Motorola, Inc.; Hitachi Ltd.; Infineon Technologies AG; Micron Technology, Inc.