PR No. C1544H

STMicroelectronics Reports 2004 Third Quarter/Nine Month Revenues and Earnings

Geneva, October 20, 2004 - STMicroelectronics (NYSE: STM) reported financial results for the third quarter and first nine months ended September 25, 2004.

Third Quarter 2004 Financial Results

Net revenues for the third quarter were $2,231 million, up 2.7% sequentially from the $2,172 million reported in the prior quarter, and 23.7% above the $1,803 million of last year’s third quarter. Revenues from Application Specific Products were $1,163 million, or 52.1% of 2004 third quarter net revenues. Differentiated product revenues were $1,451 million, or 65.0% of net revenues for the period.

Gross profit was $845 million, up 4.0% sequentially from the prior quarter’s $812 million, and 33.6% above last year’s third quarter gross profit of $632 million. Gross margin was 37.9%, higher than the prior quarter’s 37.4% and the 35.1% reported for last year’s third quarter.

Pasquale Pistorio, President and Chief Executive Officer, commented, “ST continued to improve profitability levels in the third quarter. Despite a progressive decline in market demand that was characterized by shortened lead times and backlog adjustments, our revenues came in within the guidance parameters we provided at the time of our 2004 second quarter earnings announcement.

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Operating income increased 19.1% to $213 million, or 9.6% of net revenues, in the 2004 third quarter, up from the $179 million, or 8.3% of net revenues, reported in the prior quarter. In the 2003 third quarter, impairment, restructuring charges and other related closure costs resulted in an operating loss of $64 million. Before impairment, restructuring charges and other related closure costs, the Company posted 2003 third quarter operating income of $129 million, which equated to 7.1% of net revenues.

Net income equaled $189 million in the 2004 third quarter, a 28.4% increase over the $148 million reported in the 2004 second quarter. In the 2003 third quarter, the Company’s net loss was $50 million. Before impairment, restructuring charges and other related closure costs, and a non-operating pre-tax charge of $22 million related to Bond repurchases, last year’s third quarter net income was $102 million.

Earnings per diluted share were $0.20 for the 2004 third quarter, up 25% from the $0.16 earned in the 2004 second quarter. In the 2003 third quarter, the Company incurred a per share loss of $0.06. Before impairment, restructuring charges and other related closure costs, the Company had earnings per diluted share of $0.09 in the year-ago quarter.

Mr. Pistorio noted, “In the 2004 third quarter, we kept the dollar amount of R&D spending at the same level as the prior quarter, and we succeeded in reducing SG&A costs by 2.6% on a sequential basis. In the aggregate, R&D and SG&A expenses accounted for 27.6% of third quarter net revenues, a sequential reduction of 110 basis points. This was accomplished while maintaining the accelerated pace of our product design and development activities.”

In the 2004 third quarter, research and development expenses were $384 million, flat with the $384 million expensed in the prior quarter, and 26.7% above the $302 million reported in the comparable year-ago period. R&D costs represented 17.2% of net revenues in the 2004 third quarter compared to 17.7% of net revenues in the prior quarter, and 16.8% of net revenues in the year-ago quarter.

Selling, general, and administrative expenses were $233 million for the 2004 third quarter, 2.6% below the prior quarter’s $239 million, and 21.5% above the $191 million incurred in the comparable year-ago period. As a percentage of net revenues, SG&A expenses decreased to 10.4%, from 11.0% in the prior quarter, and 10.6% in last year’s third quarter.

For ST, the average exchange rate of the Euro versus the U.S. dollar in the 2004 third quarter was approximately $1.21 to €1, compared to $1.20 to €1 in the second quarter of 2004 and $1.12 to €1 in last year’s third quarter.

Summarizing, Mr. Pistorio said, “Year-over-year revenue increases were achieved by all of our product groups and targeted market segments. As anticipated, third quarter sequential revenue growth was driven primarily by a broad range of digital consumer applications and Application Specific ICs serving wireless, data storage and certain automotive/audio applications. Revenues from Flash memory products were basically flat at $306 million, increasing by $2 million from the $304 million reported in the prior quarter.”

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At September 25, 2004, ST had cash, cash equivalents, and marketable securities of $1.63 billion. Total debt was $1.83 billion; shareholders’ equity was $8.3 billion.

Net cash from operating activities equaled $1,697 million for the first nine months compared to $1,142 million in last year’s first nine months. Capital expenditures were $719 million in the 2004 third quarter and $1,627 million for the first nine months. Net operating cash flow^(*) was favorable by $3 million for the first nine months of 2004.

Additional Third Quarter 2004 Financial and Operating Data

The following tables and commentary provide a breakdown of revenues and operating income by product group and segment revenues by product category and targeted market.

Third Quarter 2004 Net Revenues and Operating Income by Product Group:

(*) Net operating cash flow is defined as net cash from operating activities ($1,697 million) minus net cash used in investing activities ($2,724 million) excluding payments for purchase of and proceeds from the sale of marketable securities ($1,030 million)

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CMG and DSG were major contributors to ST’s consolidated 19.1% sequential growth in operating income. CMG’s operating income was more than twice that of the prior quarter, on revenue growth of 9.8%, and DSG’s operating income increased 18.5% on a very modest sequential revenue gain. TPA reported a 3.7% sequential improvement in operating income; and MPG, while solidly profitable, recorded a sequential decline in operating income.

