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.

About STMicroelectronics

STMicroelectronics is a global leader in developing and delivering semiconductor solutions across the spectrum of microelectronics applications. An unrivalled combination of silicon and system expertise, manufacturing strength, Intellectual Property (IP) portfolio and strategic partners positions the Company at the forefront of System-on-Chip (SoC) technology and its products play a key role in enabling today’s convergence markets. The Company’s shares are traded on the New York Stock Exchange, on Euronext Paris and on the Milan Stock Exchange. In 2006, the Company’s net revenues were $9.85 billion and net earnings were $782 million. Further information on ST can be found at www.st.com .