Edgar Filing: STMICROELECTRONICS NV

Form 20-F

As filed with the Securities and Exchange Commission on March 5, 2014

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-13546

STMicroelectronics N.V.

(Exact name of registrant as specified in its charter)


Not Applicable		The Netherlands
(Translation of registrant’s		(Jurisdiction of incorporation
name into English)		or organization)

WTC Schiphol Airport

Schiphol Boulevard 265

1118 BH Schiphol

The Netherlands

(Address of principal executive offices)

Carlo Bozotti

39, chemin du Champ des Filles

1228 Plan-Les-Ouates

Geneva

Switzerland

Tel: +41 22 929 29 29

Fax: +41 22 929 29 88

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of Each Class:		Name of Each Exchange on Which Registered:
Common shares, nominal value €1.04 per share		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

890,606,763 common shares at December 31, 2013

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨	(Do not check if a smaller reporting company)

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x

International Financial Reporting Standards as issued

by the International Accounting Standards Board ¨

Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

TABLE OF CONTENTS


	Page
PART I		4
Item 1. Identity of Directors, Senior Management and Advisers		4
Item 2. Offer Statistics and Expected Timetable		4
Item 3. Key Information		4
Item 4. Information on the Company		20
Item 5. Operating and Financial Review and Prospects		39
Item 6. Directors, Senior Management and Employees		73
Item 7. Major Shareholders and Related Party Transactions		95
Item 8. Financial Information		100
Item 9. Listing		103
Item 10. Additional Information		104
Item 11. Quantitative and Qualitative Disclosures About Market Risk		121
Item 12. Description of Securities Other than Equity Securities		124
PART II		126
Item 13. Defaults, Dividend Arrearages and Delinquencies		126
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		126
Item 15. Controls and Procedures		126
Item 16A. Audit Committee Financial Expert		127
Item 16B. Code of Ethics		127
Item 16C. Principal Accountant Fees and Services		128
Item 16D. Exemptions from the Listing Standards for Audit Committees		129
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		130
Item 16F. Change in Registrant’s Certifying Accountant		130
Item 16G. Corporate Governance		130
PART III		133
Item 17. Financial Statements		133
Item 18. Financial Statements		133
Item 19. Exhibits		133

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report on Form 20-F (the “Form 20-F”), references to “we”, “us” and “Company” are to STMicroelectronics N.V. together with its consolidated subsidiaries, references to “EU” are to the European Union, references to “€” and the “Euro” are to the Euro currency of the EU, references to the “United States” and “U.S.” are to the United States of America and references to “$” and to “U.S. dollars” are to United States dollars. References to “mm” are to millimeters and references to “nm” are to nanometers.

We have compiled market size and ST market share data in this annual report using statistics and other information obtained from several third-party sources. Except as otherwise disclosed herein, all references to trade association data are references to World Semiconductor Trade Statistics (“WSTS”). Certain terms used in this annual report are defined in “Certain Terms”.

We report our financial statements in U.S. dollars and prepare our Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). We also report certain non-U.S. GAAP financial measures (free cash flow and net financial position), which are derived from amounts presented in the financial statements prepared under U.S. GAAP. Furthermore, we are required by Dutch law to report our Statutory and Consolidated Financial Statements, in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union. The IFRS financial statements are reported separately and can differ materially from the statements reported in U.S. GAAP.

Various amounts and percentages used in this Form 20-F have been rounded and, accordingly, they may not total 100%.

We and our affiliates own or otherwise have rights to the trademarks and trade names, including those mentioned in this annual report, used in conjunction with the marketing and sale of our products.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Form 20-F that are not historical facts, particularly in “Item 3. Key Information — Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” and “— Business Outlook” are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management’s current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those in such statements due to, among other factors:

•

uncertain macro-economic and industry trends;

•

customer demand and acceptance for the products which we design, manufacture and sell;

•

unanticipated events or circumstances, which may either impact our ability to execute the planned reductions in our net operating expenses and / or meet the objectives of our R&D programs, which benefit from public funding;

•

government decisions regarding funding for our R&D programs;

•

future events or circumstances, which may have an impact on the timing and final cost of the wind-down of the ST-Ericsson joint venture;

•

the loading and the manufacturing performance of our production facilities;

•

the functionalities and performance of our IT systems, which support our critical operational activities including manufacturing, finance and sales;

•

variations in the foreign exchange markets and, more particularly, in the rate of the U.S. dollar exchange rate as compared to the Euro and the other major currencies we use for our operations;

•

the impact of intellectual property (“IP”) claims by our competitors or other third parties, and our ability to obtain required licenses on reasonable terms and conditions;

•

restructuring charges and associated cost savings that differ in amount or timing from our estimates;

•

changes in our overall tax position as a result of changes in tax laws, the outcome of tax audits or changes in international tax treaties which may impact our results of operations as well as our ability to accurately estimate tax credits, benefits, deductions and provisions and to realize deferred tax assets;

•

the outcome of ongoing litigation as well as the impact of any new litigation to which we may become a defendant;

•

natural events such as severe weather, earthquakes, tsunami, volcano eruptions or other acts of nature, health risks and epidemics in locations where we, our customers or our suppliers operate;

•

changes in economic, social, political, or infrastructure conditions in the locations where we, our customers, or our suppliers operate, including as a result of macro-economic or regional events, military conflict, social unrest, or terrorist activities; and

•

availability and costs of raw materials, utilities, third-party manufacturing services, or other supplies required by our operations.

Such forward-looking statements 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. Certain forward-looking statements can be identified by the use of forward-looking terminology, such as “believes”, “expects”, “may”, “are expected to”, “should”, “would be”, “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Some of these risk factors are set forth and are discussed in more detail in “Item 3. Key Information — Risk Factors”. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 20-F as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this Form 20-F to reflect subsequent events or circumstances.

Unfavorable changes in the above or other factors listed under “Item 3. Key Information — Risk Factors” from time to time in our Securities and Exchange Commission (“SEC”) filings, could have a material adverse effect on our business and/or financial condition.

PART I

Item 1.

Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.

Offer Statistics and Expected Timetable

Not applicable.

Item 3.

Key Information

Selected Financial Data

The table below sets forth our selected consolidated financial data for each of the years in the five-year period ended December 31, 2013. Such data have been derived from our audited Consolidated Financial Statements. Audited Consolidated Financial Statements for each of the years in the three-year period ended December 31, 2013, including the Notes thereto (collectively, the “Consolidated Financial Statements”), are included elsewhere in this Form 20-F, while data for prior periods have been derived from our audited Consolidated Financial Statements used in such periods.

The following information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the audited Consolidated Financial Statements and the related Notes thereto included in “Item 18. Financial Statements” in this Form 20-F.


	Year Ended December 31,
	2013			2012			2011			2010			2009
	(In millions except per share and ratio data)
Consolidated Statements of Income Data:
Net sales		8,050		$	8,380		$	9,630		$	10,262		$	8,465
Other revenues		32			113			105			84			45

Net revenues		8,082			8,493			9,735			10,346			8,510
Cost of sales		(5,468	)		(5,710	)		(6,161	)		(6,331	)		(5,884	)

Gross profit		2,614			2,783			3,574			4,015			2,626
Operating expenses:
Selling, general and administrative		(1,066	)		(1,166	)		(1,210	)		(1,175	)		(1,159	)
Research and development⁽¹⁾		(1,816	)		(2,413	)		(2,352	)		(2,350	)		(2,365	)
Other income and expenses, net⁽²⁾		95			91			109			90			166
Impairment, restructuring charges and other related closure costs		(292	)		(1,376	)		(75	)		(104	)		(291	)

Total operating expenses		(3,079	)		(4,864	)		(3,528	)		(3,539	)		(3,649	)

Operating income (loss)		(465	)		(2,081	)		46			476			(1,023	)
Other-than-temporary impairment charge and realized gains (losses) on financial assets		—			—			318			—			(140	)
Interest income (expense), net		(5	)		(35	)		(25	)		(3	)		9
Income (loss) on equity-method investments and gain on investment divestiture		(122	)		(24	)		(28	)		242			(337	)
Gain (loss) on financial instruments, net		—			3			25			(24	)		(5	)
Income (loss) before income taxes and noncontrolling interest		(592	)		(2,137	)		336			691			(1,496	)
Income tax benefit (expense)		(37	)		(51	)		(181	)		(149	)		95

Net income (loss)		(629	)		(2,188	)		155			542			(1,401	)
Net loss (income) attributable to noncontrolling interest		129			1,030			495			288			270

Net income (loss) attributable to parent company		(500	)		(1,158	)		650			830			(1,131	)

Earnings per share (basic) attributable to parent company stockholders		(0.56	)		(1.31	)		0.74			0.94			(1.29	)
Earnings per share (diluted) attributable to parent company stockholders		(0.56	)		(1.31	)		0.72			0.92			(1.29	)
Number of shares used in calculating earnings per share (basic)		889.5			886.7			883.6			880.4			876.9
Number of shares used in calculating earnings per share (diluted)		889.5			886.7			904.5			911.1			876.9


	Year Ended December 31,
	2013		2012		2011		2010		2009
	(In millions except per share and ratio data)
Consolidated Balance Sheets Data (end of period):
Cash and cash equivalents		1,836		2,250		1,912		1,892		1,588
Short-term deposits		1		1		—		67		—
Marketable securities		57		238		413		1,052		1,032
Restricted cash		—		4		8		7		250
Non-current marketable securities		—		—		—		72		42
Total assets		9,173		10,434		12,094		13,349		13,655
Short-term debt		225		630		733		720		176
Long-term debt (excluding current portion)⁽³⁾		928		671		826		1,050		2,316
Total parent company stockholders’ equity⁽⁴⁾		5,643		6,225		7,603		7,587		7,147
Common stock and capital surplus		3,737		3,711		3,700		3,671		3,637
Other Data:
Dividend per share⁽⁵⁾		0.40		0.40		0.40		0.28		0.12
Capital expenditures⁽⁶⁾		531		476		1,258		1,034		451
Net cash from operating activities		366		612		880		1,794		816
Depreciation and amortization		910		1,107		1,279		1,240		1,367
Debt-to-equity ratio⁽⁷⁾	$	0.20	$	0.21	$	0.21	$	0.23	$	0.35

(1)

Our reported research and development expenses (“R&D”) are mainly in the areas of product design and technology development. They do not include marketing design center costs, which are accounted for as selling expenses, or process engineering, pre-production and process-transfer costs, which are accounted for as cost of sales. Our R&D expenses are net of certain tax credits.

(2)

“Other income and expenses, net” includes, among other things: funds received through government agencies for research and development programs; costs incurred for start-up and phase-out activities not involving saleable production; foreign currency gains and losses; gains on sales of businesses and non-current assets; and the costs of certain activities relating to IP protection.

(3)

We repurchased a portion of our 2016 convertible bonds (“2016 Convertible Bonds”) during 2009 (98,000 bonds for a total cash consideration of $103 million), 2010 (385,830 bonds for a total cash consideration of $410 million), 2011 (289,768 bonds for a total cash consideration of $314 million of which 41,123 convertible bonds were redeemed by certain holders on February 23, 2011) and 2012 (200,402 bonds for a total cash consideration of $219 million of which 190,131 convertible bonds were redeemed by certain holders on February 23, 2012). Our 2016 Convertible Bonds were fully redeemed in the second quarter of 2012. We also repurchased a portion of our 2013 senior bonds (“2013 Senior Bonds”) in 2010 and 2011 for an amount of $98 million and $107 million, respectively. On March 17, 2013, we repaid with available cash the residual Euro 350 million outstanding 2013 Senior Bonds.

(4)

Certain shares that we repurchased in prior periods have been designated for allocation under our share-based compensation programs as unvested shares, including the plans as approved by the 2005 through 2013 annual general meetings of shareholders, and those which may be attributed in the future. As of December 31, 2013, 22,823,678 shares had been transferred to employees upon the vesting of such stock awards. As of December 31, 2013, we owned 20,096,542 treasury shares.

(5)	Dividend per share represents the dividend on an annualized basis, as approved by our general meetings of shareholders, which relates to the prior years’ accounts.

(6)	Capital expenditures are net of proceeds from sale and certain funds received through government agencies, the effect of which is to reduce our cash used in investing activities and to decrease depreciation.

(7)	Debt-to-equity ratio is the ratio between our total financial debt (bank overdrafts, short-term debt and long-term debt) and our total parent company stockholder’s equity.

Risks Related to the Semiconductor Industry which Impact Us

The semiconductor industry is cyclical and downturns in the semiconductor industry can negatively affect our results of operations and financial condition.

The semiconductor industry is cyclical and has been subject to significant downturns at various times, impacted by global economic conditions. Downturns are typically characterized by reduction in overall demand, accelerated erosion of selling prices, reduced revenues and high inventory levels, which could result in a significant deterioration of our results of operations. Furthermore, downturns may be the result of industry-specific factors, such as built-in excess capacity, product obsolescence, price erosion and changes in end-customer demand. Such macroeconomic trends relate to the semiconductor industry as a whole and not necessarily to the individual semiconductor markets to which we sell our products. The negative effects on our

business from industry downturns may also be increased to the extent that such downturns are concurrent with the timing of new increases in production capacity or the introduction of new advanced technologies in our industry. We have experienced revenue volatility and market downturns in the past and expect to experience them in the future, which could have a material adverse impact on our results of operations and financial condition.

In the event of a global or regional economic slowdown impacting business and consumer confidence, the demand for semiconductor products can decline precipitously. As a result, our business, financial conditions and results of operations have been affected in the past and could also be affected in the future. To the extent that the economic environment in which we conduct our operations worsens, our business, financial condition and results of operations could be significantly and adversely affected.

In particular, economic downturns affecting the semiconductor industry may result in a variety of risks that could significantly affect our business, including:

•

declines in revenues;

•

reductions in selling prices;

•

underutilization of manufacturing capacity;

•

deterioration of our gross margins, profitability and net cash flow;

•

increased volatility and/or declines in our share price;

•

increased volatility or adverse movements in foreign currency exchange rates;

•

delays in, or curtailment of, purchasing decisions by our customers or potential customers either as a result of overall economic uncertainty or as a result of their inability to access the liquidity necessary to engage in purchasing initiatives or new product development;

•

closure of our wafer fabrication plants (“fabs”) and associated restructuring plans;

•

lower valuations of our equity-method investments and lower valuations on our divestitures or our exit from joint ventures;

•

downgrade of our corporate credit ratings / outlook from one or more independent rating agencies, which may negatively impact our ability to access additional liquidity;

•

increased credit risk associated with our customers or potential customers, particularly those that may operate in industries most affected by the economic downturn; and

•

impairment of goodwill or other assets associated with our product segments.

We may not be able to match our production capacity to demand.

As a result of the cyclicality and volatility of the semiconductor industry, it is difficult to predict future developments in the markets we serve, making it hard to estimate requirements for production capacity. If markets, major customers or certain product designs or technologies do not perform as we have anticipated, we risk underutilization of our facilities or the manufacturing of excess inventories, in the event of overestimated demand or having insufficient capacity to meet customer demand in the event of underestimated demand.

The net increase of manufacturing capacity, defined as the difference between capacity additions and capacity reductions, may exceed demand requirements, leading to overcapacity and price erosion. If the semiconductor market or major customers do not grow as we anticipated when making investments in production capacity, we risk overcapacity and related unused capacity charges. In addition, if demand for our products is lower than expected, this may result in write-offs of inventories and losses on products, and could require us to undertake restructuring measures that may involve significant charges to our earnings. In the past, overcapacity for certain products or technologies and cost optimization initiatives have led us to close manufacturing facilities and, as a result, to incur significant impairment and restructuring charges and other related closure costs. Furthermore, during certain periods, we have also experienced an increasing demand in certain market segments and product technologies, which has led to a shortage of capacity and an increase in the lead times of our delivery to customers. See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Impairment, restructuring charges and other related closure costs”.

Competition in the semiconductor industry is intense, and we may not be able to compete successfully if our product design technologies, process technologies and products do not meet market requirements or if we are unable to obtain the necessary IP.

We compete in different product lines to various degrees on the following characteristics:

•

price;

•

technical performance;

•

product features;

•

product system compatibility;

•

product design and technology;

•

timely introduction of new products;

•

product availability;

•

process technology;

•

manufacturing capabilities; and

•

sales and technical support.

Given the intense competition in the semiconductor industry, if our products are not selected based on any of the above factors, our business, financial condition and results of operations could be materially adversely affected.

We face significant competition in each of our product lines. Similarly, many of our competitors also offer a large variety of products. Some of our competitors may have greater financial and/or more focused research and development (“R&D”) resources than we do. If these competitors substantially increase the resources they devote to developing and marketing products that compete with ours, we may not be able to compete successfully. Any consolidation among our competitors could also enhance their product offerings, manufacturing efficiency and financial resources, further strengthening their competitive position.

As we are a supplier of a broad range of products, we are required to make significant investments in R&D across our product portfolio in order to remain competitive. Many of the resulting products that we market have short life cycles, with some being one year or less. Economic conditions may impair our ability to maintain our current level of R&D investments and, therefore, we may need to become more focused in our R&D investments across our broad range of product lines. On December 10, 2012, we announced our strategic plan, centered on leadership in Sense & Power and Automotive Products and in Embedded Processing Solutions, specifically focusing on five product areas: MEMS and sensors, smart power, automotive products, microcontrollers, and digital consumer and ASICs. However, there can be no assurance that we will successfully compete in each product area when our competitors’ R&D investments could be more effective than ours.

We regularly devote substantial resources to winning competitive selection processes, known as “product design wins”, to develop products for use in our customers’ equipment and products. These selection processes can be lengthy and can require us to incur significant design and development expenditures, with no guarantee of winning or generating revenue. Delays in developing new products with anticipated technological advances or in commencing volume shipments of new products as well as failure to win new design projects for customers may have an adverse effect on our business. In addition, there can be no assurance that new products, if introduced, will gain market acceptance or will not be adversely affected by new technological changes or new product announcements from other competitors that may have greater efficiency, focus or financial resources. For additional information, see “Item 5. Operating and Financial Review and Prospects — Critical Accounting Policies Using Significant Estimates — Impairment of goodwill” and “— Intangible assets subject to amortization”.

Even after obtaining a product design win from one of our customers, we may still experience delays in generating revenue from our products as a result of our customers’ or our lengthy development and design cycle. In addition, a major change, delay or cancellation of a customer’s plans could significantly adversely affect our financial results, as we may have incurred significant expense and generated no revenue at the time of such change, delay or cancellation. Finally, if our customers fail to successfully market and sell their own products, it could materially adversely affect our business, financial condition and results of operations as the demand for our products falls.

We also regularly incur costs to develop IP internally or acquire it from third parties without any guarantee of realizing the anticipated value of such expenditures if our competitors develop technologies that are more accepted than ours, or if market demand does not materialize as anticipated. In addition to amortization expenses relating to purchased IP, the value of these assets may be subject to impairment with associated charges being made to our Consolidated Financial Statements. There is no assurance that our IP purchases will be successful and will not lead to impairments and associated charges.

The competitive environment of the semiconductor industry as well as the resulting consolidation and vertical integration at the customer level may lead to erosion of our market share, impact our capacity to compete and require us to restructure.

The intensely competitive environment of the semiconductor industry and the high costs associated with developing marketable products and manufacturing technologies as well as investing in production capabilities may lead to further changes, including consolidation and vertical integration, in the industry. Consolidation can allow a company to further benefit from economies of scale, provide improved or more diverse product portfolios and increase the size of its serviceable market.

Our sales have, at times, evolved at a slower pace than the semiconductor industry as a whole and our market share has declined, even in relation to the markets we served. While, in 2013, we gained market share in the markets we serve, there is no assurance that we will be able to maintain or grow our market share if we are unable to accelerate product innovation, identify new applications for our products, further penetrate and extend our customer base and realize manufacturing improvements. In recent years the major growth of the semiconductor industry has been in Asia, supported also by more competitive production costs, resulting in a more competitive environment. We may also incur losses of market share if we are unable to take the required measures to improve our cost structure and competitiveness in the semiconductor market, such as seeking more competitive sources of production, discontinuing certain products or performing additional restructurings, which in turn may result in loss of revenues, asset impairments, unused capacity charges and/or capital losses.

The semiconductor industry may also be impacted by changes in the political, social or economic environment, including as a result of military conflict, social unrest and/or terrorist activities, as well as natural events such as severe weather, health risks, epidemics or earthquakes in the countries in which we, our key customers and our suppliers, operate.

We may face greater risks due to the international nature of our business, including in the countries where we, our customers or our suppliers operate, such as:

•

negative economic developments in global economies and instability of foreign governments, including the threat of war, terrorist attacks or civil unrest;

•

epidemics such as disease outbreaks, pandemics and other health related issues;

•

changes in laws and policies affecting trade and investment, including through the imposition of new constraints on investment and trade; and

•

varying practices of the regulatory, tax, judicial and administrative bodies.

