Moody's affirms STMicroelectronics

Moody's Investors Service said it affirmed the A3 senior debt ratings of STMicroelectronics NV and its guaranteed subsidiary, STMicroelectronics Finance BV. The outlook remains negative.

The agency said the affirmation reflects the progress that STMicroelectronics has made with respect to regaining market share by growing about 6% faster than its addressable market, accelerating product innovation and devices winning industry awards and restructuring its cost base to a more competitive and sustainable position supporting targets of double-digit margin levels in 2007, with an 7.3% operating margin reported for a seasonally weaker first half of 2006 compared to a small operating profit during the same period last year.

At the same time, Moody's reiterated its negative outlook because the period of improvement is yet short and the full effect of the targeted cost savings are not expected to be visible until the end of 2006 or early 2007. The negative outlook also reflects ongoing execution risk related to the current restructuring where STMicroelectronics has yet to achieve double-digit operating margins, which would be more reflective of a strong and A-rated technology company, particularly if maintained through the semiconductor cycles.

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