Q3 2004 Revenue Breakdown by Product Category

Three out of four product families had sequential revenue gains. Differentiated products were up 3.7%, and Standard & Commodities increased 11.2% from prior quarter levels. Micro & Memories were up 1.1% sequentially, while Discretes declined by 2.6%

Q3 2004 Revenue Breakdown by Market Segment

The following table estimates, within a variance of 5% - 10% in the absolute dollar amount, the relative weighting of each of the Company’s target market segments in the third quarter of 2004.

Consumer was the biggest sequential gainer, followed by Computer and Telecom. Automotive and Industrial, which posted significant sequential revenue increases in the 2004 second quarter, were down approximately 3% and 6%, respectively, from the prior quarter’s levels.

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Net revenues for the nine months ended September 25, 2004 were $6,432 million, an increase of 25.5% over the $5,124 recorded in the 2003 nine-month period. Gross profit was $2,376 million, or 36.9% of net revenues, compared to $1,806 million, or 35.2% of net revenues, for the first nine months of 2003. Operating income was $473 million compared to $181 million in last year’s first nine months. Excluding impairment, restructuring charges and other related closure costs, operating income was $374 million in last year’s first nine months.

Net income was $414 million, or $0.45 per diluted share. In last year’s first nine months, net income was $109 million, or $0.12 per diluted share. Before impairment, restructuring charges and other related closure costs, and a non-operating pre-tax charge of $37 million related to Bond repurchases, net income was $274 million, or $0.29 per diluted share, in last year’s first nine months.

Research and development expenses were $1,131 million, compared to $883 million in the 2003 first nine months. Selling, general, and administrative expenses were $702 million compared to $557 million in the 2003 first nine months.

For ST, the average exchange rate of the Euro versus the U.S. dollar for the first nine months of 2004 was approximately $1.23 to €1, compared to $1.11 to €1 in last year’s first nine months.

Outlook

“We share the view expressed by many analysts that the 2004 fourth quarter will be a period of relatively modest growth for the semiconductor industry, resulting from lower-than-anticipated growth in end-market demand which has caused inventory build-ups in certain market segments and has constrained pricing power. Within this environment,” Mr. Pistorio said, “we believe that ST’s revenues for the 2004 fourth quarter will range from flat to 5% above third quarter 2004 levels, which is below our earlier expectations and historical seasonal trends. Based upon these revenue levels and an average Euro to U.S. dollar exchange rate of $1.23 to €1, we now expect fourth quarter gross margin to be in the range of 38% to 39%.”

Mr. Pistorio continued, “To address the current situation we have reduced our 2004 capital expenditures to approximately $2 billion, or about 10% below our previous plan. Additionally, we have implemented programs that should enhance our ability to generate continued operating leverage.”

“ST is maintaining a conservative approach to 2005 capital spending,” Mr. Pistorio noted. “Acknowledging the uncertainty of near term market trends, we are currently budgeting approximately $1.5 billion of capital spending. Embedded in our plans is the flexibility to expand the capital program as market demand materializes.”

Mr. Pistorio said, “We are fine-tuning our product portfolio and our organizational structure to leverage ST’s product leadership positions and expand the breadth of our application platforms and solutions. These programs, together with the migration to finer geometries and our ongoing marketing initiatives, are expected to position ST for profitable growth in 2005.”

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Products, Technology and Design Wins

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All statements included in this release and in the related conference call, other than statements which constitute historical facts, are forward-looking statements which are based on Management’s current expectations, views, beliefs and assumptions as of the date of this release.

Such statements, which include statements referring to anticipated growth of the semiconductor market and demand for our products in the various applications we address, the anticipated savings from the implementation of our announced restructuring plan, the cost effective performance of our manufacturing infrastructure, the enhancement of our product portfolio as well as to successful implementation of programs designed to generate continued operating leverage are subject to various risks and uncertainties, which may cause actual results and performance of our business to differ materially and adversely from the forward-looking statements.

Factors which may cause actual results or performance to differ materially from the expectations of the Company or its Management include:

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A more detailed discussion of these factors and the other “Risk Factors,” which may from time to time materially and adversely affect the Company, is contained in our Annual Report or Form 20-F of the year ended December 31, 2003, which was filed with the SEC on May 4, 2004.

Conference Call Information

The management of STMicroelectronics will conduct a conference call on October 21, 2004 at 9:00 a.m. U.S. Eastern Time / 3:00 p.m. CET, to discuss operating performance for the third quarter of 2004.

The conference call will be available via the Internet by accessing the following Web address: www.vcall.com. Those accessing the webcast should go to the Web site at least 15 minutes prior to the call, in order to register, download and install any necessary audio software. The webcast will be available until October 28, 2004.

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 2003, the Company’s net revenues were $7.24 billion and net earnings were $253 million. Further information on ST can be found at www.st.com.

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MEDIA RELATIONS

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