Risks Related to Our Operations

Market dynamics have driven, and continue to drive us, to a strategic repositioning.

In recent years, we have undertaken several new initiatives to reposition our business, both through divestitures and new investments. Our strategies to improve our results of operations and financial condition led us, and may in the future lead us, to acquire businesses that we believe to be complementary to our own, or to divest ourselves of activities that we believe do not serve our longer term business plans. Our potential acquisition strategies depend in part on our ability to identify suitable acquisition targets, finance their acquisition and obtain required regulatory and other approvals. Our potential divestiture strategies depend in part on our ability to compete and to identify the activities in which we should no longer engage, and then determine and execute appropriate methods to divest of them.

We are constantly monitoring our product portfolio and cannot exclude that additional steps in this repositioning process may be required; further, we cannot assure that any strategic repositioning of our business, including executed and possible future acquisitions, dispositions or joint ventures, will be successful and may not result in further impairment and associated charges.

Acquisitions and divestitures involve a number of risks that could adversely affect our operating results, including the risk that we may be unable to successfully integrate businesses or teams we acquire with our culture and strategies on a timely basis or at all, and the risk that we may be required to record charges related to the goodwill or other long-term assets associated with the acquired businesses. Changes in our expectations due to changes in market developments that we cannot foresee have in the past resulted in our writing off amounts associated with the goodwill of acquired companies, and future changes may require similar further write-offs in future periods. We cannot be certain that we will be able to achieve the full scope of the benefits we expect from a particular acquisition, divestiture or investment. Our business, financial condition and results of operations may suffer if we fail to coordinate our resources effectively to manage both our existing businesses and any acquired businesses. In addition, the financing of future acquisitions or divestitures may negatively impact our financial position and could require us to raise additional funding.

Other risks associated with acquisitions or joint ventures include:

•

in the case of joint ventures, our ability to effectively control the joint venture when management acts independently;

•

also in the case of joint ventures, our ability to plan and anticipate business and financial results which relies, for that portion of our business, on the joint venture’s management ability to plan and anticipate business and financial results and their timely and accurate reporting to us;

•

the diversion of management’s attention;

•

insufficient IP rights or issues concerning ownership of key IP;

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assumption of potential liabilities, disclosed or undisclosed, associated with the business acquired, which liabilities may exceed the amount of indemnification available from the seller;

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potential inaccuracies in the financials of the business acquired;

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the ability for businesses acquired or contributed to a joint venture to maintain the quality of products and services that we have historically provided;

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our ability to attract and retain qualified management for the acquired business or business contributed to a joint venture;

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our ability to retain customers of an acquired entity or business;

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employment issues and costs linked to restructuring plans; and

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the ability of the joint venture to succeed in a new business not associated with our core business.

Identified risks associated with divestitures include:

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loss of activities and technologies that may have complemented our remaining businesses or operations;

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loss of important services provided by key employees that are assigned to divested activities;

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impairment of goodwill and other assets associated with the business to be divested;

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employment issues and restructuring costs linked to divestitures and closures; and

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diversion of management’s attention.

These and other factors may cause a materially adverse effect on our results of operations and financial condition.

Our strategic plan may be unsuccessful if we cannot respond to significant changes in the semiconductor market.

In late 2012, we announced our strategic plan centered on leadership in Sense & Power and Automotive Products and in Embedded Processing Solutions, which included, as part of this new plan, our decision to exit ST-Ericsson after a transition period and established a targeted operating margin of about 10%. The split-up of ST-Ericsson was completed in the third quarter of 2013 and we are in the process of finalizing its wind-down. There can be no assurance that we will successfully implement our strategic plan and achieve our new financial model, which is dependent upon solid revenue growth, improving gross margins and reducing our operating costs. Our success is contingent upon our ability to respond to the following significant changes currently

characterizing the semiconductor market: the long-term structural growth of the overall market for semiconductor products, which has moved from double digit average annual growth to single digit average annual growth over the last several years and which has become more strongly correlated with the global macroeconomic environment; the acceleration of new product innovation and the strong development of new applications in areas such as smart consumer devices, trust and data security, healthcare & wellness, and energy and power management savings; the growing importance of the Asia Pacific region, particularly China and other emerging countries, which represent the fastest growing regional markets; the evolving customer demand to seek new system level, turnkey solutions from semiconductor suppliers; the evolution of the customer base, which also includes polarization and vertical integration at leading manufacturers; the expansion of available manufacturing capacity through third party providers; and the evolution of advanced process development R&D partnerships.

In difficult market conditions, our high fixed costs adversely impact our results.

In less favorable industry environments, we are driven to reduce prices in response to competitive pressures and we are also faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. Reduced average selling prices and demand for our products both adversely affect our results of operations. Since the semiconductor industry is characterized by high fixed costs, we are not always able to cut our total costs in line with revenue declines. Furthermore, in periods of lower customer demand for our products, our fabs do not operate at full capacity and the costs associated with the excess capacity are charged directly to cost of sales as unused capacity charges. We cannot guarantee that such market conditions, and increased competition in our core product markets, will not lead to further price erosion, lower revenue growth rates and lower margins.

Our financial results can be adversely affected by fluctuations in exchange rates, principally in the value of the U.S. dollar.

A significant variation of the value of the U.S. dollar against the principal currencies that have a material impact on us (primarily the Euro, but also certain other currencies of countries where we have operations, such as the Singapore dollar) could result in a favorable impact on our net income in the case of an appreciation of the U.S. dollar, or a negative impact on our net income if the U.S. dollar depreciates relative to these currencies, in particular with respect to the Euro. Currency exchange rate fluctuations affect our results of operations because our reporting currency is the U.S. dollar, in which we receive the major portion of our revenues, while, more importantly, we incur a significant portion of our costs in currencies other than the U.S. dollar. Certain significant costs incurred by us, such as a significant part of our manufacturing costs, selling, general and administrative (“SG&A”) expenses, and R&D expenses, and — in certain jurisdictions — depreciation charges are incurred in the currencies of the jurisdictions in which our operations are located, which mainly includes the Euro zone. Our effective average exchange rate, which reflects actual exchange rate levels combined with the impact of cash flow hedging programs, was $1.31 to €1.00 in 2013, the same as the effective average exchange rate for the full year of 2012.

In order to reduce the exposure of our financial results to the fluctuations in exchange rates, our principal strategy has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of purchases from our suppliers denominated in U.S. dollars and to reduce the weight of the other costs, including labor costs and depreciation, denominated in Euros and in other currencies. In order to further reduce our exposure to U.S. dollar exchange rate fluctuations, we have hedged certain line items on our consolidated statements of income (“Consolidated Statements of Income”), in particular with respect to a portion of the cost of goods sold, most of the R&D expenses and certain SG&A expenses located in the Euro zone. We also hedge certain manufacturing costs denominated in Singapore dollars. No assurance can be given that our hedging transactions will prevent us from incurring higher Euro-denominated manufacturing costs when translated into our U.S. dollar-based accounts in the event of a weakening of the U.S. dollar. See “Item 5. Operating and Financial Review and Prospects — Impact of Changes in Exchange Rates” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Our results of operations and financial condition could be adversely impacted by a negative resolution of economic conditions in Europe.

The financial markets and global economic conditions have been negatively impacted by the European economic crisis that began in 2010 and spread to several Euro zone countries, in particular Greece, Ireland, Italy, Portugal and Spain. This resulted in a sovereign liquidity crisis, with a significant increase in the interest rates on the national debt of several Euro zone countries and the downgrading of several sovereign debt ratings, which has contributed to a general slowdown of economic growth and higher debt levels. While it appears that the

financial crisis in the Euro zone is beginning to ease, we cannot exclude a potential further deterioration of economic conditions, which could have a material adverse effect on our results given our significant operations and assets in Europe, in particular, our manufacturing activities in France, Italy and Malta.

Because we own manufacturing facilities, our capital needs are high compared to those competitors who do not produce their own products.

As a result of our choice to maintain control of a certain portion of our advanced and proprietary manufacturing technologies to better serve our customer base, significant amounts of capital to maintain or upgrade our facilities could be required in the future. We monitor our capital expenditures taking into consideration factors such as trends in the semiconductor market and capacity utilization. These expenditures may increase in the future if we are required to upgrade or expand the capacity of our manufacturing facilities in order to respond to customer demand for increased quantities or for new more advanced products in certain segments we serve. There is no assurance that future market demand and products required by our customers will meet our expectations. Failure to invest appropriately or in a timely manner could have a material adverse effect on our business, and results of operations. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources”.

We may also need additional funding in the coming years to finance our investments, to purchase other companies or technologies developed by third parties or to refinance our maturing indebtedness.

In an increasingly complex and competitive environment, we may need to invest in other companies, in IP and/or in technology developed either by us or by third parties to maintain or improve our position in the market or to complement or expand our existing business. The foregoing may require us to secure additional financing, including through the issuance of debt, equity or both. The timing and the size of any new share or bond offering would depend upon market conditions as well as a variety of factors. In addition, the capital markets may from time to time offer terms of financing that are particularly favorable. We cannot exclude that we may access the capital markets opportunistically to take advantage of market conditions. Any such transaction or any announcement concerning such a transaction could materially impact the market price of our common shares. If we are unable to access capital on acceptable terms, this may adversely affect our business and results of operations.

Our R&D efforts are expensive and dependent on technology alliances, and our business, results of operations and prospects could be materially adversely affected by the failure or termination of such alliances.

We are dependent on alliances to develop or access new technologies, particularly in light of the high levels of investment required for R&D activities, and there can be no assurance that these alliances will be successful.

Our R&D alliances provide us with a number of important benefits, including the sharing of risks and costs, reductions in our own capital requirements, acquisitions of technical know-how and access to additional production capacities. In addition, they contribute to the fast acceleration of semiconductor process technology development while allowing us to lower our development and manufacturing costs. However, there can be no assurance that alliances will be successful and allow us to develop and access new technologies in due time, in a cost-effective manner and/or to meet customer demands. Certain companies develop their own process technologies, which may be more advanced than the technologies we develop through our cooperative alliances. Furthermore, if these alliances terminate before our intended goals are accomplished we may lose our investment, or incur additional unforeseen costs, and our business, results of operations and prospects could be materially adversely affected. In addition, if we are unable to develop or otherwise access new technologies independently, we may fail to keep pace with the rapid technology advances in the semiconductor industry, our participation in the overall semiconductor industry may decrease and we may also lose market share in the markets addressed by our products.

To support our proprietary R&D for derivative technology investments and investments in cooperative R&D ventures such as the ISDA alliance, a technology alliance led by IBM, we have, in the past, benefited, and will continue to benefit in the future, from state funding. In 2013 we signed the Nano-2017 frame agreement (the “Nano-2017 agreement”) with the French government, covering the period from 2013 to 2017, which is subject to certain conditions. While we expect to receive public funding under this agreement, there is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could negatively affect the R&D program, all of which could have a material adverse effect on our results of operations. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of operations.”

We also receive a material amount of R&D tax credits in France, which are directly linked to the amount spent for our R&D activities. In 2013, we booked $146 million, which reflected amounts relating to our R&D activities in France during 2013. In 2012 and 2011, the amounts were $152 million and $159 million, respectively. In the event of a change in the French R&D tax credit regime, this could affect our continued ability to invest in R&D as we currently do and we could experience a material adverse effect on our business and financial results.

If we fail to meet the condition and approval requirements applicable to public funding we have received in the past, we may face demands for repayment, which may increase our costs and impact our results of operations.

We have entered into public funding agreements in France and Italy, which set forth the parameters for state support to us under selected programs. These funding agreements require compliance with EU regulations and approval by EU authorities. These agreements also set forth certain conditions relating to the nature and amount of the investments, as well as employment. See “Item 4. Information on the Company — Public Funding”.

The application for and implementation of such grants often involves compliance with extensive regulatory requirements including, in the case of subsidies to be granted within the EU, notification to the European Commission by the member state making the contemplated grant prior to disbursement and receipt of required EU approval. In addition, compliance with project-related ceilings on aggregate subsidies defined under EU law often involves highly complex economic evaluations. Furthermore, public funding arrangements are generally subject to annual and project-by-project reviews and approvals. If we fail to meet applicable formal or other requirements, we may under certain circumstances be required to refund previously received amounts, which could have a material adverse effect on our results of operations. In addition, if we do not complete projects for which public funding has been approved, or meet certain objectives set forth in funding programs, which may include certain conditions of employment and manufacturing capacity to be met, we may be required to repay any advances received for ongoing milestones, which may lead to a material adverse effect on our results of operations and our financial position. See “Item 4. Information on the Company — Public Funding”.

If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of operations.

In certain product families, our strategy is based on technological excellence in advanced CMOS, which is R&D intensive. We plan to fund this R&D program with, among other resources, grants from the French government under the Nano-2017 agreement, which is currently subject to EU approval. If the approval from the EU is not received and, as a result, the program is not funded, our strategy with respect to the development of advanced CMOS technology would have to be reconsidered. While we expect to receive public funding under this agreement, there is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could negatively affect the R&D program, all of which could have a material adverse effect on our results of operations.

Our operating results may vary significantly from quarter to quarter and annually and may differ significantly from our expectations or guidance.

Our operating results are affected by a wide variety of other factors that could materially and adversely affect revenues and profitability or lead to significant variability of operating results. These factors include, among others, capital requirements, inventory management, availability of funding, competition, new product developments, technological changes, manufacturing problems and effective tax rates. For example, if anticipated sales or shipments do not occur when expected, expenses and inventory levels in a given quarter can be disproportionately high, and our results of operations for that quarter, and potentially for future quarters, may be adversely affected.

A number of other factors could lead to fluctuations in quarterly and annual operating results, including:

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performance of our key customers in the markets they serve;

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order cancellations or reschedulings by customers;

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excess inventory held by customers leading to reduced bookings or product returns by key customers;

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manufacturing capacity and utilization rates;

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restructuring and impairment charges and other related closure costs;

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losses on equity-method investments;

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fluctuations in currency exchange rates, particularly between the U.S. dollar and other currencies in jurisdictions where we have activities;

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IP developments;

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receipt of governmental funding;

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changes in distribution and sales arrangements;

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failure to win new design projects;

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manufacturing performance and yields;

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product liability or warranty claims;

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litigation;

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taxation;

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acquisitions or divestitures;

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problems in obtaining adequate raw materials or production equipment on a timely basis;

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property loss or damage or interruptions to our business, including as a result of fire, natural disasters or other disturbances at our facilities or those of our customers and suppliers that may exceed the amounts recoverable under our insurance policies; and

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changes in the market value or yield of the financial instruments in which we invest our liquidity.

In periods of industry overcapacity or when our key customers encounter difficulties in their end markets, orders are more exposed to cancellations, reductions, price renegotiation or postponements, which in turn reduce our management’s ability to forecast the next quarter or full year production levels, revenues and margins. For these reasons and others that we may not yet have identified, our revenues and operating results may differ materially from our expectations or guidance as visibility is reduced. See “Item 4. Information on the Company — Backlog”.

Our business is dependent in large part on continued growth in the industries and segments into which our products are sold and on our ability to attract and retain new customers. A market decline in any of these industries or our inability to attract new customers could have a material adverse effect on our results of operations.

We derive and expect to continue to derive significant sales from the telecommunications, consumer, computer peripherals, automotive and industrial markets. Growth of demand in these market segments has fluctuated significantly in the past, and may in the future, based on numerous factors, including:

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spending levels of the market segment participants;

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reduced demand resulting from a drop in consumer confidence and/or a deterioration of general economic conditions;

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development of new consumer products or applications requiring high semiconductor content;

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evolving industry standards; and

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the rate of adoption of new or alternative technologies.

We cannot predict the rate, or the extent to which, the telecommunications, consumer, computer peripherals, automotive and industrial markets will grow. Changes in these markets, coupled with a lower penetration of certain of our customers could result in slower growth and a decline in demand for our products.

In addition, our spending on process and product development well ahead of market acceptance could have a material adverse effect on our business, financial condition and results of operations if projected industry growth rates do not materialize as forecasted.

Our business is dependent upon our ability to attract and retain new customers who are successful in identifying and serving new potential, fast-growing markets. The competition for such new customers or new markets is intense. There can be no assurance that we will be successful in attracting and retaining new customers or be able to identify early on any new market prospects. Our failure to do so could materially adversely affect our business, financial position and results of operations.

Our business is also dependent upon continuing to supply existing large customers, their business success and the fit of our product offering with their products road-map. Our customers’ products strategy may change from time to time and we have no certainty that our business, financial position and results of operations will not be affected.

Disruptions in our relationships with any one of our key customers, and/or material changes in their strategy or financial condition, could adversely affect our results of operations.

A substantial portion of our sales is derived from several large customers, some of whom have entered into strategic agreements with us. We cannot guarantee that our largest customers will continue to book the same level of sales with us that they have in the past, or will not solicit alternative suppliers or will continue to succeed in the markets they serve. Many of our key customers operate in cyclical businesses that are also highly competitive, and their own demands and market positions may vary considerably. In recent years, certain customers of the semiconductor industry have experienced consolidation and have vertically integrated their businesses. Such consolidations and vertical integrations may impact our business in the sense that our relationships with the new entities could be either reinforced or jeopardized pursuant thereto. Our customers have in the past, and may in the future, vary order levels significantly from period to period, request postponements to scheduled delivery dates or modify their bookings. We cannot guarantee that we will be able to maintain or enhance our market share with our key customers or distributors. If we were to lose important design wins for our products with our key customers, or if any key customer or distributor were to reduce or change its bookings, seek alternate suppliers, increase its product returns or become unable or fail to meet its payment obligations, our business, financial condition and results of operations could be materially adversely affected. If customers do not purchase products made specifically for them, we may not be able to resell such products to other customers or require the customers who have ordered these products to pay a cancellation fee. Furthermore, developing industry trends, including customers’ use of outsourcing and new and revised supply chain models, may reduce our ability to forecast the purchase date for our products and understand evolving customer demand, thereby affecting our revenues and working capital requirements. For example, pursuant to industry developments, some of our products are required to be delivered on consignment to customer sites with recognition of revenue delayed until the earlier of such moment when the customer chooses to take delivery of our products from our consignment stock and the expiry of a defined period of time.

Our operating results can also vary significantly due to impairment of goodwill and other intangible assets incurred in the course of acquisitions and equity investments, as well as to impairment of tangible assets due to changes in the business environment.

Our operating results can also vary significantly due to impairment of goodwill, other intangible assets and equity investments booked pursuant to acquisitions, joint venture agreements and the purchase of technologies and licenses from third parties. Because the market for our products is characterized by rapidly changing technologies, significant changes in the semiconductor industry, and the potential failure of our business initiatives, our future cash flows may not support the value of goodwill and other intangibles registered in our consolidated balance sheets (“Consolidated Balance Sheets”). We are required to perform an impairment test of our goodwill on an annual basis, which is done in the third quarter. In addition, we are also required to assess the carrying values of intangible and tangible assets when impairment indicators exist. As a result of such tests, we could be required to book an impairment charge in our consolidated statement of income if the carrying value in our Consolidated Balance Sheets is in excess of the fair value. The amount of any potential impairment is not predictable as it depends on our estimates of projected market trends, results of operations and cash flows. Any potential impairment, if required, could have a material adverse impact on our results of operations.

We performed our annual impairment test in the third quarter of 2013 and, with the exception of a $56 million impairment charge with respect to our Digital Convergence Group (“DCG”) business, we incurred no other impairment charges as the fair value of those reporting units exceeded their carrying value. See “Item 5. Operating and Financial Review and Prospects — Overview — Critical Accounting Policies Using Significant Estimates — Impairment of goodwill”, “— Intangible assets subject to amortization” and “— Income (loss) on Equity-method Investments”.

We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others.

We depend on our ability to obtain patents and other IP rights covering our products and their design and manufacturing processes. We intend to continue to seek patents on our inventions relating to product designs and

manufacturing processes. However, the process of seeking patent protection can be long and expensive, and we cannot guarantee that we will receive patents from currently pending or future applications. Even if patents are issued, they may not be of sufficient scope or strength to provide meaningful protection or any commercial advantage. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in some countries. Competitors may also develop technologies that are protected by patents and other IP and therefore either be unavailable to us or be made available to us subject to adverse terms and conditions. We have in the past used our patent portfolio to negotiate broad patent cross-licenses with many of our competitors enabling us to design, manufacture and sell semiconductor products, without fear of infringing patents held by such competitors. We may not, however, in the future be able to obtain such licenses or other rights to protect necessary IP on favorable terms for the conduct of our business, and such failure may adversely impact our results of operations.

