Revenues and profit slightly up<br>in Q3 for STMicroelectronics

Sequential sales growth was primarily driven by wireless and computer peripheral applications, both of which also experienced strong double-digit, year-over-year sales growth. Gross profit increased 7.3% to $766 million from $714 million in the second quarter of 2005. Gross margin was 34.1% in the third quarter compared to 33.0% in the prior quarter. Enhanced product mix and manufacturing performance drove the improvements in gross profit and gross margin, more than offsetting continuing price pressure, especially in memory and standard products. Research and development expenses in the third quarter were $401 million compared to $423 million in the prior quarter. Selling, general, and administrative expenses were $248 million for the 2005 third quarter, down from $255 million in the prior quarter. Combined SG&A and R&D expenses in the third quarter were 28.9% of net revenues, improving from 31.4% in the second quarter. The decrease in operating expenses was largely attributable to specific cost-control actions coupled with seasonal factors. For the 2005 third quarter, the Company reported operating income of $102 million and net income of $89 million, or $0.10 per share. In the prior quarter the Company reported operating income of $12 million and net income of $26 million. The Company posted $12 million of impairment, restructuring charges, and other related closure costs during the 2005 third quarter. In the prior quarter, restructuring related expenses were $22 million. Carlo Bozotti, President and Chief Executive Officer commented, “ST's third quarter financial performance, which was well in line with our outlook, showed sequential improvements in revenues, gross margin, and earnings per share. Additionally, we were pleased by the significant increase in net operating cash flow resulting from our capital management. All product groups increased revenues and improved their operating margins on a sequential basis. Application Specific Product Groups' revenue increased 2.3% sequentially, and operating profit increased nearly 13% to $81 million. MLD sales were up 2.7% and operating income was up nearly 5%. MPG sales grew 10.5% sequentially and the group had an operating loss of $17 million, a significant improvement from the $66 million loss recorded in the prior quarter. Flash memory sales increased 17% sequentially to $345 million.