We have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other IP rights. Some of those claims are made by so called non-practicing entities against which we are unable to assert our own broad patent portfolio to lever licensing terms and conditions. Competitors with whom we do not have patent cross-license agreements may also develop technologies that are protected by patents and other IP rights and which may be unavailable to us or only made available on unfavorable terms and conditions. We may therefore become involved in costly litigation brought against us regarding patents, mask works, copyrights, trademarks or trade secrets. We are currently involved in several lawsuits. See “Item 8. Financial Information — Legal Proceedings”. IP litigation may also involve our customers who in turn may seek indemnification from us should we not prevail and/or who may decide to curtail their orders for those of our products over which claims have been asserted. Such lawsuits may therefore have a material adverse effect on our business. We may be forced to stop producing substantially all or some of our products or to license the underlying technology upon economically unfavorable terms and conditions or we may be required to pay damages for the prior use of third party IP and/or face an injunction.

The outcome of IP litigation, given the complex technical issues it involves, is inherently uncertain and may divert the efforts and attention of our management and other specialized technical personnel. Furthermore, litigation can result in significant costs and, if not resolved in our favor, could materially and adversely affect our business, financial condition and results of operations.

We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could cause a material adverse effect on our results.

We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could have a material adverse effect on our results in any particular quarter. Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimated tax provisions due to new events. We currently receive certain tax benefits in some countries, and these benefits may not be available in the future due to changes in the local jurisdictions. As a result, our effective tax rate could increase in the coming years.

In line with our strategic repositioning of our product portfolio, the acquisition or divestiture of businesses in different jurisdictions could materially affect our effective tax rate.

We evaluate our deferred tax asset position and the need for a valuation allowance on a regular basis. This assessment requires the exercise of judgment on the part of our management with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative factors. The ultimate realization of deferred tax assets is dependent upon, among other things, our ability to generate future taxable income that is sufficient to utilize loss carry-forwards or tax credits before their expiration or our ability to implement prudent and feasible tax planning strategies. The recorded amount of total deferred tax assets could be reduced, resulting in a loss in our consolidated income statement, a decrease in our total assets and, consequently, in our stockholders’ equity, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of a change in management’s assessment or due to other factors, such as divestitures, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize tax loss and credit carry-forwards in the future. A change in the estimated amounts and the character of the future result may require additional valuation allowances, resulting in a negative impact on our consolidated income statement.

We are subject to the possibility of loss contingencies arising out of tax claims, assessment of uncertain tax positions and provisions for specifically identified income tax exposures. There are currently tax audits ongoing

in certain of our jurisdictions, which could result in material adjustments in our tax position. There can be no assurance that we will be successful in resolving potential tax claims that arose or can arise from these audits. We have booked provisions on the basis of the best current understanding; however, we could be required to book additional provisions in future periods for amounts that cannot be assessed at this stage. Our failure to do so and/or the need to increase our provisions for such claims could have a material adverse effect on our consolidated income statement and our financial position.

Because we depend on a limited number of suppliers for raw materials and certain equipment, we may experience supply disruptions if suppliers interrupt supply, increase prices or experience material adverse changes in their financial condition.

Our ability to meet our customers’ demand to manufacture our products depends upon obtaining adequate supplies of quality raw materials on a timely basis. A number of materials are available only from a limited number of suppliers, or only from a limited number of suppliers in a particular region. In addition, we purchase raw materials such as silicon wafers, lead frames, mold compounds, ceramic packages and chemicals and gases from a number of suppliers on a just-in-time basis, as well as other materials such as copper and gold whose prices on the world markets have fluctuated significantly during recent periods. Although supplies for the raw materials we currently use are adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. In addition, the costs of certain materials have increased due to market pressures and we may not be able to pass on such cost increases to the prices we charge to our customers. We also purchase semiconductor manufacturing equipment from a limited number of suppliers and, because such equipment is complex, it is difficult to replace one supplier with another or to substitute one piece of equipment for another. In addition, suppliers may extend lead times, limit our supply or increase prices due to capacity constraints or other factors. Furthermore, suppliers tend to focus their investments on providing the most technologically advanced equipment and materials and may not be in a position to address our requirements for equipment or materials of older generations. Although we work closely with our suppliers to avoid these types of shortages, there can be no assurance that we will not encounter these problems in the future. Our quarterly or annual results of operations would be adversely affected if we were unable to obtain adequate supplies of raw materials or equipment in a timely manner or if there were significant increases in the costs of raw materials or problems with the quality of these raw materials.

If our outside contractors fail to perform, this could adversely affect our ability to exploit growth opportunities.

We currently use outside contractors for a portion of our front and back-end activities. The foundries we contract with are primarily manufacturers of high-speed complementary metal-on silicon oxide semiconductor (“HCMOS”) wafers, while our back-end subcontractors engage in the assembly and testing of a wide variety of packaged devices. If our outside suppliers are unable to satisfy our demand, or experience manufacturing difficulties, delays or reduced yields, our results of operations and ability to satisfy customer demand could suffer. Our internal manufacturing costs include depreciation and other fixed costs, while costs for products outsourced are based on market conditions. Prices for these services also vary depending on capacity utilization rates at our suppliers, quantities demanded, product technology and geometry. Furthermore, these outsourcing costs can vary materially from quarter to quarter and, in cases of industry shortages, they can increase significantly further, negatively impacting our gross margin and our results of operations.

Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities, disruptions or inefficient implementation of production changes that can significantly increase our costs and delay product shipments to our customers.

Our manufacturing processes are highly complex, require advanced and increasingly costly equipment and are continuously being modified or maintained in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields, interrupt production or result in losses of products in process. As system complexity and production changes have increased and sub-micron technology has become more advanced using ever finer geometries, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. Although in the past few years we have significantly enhanced our manufacturing capability in terms of efficiency, precision and capacity, we have from time to time experienced bottlenecks and production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. We cannot guarantee that we will not experience bottlenecks, production or transition difficulties in the future. In addition, during past periods of high demand for

our products, our manufacturing facilities have operated at high capacity, which has led to production constraints. Furthermore, if production at a manufacturing facility is interrupted, we may not be able to shift production to other facilities on a timely basis, or customers may purchase products from other suppliers. In either case, the loss of revenue and damage to the relationship with our customer could be significant.

We may be faced with product liability or warranty claims.

Despite our corporate quality programs and commitment, our products may not in each case comply with specifications or customer requirements. We may face product liability or warranty claims based on epidemic, security or delivery failures. Although our general practice, in line with industry standards, is to contractually limit our liability to the repair, replacement or refund of defective products, warranty or product liability claims could result in significant expenses relating to compensation payments or other indemnification to maintain good customer relationships if a customer threatens to terminate or suspend our relationship pursuant to a defective product supplied by us. No assurance can be made that we will be successful in maintaining our relationships with customers with whom we incur quality problems, which could have a material adverse effect on our business. Furthermore, we could incur significant costs and liabilities if litigation occurs to defend against such claims and if damages are awarded against us. In addition, it is possible for one of our customers to recall a product containing one of our parts. Costs or payments we may make in connection with warranty claims or product recalls may adversely affect our results of operations. There is no guarantee that our insurance policies will be available or adequate to protect us against such claims.

Our systems are subject to security breaches and other cybersecurity incidents.

We may, from time to time, experience cyber attacks of varying degrees, and as a result, unauthorized parties may have obtained, and may in the future obtain, access to our computer systems and networks. Such cyber attacks could result in the misappropriation of our proprietary information and technology, the compromise of personal and confidential information of our employees, customers or suppliers or interrupt our business. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. We may incur significant costs in order to implement, maintain and/or update security systems that we feel are necessary to protect our computer systems. To the extent that any disruptions or security breaches result in significant loss or damage to our data, or inappropriate disclosure of significant proprietary information, it could cause damage to our reputation and affect our relationships with our customers and suppliers and ultimately harm our business.

Some of our production processes and materials are environmentally sensitive, which could expose us to liability and increase our costs due to environmental regulations and laws or because of damage to the environment.

We are subject to many environmental laws and regulations wherever we operate that govern, among other things, the use, storage, discharge and disposal of chemicals, gases and other hazardous substances used in our manufacturing processes, air emissions, waste water discharges, waste disposal, as well as the investigation and remediation of soil and ground water contamination.

A number of environmental requirements in the European Union, including some that have only recently come into force, affect our business. See “Item 4. Information on the Company — Environmental Matters”. The implementation of such regulations could adversely affect our manufacturing costs or product sales by requiring us to acquire costly equipment, materials or greenhouse gas allowances, or to incur other significant expenses in adapting our manufacturing processes or waste and emission disposal processes. We are not in a position to quantify specific costs, in part because these costs are part of our business process. Furthermore, environmental claims or our failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations. As with other companies engaged in similar activities, any failure by us to control the use of, or adequately restrict the discharge of, chemicals or hazardous substances could subject us to future liabilities. Any specific liabilities we identify as probable would be reflected in our Consolidated Balance Sheets. To date, we have not identified any such probable liabilities and have therefore not booked reserves for any environmental risks.

Loss of key employees could hurt our competitive position.

As is common in the semiconductor industry, success depends to a significant extent upon our key senior executives and R&D, engineering, marketing, sales, manufacturing, support and other personnel. Our success

also depends upon our ability to continue to attract, retain and motivate qualified personnel. The competition for such employees is intense, and the loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on us.

Our major shareholders may sell our existing common shares or issue financial instruments exchangeable into our common shares at any time. In addition, substantial issuances by us of new common shares or convertible bonds could cause our common share price to drop significantly.

The STH Shareholders’ Agreement, to which we are not a party, between respectively CEA, Bpifrance, FT1CI, our French Shareholder controlled by Bpifrance and CEA, and the Italian Ministry of the Economy and Finance (“Ministry of the Economy and Finance”), our Italian Shareholder, permits our respective French and Italian indirect shareholders to cause STMicroelectronics Holding N.V. (“ST Holding”) to dispose of its stake in us at any time from their current level, thereby reducing the current level of their respective indirect interests in our common shares. Such disposals could be made by way of sales of our shares or through issuance of financial instruments exchangeable for our shares, equity swaps or structured finance transactions. The details of the STH Shareholders’ Agreement, as reported by its parties, are further explained in “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders”. An announcement with respect to one or more of such dispositions could be made at any time without our advance knowledge.

From time to time, the French or Italian Shareholder of ST Holding has changed and may change in future. For example, in 2013, the Ministry of the Economy and Finance announced its intent to sell its investment in ST Holding. Sales of our common shares or the issuance of financial instruments exchangeable into our common shares or any announcements concerning a potential sale by ST Holding, FT1CI, Bpifrance, CEA or the Ministry of the Economy and Finance, could materially impact the market price of our common shares depending on the timing and size of such sale, market conditions as well as a variety of other factors.

In addition, substantial issuances by us of new common shares or convertible bonds could cause our common share price to drop significantly as a result of substantial dilution in the percentage of our shares held by our then existing shareholders. The issuance of common stock for acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our shareholders, and might have an adverse effect on any trading market for our common stock.

Our shareholder structure and our preference shares may deter a change of control.

We have an option agreement (the “Option Agreement”) with an independent foundation, Stichting Continuiteït ST (the “Stichting”), whereby we could issue a maximum of 540,000,000 preference shares in the event of actions considered hostile by our Managing Board and Supervisory Board, such as a creeping acquisition or an unsolicited offer for our common shares, which are unsupported by our Managing Board and Supervisory Board and which the board of the Stichting determines would be contrary to the interests of our Company, our shareholders and our other stakeholders. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders — Shareholders’ Agreement — Preference Shares”.

No preference shares have been issued to date. The effect of the issuance of preference shares pursuant to the Option Agreement may be to deter potential acquirers from effecting an unsolicited acquisition resulting in a change of control or otherwise taking actions considered hostile by our Managing Board and Supervisory Board. In addition, our shareholders have authorized us to issue additional capital within the limits of the authorization by our shareholders’ meeting, subject to the requirements of our Articles of Association, without the need to seek a specific shareholder resolution for each capital increase. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders — Shareholders’ Agreement — Preference Shares”.

The STH Shareholders’ Agreement, to which we are not a party, between respectively CEA, Bpifrance, FT1CI, our French Shareholder controlled by Bpifrance and CEA, and the Ministry of the Economy and Finance, our Italian Shareholder, permits our respective French and Italian indirect shareholders to cause ST Holding to dispose of its stake in us at any time from their current level, thereby reducing the current level of their respective indirect interests in our common shares. Such disposals could be made by way of sales of our shares or through issuance of financial instruments exchangeable for our shares, equity swaps or structured finance transactions.

The details of the STH Shareholders’ Agreement, as reported by its parties, are further explained in “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders”. An announcement with respect to one or more of such dispositions could be made at any time without our advance knowledge.

Sales of our common shares or the issuance of financial instruments exchangeable into our common shares or any announcements concerning a potential sale by ST Holding, FT1CI, Bpifrance, CEA or the Ministry of the Economy and Finance, could materially impact the market price of our common shares depending on the timing and size of such sale, market conditions as well as a variety of other factors.

We are required to prepare financial statements under IFRS and we also prepare Consolidated Financial Statements under U.S. GAAP, and such dual reporting may impair the clarity of our financial reporting.

We use U.S. GAAP as our primary set of reporting standards. Applying U.S. GAAP in our financial reporting is designed to ensure the comparability of our results to those of our competitors, as well as the continuity of our reporting, thereby providing our stakeholders and potential investors with a clear understanding of our financial performance. As we are incorporated in The Netherlands and our shares are listed on Euronext Paris and on the Borsa Italiana, we are subject to EU regulations requiring us to also report our results of operations and financial statements using IFRS.

As a result of the obligation to report our financial statements under IFRS, we prepare our results of operations using both U.S. GAAP and IFRS, which are currently not consistent. Such dual reporting can materially increase the complexity of our financial communications. Our financial condition and results of operations reported in accordance with IFRS will differ from our financial condition and results of operations reported in accordance with U.S. GAAP, which could give rise to confusion in the marketplace.

If our internal control over financial reporting fails to meet the requirements of Section 404 of the Sarbanes-Oxley Act, it may have a materially adverse effect on our stock price.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules that require us to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, we must also include an attestation by our independent registered public accounting firm regarding the effectiveness of our internal control over financial reporting. We have successfully completed our Section 404 assessment and received the auditors’ attestation as of December 31, 2013. However, in the future, if we fail to complete a favorable assessment from our management or to obtain an “unqualified” auditors’ attestation, we may be subject to regulatory sanctions or may suffer a loss of investor confidence in the reliability of our financial statements, which could lead to an adverse effect on our stock price.

Because we are subject to the corporate law of The Netherlands, U.S. investors might have more difficulty protecting their interests in a court of law or otherwise than if we were a U.S. company.

Our corporate affairs are governed by our Articles of Association and by the laws governing corporations incorporated in The Netherlands. The corporate affairs of each of our consolidated subsidiaries are governed by the Articles of Association and by the laws governing such corporations in the jurisdiction in which such consolidated subsidiary is incorporated. The rights of the investors and the responsibilities of members of our Managing and Supervisory Boards under Dutch law are not as clearly established as under the rules of some U.S. jurisdictions. Therefore, U.S. investors may have more difficulty in protecting their interests in the face of actions by our management, members of our Supervisory Board or our controlling shareholders than U.S. investors would have if we were incorporated in the United States.

Our executive offices and a substantial portion of our assets are located outside the United States. In addition, ST Holding and most members of our Managing and Supervisory Boards are residents of jurisdictions other than the United States and Canada. As a result, it may be difficult or impossible for shareholders to effect service within the United States or Canada upon us, ST Holding, or members of our Managing or Supervisory Boards. It may also be difficult or impossible for shareholders to enforce outside the United States or Canada judgments obtained against such persons in U.S. or Canadian courts, or to enforce in U.S. or Canadian courts

judgments obtained against such persons in courts in jurisdictions outside the United States or Canada. This could be true in any legal action, including actions predicated upon the civil liability provisions of U.S. securities laws. In addition, it may be difficult or impossible for shareholders to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon U.S. securities laws.

We have been advised by Dutch counsel that the United States and The Netherlands do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. As a consequence, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws of the United States, will not be enforceable in The Netherlands. However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in The Netherlands, such party may submit to The Netherlands court the final judgment that has been rendered in the United States. If The Netherlands court finds that the jurisdiction of the federal or state court in the United States has been based on grounds that are internationally acceptable and that proper legal procedures have been observed, the court in The Netherlands would, under current practice, give binding effect to the final judgment that has been rendered in the United States unless such judgment contradicts The Netherlands’ public policy.

Item 4.

Information on the Company

History and Development of the Company

STMicroelectronics N.V. was formed and incorporated in 1987 and resulted from the combination of the semiconductor business of SGS Microelettronica (then owned by Società Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and the non-military business of Thomson Semiconducteurs (then owned by the former Thomson-CSF, now Thales, a French corporation). We completed our initial public offering in December 1994 with simultaneous listings on the Bourse de Paris (now known as “Euronext Paris”) and the New York Stock Exchange (“NYSE”). In 1998, we listed our shares on the Borsa Italiana S.p.A. (“Borsa Italiana”). Until 1998, we operated as SGS-Thomson Microelectronics N.V. We are organized under the laws of The Netherlands. We have our corporate legal seat in Amsterdam, The Netherlands, and our head offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH Schiphol, The Netherlands. Our telephone number there is +31-20-654-3210. Our headquarters and operational offices are managed through our wholly owned subsidiary, STMicroelectronics International N.V., and are located at 39 Chemin du Champ des Filles, 1228 Plan-Les-Ouates, Geneva, Switzerland. Our main telephone number there is +41-22-929-2929. Our agent for service of process in the United States related to our registration under the U.S. Securities Exchange Act of 1934, as amended, is Corporation Service Company (CSC), 80 State Street, Albany, New York, 12207. Our operations are also conducted through our various subsidiaries, which are organized and operated according to the laws of their country of incorporation, and consolidated by STMicroelectronics N.V.

Business Overview

We are a global independent semiconductor company that designs, develops, manufactures and markets a broad range of semiconductor products used in a wide variety of applications, including automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation and control systems. Semiconductors are the basic building blocks used to create an increasing variety of electronic products and systems. Since the invention of the transistor in 1948, continuous improvements in semiconductor process and design technologies have led to smaller, more complex and more reliable devices at a lower cost per function. As performance has increased and size and unitary cost have decreased, semiconductors have expanded beyond their original primary applications (i.e. computer systems) to applications such as telecommunication systems, consumer goods, automotive products and industrial automation and control systems. In addition, system users and designers have demanded systems with more functionality, higher levels of performance, greater reliability and shorter design cycle times, all in smaller packages at lower costs.

Our major customers include Apple, Blackberry, Bosch, Cisco, Conti, Hewlett-Packard, Nokia, Oberthur, Samsung, and Western Digital. We also sell our products through distributors and retailers, including Arrow Electronics, Avnet, Wintech and Yosun. The semiconductor industry has historically been cyclical and we have responded by emphasizing balance in our product portfolio, in the applications we serve and in the regional markets we address.

Although cyclical changes in production capacity in the semiconductor industry and demand for electronic systems have resulted in pronounced cyclical changes in the level of semiconductor sales and fluctuations in prices and margins for semiconductor products from time to time, the semiconductor industry has experienced

substantial growth over the long-term. Factors that contribute to long-term growth include the development of new semiconductor applications, increased semiconductor content as a percentage of total system cost, emerging strategic partnerships and growth in the electronic systems industry.

We offer a broad and diversified product portfolio and develop products for a wide range of market applications to reduce our dependence on any single product, application or end market. Within our diversified portfolio, we have focused on developing products that leverage our technological strengths in creating customized, system-level solutions with high-growth digital and mixed-signal content. Our product families are comprised of differentiated application-specific products (we define as being our dedicated analog, mixed-signal and digital application-specific integrated circuits (“ASICs”) and application-specific standard products (“ASSP”) offerings and semi-custom devices) that are organized under our two product segments, which are: (i) Sense & Power and Automotive Products (“SP&A”) comprised of Automotive (“APG”), Industrial & Power Discrete (“IPD”), Analog & MEMS (“AMS”) and Other SP&A; and (ii) Embedded Processing Solutions (“EPS”) comprised of Digital Convergence Group (“DCG”), Imaging, BiCMOS ASIC and Silicon Photonics (“IBP”), Microcontrollers, Memory & Security (“MMS”), Wireless (“WPS”), which are former ST-Ericsson legacy products, and Other EPS.

Our products are manufactured and designed using a broad range of manufacturing processes and proprietary design methods. We use all of the prevalent function-oriented process technologies, including CMOS, bipolar and nonvolatile memory technologies. In addition, by combining basic processes, we have developed advanced systems-oriented technologies that enable us to produce differentiated and application-specific products, including bipolar CMOS technologies (“BiCMOS”) for mixed-signal applications, and diffused metal-on silicon oxide semiconductor (“DMOS”) technology and bipolar, CMOS and DMOS (“BCD”) technologies for intelligent power applications, MEMS and embedded memory technologies. This broad technology portfolio, a cornerstone of our strategy for many years, enables us to meet the increasing demand for System-on-Chip (“SoC”) and System-in-Package (“SiP”) solutions. Complementing this depth and diversity of process and design technology is our broad IP portfolio that we also use to enter into broad patent cross-licensing agreements with other major semiconductor companies.

Our principal investment and resource allocation decisions in the semiconductor business area are for expenditures on technology R&D as well as capital investments in front-end and back-end manufacturing facilities, which are planned at the corporate level; therefore, our product segments share common R&D for process technology and manufacturing capacity for some of their products.

For information on our segments and product lines, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Segment Information”.

Results of Operations

For our 2013 Results of Operations, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Segment Information”.

Strategy

ST is a global leader in the semiconductor market serving customers across the spectrum of Sense & Power and Automotive Products and Embedded Processing Solutions. From energy management and savings to trust and data security, from healthcare and wellness to smart consumer devices, in the home, car and office, at work and at play, ST is found everywhere microelectronics make a positive and innovative contribution to people’s life. By getting more from technology to get more from life, ST stands for life augmented.

Our strategy, which we announced on December 10, 2012, takes into account the evolution of the markets we are in and the environment and opportunities we see in the years to come. It is based on our leadership in our two product segments, SP&A and EPS. Each segment is supported by a Sales & Marketing organization with a particular focus on our major accounts, as well as on expanding our penetration of the mass market. Furthermore, we focus on five growth drivers: (i) Automotive Products, which make driving safer, greener and more entertaining; (ii) Digital Consumer and ASIC Products, which power the augmented digital lifestyle; (iii) MEMS and Sensors, which augment the consumer experience; (iv) Microcontrollers, which make everything smarter and more secure; and (v) Smart Power, which makes more of our energy resources. These product families are expected to experience solid growth rates driven by secular trends and are aligned with our market-leading positions and competitive advantages. Our innovative products in these areas, combined with our competitive technology and flexible and independent manufacturing capabilities, bring us even more opportunities to significantly grow and gain market share.

We continue to advance towards our target financial model including an operating margin of about 10%, expected by mid-2015, based on a combination of revenue growth, gross margin improvement and reduction of net expenses towards the low end of our target range.

Product Segments

In the Semiconductors business area, we design, develop, manufacture and market a broad range of products, including discrete and standard commodity components, application-specific integrated circuits (“ASICs”), full-custom devices and semi-custom devices and application-specific standard products (“ASSPs”) for analog, digital and mixed-signal applications. In addition, we further participate in the manufacturing value chain of Smartcard products, which include the production and sale of both silicon chips and Smartcards. As of 2013, we also promote and market our existing products to the defense market.

In 2013, we ran our business along product lines and managed our revenues and internal operating performance based on the following product segments:

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Sense & Power and Automotive Products (SP&A), including the following product lines:

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Automotive (APG);

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Industrial & Power Discrete (IPD);

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Analog & MEMS (AMS); and

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Other SP&A;

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Embedded Processing Solutions (EPS), comprised of the following product lines:

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Digital Convergence Group (DCG);

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Imaging, BiCMOS ASIC and Silicon Photonics (IBP);

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Microcontrollers, Memory & Security (MMS);

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Wireless (WPS), which are former ST-Ericsson legacy products; and

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Other EPS.

In 2013, we revised our results from prior periods in accordance with this segment structure. The preparation of segment information based on the current segment structure requires us to make estimates and assumptions in determining the operating income (loss) of the segments for the prior reporting periods. We believe that the revised 2012 and 2011 presentation is consistent with that of 2013 and we use these comparatives when managing our company. In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. Based on its immateriality, we do not report information separately for Subsystems. For a description of the main categories of products sold and/or services performed for each of the last three fiscal years, see Note 25 to our Consolidated Financial Statements.

Sense & Power and Automotive Products (SP&A)

Automotive (APG)

Our automotive products include digital and mixed signal devices that enable features like airbag controls, anti-skid braking systems, vehicle stability control, ignition and injection circuits, multiplex wiring, RF and power management for body and chassis electronics, engine management, advanced safety, instrumentation, car radio and infotainment. We hold a leading position in the global market for automotive semiconductor products.

We offer a broad range of products:

(i) Powertrain. We design and manufacture smart power products to enhance performance and comfort while reducing the automobile’s environmental impact. For powertrain, our products are used for engine emissions and fuel economy improvements and powertrain electrification with mixed signal power management power driver and analog signal processing. In this area, we are clearly a market leader due to continuous process innovation, such as the recently introduced 110-nm. We also manufacture 32-bit microcontrollers for engine control and automatic gearbox applications. In this area we benefit from our competitive advantage in technology R&D with our recent 40-nm process currently in a qualification phase and our 300-mm plant in Crolles.

(ii) Chassis-Safety. Our Chassis-Safety products are used for passive and active safety systems. Our chassis-safety products are used for applications relating to braking, vehicle steering and airbag safety.

(iii) Body Electronics. We design and manufacture power, smart power products and microcontrollers addressing applications like door modules, anti-theft, lighting, wipers and body control modules.

(iv) Infotainment. We design and produce products to provide a full solution in the digital area of automotive applications. We create full solutions for automotive infotainment analog including tolling, navigation and telematics applications. The increasingly complex requirements of the car/driver interface continue to create market opportunities for us to use the company’s media processing and global positioning (“GPS”) capabilities in car multimedia applications. We have the skills and competence to provide a total solution, including GPS navigation, media processing, audio amplification and signal processing. We also supply components to satellite radio applications, including base band products to market leaders in this area.

In 2013, we reinforced our strong position in braking applications, with two important wins with two global Tier 1s, and entered into new partnerships with car manufacturers to address radical innovation and open new growth opportunities. We also landed a win for an injector driver for a gasoline direct-injection engine controller — the first resulting from a collaboration with a strategic Asian customer; earning an important award for a 32-bit 40-nm microcontroller family for body gateway and body control modules from a major European Tier 1. Furthermore, we leveraged our record of success with Sirius/XM to win the new generation 40-nm base band chip for Digital Satellite Broadcasting.

Industrial and Power Discrete (IPD)

The IPD Group’s activities focus on developing a broad range of innovative and competitive products including Power, Smart Power and Analog ICs. Our key product focus includes: power management ICs for smartphones and tablets, industrial ASICs and ASSPs for factory automation, motion control and lighting; tunable capacitors for mobile phones; SiC DIODES for high power converters, High Performance Triacs, SCRs and High Efficiency Rectifiers, IGBT power modules for industrial applications, high voltage and low voltage Power MOSFETs for applications such as “point of load”, telecom DC-DC converters, PFC, switch mode power supplies and automotive equipment.

In particular we focus on the following most attractive segments:

(i) Smart Grid. Key applications include smart metering, renewable energy, energy saving, power conversion, HEV-EV and LED lighting.

(ii) Automation. Key automation applications include factory automation, industrial motor drives, home & building automation, networking and security.

(iii) Portable. Our key portable applications include smartphone, tablet, handheld consumer, fitness and consumer medical.

(iv) Power Conversion. Our key applications include SMPS, PC Power, telecom, UPS, welding, adapter and server.

IPD developments during 2013 include:

(i) Industrial. ASICs with extended lifetimes from major EMEA automation companies as well as another for a dedicated power supply for utilities metering; significant wins with a large Asian welding customer and with Intelligent Power Modules for air-conditioning and motor-control applications; ViperPlus high-voltage converters designed in at a major Taiwanese SMPS manufacturer; German factory automation customers with newest octal intelligent power switch; and big design wins for very-high-voltage super-junction MOSFETs with a European lighting leader and for high-voltage devices in Japan and Korea for Switched-Mode Power Supply and LED applications;

(ii) Consumer. Intelligent power modules scored several design wins from home-appliance leaders in the U.S. and Europe; and high-voltage gate driver for washing-machine applications and for high-voltage converters to be used in coffee machines and washing machines for several major European manufacturers;

(iii) Innovative Solutions. New LED lighting platform for a major U.S. manufacturer; many diverse design wins with the innovative digital-power STLUX385x platform; and multiple wins for silicon-carbide power diodes in high-power server applications; and

(iv) Portable. Very high market share with AMOLED drivers; wins for RF antenna tuner for smartphones; field-effect rectifier diodes for mobile and tablet chargers at a leading Asian OEM; and won key EMIF filters & protection-device sockets with leading game-console, tablet, notebook and other portable applications. Strong momentum with new advanced analog power management ICs for efficient battery management thanks to the transfer of the team from ST-Ericsson.

Analog & MEMS (AMS)

We are positioning AMS in the High End Analog world that comprises MEMS, many kinds of Sensors, Interfaces, low power RF Transceivers and Analog front-end. We design and manufacture a wide variety of MEMS products for many different applications and all market segments. We are a leader of the overall MEMS Market with the ability to produce and sell micro-actuators, like the thermal ones utilized in the Thermal Ink Jet and micromachined sensors, such as accelerometers, gyroscopes, altimeters, compasses, microphones and pressure sensors, in billions of pieces per year.

The Group also develops innovative, differentiated and value added analog products such as:

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audio amplifier ICs, used in a variety of end-products from portable to professional audio systems;

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touch screen controllers, named FingerTip Chips, for in-cell and on-cell LCD and AMOLED panel technology for smartphones and tablets applications;

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low power infrared sensors;

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battery-less low power wireless sensor nodes for applications in healthcare, industrial and consumer applications;

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gas flow sensors for next generation fully electronic gas-meters;

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high-resolution ICs for 3D and 4D ultrasound imaging; and

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high performance standard products like operational amplifiers and comparators, current sensors, real time clock chips, smart resets, supervisors and new generation interface chips.

Important 2013 developments include the production of a 6-axis MEMS device for the flagship model of an Asian Smartphone manufacturer and the start of high-volume production of the 4th generation 3-axis gyroscope for a major consumer electronics manufacturer. We also started production for an accelerometer for airbag in Automotive and launched mass production of a Smart iNEMO module, containing an accelerometer, gyro and brain for a handheld gaming system from a major manufacturer. iNEMO modules integrate different types of sensors to offer more compact, robust and easy-to-assemble solutions compared to discrete MEMS products and brings motion sensing systems to the level required for the most demanding applications, such as enhanced gesture recognition/gaming, augmented reality, indoor navigation and localization-based services. In addition, we received a win for a high end digital top port microphone in a new tablet and received environmental sensor success with the launch of a new environmental sensor for a leading Chinese smartphone manufacturer.

Embedded Processing Solutions (EPS)

Digital Convergence Group (DCG)

We provide a complete and flexible solution across a broad range of applications for delivering high-definition content and rich services to end users, from complex ASICs for network infrastructure and gaming to ASSPs for digital set-top boxes and monitors. DCG’s 2013 developments include:

(i) wins in set-top box, including: receiving awards for new set-top box Class2 product family, with full certification from Nagra and Viaccess; Sumitomo Electric Networks’ selecting of Orly for its Advanced Generation of Smart IPTV set-top boxes; receiving an important design at a key customer for the U.S. cable modem based on Orly; our selection by MitraStar Technology for the newest set-top boxes from Kbro Broadband; and achieving DOCSIS 3 certification for SoC products addressing the cable-data gateway and interactive set-top box markets; and

(ii) momentum in FD-SOI, including: receiving 15 design wins as of the current date and a sustained high level of customer interest; delivering a test chip to a top customer in the consumer market; launching an engagement with a key player in mobile phone market in China; and successfully completing a 28-nm performance validation with a key networking Chinese player.

(iii) exit from the digital TV ASSP SoC market and reduced presence in standalone display port components (furthermore, in February 2014, we entered into a small transaction transferring a part of our display port standalone product portfolio to a third party which hired some employees engaged in this activity).

Imaging, BiCMOS ASIC & Silicon Photonics (IBP)

The IBP Group’s activities focus on developing innovative, competitive and low power solutions and systems for BiCMOS ASIC and Silicon Photonics as well as Imaging products. For BiCMOS ASIC & Silicon Photonics, we are focused on developing products for RF, Optical ICs and Silicon Photonics. For Imaging products, we address image capture and processing product requirements for various segments of the industry, due to four product families, CMOS image sensors, CMOS photonic sensors, Imaging modules and Imaging processors. In the mobile imaging segment, wireless handset and tablets, we produce CMOS-based camera modules, CMOS image sensors and processors for low and high density pixel resolutions, which also meet the autofocus, advanced fixed focus and miniaturization requirements of this market.

IBP’s 2013 developments include:

(i) for our high volume image sensor business: high volume innovative image sensors using ST’s proprietary backside-illumination (“BSI”) technology to camera integrators; our delivering high-value dedicated Image Signal Processor (“ISP”) to a leading consumer brand; and our winning a slot for the ISP from a leading phone manufacturer;

(ii) for silicon photonics: securing design wins for ASICs using silicon photonics with two of the world’s top optical communications manufacturers; collecting a broad range of design wins from many customers that use ST BiCMOS or silicon photonics process technology in almost 30 new ASIC projects; and ramping production for 100G and parallel optics applications; and

(iii) with regard to diversification: sampling and demonstrating to automotive market leaders a new high-performance ISP and image-sensor chipset with advanced features for automotive and security applications.

Microcontrollers, Memory & Security (MMS)

MMS activities focus on microcontrollers dedicated to General purpose and Secure applications.

With our STM32 product family, we offer a wide range of 32-bit General Purpose Microcontrollers suitable for a wide variety of applications from those where a minimum cost is a primary requirement to those that need powerful real-time performance and high-level language support. In addition, our ST33/31 secure microcontrollers are also based on 32-bit architecture that securely store data and provide an array of security capabilities including advanced data encryption. Our expertise in security is a key to our leadership in the banking, pay-TV, mobile communication, identity, and transport fields. We also actively contribute to the emergence of new applications such as secure mobile transactions on near field communication (“NFC”) mobile phones, trusted computing, brand protection, etc. In addition under the “Incard” brand, we develop, manufacture and sell smartcards for banking, identification and telecom applications.

MMS is also involved in the memories (EEPROM), which are used for parameter storage in various electronic devices in all market segments. RF EEPROM memories are opening many new opportunities everywhere.

These products are manufactured in processes capable of embedding nonvolatile memories as appropriate.

During 2013, we continued to expand our leadership in 32-bit by receiving several design wins, such as:

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sensor-hub in various mobile applications at a major manufacturer;

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next-generation low-power fitness-monitoring system at a key Americas OEM;

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Samsung’s latest wearable device and smartphone;

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several other design wins for smart-watch applications at major global OEMs; and

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Wi-Fi modules for Internet-of-Things applications at various customers.

We also expanded our secure microcontroller business:

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embedded ST33 Secure Element in major OEMs’ showcase smartphone;

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growing adoption of the ST31, our secure 32-bit MCU, in contact and contactless banking applications; and

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achieved Bank-Card Test Center certification for our secure microcontroller for Dual Interface Banking in China.

Wireless (WPS)

The Wireless Product Line resulted from the combination of our wireless business with NXP’s and with Ericsson’s mobile platform business to form a joint venture, ST-Ericsson (JVS).

Upon our decision to exit ST-Ericsson and break up the ST-Ericsson business (legacy products went to ST and the LTE modem to Ericsson), we report the revenues of phased out ST-Ericsson products in the Wireless Product Line.

Alliances with Customers and Industry Partnerships

We believe that alliances with customers and industry partnerships are critical to success in the semiconductor industry. Customer alliances provide us with valuable systems and application know-how and access to markets for key products, while allowing our customers to share some of the risks of product development with us and to gain access to our process technologies and manufacturing infrastructure. We are actively working to expand the number of our customer alliances, targeting OEMs in the United States, in Europe and in Asia.

Partnerships with other semiconductor industry manufacturers permit costly R&D and manufacturing resources to be shared to mutual advantage for joint technology development. For example, we belong to the International Semiconductor Development Alliance to co-develop 32/28-nm and below process technologies. In addition, we collaborate closely with the CEA Leti in both process development and design, with recent focus on our FD-SOI derivative technology. Furthermore, we have joint development programs with leading suppliers such as Air Liquide, ASM Lithography, Hewlett-Packard, PACKTEC, JSR, SOITEC, Statchip, Teradyne and with electronic design automation (“EDA”) tool producers, including Cadence, Mentor and Synopsys. We also participate in joint European research programs, such as the ITEA, the Cluster for Application and Technology Research in Europe on NanoElectronics (“CATRENE”), ARTEMIS and the European Nanoelectronics Initiative Advisory (“ENIAC”) programs.

Customers and Applications

We design, develop, manufacture and market thousands of products that we sell to thousands of customers. Our major customers include Apple, Blackberry, Bosch, Cisco, Conti, Hewlett-Packard, Nokia, Oberthur, Samsung, and Western Digital. To many of our key customers we provide a wide range of products, including application-specific products, discrete devices, memory products and programmable products. Our broad range portfolio helps foster close relationships with customers, which provides opportunities to supply such customers’ requirements for multiple products, including discrete devices, programmable products and memory products. We also sell our products through distributors and retailers, including Arrow Electronics, Avnet, Wintech and Yosun. The semiconductor industry has historically been cyclical and we have responded by emphasizing balance in our product portfolio, in the applications we serve and in the regional markets we address.

No customer exceeded 10% of our total net revenues in both 2013 and 2012. There can be no assurance that our customers or distributors will continue to place orders with us in the future at the same levels as in prior periods. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Disruptions in our relationships with any one of our key customers, and/or material changes in their strategy or financial condition, could adversely affect our results of operations”.

Sales, Marketing and Distribution

In 2012, we reorganized our Sales & Marketing organization with the primary objectives of accelerating sales growth and gaining market share. The changes were designed along three key drivers: strengthening the effectiveness of the development of our global accounts; boosting demand creation through an enhanced focus on geographical coverage; and establishing marketing organizations in our regional sales organizations that are fully aligned with the Product Groups.

Following this reorganization, the previous sales organization structured by market segment was replaced by a new sales organization organized by a combination of country/area coverage and key accounts coverage. Our Sales & Marketing organization is now structured into six units: four regional sales organizations and two major accounts units.

Regional Sales Organizations

Our four regional sales organizations, a description of which follows below, have a similar structure to enhance coordination in the go-to-market activities. They are also strongly focused on accelerated growth.

(i) EMEA — In EMEA, there are seven sales organizations. Four are geographically defined and cover North, Central, West and South & Emerging Markets. Three sales units have worldwide responsibility for global sales of three Global Key Accounts. Marketing is organized to reflect the product groups, representing APG, Digital, MMS and AMS/IPD. Combined, these organizations are collectively responsible for new and existing account development, technical support and logistics and services support. We also have an organization that manages our distribution network and supports EMS customers for manufacturing on behalf of our OEM customers.

(ii) Americas — In the Americas region, the sales and marketing team is organized into seven major accounts: Global Key Accounts, Four New Major Accounts, Sales by Geography consisting of the West Coast, Central South, North Central and East Coast Sales. We also have a sales team supporting Latin America based in two centers in Mexico and Brazil. Our Marketing teams that support and promote specific products are organized in line with our product groups, of which there are six: APG, AMS, DCG, IBP, IPD and MMS. We also have an organization that manages our distribution network and supports EMS customers mostly for manufacturing on behalf of our OEM customers.

(iii) Greater China-South Asia — The Greater China-South Asia region comprises six geographical sales units with offices covering North China (Beijing), Central China (Shanghai), South China (Hong Kong), Taiwan (Taipei), India (New Delhi) and ASEAN/Australia & New Zealand (Singapore). It is further supported by a centralized Channel coordination function, as well as six key product groups, namely, DCG, IBP, APG, IPD, AMS and MMS, and four new major accounts. In 2013, the company also opened 7 new offices (6 in mainland China and 1 in Taiwan) in the region.

(iv) Japan-Korea — The Japan-Korea region comprises three geographical sales units with offices covering East Japan (Tokyo and Nagoya), West Japan (Osaka), Korea (Seoul) and four new major accounts. It is further supported by key product groups, namely, DCG/IBP, APG, IPD/AMS and MMS plus a comprehensive Sales Channel Management that provides products and sales support for the regional distribution network. Each geographical sales unit sells each product from our portfolio that fits the applications. Marketing and Application organization provides product support and training for standard products for the region. In addition, five central support functions (business management, field quality, human resources, finance and corporate communications) allow the region to run all of the necessary tasks smoothly.

The sales and marketing activities performed by our regional sales organizations are supported by product marketing that is carried out by each product group, which also includes product development functions. This matrix system reinforces our sales and marketing activities and our broader strategic objectives. An important component of our regional sales and marketing efforts is to expand our customer base, which we seek to do by adding sales representatives, regional competence centers and new generations of electronic tools for customer support.

We also engage distributors and representatives to distribute our products around the world. Typically, distributors handle a wide variety of products, including products that compete with our products, and fill orders for many customers. Most of our sales to distributors are made under agreements allowing for price protection and/or the right of return on unsold merchandise. We generally recognize revenues upon the transfer of ownership of the goods at the contractual point of delivery. Sales representatives generally do not offer products that compete directly with our products, but may carry complementary items manufactured by others. Representatives do not maintain a product inventory. Their customers place large quantity orders directly with us and are referred to distributors for smaller orders.

At the request of certain of our customers, we also sell and deliver our products to EMS, which, on a contractual basis with our customers, incorporate our products into the application specific products they

manufacture for our customers. Certain customers require us to hold inventory on consignment in their hubs and only purchase inventory when they require it for their own production. This may lead to delays in recognizing revenues, as revenue recognition will occur, within a specific period of time, at the actual withdrawal of the products from the consignment inventory, at the customer’s option.

For a breakdown of net revenues by product segment and geographic region for the last three fiscal years, see “Item 5. Operating and Financial Review and Prospects”.

Research and Development

We believe that market driven R&D founded on leading edge products and technologies is critical to our success. The main R&D challenge we face is continually increasing the functionality, speed and cost-effectiveness of our semiconductor devices, while ensuring that technological developments translate into profitable commercial products as quickly as possible.

We combine front-end manufacturing and technology R&D under the same organization for each of SP&A and EPS to ensure a smooth flow of information between the R&D and manufacturing organizations and we leverage on significant synergies and shared activities between the two segments to cross-fertilize both businesses. We manage our R&D projects by technology and by product segment. The relevant technology R&D expenses are allocated to the product segments on the basis of the estimated efforts. The total amount of R&D expenses in the past three fiscal years was $1,816 million, $2,413 million and $2,352 million in 2013, 2012 and 2011, respectively.

We devote significant effort to R&D because we believe such investment can be leveraged into competitive advantages. New developments in semiconductor technology can make end products significantly cheaper, smaller, faster, more reliable and embedded with more functionalities than their predecessors. They also enable, through their timely appearance on the market, significant value creation opportunities. For a description of our R&D expenses, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Research and Development Expenses”.

With the core CMOS and analog technologies in our portfolio, we are aggressively proceeding to miniaturization in line with industry requirements. To differentiate our offering for higher value systems, we also seek to combine our core technologies with our specific knowhow and expertise, in particular in the area of System-in-Package.

Our R&D design centers offer a significant advantage for us in quickly and cost effectively introducing products. In addition, we have advanced R&D centers strategically located around the world, including in France, Italy, China, India, Singapore, the United Kingdom and the United States. We have a technology council comprised of fifteen leading experts to review, evaluate and advise us on the competitive landscape. Our R&D center in Greater Noida, India provides necessary support to the Group’s design activities worldwide and hosts R&D activities focused on software development and core libraries development, with a strong emphasis on system solutions.

In 2008, we entered into an R&D alliance with the International Semiconductor Development Alliance (“ISDA”) led by IBM, whose other core members are Samsung and Global Foundries, to develop leading edge core CMOS technologies at 32/28-nm and 22/20-nm nodes. In 2013, we extended our participation in ISDA to cover the next nodes (14/10/7-nm). We are also working with the CEA Leti and IBM to develop in Crolles our FD-SOI derivative technology, which, for the 28-nm node and the next generation, 14-nm, are in development, and for the 10-nm, it is on our roadmap. This FD-SOI technology offers an alternative to the Fin-FET technology proposed by competitors for applications targeting low power dissipation.

In 2009, we also entered into a framework agreement with the French Ministry of Economy, Industry and Employment for the “Nano-2012” Research and Development program. This program expired at the end of 2012. On July 22, 2013, we announced the Nano-2017 Research and Development program. See “Item 5. Operating and Financial Review and Prospects — Other Developments”.

Furthermore, our manufacturing facility in Crolles, France houses a R&D center, “Centre Commun de Microelectronique de Crolles”. Laboratoire d’Electronique de Technologie d’Instrumentation, a research laboratory of CEA (one of our indirect shareholders), is our partner in this center. In 2012, a new structure,

Institut de Recherche Technologique (“IRT”), was set up by CEA in the frame of the French initiative “Investissements d’Avenir”. We participate in this program, which takes place on CEA’s premises, through investment and by contributing the expertise of some of our researchers.

There can be no assurance that we will be able to generate the necessary funding to support the ongoing costs of our R&D programs, or that we will be able to develop future technologies and commercially implement them on satisfactory terms, or that our alliances will allow the successful development of state-of-the-art core CMOS or FD-SOI technologies on satisfactory terms and in line with market requirements. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Our R&D efforts are increasingly expensive and dependent on technology alliances, and our business, results of operations and prospects could be materially adversely affected by the failure or termination of such alliances”.

In Italy, our technology R&D development activities occur principally in Agrate and Catania. In Agrate, such activities encompass prototyping, pilot and volume production of newly developed technologies with the objective of accelerating process industrialization and time to market for Smart Power affiliation (BCD), including on SOI, High Voltage CMOS and MEMS. In addition, we plan to set up a 300-mm pilot line for manufacturing and R&D for advanced BCD technology. We also run a joint operation under a consortium agreement with Micron Technologies (“Micron”) in which we and Micron each manage our respective technology R&D programs. In Catania, we develop new technologies for power discretes, SICs and gallium arsenide.

Our Advanced Systems Technology (“AST”) organization, primarily located in Agrate, creates system knowledge that supports our SoC development. AST’s objective is to develop the advanced architectures that will drive key strategic applications, including health care, wireless and data security. AST’s challenge is to combine the expertise and expectations of our customers, industrial and academic partners, our central R&D teams and product segments to create a cohesive, practical vision that defines the hardware, software and system integration knowledge that we will need in the next three to five years and the strategies required to master them.

We play leadership roles in numerous projects running under the European Union’s IST (Information Society Technologies) programs. We also participate in joint European research programs, such as the ITEA, the Cluster for Application and Technology Research in Europe on NanoElectronics (“CATRENE”), ARTEMIS and the European Nanoelectronics Initiative Advisory Council (“ENIAC”) programs.

Property, Plants and Equipment

We currently operate 14 main manufacturing sites around the world. The table below sets forth certain information with respect to our current manufacturing facilities, products and technologies. Front-end manufacturing facilities are fabs and back-end facilities are assembly, packaging and final testing plants.


Location	Products	Technologies
Front-end facilities
Crolles1, France	Application-specific products	Fab: 200-mm CMOS and BiCMOS, Analog/RF

Crolles2, France	Application-specific products and leading edge logic products; nonvolatile memories and microcontrollers	Fab: 300 mm research and development on deep sub- micron (20 nm bulk and FD SOI 14 nm) CMOS and differentiated SoC technology and manufacturing on advanced CMOS, imaging technologies and Nonvolatile memories microcontrollers at (80, 55 and 40-nm)

Agrate, Italy	Nonvolatile memories, microcontrollers and application-specific products MEMS	Fab 1: 200-mm BCD, MEMS, Microfluidics Fab 2: 200-mm, embedded Flash, research and development on nonvolatile memories and BCD technologies and Flash (operating in consortium with Micron)


Location	Products	Technologies
Rousset, France	Microcontrollers, nonvolatile memories and Smartcard ICs, application-specific products	Fab 1: 200-mm CMOS, Smartcard, embedded Flash, Analog/RF

Catania, Italy	Power transistors, Smart Power and analog ICs and application-specific products, MEMS	Fab 1: 150-mm Power metal-on silicon oxide semiconductor process technology (“MOS”), VIPpower^tm, MO-3, MO-5 and Pilot Line RF Fab 2: 200-mm, Microcontrollers, Advanced BCD, power MOS

Tours, France	Protection thyristors, diodes and ASD power transistors, IPAD	Fab: 125-mm, 150-mm and 200-mm pilot line discrete

Ang Mo Kio, Singapore	Analog, microcontrollers, power transistors, commodity products, nonvolatile memories, and application-specific products	Fab 1: 150-mm-bipolar, power MOS and BCD, EEPROM, Smartcard, Micros, CMOS logic Fab 2: 150-mm Microfluidics, MEMS, power MOS, BiCMOS, CMOS (wind-down of certain manufacturing lines ongoing) Fab 3: 200mm BCD and Power MOS (Pilot line installation ongoing)

Back-end facilities

Muar, Malaysia	Application-specific and standard products, microcontrollers	Ball Grid Array, Power Automotive, SOIC, QFP

Kirkop, Malta	Application-specific products, MEMS, Embedded Flash for Automotive	Ball Grid Array, QFP, Land Grid Array

Toa Payoh, Singapore	Optical packages research and development, EWS and Testing Center

Bouskoura, Morocco	Nonvolatile memories, discrete and standard products, micromodules, RF and subsystems	Power, SOIC, Micromodules

Shenzhen, China⁽¹⁾	Nonvolatile memories, optical packages, discrete, application-specific and standard products	Ball Grid Array, Camera Module, SOIC, Power

Longgang, China	Discrete and standard products	Power, PDIP (wind down and consolidation to Shenzhen has started)

Calamba, Philippines	Application specific products and standard products, MEMS	Ball Grid Array, QFN, Micromodules, Land Grid Array

(1)	Jointly operated with SHIC, a subsidiary of Shenzhen Electronics Group.

Fab 2 in Ang Mo Kio is to be reduced essentially to Microfluidics products, while in Catania Fab 1 will be progressively converted into 200-mm and merged with Fab 2. There will be consolidation of our back-end activity in China to Shenzhen (closure of Longgang).

At the end of 2013, our front-end facilities had a total maximum capacity of approximately 130,000 200-mm equivalent wafer starts per week. The number of wafer starts per week varies from facility to facility and from period to period as a result of changes in product mix. Our advanced 300-mm wafer pilot-line fabrication facility in Crolles, France had an installed capacity of 3,600 wafers per week at the end of 2013, and we plan to increase production to up to approximately 6,000 wafers per week as required by market conditions and within the framework of our R&D Nano-2017 program.

We own all of our manufacturing facilities, but certain facilities (Muar-Malaysia, Shenzhen and Longgang-China, Toa Payoh and Ang Mo Kio-Singapore) are built on land, which are the subject of long-term leases.

We have historically subcontracted a portion of total manufacturing volumes to external suppliers. In 2013 we purchased approximately 9% from external foundries of our total silicon production. Our plan is to extend sourcing of silicon from external foundries up to above 20% of our total needs.

At December 31, 2013, we had approximately $163 million in outstanding commitments for purchases of equipment and other assets for delivery in 2014. In 2013, our capital spending, net of proceeds, was $531 million, above the $476 million registered in 2012. In the 2011-2013 period the ratio of capital investment spending to revenues was about 8.6%. For more information, see “Item 5. Operating and Financial Review and Prospects — Financial Outlook: Capital Investment”.

Our manufacturing processes are highly complex, require technologically advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities or other difficulties in the manufacturing process can lower yields, interrupt production or result in losses of products in process. As system complexity has increased and sub-micron technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision and excellence have become even more demanding. Although our increased manufacturing efficiency has been an important factor in our improved results of operations, we have from time to time experienced production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry.

In the second part of 2013, we experienced demand progressing at a pace lower than expected. Nonetheless we have been able to properly balance our fabs and plants loading versus the inventories evolution to ensure the sound level of their operational performances.

No assurance can be given that we will be able to increase manufacturing efficiencies in the future to the same extent as in the past, or that we will not experience production difficulties and/or unsaturation in the future.

In addition, as is common in the semiconductor industry, we have from time to time experienced difficulty in ramping up production at new facilities or effecting transitions to new manufacturing processes and, consequently, have suffered delays in product deliveries or reduced yields. There can be no assurance that we will not experience manufacturing problems in achieving acceptable yields, product delivery delays or interruptions in production in the future as a result of, among other things, capacity constraints, production bottlenecks, construction delays, equipment failure or maintenance, ramping up production at new facilities, upgrading or expanding existing facilities, changing our process technologies, or contamination or fires, storms, earthquakes or other acts of nature, any of which could result in a loss of future revenues. In addition, the development of larger fabrication facilities that require state-of-the-art sub-micron technology and larger-sized wafers has increased the potential for losses associated with production difficulties, imperfections or other causes of defects. In the event of an incident leading to an interruption of production at a fab, we may not be able to shift production to other facilities on a timely basis, or our customers may decide to purchase products from other suppliers, and, in either case, the loss of revenues and the impact on our relationship with our customers could be significant. Our operating results could also be adversely affected by the increase in our fixed costs and operating expenses related to increases in production capacity if revenues do not increase commensurately. Finally, in periods of high demand, we increase our reliance on external contractors for foundry and back-end service. Any failure to perform by such subcontractors could impact our relationship with our customers and could materially affect our results of operations.

Intellectual Property (IP)

IP rights that apply to our various products include patents, copyrights, trade secrets, trademarks and mask work rights. A mask work is the two- or three-dimensional layout of an integrated circuit. We currently own approximately 16,000 patents and pending patent applications, corresponding to over 9,000 patent families (each patent family containing all patents originating from the same invention), including 598 original new patent applications filed in 2013.

Our success depends in part on our ability to obtain patents, licenses and other IP rights covering our products and their design and manufacturing processes. To that end, we intend to continue to seek patents on our innovations in our circuit designs, manufacturing processes, packaging technology and system applications as well as on industry standards and other inventions. The process of seeking patent protection can be long and expensive, and there can be no assurance that patents will issue from currently pending or future applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. In addition, effective copyright and trade secret protection may be unavailable or limited in certain countries. Competitors may also develop technologies that are protected by patents and other IP rights and therefore such technologies may be unavailable to us or available to us subject to adverse terms and conditions. Management believes that our IP represents valuable assets and intends to protect our investment in technology by enforcing all of our IP rights. We have also set up a dedicated team actively seeking to optimize the value from our IP portfolio by the licensing of our design technology and other IP, including patents. We have used our patent portfolio to enter into several broad patent cross-licenses with several major semiconductor companies enabling us to design, manufacture and sell semiconductor products without fear of infringing patents held by such companies, and intend to continue to use our patent portfolio to enter into such patent cross-licensing agreements with industry participants on favorable terms and conditions. As our sales increase compared to those of our competitors, the strength of our patent portfolio may not be sufficient to guarantee the conclusion or renewal of broad patent cross-licenses on terms that do not affect our results of operations. Furthermore, as a result of litigation, or to address our business needs, we may be required to take a license to third party IP rights upon economically unfavorable terms and conditions, and possibly pay damages for prior use, and/or face an injunction or exclusion order, all of which could have a material adverse effect on our results of operations and ability to compete.

From time to time, we are involved in IP litigation and infringement claims. See “Item 8. Financial Information — Legal Proceedings”. In the event a third party IP claim were to prevail, our operations may be interrupted and we may incur costs and damages, which could have a material adverse effect on our results of operations, cash flow and financial condition.

Finally, we have received from time to time, and may in the future receive communications from competitors or other third parties alleging infringement of certain patents and other IP rights of others, which have been and may in the future be followed by litigation. Regardless of the validity or the successful assertion of such claims, we may incur significant costs with respect to the defense thereof, which could have a material adverse effect on our results of operations, cash flow or financial condition. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others”.

Backlog

Our sales are made primarily pursuant to standard purchase orders that are generally booked from one to twelve months in advance of delivery. Quantities actually purchased by customers, as well as prices, are subject to variations between booking and delivery and, in some cases, to cancellation due to changes in customer needs or industry conditions. During periods of economic slowdown and/or industry overcapacity and/or declining selling prices, customer orders are not generally made far in advance of the scheduled shipment date. Such reduced lead time can reduce management’s ability to forecast production levels and revenues. When the economy rebounds, our customers may strongly increase their demands, which can result in capacity constraints due to our inability to match manufacturing capacity with such demand.

In addition, our sales are affected by seasonality, with the first quarter generally showing lowest revenue levels in the year, and the third or fourth quarter historically generating higher amounts of revenues.

We also sell certain products to key customers pursuant to frame contracts. Frame contracts are annual contracts with customers setting forth quantities and prices on specific products that may be ordered in the future. These contracts allow us to schedule production capacity in advance and allow customers to manage their inventory levels consistent with just-in-time principles while shortening the cycle times required to produce ordered products. Orders under frame contracts are also subject to a high degree of volatility, because they reflect expected market conditions which may or may not materialize. Thus, they are subject to risks of price reduction, order cancellation and modifications as to quantities actually ordered resulting in inventory build-ups.

Furthermore, developing industry trends, including customers’ use of outsourcing and their deployment of new and revised supply chain models, may reduce our ability to forecast changes in customer demand and may increase our financial requirements in terms of capital expenditures and inventory levels.

We entered 2013 with a backlog lower than we had compared to 2012, as a result of a difficult industry environment. During 2013, our backlog declined, in particular in the second half, mainly reflecting the impact of the wind-down of the ST-Ericsson business. Excluding the Wireless product line, we entered 2014 with a backlog similar to what we had entering 2013.

Competition

Markets for our products are intensely competitive. While only a few companies compete with us in all of our product lines, we face significant competition in each of them. We compete with major international semiconductor companies. Smaller niche companies are also increasing their participation in the semiconductor market, and semiconductor foundry companies have expanded significantly, particularly in Asia. Competitors include manufacturers of standard semiconductors, ASICs and fully customized ICs, including both chip and board-level products, as well as customers who develop their own IC products and foundry operations. Some of our competitors are also our customers.

The primary international semiconductor companies that compete with us include Analog Devices, Atmel, Avago, Broadcom, Fairchild Semiconductor, Freescale Semiconductor, Infineon, Intel, International Rectifier, InvenSense, Linear Technology, LSI Logic, Marvell, Maxim, MediaTek, Microchip Technology, Mstar, NXP Semiconductors, ON Semiconductor, Qualcomm, Renesas, ROHM Semiconductor, Samsung, Texas Instruments, Toshiba, TSMC and Vishay.

We compete in different product lines to various degrees on the basis of price, technical performance, product features, product system compatibility, customized design, availability, quality and sales and technical support. In particular, standard products may involve greater risk of competitive pricing, inventory imbalances and severe market fluctuations than differentiated products. Our ability to compete successfully depends on elements both within and outside our control, including successful and timely development of new products and manufacturing processes, product performance and quality, manufacturing yields and product availability, customer service, pricing, industry trends and general economic trends.

Organizational Structure and History

We are organized in a matrix structure with geographic regions interacting with product groups, both supported by shared technology and manufacturing operations and by central functions, designed to enable us to be closer to our customers and to facilitate communication among the R&D, production, marketing and sales organizations.

While STMicroelectronics N.V. is the parent company, we also conduct our operations through service activities from our subsidiaries. We provide certain administrative, human resources, legal, treasury, strategy, manufacturing, marketing and other overhead services to our consolidated subsidiaries pursuant to service agreements for which we recover the cost.

The following table lists our consolidated subsidiaries and our percentage ownership as of December 31, 2013:


Legal Seat	Name	Percentage Ownership (Direct or Indirect)
Australia, Sydney	STMicroelectronics PTY Ltd		100
Belgium, Diegem	Proton World International N.V.		100
Brazil, Sao Paulo	South America Comércio de Cartões Inteligentes Ltda		100
Brazil, Sao Paulo	STMicroelectronics Ltda		100
Brazil, Sao Paulo	Incard do Brazil Ltda		50
Canada, Ottawa	STMicroelectronics (Canada), Inc.		100
China, Beijing	STMicroelectronics (Beijing) R&D Co. Ltd		100
China, Shanghai	STMicroelectronics (Shanghai) Co. Ltd		100
China, Shanghai	STMicroelectronics (Shanghai) R&D Co. Ltd		100
China, Shanghai	STMicroelectronics (China) Investment Co. Ltd		100
China, Shenzhen	Shenzhen STS Microelectronics Co. Ltd		60
China, Shenzhen	STMicroelectronics (Shenzhen) Manufacturing Co. Ltd		100
China, Shenzhen	STMicroelectronics (Shenzhen) R&D Co. Ltd		100


Legal Seat	Name	Percentage Ownership (Direct or Indirect)
Czech Republic, Prague	STMicroelectronics Design and Application s.r.o.		100
Finland, Nummela	STMicroelectronics Finland OY		100
France, Crolles	STMicroelectronics (Crolles 2) SAS		100
France, Grenoble	STMicroelectronics (Grenoble 2) SAS		100
France, Le Mans	STMicroelectronics (Grand Ouest) SAS		100
France, Grenoble	STMicroelectronics (Alps) SAS		100
France, Montrouge	STMicroelectronics S.A.		100
France, Rousset	STMicroelectronics (Rousset) SAS		100
France, Tours	STMicroelectronics (Tours) SAS		100
Germany, Aschheim-Dornach	STMicroelectronics GmbH		100
Germany, Aschheim-Dornach	STMicroelectronics Application GmbH		100
Holland, Amsterdam	STMicroelectronics Finance B.V.		100
Holland, Amsterdam	STMicroelectronics Finance II N.V.		100
Holland, Amsterdam	STMicroelectronics International N.V.		100
Hong Kong	STMicroelectronics Ltd		100
India, New Delhi	STMicroelectronics Marketing Pvt Ltd		100
India, Noida	STMicroelectronics Pvt Ltd		100
Israel, Netanya	STMicroelectronics Ltd		100
Italy, Agrate Brianza	STMicroelectronics S.r.l.		100
Italy, Aosta	Dora S.p.A.		100
Italy, Catania	CO.RI.M.ME.		100
Italy, Naples	STMicroelectronics Services S.r.l.		100
Italy, Torino	ST-POLITO Scarl		75
Japan, Tokyo	STMicroelectronics KK		100
Malaysia, Kuala Lumpur	STMicroelectronics Marketing SDN BHD		100
Malaysia, Muar	STMicroelectronics SDN BHD		100
Malta, Kirkop	STMicroelectronics (Malta) Ltd		100
Mexico, Guadalajara	STMicroelectronics Marketing, S. de R.L. de C.V.		100
Morocco, Casablanca	Electronic Holding S.A.		100
Morocco, Casablanca	STMicroelectronics S.A.S. (Maroc)		100
Philippines, Calamba	STMicroelectronics, Inc.		100
Philippines, Calamba	ST-Ericsson (Philippines), Inc.		100
Philippines, Calamba	Mountain Drive Property, Inc.		40
Singapore, Ang Mo Kio	STMicroelectronics Asia Pacific Pte Ltd		100
Singapore, Ang Mo Kio	STMicroelectronics Pte Ltd		100
Singapore	Veredus Laboratories Pte Ltd		67
Spain, Barcelona	STMicroelectronics Iberia S.A.		100
Sweden, Kista	STMicroelectronics A.B.		100
Switzerland, Geneva	STMicroelectronics S.A.		100
Switzerland, Geneva	INCARD S.A.		100
Switzerland, Geneva	ST New Ventures S.A.		100
Thailand, Bangkok	STMicroelectronics (Thailand) Ltd		100
United Kingdom, Marlow	Inmos Limited		100
United Kingdom, Marlow	STMicroelectronics Limited		100
United Kingdom, Bristol	STMicroelectronics (Research & Development) Limited		100
United Kingdom, Marlow	Synad Technologies Limited		100
United States, Coppell	STMicroelectronics Inc.		100
United States, Coppell	Genesis Microchip Inc.		100
United States, Coppell	Genesis Microchip (Delaware), Inc.		100
United States, Coppell	Genesis Microchip LLC		100
United States, Coppell	Genesis Microchip Limited Partnership		100
United States, Coppell	Sage Inc.		100
United States, Coppell	Faroudja, Inc.		100
United States, Coppell	Faroudja Laboratories Inc.		100
United States, Coppell	STMicroelectronics (North America) Holding, Inc.		100
United States, Wilsonville	The Portland Group, Inc.		100

The following table lists our principal equity-method investments and our percentage ownership as of December 31, 2013:


Legal Seat	Name	Percentage Ownership (Direct or Indirect)
France, Grenoble	MicroOLED S.A.S		39.6
Italy, Catania	3Sun S.r.l.		33.3
Switzerland, Geneva	ST-Ericsson SA		50.0

Public Funding

We participate in certain programs established by the EU, individual countries and local authorities in Europe (primarily in France and Italy). Such funding is generally provided to encourage R&D activities and capital investment, industrialization and the economic development of underdeveloped regions. These programs are partially supported by direct funding, tax credits and specific loans (low-interest financing).

Public funding in France, Italy and Europe generally is open to all companies, regardless of their ownership or country of incorporation. The EU has developed model contracts for R&D funding that require beneficiaries to disclose the results to third parties on reasonable terms. As disclosed, the conditions for receipt of government funding may include eligibility restrictions, approval by EU authorities, annual budget appropriations, compliance with European Commission regulations, as well as specifications regarding objectives and results.

Some of our R&D government funding contracts involve advance payments that require us to justify our expenses after receipt of funds. Certain specific contracts (Crolles, Grenoble, Rousset and Tours, France and Catania, Italy) contain commitments to maintain a minimum level of employment and/or investment during a certain amount of time. There could be penalties (i.e., a partial refund due to the government) if these objectives are not fulfilled. Other contracts contain penalties for late deliveries or for breach of contract, which may result in repayment obligations.

The main programs for R&D in which we are involved include: (i) the Eureka CATRENE cooperative R&D program (Cluster for Application and Technology Research in Europe on NanoElectronics); (ii) EU R&D projects with FP7 (Seventh Frame Program) for Information and Communication Technology; (iii) European Joint Technology Initiatives (JTI) such as ENIAC (European Nanoelectronics Initiative Advisory Committee) and ARTEMIS (Embedded Computing Systems Initiative) operated by Joint Undertakings formed by the European Union, some member states and industry; and (iv) national or regional programs for R&D and for industrialization in the electronics industries involving many companies and laboratories. The pan European programs cover a period of several years, while national or regional programs in France and Italy are subject mostly to annual budget appropriation. We were awarded in 2012 two of the first of five projects under the ENIAC “KET (Key Enabling Technologies) Pilot Lines” frame, recently launched in Europe. They are devoted respectively to specific MEMS technologies (based in Italy) and FD SOI technologies (based in France). At 2013 end, we were awarded 4 new projects in the same “KET Pilot Lines” frame, for embedded non-volatile memories, diversified image sensors, design in FD-SOI technologies (all in France) and again MEMS (in Italy).

In December 2013, the European Commission formalized Horizon 2020, the European Union’s new research and innovation framework for 2014 through 2020, which also includes provisions to continue supporting the public-private partnerships that existed under FP7. In particular, the new ECSEL (Electronic Components and Systems for European Leadership) JTI will be supported to boost Europe’s electronics manufacturing capabilities. ECSEL is a merger of the ARTEMIS initiative and the ENIAC initiative, and it also incorporates research and innovation on smart systems under EPoSS. ECSEL is expected to start in early 2014 and run for 10 years.

In Italy, there are some national funding programs established to support the new FIRST (Fondo per gli Investimenti nella Ricerca Scientifica e Tecnologica) that will groups previous funding regulations FIRB (Fondo per gli Investimenti della Ricerca di Base, aimed to fund fundamental research), FAR (Fondo per le Agevolazioni alla Ricerca, to fund industrial research), and FSC (Fondo per lo Sviluppo e la Coesione) the FCS (Fondo per la Competitività e lo Sviluppo). The FRI (Fondo rotativo per il sostegno alle imprese e agli investimenti in ricerca) funds research and innovation activities and the new FIT (Fondo speciale rotativo per l’Innovazione Tecnologica) FCS (Fondo per la Crescita Sostenibile) that is designed to fund precompetitive development in manufacturing. These programs are not limited to microelectronics and are intended to support industry R&D in any segment. Italian programs often cover several years and the approval phase is quite long, up to two or

three years. In 2013, within the PON (Programma Operativo Nazionale “Ricerca e competitività 2007 2013”), the Italian Research Ministry finalized the complete ranking of the approved proposals for the DTA (Distretti ad Alta Tecnologia), and seven projects involving the company were formalized and one of our proposals was selected for funding.

In Italy, according to the ARTEMIS and ENIAC Joint Undertaking procedures related to calls for proposals, in 2013 the Italian Research Ministry approved public grants for an additional four ENIAC projects (of which one was under the ENIAC’s call for “Key Enabling Technologies — Pilot Lines) and one for ARTEMIS project (under the ARTEMIS Innovation Pilot Program call) involving the company.

Furthermore, there are some regional funding tools for research that can be addressed by local initiatives, primarily in the regions of Puglia, Sicily, Campania and Val d’Aosta, provided that a reasonable regional socio-economic impact could be recognized in terms of industrial exploitation, new professional hiring and/or cooperation with local academia and public laboratories.

In 2006, the EU Commission allowed the modification of the conditions of a grant pertaining to the building, facilitation and equipment of our facility in Catania, Italy (the “M6 Plant”). Following this decision, the authorized timeframe for completion of the project was extended and the Italian government was authorized to allocate €446 million, out of the €542 million grants originally authorized, for the completion of the M6 Plant if we made a further investment of €1,700 million between January 1, 2006 through the end of 2009. On the basis of the investments actually realized during the period, we recorded an amount of approximately €78 million as funding for capital investment of which approximately €44 million has been received to date. On September 13, 2011, the European Commission initiated a review of the M6 investment and related benefits, requesting information from the Italian government about the status and the ownership of the benefits of the M6 investment during the period 2001-2006. The Italian authorities responded to all such requests for information in 2011 and 2012 concerning primarily the history of the investment made, the motivation of the state aid granted, the formal interpretation related to the definition of “investment activation”, and its application to the M6 case. To our knowledge, no proceedings are ongoing.

In France, support for R&D is given by public agencies such as ANR (Agence Nationale de la Recherche), or OSEO (the agency taking over the missions and budgets of the AII Agency for Industrial Innovation), generally for consortia of partners grouping universities, public laboratories and private actors (large and small). The agencies operate via calls for project proposals, most often related to the identified “clusters of competitiveness” (Pôles de Compétitivité) throughout the French territory. The most relevant for us are ‘Minalogic’ around Grenoble, ‘SCS’ in the south-east area covering Rousset and ‘S2E2’ in the Tours area. The selected projects receive a support limited to 25% or 35% of the actual R&D expenses, depending on the type of project. The funding is given when technical reports have been accepted by the agencies; all expenses must be documented and financial audits are organized by the agencies to check their eligibility.

Another important contribution is given by the Ministry of Industry (“FCE”) and by local public authorities. Specific support for microelectronics is provided through FCE to all the companies with activities in France in the semiconductor industry. The amount of support under French programs is decided annually and subject to budget appropriation. In 2012, we terminated the execution of the “Nano-2012” Research and Development program, which is designed to promote the development of advanced CMOS (32-nm and below) technologies for system on chip semiconductor products in the Grenoble-Crolles region of France, in cooperation with the ISDA. In this program, STMicroelectronics (Crolles and Grenoble sites) was the leading contributor, with over 30 other partners (universities, public research laboratories, large groups and small companies (SMEs)). Under this frame agreement, an overall funding budget of €340 million (about $450 million) in grants was put in place for us for the period 2008-2012, subject to the conclusion of agreements every year with the public authorities (the French State being represented by the Ministry of Industry, and local authorities), and provided that all technical parameters and objectives are met.

Due to a major change in the taxation regime in France, the local authorities have received lower tax receipts than before. During the “Nano-2012” program, some of the local authorities involved have, as a result of such tax receipts, decided to suspend their funding obligations related to the “Nano-2012” program. Therefore, the benefit for us and the other partners ended up being lower than expected as the French government did not agree to compensate us for the shortfall in support from the local authorities. At the end of 2012, the program ended and a final review was completed in April 2013. The final review concluded that the technical program had been fully executed in line with the plans, helping to further develop the Grenoble ecosystem.

On July 22, 2013, the French Prime Minister announced the Nano-2017 Research and Development program, a five-year public-private strategic R&D program led by us to further advance our leadership in key embedded processing solutions and technologies. The project draws support from a broad coalition of French national, regional and local authorities as well as by the European community through the ENIAC Joint Technology Initiative. Funding for the program is subject to approval by the European Commission. Ultimately, “Nano-2017” will strengthen our leadership in such key technologies as FD-SOI (low-power, high-performance processing), next-generation imaging (sensors and image signal processors), and next-generation embedded non-volatile memories. These technologies are at the core of our embedded processing solutions which include microcontrollers, imaging solutions, digital consumer products, application processors and digital ASICs. The pan-European enlargement of this program (with partners in close to 20 European countries) will also contribute to the strengthening of European cooperation in the micro-nanoelectronics sector, along the entire value chain, from materials and equipment to components and system design. This program relies on leading industry clusters in Europe, such as Dresden (Germany), Leuven-Eindhoven (Belgium-the Netherlands) and Grenoble-Crolles (France). While we expect to receive public funding under the Nano 2017 agreement in the course of the current quarter, there is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could negatively affect the R&D program, all of which could have a material adverse effect on our results of operations. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of operations” and “— If we fail to meet the condition and approval requirements applicable to public funding, which we have received in the past, we may face demands for repayment, which may increase our costs and impact our results of operations”.

A new type of R&D support program was set up in France in 2011, as part of a global rejuvenation effort aimed at research and industry (“Investissements d’Avenir” or IA). This program is coordinated by the CGI (Commissariat Général aux Investissements d’Avenir) and targets industrial sectors of high relevance. We have been granted three projects under this frame, which started in 2013: one for “Tours 2015” covering three types of technologies developed in cooperation with public laboratories, one for Rousset “MAGE” targeting the development of ultra-low power secure microcontrollers and one in the area of electricity metering: “So-Grid”.

We also benefit from tax credits for R&D activities in several countries (notably in France). R&D tax credits consist of tax benefits granted to companies on an open and non-discriminatory base for their research & development activities. See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Research and Development Expenses”.

Funding for R&D activities is the most common form of funding that we receive. Public funding for R&D is recorded as “Other Income and Expenses, net” in our Consolidated Statements of Income and booked pro rata in relation to the relevant cost once the agreement with the respective government agency has been signed and all applicable conditions are met. See Note 2 to our Consolidated Financial Statements.

Government support for capital expenditures funding has been used to support our capital investment. Although receipt of these funds is not directly reflected in our results of operations, the resulting lower amounts recorded in property, plant and equipment costs reduce the level of depreciation recognized by us. See Note 2 to our Consolidated Financial Statements.

As a third category of government funding, we receive some loans, mainly related to large capital investment projects, at preferential interest rates. See Note 13 to our Consolidated Financial Statements.

Funding of programs in France and Italy is subject to annual appropriation, and if such governments or local authorities were unable to provide anticipated funding on a timely basis or if existing government or local-authority-funded programs were curtailed or discontinued, or if we were unable to fulfill our eligibility requirements, such an occurrence could have a material adverse effect on our business, operating results and financial condition. Another reason for the delayed funding execution, after national approval, is the obligation European governments have to notify the European Commission DG Competition when their support exceeds €7.5 million. From time to time, we have experienced delays in the receipt of funding under these programs. As the availability of such funding is substantially outside our control, there can be no assurance that we will continue to benefit from such government support, that sufficient alternative funding would be available if necessary, or that any such alternative funding would be provided on terms as favorable to us as those previously committed. Due to changes in legislation and/or review by the competent administrative or judicial bodies, there can be no assurance that government funding granted to us may not be revoked or challenged or discontinued, in whole or in part, by any competent state or European authority, until the legal time period for challenging or

revoking such funding has fully lapsed. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — If we fail to meet the condition and approval requirements applicable to public funding we have received in the past, we may face demands for repayment, which may increase our costs and impact our results of operations.”.

Suppliers

We use three main critical types of suppliers in our business: equipment suppliers, raw material suppliers and external silicon foundries and back-end subcontractors.

In the front-end process, we use steppers, scanners, tracking equipment, strippers, chemo-mechanical polishing equipment, cleaners, inspection equipment, etchers, physical and chemical vapor-deposition equipment, implanters, furnaces, testers, probers and other specialized equipment. The manufacturing tools that we use in the back-end process include bonders, burn-in ovens, testers and other specialized equipment. The quality and technology of equipment used in the IC manufacturing process defines the limits of our technology. Demand for increasingly smaller chip structures means that semiconductor producers must quickly incorporate the latest advances in process technology to remain competitive. Advances in process technology cannot occur without commensurate advances in equipment technology, and equipment costs tend to increase as the equipment becomes more sophisticated.

Our manufacturing processes use many raw materials, including silicon wafers, lead frames, mold compound, ceramic packages and chemicals and gases. The prices of many of these raw materials are volatile due to the specificity of the market. We have therefore adopted a “multiple sourcing strategy” designed to protect us from the risk of price disruption. The same strategy applies to supplies for the raw materials used by us to avoid potential material disruption of essential material when industry demand is ramping up. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Because we depend on a limited number of suppliers for raw materials and certain equipment, we may experience supply disruptions if suppliers interrupt supply, increase prices or experience material adverse changes in their financial condition”. Our “multiple sourcing strategy”, our Financial Risk Monitoring (FRISK) as well as the robustness of our supply chain and strong partnership with suppliers are intended to mitigate these risks.

Finally, we also use external subcontractors to outsource wafer manufacturing, as well as assembly and testing of finished products. See “— Property, Plants and Equipment” above.

Environmental Matters

Our manufacturing operations use many chemicals, gases and other hazardous substances, and we are subject to a variety of evolving environmental, health and safety regulations related, among other things, to the use, storage, discharge and disposal of such chemicals and gases and other hazardous substances, emissions and wastes, as well as the investigation and remediation of soil and ground water contamination. In most of the jurisdictions in which we operate, we must obtain permits, licenses and other forms of authorization, or give prior notification, in order to operate. Because a large portion of our manufacturing activities are located in the EU, we are subject to European Commission regulation on environmental protection, as well as regulations of the other jurisdictions where we have operations.

Consistent with our Principles of Sustainable Excellence (“PSE”) and Sustainability Strategy, we have established proactive environmental policies with respect to the handling of chemicals, gases, emissions and waste disposals from our manufacturing operations, and we have not suffered material environmental claims in the past. We believe that our activities comply with presently applicable environmental regulations in all material respects. We have engaged outside consultants to audit all of our environmental activities and created environmental management teams, information systems and training. We have also instituted environmental control procedures for processes used by us as well as our suppliers. As a company, we have been certified to be in compliance with the quality standard ISO9001:2008, with the technical specification ISO/TS16949:2009; with the environmental standards ISO14001 and the European EMAS (Eco Management and Audit Scheme); and with the energy management standard ISO 50001 for all ST Front-end sites.

Our activities are subject to two directives: Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“ROHS” Directive, as amended), which was replaced, with effect from January 3, 2013, by Directive 2011/65/EU of June 8, 2011, entitled “ROHS 2” Directive; and Directive 2002/96/EC on waste electrical and electronic equipment (“WEEE” Directive, as

amended), which will be replaced, with effect from February 15, 2014 by Directive 2012/19/EU of July 4, 2012. Moreover our products, due to their final applications, may be subject to the end of life vehicles Directive 2000/53/EC (“ELV” Directive, as amended) Directive 2006/66/EC (Battery Directive) and Directive 2007/47/EC (Medical Devices as amended). The ROHS Directive aims at banning the use of lead and other metals and of other flame retardant substances in electric and electronic equipment placed on the market, while the new text is also introducing new requirements within the design and manufacturing phases of the products manufacturing electronic components. The WEEE Directive promotes the recovery and recycling of electrical and electronic waste, while not imposing any “take back” activities to our operations, since ST products, being semiconductor components (not equipment) are excluded from the WEEE take back scope. At this stage, only one subsidiary (located in France) participates to a take back consortium for battery products.

Our activities in the EU are also subject to the European Directive 2003/87/EC (as amended) establishing a scheme for greenhouse gas allowance trading and applicable national legislation. Two of our manufacturing sites (Crolles, France, and Agrate, Italy) have been allocated a quota of greenhouse gas for the period 2008-2012. The Crolles site in France was removed from the allocation scheme in 2010 by the French authorities and our site in Agrate, Italy, was removed from the scheme by the Italian authorities in 2012. We were able to complete the allocation period of 2008-2012 without purchasing any allocation.

We have also implemented voluntary reforestation projects in several countries in order to sequester additional CO2 emissions and report our emissions in our annual Corporate Sustainability Report as well as through the Carbon Disclosure Project.

Regulations implementing the registration, evaluation, authorization and restriction of chemicals (“REACH”) came into force in 2008, and are required to be fully implemented by 2018. We intend to proactively implement such legislation, in line with our commitment toward environmental protection. The implementation of any such legislation could adversely affect our manufacturing costs or product sales by requiring us to develop new processes, acquire costly equipment or materials, or to incur other significant expenses in adapting our manufacturing processes or waste and emission disposal processes. However, we are currently unable to evaluate such specific expenses and therefore have no specific reserves for environmental risks. Furthermore, environmental claims or our failure to comply with present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations and, as with other companies engaged in similar activities, any failure by us to control the use of, or adequately restrict the discharge of hazardous substances could subject us to future liabilities. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — Some of our production processes and materials are environmentally sensitive, which could expose us to liability and increase our costs due to environmental regulations and laws or because of damage to the environment”.

Item 5.

Operating and Financial Review and Prospects

Overview

The following discussion should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 20-F. The following discussion contains statements of future expectations and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended, particularly in the sections “— Critical Accounting Policies Using Significant Estimates”, “— Business Outlook”, “— Liquidity and Capital Resources” and “— Financial Outlook: Capital Investment”. Our actual results may differ significantly from those projected in the forward-looking statements. For a discussion of factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements in addition to the factors set forth below, see “Cautionary Note Regarding Forward-Looking Statements” and Item 3. “Key Information — Risk Factors”. We assume no obligation to update the forward-looking statements or such risk factors.

Critical Accounting Policies Using Significant Estimates

The preparation of our Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions. The primary areas that require significant estimates and judgments by us include, but are not limited to:

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sales returns and allowances;

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determination of the best estimate of the selling price for deliverables in multiple element sale arrangements;

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inventory obsolescence reserves and normal manufacturing capacity thresholds to determine costs capitalized in inventory;

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provisions for litigation and claims and recognition and measurement of loss contingencies;

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valuation at fair value of assets acquired or sold, including intangibles, goodwill, investments and tangible assets;

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annual and trigger-based impairment review of our goodwill and intangible assets, as well as an assessment, in each reporting period, of events, which could trigger interim impairment testing on long-lived assets;

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estimated value of the consideration to be received and used as fair value for asset groups classified as assets held for sale and the assessment of probability of realizing the sale;

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assessment of other-than-temporary impairment charges on financial assets, including equity-method investments;

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restructuring charges and other related exit costs;

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assumptions used in assessing the number of awards expected to vest on stock-based compensation plans;

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assumptions used in calculating pension obligations; and

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determination of the amount of taxes expected to be paid and tax benefit expected to be received, including deferred income tax assets, valuation allowance and provisions for uncertain tax positions and claims.

We base the estimates and assumptions on historical experience and on various other factors such as market trends, market information used by market participants and the latest available business plans that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. While we regularly evaluate our estimates and assumptions, the actual results we experience could differ materially and adversely from our estimates. To the extent there are material differences between our estimates and actual results, future results of operations, cash flows and financial position could be significantly affected.

Our Consolidated Financial Statements include the ST-Ericsson joint ventures; in particular, until the end of August 2013, we fully consolidated ST-Ericsson SA and related affiliates (“JVS”), which was owned 50% plus a controlling share by us. Following the transfer of one share to Ericsson and the new shareholder agreement, we ceased to hold control and to consolidate JVS and started to account for it under the equity method as of September 1, 2013. The other joint venture, focused on fundamental R&D activities, whose parent company is ST-Ericsson AT SA (“JVD”), was owned 50% plus a controlling share by Ericsson and was therefore accounted for by us under the equity method until its sale to Ericsson on August 2, 2013.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our Consolidated Financial Statements:

Revenue recognition. Our policy is to recognize revenues from sales of products to our customers when all of the following conditions have been met: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c) the selling price is fixed or determinable; and (d) collectability is reasonably assured. Our revenue recognition usually occurs at the time of shipment.

Consistent with standard business practice in the semiconductor industry, price protection is granted to distribution customers on their existing inventory of our products to compensate them for declines in market prices. We accrue a provision for price protection based on a rolling historical price trend computed on a monthly basis as a percentage of gross distributor sales. This historical price trend represents differences in recent months between the invoiced price and the final price to the distributor, adjusted if required, to accommodate for a significant change in the current market price. We record the accrued amounts as a deduction of revenue at the time of our sale to distributors. The ultimate decision to authorize a distributor refund remains fully within our control. The short outstanding inventory time period, our visibility into the standard inventory product pricing and our long distributor pricing history, have enabled us to reliably estimate price protection provisions at period-end. If market conditions differ from our assumptions, this could have an impact on future periods. In particular, if market conditions were to deteriorate, net revenues could be reduced due to higher product returns and price reductions at the time these adjustments occur, which could severely impact our profitability.

Our customers occasionally return our products for technical reasons. Our standard terms and conditions of sale provide that if we determine that products do not conform, we will repair or replace them, or issue a credit note or rebate of the purchase price. In certain cases, when the products we have supplied have been proven to be defective, we have agreed to compensate our customers for claimed damages in order to maintain and enhance our business relationship. Quality returns are usually associated with end-user customers, not with distribution channels. Quality returns are not related to any technological obsolescence issues and are identified shortly after sale in customer quality control testing. We provide for such returns when they are considered probable and can be reasonably estimated. We record the accrued amounts as a reduction of revenue.

Our insurance policy relating to product liability only covers physical and other direct damages caused by defective products. We carry limited insurance against immaterial non-consequential damages. We record a provision for warranty costs as a charge against cost of sales based on historical trends of warranty costs incurred as a percentage of sales which we have determined to be a reasonable estimate of the probable losses to be incurred for warranty claims in a period.

Any potential warranty claims are subject to our determination that we are at fault for damages, and that such claims usually must be submitted within a short period of time following the date of sale. This warranty is given in lieu of all other warranties, conditions or terms expressed or implied by statute or common law. Our contractual terms and conditions typically limit our liability to the sales value of the products that gave rise to the claims.

While the majority of our sales agreements contain standard terms and conditions, we may, from time to time, enter into agreements that contain multiple elements or non-standard terms and conditions, which require revenue recognition judgments. In such cases, following the guidance related to revenue recognition, the arrangement is allocated to the different elements based on vendor-specific objective evidence, third party evidence or our best estimates of the selling price of the separable deliverables. These arrangements generally do not include performance-, cancellation-, termination-, or refund-type provisions.

Trade accounts receivable. We maintain an allowance for doubtful accounts for potential estimated losses resulting from our customers’ inability to make required payments. We base our estimates on historical collection trends and record a provision accordingly. Furthermore, we evaluate our customers’ financial condition periodically and record a provision for any specific account we consider as doubtful. In 2013, we did not record any new material specific provision related to bankrupt customers. If we receive information that the financial condition of our customers has deteriorated, resulting in an impairment of their ability to make payments, additional allowances could be required.

Business combinations and goodwill. The purchase accounting method applied to business combinations requires extensive use of estimates and judgments to allocate the purchase price to the fair value of the identifiable assets acquired and liabilities assumed. If the assumptions and estimates used to allocate the purchase price are not correct or if business conditions change, purchase price adjustments or future asset impairment charges could be required. At December 31, 2013, the value of goodwill in our Consolidated Balance Sheet amounted to $90 million.

Impairment of goodwill. Goodwill recognized in business combinations is not amortized but is tested for impairment annually in the third quarter, or more frequently if a triggering event indicating a possible impairment exists. Goodwill subject to potential impairment is tested at a reporting unit level, which represents a component of an operating segment for which discrete financial information is available, after performing a qualitative assessment to determine whether an impairment test is necessary, in cases when we have chosen such option. This impairment test determines whether the fair value of each reporting unit for which goodwill is allocated is lower than the total carrying amount of relevant net assets allocated to such reporting unit, including its allocated goodwill. If lower, the implied fair value of the reporting unit goodwill is then compared to the carrying value of the goodwill and an impairment charge is recognized for any excess. In determining the fair value of a reporting unit, we use the lower of a value determined by applying a market approach with financial metrics of comparable public companies compared to an estimate of the expected discounted future cash flows associated with the reporting unit. Significant management judgments and estimates are used in forecasting the future discounted cash flows, including: the applicable industry’s sales volume forecast and selling price evolution, the reporting unit’s market penetration and its revenues evolution, the market acceptance of certain new technologies and products, the relevant cost structure, the discount rates applied using a weighted average cost of capital and the perpetuity rates used in calculating cash flow terminal values. Our evaluations are based on financial plans updated with the latest available projections of the semiconductor market, our sales

expectations and our costs evaluation, and are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may prove to be incorrect, and future adverse changes in market conditions, changes in strategies, lack of performance of major customers or operating results of acquired businesses that are not in line with our estimates may require impairments.

We performed our annual impairment test of goodwill on each of our reporting units containing goodwill during the third quarter of 2013. Based upon the first step of the goodwill impairment test, no impairment was recorded for the AMS and MMS reporting units since the fair value of the reporting units exceeded their carrying values by approximately six times. However, we were required, based upon step one, to conduct the second step of the impairment test for the DCG reporting unit whose estimated fair value was lower than its carrying value. Before performing the second step of the goodwill impairment test, we tested the dedicated long-lived assets of DCG for impairment. The result was that all dedicated intangible assets, amounting to $18 million, were fully impaired due to the negative cash flow projected over their remaining useful life. Regarding the tangible fixed assets, their fair value was essentially equal to their carrying value. The second step of the goodwill impairment test was performed, which requires a determination of the implied fair value of goodwill in a manner similar to a purchase price allocation exercise, and therefore to determine the fair value of all assets and liabilities of the DCG reporting unit. These fair values are considered only to determine the impairment charge but are not booked. No other unrecorded intangible assets have been identified and the implied fair value of goodwill is nil leading to an impairment charge for the third quarter of 2013 of $38 million. In summary, as a result of our impairment test in the third quarter of 2013, we recorded a non-cash impairment of $18 million relating to the dedicated intangible assets of the DCG reporting unit and a non-cash impairment of $38 million relating to the remaining goodwill of the DCG reporting unit.

Further impairment charges could also result from new valuations triggered by changes in our product portfolio or strategic alternatives, particularly in the event of a downward shift in future revenues or operating cash flows in relation to our current plans or in case of capital injections by, or equity transfers to, third parties at a value lower than the current carrying value.

Intangible assets subject to amortization. Intangible assets subject to amortization include intangible assets purchased from third parties recorded at cost and intangible assets acquired in business combinations recorded at fair value, comprised of technologies and licenses, trademarks and contractual customer relationships and computer software. Intangible assets with finite useful lives are reflected net of any impairment losses and are amortized over their estimated useful life. We evaluate each reporting period whether there is reason to suspect that intangible assets held for use might not be recoverable. If we identify events or changes in circumstances which are indicative that the carrying amount is not recoverable, we assess whether the carrying value exceeds the undiscounted cash flows associated with the intangible assets. If exceeded, we then evaluate whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. An impairment charge is recognized for the excess of the carrying amount over the fair value. Significant management judgments and estimates are required to forecast undiscounted cash flows associated with the intangible assets. Our evaluations are based on financial plans updated with the latest available projections of growth in the semiconductor market and our sales expectations. They are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans and estimates used may be incorrect and that future adverse changes in market conditions or operating results of businesses acquired may not be in line with our estimates and may therefore require us to recognize impairment charges on certain intangible assets.

As noted above, following our annual impairment test of goodwill, we recorded an impairment charge of $18 million in the third quarter of 2013 for the intangible assets dedicated to the DCG reporting unit.

We will continue to monitor the carrying value of our assets. If market conditions deteriorate, this could result in future non-cash impairment charges against earnings. Further impairment charges could also result from new valuations triggered by changes in our product portfolio or by strategic transactions, particularly in the event of a downward shift in future revenues or operating cash flows in relation to our current plans or in case of capital injections by, or equity transfers to, third parties at a value lower than the one underlying the carrying amount.

At December 31, 2013, the value of intangible assets subject to amortization in our Consolidated Balance Sheet amounted to $217 million.

Property, plant and equipment. Our business requires substantial investments in technologically advanced manufacturing facilities, which may become significantly underutilized or obsolete as a result of rapid changes in demand and ongoing technological evolution. We estimate the useful life for the majority of our manufacturing

equipment, the largest component of our long-lived assets, to be six years, except for our 300-mm manufacturing equipment whose useful life is estimated to be ten years. This estimate is based on our experience using the equipment over time. Depreciation expense is a major element of our manufacturing cost structure. We begin to depreciate newly acquired equipment when it is placed into service.

We evaluate each reporting period if there is reason to suspect impairment on tangible assets or groups of assets held for use and we perform an impairment review when there is reason to suspect that the carrying value of these long-lived assets might not be recoverable, particularly in case of a restructuring plan. If we identify events or changes in circumstances which are indicative that the carrying amount is not recoverable, we assess whether the carrying value exceeds the undiscounted cash flows associated with the tangible assets or group of assets. If exceeded, we then evaluate whether an impairment charge is required by determining if the asset’s carrying value also exceeds its fair value. We normally estimate this fair value based on independent market appraisals or the sum of discounted future cash flows, using market assumptions such as the utilization of our fabrication facilities and the ability to upgrade such facilities, change in the selling price and the adoption of new technologies. We also evaluate and adjust, if appropriate, the assets’ useful lives at each Balance Sheet date or when impairment indicators are identified. Assets classified as held for sale are reported as current assets at the lower of their carrying amount and fair value less costs to sell and are not depreciated. Costs to sell include incremental direct costs to transact the sale that we would not have incurred except for the decision to sell. In 2013 we recorded an impairment charge of $29 million on property, plant and equipment following the decision to shut down one of our 150-mm fabs in Ang Mo Kio (AMKJ9 Singapore).

Our evaluations are based on financial plans updated with the latest projections of growth in the semiconductor market and our sales expectations, from which we derive the future production needs and loading of our manufacturing facilities, and which are consistent with the plans and estimates that we use to manage our business. These plans are highly variable due to the high volatility of the semiconductor business and therefore are subject to continuous modifications. If future growth differs from the estimates used in our plans, in terms of both market growth and production allocation to our manufacturing plants, this could require a further review of the carrying amount of our tangible assets and result in a potential impairment loss.

Inventory. Inventory is stated at the lower of cost or market value. Cost is based on the weighted average cost by adjusting the standard cost to approximate actual manufacturing costs on a quarterly basis; therefore, the cost is dependent on our manufacturing performance. In the case of underutilization of our manufacturing facilities, we estimate the costs associated with the excess capacity. These costs are not included in the valuation of inventory but are charged directly to cost of sales. Market value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses and cost of completion. As required, we evaluate inventory acquired in business combinations at fair value, less completion and distribution costs and related margin.

While we perform, on a continuous basis, inventory write-offs of products and semi-finished products, the valuation of inventory requires us to estimate a reserve for obsolete or excess inventory as well as inventory that is not of saleable quality. Reserve for obsolescence is estimated for excess uncommitted inventories based on the previous quarter’s sales, order backlog and production plans. To the extent that future negative market conditions generate order backlog cancellations and declining sales, or if future conditions are less favorable than the projected revenue assumptions, we could record additional inventory reserve, which would have a negative impact on our gross margin.

Restructuring charges. We have undertaken, and we may continue to undertake, significant restructuring initiatives, which have required us, or may require us in the future, to develop formalized plans for exiting any of our existing activities. We recognize the fair value of a liability for costs associated with exiting an activity when we have a present obligation and the amount can be reasonably estimated. Given the significance and timing of the execution of our restructuring activities, the process is complex and involves periodic reviews of estimates made at the time the original decisions were taken. This process can require more than one year due to requisite governmental and customer approvals and our capability to transfer technology and know-how to other locations. As we operate in a highly cyclical industry, we monitor and evaluate business conditions on a regular basis. If broader or newer initiatives, which could include production curtailment or closure of other manufacturing facilities, were to be taken, we may incur additional charges as well as change estimates of the amounts previously recorded. The potential impact of these changes could be material and could have a material adverse effect on our results of operations or financial condition. In 2013, the restructuring charges and other related closure costs amounted to $183 million before taxes, mainly in connection with our ongoing initiative to reduce quarterly net operating expenses, comprised of combined selling, general and administrative and research and development expenses, net of R&D grants, in the range of $600 to $650 million, and the ST-Ericsson exit.

ST-Ericsson break-up. Pursuant to the memorandum of understanding with Ericsson, which described the principles for the break-up and wind-down of the ST-Ericsson joint venture, ST-Ericsson activities were split into three main parts. The first part included the design, development and related expenses associated with the R&D costs for the LTE multimode thin modem products, which since March 2, 2013, has been fully funded by Ericsson. The second part related to the ST-Ericsson business on existing products, French and Italian employees and the Calamba and Muar facilities, which have been, since March 2, 2013, fully accounted for in our accounts with no attribution to noncontrolling interest in our Consolidated Statement of Income. The third part was related to the wind-down activities remaining at ST-Ericsson, equally funded by both parties.

On July 17, 2013, we and Ericsson signed a Definitive Framework Agreement in line with the principles described above, which established the split of ST-Ericsson’s activities between ST and Ericsson, the form of the transfers, the allocation of intangibles, the allocation of intellectual property, the assumption of liabilities, the principle of a balanced break-up applied through equal cash funding at closing and the tail payment by Ericsson to ST in case of an onward sale by Ericsson of the LTE multimode thin modem business. In addition, we and Ericsson also signed funding commitment letters to the residual joint wind-down operations to ensure solvency capped at $149 million for each partner. Additionally, Ericsson and ST have released an indemnity letter, on terms that are customary under such circumstances, to ST-Ericsson’s directors and officers, which include the CEO, the CFO and other senior executives of our company.

On August 2, 2013, the transaction closed and various activities were transferred to the respective parents, including the sale of our shares in ST-Ericsson JVD, and the sale by ST-Ericsson JVS of its Swedish subsidiary, in each case, to Ericsson. At the same time, certain businesses have been sold by ST-Ericsson to third parties.

At the beginning of September 2013, we sold one share of ST-Ericsson JVS to Ericsson for its nominal value and signed the new shareholder agreement, changing the ownership structure of ST-Ericsson JVS to bring both partners to an equal ownership proportion. As a consequence, we determined that while we no longer have control over the entity, we retain a significant influence and account for it under the equity method.

As a result of the foregoing, the ST-Ericsson break-up was completed during the third quarter of 2013 and ST-Ericsson results have been deconsolidated since September 1, 2013.

Share-based compensation. We measure the cost of share-based service awards based on the fair value of the award on the grant date. In 2013, our share-based compensation plans awarded shares contingent on the achievement of certain performance conditions based on financial objectives, including our financial results when compared to certain industry performances. In 2013, approximately one-half of the shares awarded were contingent on the achievement of certain performance conditions. In order to determine share-based compensation to be recorded for the period, we use significant estimates on the number of awards expected to vest, including the probability of achieving the fixed performance conditions including those relating to industry performances compared to our financial results, and our best estimates of award forfeitures and employees’ service periods. Our assumptions related to industry performance are generally taken with a one quarter lag in line with the availability of market information. In 2013, we recorded a total charge of approximately $26 million relating to our outstanding stock award plans.

Income (loss) on Equity-method Investments. We record our share in the results of entities that we account for under the equity method. This recognition is based on results reported by these entities, relying on their internal reporting systems to measure financial results. In case of triggering events, such as continuing difficult market conditions, which could lead to continued operating losses and negative cash flow, or in the case of a strategic repositioning by one or more of our partners, we determine whether our investment is temporarily or other-than-temporarily impaired. If impairment is considered to be other-than-temporary, we need to assess the fair value of our investment and record an impairment charge directly in earnings when fair value is lower than the carrying value of the investment. We make this assessment by evaluating the business on the basis of the most recent plans and projections or to the best of our estimates. In 2013, we recognized a loss of approximately $104 million related to our equity investment in 3Sun largely due to a non-cash charge of $69 million on our equity value in 3Sun as share of losses in the investment due to impairment charges reported by 3Sun. As of December 31, 2013, we reported $30 million assets related to the combination of equity investment and parent loan in 3Sun. In addition, we recognized a loss of $18 million related to other investments, including our share of losses in ST-Ericsson JVS for about $7 million which has been accounted for under the equity method since September 1, 2013 and a loss of approximately $6 million related to our equity investment in MicroOLED SAS, primarily corresponding to the impairment of our remaining investment. We are continuing to monitor our equity

investments and, if required, additional other-than-temporary impairment charges could negatively impact our future results. As of December 31, 2013, the value in our Consolidated Balance Sheets of our equity investments was $63 million.

Financial assets. We classify our financial assets in the following two categories, trading and available-for-sale. Such classification depends on the purpose for which the investments are acquired. We determine the classification of our financial assets at initial recognition. Unlisted equity securities with no readily determinable fair value are carried at cost; they are neither classified as trading nor as available-for-sale financial assets.

Trading and available-for-sale financial assets are measured at fair value. The fair value of quoted debt and equity securities is based on current market prices. If the market for a financial asset is not active, if no observable market price is obtainable, or if the security is not quoted, we measure fair value by using assumptions and estimates. For unquoted equity securities, these assumptions and estimates include the use of recent arm’s-length transactions; for debt securities without available observable market price, we establish fair value by reference to publicly available indexes of securities with the same rating and comparable or similar underlying collaterals or industries’ exposure, which we believe approximates the amount that would be received from the sale of the asset in an orderly transaction between market participants. In measuring fair value, we make maximum use of market inputs and minimize the use of unobservable inputs. As of December 31, 2013, the value in our Consolidated Balance Sheet of our financial assets was $57 million invested in senior debt floating rate notes classified as assets available-for-sale.

Income taxes. We make estimates and judgments in determining income tax for the period, comprising current and deferred income tax. We need to assess the income tax expected to be paid or the tax benefit expected to be received related to the current year taxable profit and loss in each individual tax jurisdiction and recognize deferred income tax for all temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the Consolidated Financial Statements. Furthermore, we assess all material open income tax positions in all tax jurisdictions to determine any uncertain tax positions, and to record a provision for those that are not more likely than not to be sustained upon examination by the taxing authorities, which could require potential tax claims or assessments in various jurisdictions. In such an event and in case any tax assessment exceeds our provisions, we could be required to record additional charges in our accounts, which could significantly exceed our best estimates and our existing provisions.

We also assess the likelihood of realization of our deferred tax assets originated by our net operating loss carry forwards. The ultimate realization of deferred tax assets is dependent upon, among other things, our ability to generate future taxable profit available against loss carry forwards or tax credits before their expiration or our ability to implement prudent and feasible tax planning strategies or the possibility to settle uncertain tax positions against available net operating loss carry forwards or similar tax losses and credits. We record a valuation allowance against the deferred tax assets when we consider it is more likely than not that the deferred tax assets will not be realized.

As of December 31, 2013, we had current deferred tax assets of $123 million and non-current deferred tax assets of $227 million, net of valuation allowances.

We could be required to record further valuation allowances thereby reducing the amount of total deferred tax assets, resulting in an increase of our income tax charge, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of a change in our assessment or due to other factors, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of our ability to utilize net operating losses and tax credit carry-forwards in the future. Likewise, a change in the tax rates applicable in the various jurisdictions or unfavorable outcomes of any ongoing tax audits could have a material impact on our future tax provisions in the periods in which these changes could occur.

Patent and other Intellectual Property (“IP”) litigation or claims. As is the case with many companies in the semiconductor industry, we have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other IP rights of third parties. Furthermore, we may become involved in costly litigation brought against us regarding patents, mask works, copyrights, trademarks or trade secrets. In the event the outcome of a litigation claim is unfavorable to us, we may be required to take a license for the underlying IP right on economically unfavorable terms and conditions, possibly pay damages for prior use, and/or face an injunction, all of which singly or in the aggregate could have a material adverse effect on our results of operations and on our ability to compete. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others”.

We record a provision when we believe that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate losses and claims to determine whether they need to be adjusted based on current information available to us. Such estimates are difficult to the extent that they are largely dependent on the status of ongoing litigation that may vary based on positions taken by the Court with respect to issues submitted, demands of opposing parties, changing laws, discovery of new facts or other matters of fact or law. As of December 31, 2013, based on our current evaluation of ongoing litigation and claims we face, we have not estimated any amounts that could have a material impact on our results of operations and financial condition with respect to probable risks. We currently estimate that possible losses for known claims are in the range of $30 million to $50 million. In the event of litigation that is adversely determined with respect to our interests, or in the event that we need to change our evaluation of a potential third-party claim based on new evidence, facts or communications, unexpected rulings or changes in the law, this could have a material adverse effect on our results of operations or financial condition at the time it were to materialize. We are in discussion with several parties with respect to claims against us relating to possible infringement of IP rights. We are also involved in certain legal proceedings concerning such issues. See “Item 8. Financial Information — Legal Proceedings”.

Other claims. We are subject to the possibility of loss contingencies arising in the ordinary course of business. These include, but are not limited to: warranty costs on our products not covered by insurance, breach of contract claims, tax claims beyond assessed uncertain tax positions as well as claims for environmental damages. We are also exposed to numerous legal risks which until now have not resulted in legal disputes and proceedings. These include risks related to product recalls, environment, anti-trust, anti-corruption and competition as well as other compliance regulations. We may also face claims in the event of breaches of law committed by individual employees or third parties. In determining loss contingencies, we consider the likelihood of a loss of an asset or the occurrence of a liability, as well as our ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when we believe that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly re-evaluate any losses and claims and determine whether our provisions need to be adjusted based on the current information available to us. As of December 31, 2013, based on our current evaluation of ongoing litigation and claims we face, we have not estimated any amounts that could have a material impact on our results of operations and financial condition with respect to either probable or possible risks. In the event we are unable to accurately estimate the amount of such loss in a correct and timely manner, this could have a material adverse effect on our results of operations or financial condition at the time such loss was to materialize. For further details of our legal proceedings refer to “Item 8. Financial Information — Legal Proceedings” and Note 22 to our Consolidated Financial Statements.

There can be no assurance that all IP litigation or claims and other claims to which we are currently subject will be resolved in our favor or as currently anticipated. If the outcome of any claim or litigation were to be unfavorable to us, we could incur monetary damages, and/or face an injunction, all of which singly or in the aggregate could have an adverse effect on our results of operations and our ability to compete.

Pension and Post-Employment Benefits. Our results of operations and our Consolidated Balance Sheets include amounts for pension obligations and post-employment benefits that are measured using actuarial valuations. At December 31, 2013, our pension and post-employment benefit obligations net of plan assets amounted to $366 million. These valuations are based on key assumptions, including discount rates, expected long-term rates of return on funds, turnover rates and salary increase rates. These assumptions used in the determination of the net periodic benefit cost are updated on an annual basis at the beginning of each fiscal year or more frequently upon the occurrence of significant events. Any changes in the pension schemes or in the above assumptions can have an impact on our valuations. The measurement date we use for our plans is December 31.

As a consequence of our decision to downsize our UK operations, we have proposed that the UK pension schemes (the Bristol Scheme and the Marlow Scheme) be merged, which will generate moderate funding savings and provide the Trustees with additional security through a larger and stronger principal employer. The merger of the two schemes is still under discussion with the Trustees and is not expected to materially change our pension liabilities.

Fiscal Year 2013

Under Article 35 of our Articles of Association, our financial year extends from January 1 to December 31, which is the period end of each fiscal year. The first quarter of 2013 ended on March 30, 2013. The second quarter of 2013 ended on June 29, 2013 and the third quarter of 2013 ended on September 28, 2013. The fourth

quarter of 2013 ended on December 31, 2013. Based on our fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to a different number of days in the various quarters of the fiscal year.

In 2014 the first quarter will end on March 29, the second quarter will end on June 28, the third quarter will end on September 27 and the fourth quarter will end on December 31.

2013 Business Overview

The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products produced by us (which consists of the TAM and excludes major devices such as Microprocessors (“MPUs”), DRAMs, optoelectronics devices and Flash Memories and, as a consequence of our exit from ST-Ericsson activities, excludes also the Wireless Application Specific market (Broadband and Application Processor)).

Based on published industry data by WSTS, semiconductor industry revenues increased in 2013 on a year-over-year basis by approximately 5% for the TAM to reach about $306 billion. The SAM declined by approximately 2% to reach about $139 billion. In the fourth quarter, the TAM and the SAM increased on a year-over-year basis by approximately 8% and 3%, respectively. Sequentially, in the fourth quarter of 2013, the TAM and the SAM decreased by approximately 1% and 2%, respectively.

With reference to our business performance, in 2013, we registered a decline of 4.8% in terms of revenues as a consequence of our exit from ST-Ericsson. Excluding the Wireless product line, our revenues increased 3.2%, a better performance than the SAM, with the main contributions coming from our microcontrollers and automotive products. We also made good progress on our customer diversification, mass market and distribution initiatives, with no customers above 10% and an increase of revenues in distribution, which was up by approximately 3 percentage points, reaching a 26% share of total revenues. Our fourth quarter 2013 revenues amounted to $2,015 million, a 0.1% increase on a sequential basis, within our guidance (flat, plus or minus 3.5 percentage points). The sequential increase in our revenues is the result of an increase of 2.3% in our Sense & Power and Automotive Products (SP&A) segment, while our Embedded Processing Solutions (EPS) segment decreased by 3.2%, mainly due to declining revenues in IBP product line by 11.7%.

On a year-over year basis, our revenues decreased by 6.8%, which is the result of an increase of 4.2% in our SP&A segment whereas our EPS segment decreased 19.4%, mainly driven by the phasing out of the Wireless product line and weak demand for set-top box legacy products in the Digital Convergence product line. Excluding the Wireless product line, on a year-over-year basis, our revenues in the fourth quarter of 2013 increased by 3.9% and EPS revenues by 5.0%.

Our effective average exchange rate for 2013 and 2012 was $1.31 for €1.00. Our effective average exchange rate for the fourth quarter of 2013 was $1.34 for €1.00, compared to $1.31 for €1.00 for the third quarter of 2013 and $1.30 for €1.00 in the fourth quarter of 2012. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates” below.

Our 2013 gross margin was 32.3% of revenues, decreasing by 50 basis points compared to the prior year, primarily due to the negative impact of selling prices and lower technology licensing revenues, partially offset by improved manufacturing efficiencies, lower unused capacity charges and the absence of the $53 million one-time charge related to the 2012 arbitration award to NXP. Our fourth quarter 2013 gross margin was 32.9%, increasing by 50 basis points on a sequential basis, reflecting improved manufacturing efficiencies, partially offset by a negative currency effect, the negative impact of selling prices and a higher amount of unused capacity charges. Our fourth quarter 2013 gross margin was within our guidance (33% plus or minus 2 percentage points).

In 2013, we made solid progress in executing the strategy we announced in December 2012 but we still have much to accomplish. We completed the split up of ST-Ericsson in a timely manner and by adding some of their competencies, we strengthened our product development teams. Our combined selling, general and administrative (SG&A) and research and development (R&D) expenses amounted to $2,882 million, a significant decrease compared to $3,579 million in the prior year, primarily due to the ST-Ericsson wind-down and the initial benefits of our ongoing restructuring initiatives. Furthermore, we brought our fourth quarter 2013 operating expenses down by about 25% compared to the year-ago quarter and our fourth quarter net operating expenses (combined SG&A and R&D expenses net of R&D grants) within our target range of $600 million to $650 million per quarter. We also started to make gradual structural changes to our manufacturing footprint which will benefit our gross margin and we announced a key frame agreement with the French government to support our R&D efforts for CMOS derivative technology.

Impairment and restructuring charges significantly decreased to $292 million from $1,376 million in 2012 mainly due to lower impairment charges. 2012 included a $1,234 million non-cash impairment charge on Wireless goodwill and other intangible assets.

Our operating losses were $465 million in 2013, improving compared to the loss of $2,081 million in 2012. The improvement in our operating losses in 2013 was mainly driven by our reduction of operating expenses and lower impairment charges. By product segment, the main improvement was registered by EPS which benefited from our exit of ST-Ericsson. Fourth quarter operating result before impairment and restructuring charges was an $18 million operating income improving from an operating loss of $142 million in the prior year quarter, mainly due to a reduction in operating expenses primarily due to our exit of ST-Ericsson and the benefits of our ongoing restructuring initiatives. Furthermore, our free cash flow was positive in the fourth quarter of 2013.

Business Outlook

In the first quarter, we expect overall revenues to decrease sequentially by about 9.5% at the midpoint plus or minus 3.5% percentage points. First quarter revenues reflect, on top of seasonality including the New Year holiday in Asia, a drop in revenues from ST-Ericsson legacy products of more than half from the fourth quarter of 2013 level. As a result, gross margin in the first quarter is expected to be about 32.4%, plus or minus 2.0 percentage points.

While the semiconductor market did not perform as expected in 2013, we are encouraged by the positive macro-economic signs and by the market dynamics expected in 2014. We are well positioned to capture opportunities and to continue to grow faster than the market we serve as we focus on product leadership in Sense & Power and Automotive and in Embedded Processing.

In 2014, we plan to advance towards our operating margin target of about 10%, expected by mid-2015, based on a combination of revenue growth, gross margin improvement and reduction of net expenses towards the low end of our target range.

We expect the Nano-2017 R&D grants to become effective in the first quarter of 2014, subject to the approval by the European Union. There is no guarantee that the program will be approved or if it is approved, that there will be no modifications that could negatively affect the R&D program, all of which could have a material adverse effect on our results of operations. See “Item 3. Key Information — Risk Factors — Risks Related to Our Operations — If we fail to receive the necessary funding for our R&D program, we may have to reconsider our strategy, which could adversely impact our results of operations.”

This outlook is based on an assumed effective currency exchange rate of approximately $1.35 to €1.00 for the 2014 first quarter and includes the impact of existing hedging contracts. The first quarter will close on March 29, 2014.

These are forward-looking statements that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially; in particular, refer to those known risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and “Item 3. Key Information — Risk Factors” herein.

Other Developments

On March 11, 2013, we re-asserted our MEMS technology and patent leadership with the filing, by our U.S. subsidiary, STMicroelectronics, Inc., of a complaint with the United States International Trade Commission (ITC) requesting an investigation into the alleged infringement of five ST patents covering all of InvenSense, Inc.’s MEMS device offerings, as well as products from two of InvenSense’s customers, Black and Decker, Inc. and Roku, Inc. As part of the filing, we requested that the ITC issue an order excluding InvenSense’s infringing gyroscopes and accelerometers, as well its customers’ products that include those InvenSense devices, from importation into the United States. On February 10, 2014, we announced that we have settled all pending proceedings between us and InvenSense and have entered into a patent cross license agreement. Under the terms of the settlement, InvenSense made a one-time $15 million payment in the first quarter of 2014 but neither we nor InvenSense has made any admission of liability. We will collect royalties under the terms of the patent cross license in the future. The expected royalties will not be material to our financial results. Other terms between the parties are confidential.

On May 28, 2013, we announced that ST-Ericsson sold the assets and intellectual property rights associated with its mobile connectivity Global Navigation Satellite System business to a leading semiconductor company.

In addition to the assets and intellectual property rights associated with this business, a world class team of 130 industry veterans located in Daventry (UK), Bangalore (India) and Singapore joined the buyer at closing of the transaction which occurred in August 2013. A gain of $66 million has been registered in our consolidated financial statements. On August 5, 2013, we and Ericsson announced the closing of the split up of ST-Ericsson, less than nine months after we announced our strategic plan. We have taken on some of the existing ST-Ericsson products as well as certain assembly and test facilities. In total, approximately 1,000 employees have joined STMicroelectronics.

On March 17, 2013, we repaid with available cash the residual outstanding 2013 Senior Bonds.

On March 26, 2013, we signed a new Euro 350 million loan agreement with the European Investment Bank (“EIB”). The facility, with final maturity eight years after disbursement, was fully drawn by us in the fourth quarter of 2013 in U.S. dollars. This new facility supports our activities in R&D and innovation related to the design and realization of the next generation of technologies and electronic devices.

On May 21, 2013, we announced our leadership of Places2Be, a 3-year, €360 million advanced-technology pilot-line project with the participation of 18 other leading European companies and academic institutions to support the industrialization of Fully-Depleted Silicon-On-Insulator (FD-SOI) microelectronics technology. Places2Be (“Pilot Lines for Advanced CMOS Enhanced by SOI in 2x nodes, Built in Europe”) aims to support the deployment of an FD-SOI pilot line at 28-nm and the subsequent node, as well as a dual source that will enable volume manufacturing in Europe. Places2Be will drive the creation of a European microelectronics design ecosystem using this FD-SOI platform and explore the path towards the next step for this technology (14/10-nm).

On June 17, 2013, we announced that we had signed a comprehensive agreement with Rambus Inc. expanding existing licenses between the two companies, settling all outstanding claims, and committing both organizations to explore additional opportunities for collaboration. The multifaceted agreement gives Rambus access to our Fully-Depleted Silicon On Insulator (FD-SOI) process-technology design environment while giving us secured license terms from the Cryptography Research, Inc. (CRI) division of Rambus that makes it possible for us to expand deployment of security technology for banking, identity, PayTV, video gaming, smartphones, and government, across a wider range of products.

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Our Annual General Meeting of Shareholders was held on June 21, 2013 in Amsterdam and, among others, the following decisions were adopted by our Shareholders:

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The adoption of our 2012 Statutory Annual Accounts prepared in accordance with International Financial Reporting Standards (IFRS);

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The distribution of a semi-annual cash dividend of US$0.10 in the second quarter of 2013, and of US$0.10 in the third quarter of 2013, per common share, to be paid in June and September of 2013;

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Approval of the stock-based portion of the compensation of our President and CEO;

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The appointment of Ms. Janet Davidson as a new member of the Supervisory Board for a three-year term, expiring at the 2016 Annual General Meeting of Shareholders, as a replacement for Mr. Raymond Bingham, whose mandate has expired;

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The reappointment of Mr. Alessandro Ovi as member of the Supervisory Board for a three-year term, expiring at the 2016 Annual General Meeting of Shareholders;

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The amendment of the compensation scheme of the Supervisory Board;

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The approval of a new four-year Unvested Stock Award Plan for Management and Key Employees; and

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Authorization to our Managing Board, for eighteen months as of our 2013 Annual General Meeting, to repurchase our shares, subject to the approval of our Supervisory Board.

On July 22, 2013, we announced the Nano-2017 Research and Development program, a five-year public-private strategic R&D program led by us to further advance our leadership in key embedded processing solutions and technologies. The project draws support from a broad coalition of French national, regional and local authorities as well as by the European community through the ENIAC Joint Technology Initiative. Funding for the program is subject to approval by the European Commission. Ultimately, Nano-2017 strengthens our leadership in such key technologies as FD-SOI (low-power, high-performance processing), next-generation imaging (sensors and image signal processors), and next-generation embedded non-volatile memories. These technologies are at the core of our embedded processing solutions which include microcontrollers, imaging solutions, digital consumer products, application processors and digital ASICs.

On July 24, 2013, we announced the publication of our 2012 Sustainability Report. Our sixteenth annual Sustainability Report contains comprehensive details of our Sustainability strategy, policies and performance during 2012.

On December 2, 2013, we announced that our Shareholders had adopted all resolutions proposed at the Extraordinary General Meeting (“EGM”) held on December 2, 2013:

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The distribution of a cash dividend of US$0.10 per common share for each of the fourth quarter of 2013 and first quarter of 2014; and

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An amendment of our Articles of Association authorizing the Supervisory Board, in addition to the General Meeting of Shareholders, to resolve upon the distribution of quarterly dividends from the reserves of the Company. Immediately after the EGM was held, the Articles of Association of the Company were amended by means of the execution of a notarial deed of amendment.

Results of Operations

Segment Information

We operate in two business areas: Semiconductors and Subsystems.

Effective January 1, 2013, our segment reporting reflects our strategy announced on December 10, 2012. Our strategy takes into account the evolution of the markets we are in and the environment we see in the years to come and is based on our leadership in our two product segments, supported by a Sales & Marketing organization with a particular focus on our major accounts, as well as expanding our penetration of the mass market and focusing on five growth drivers: Automotive Products, Application Processors, including Digital Consumer Products, MEMS and Sensors, Microcontrollers and Smart Power.

Our segments are as follows:

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Sense & Power and Automotive Products (SP&A), including the following product lines:

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Automotive (APG);

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Industrial & Power Discrete (IPD);

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Analog & MEMS (AMS); and

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Other SP&A;

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Embedded Processing Solutions (EPS), comprised of the following product lines:

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Digital Convergence Group (DCG);

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Imaging, BiCMOS ASIC and Silicon Photonics (IBP);

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Microcontrollers, Memory & Security (MMS);

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Wireless (WPS); and

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Other EPS.

In 2013, we revised our results from prior periods in accordance with the new segment structure. The preparation of segment information based on the current segment structure requires us to make estimates and assumptions in determining the operating income (loss) of the segments for the prior reporting periods. We believe that the revised 2012 and 2011 presentation is consistent with that of 2013 and we use these comparatives when managing our company.

In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. Based on its immateriality to our business as a whole, the Subsystems business area does not meet the requirements for a reportable segment as defined in the guidance on disclosures about segments of an enterprise and related information. All the financial values related to Subsystems including net revenues and related costs, are reported in the segment “Others”.

The following tables present our consolidated net revenues and consolidated operating income (loss) by product segment. For the computation of the segments’ internal financial measurements, we use certain internal rules of allocation for the costs not directly chargeable to the segments, including cost of sales, selling, general and administrative (“SG&A”) expenses and a part of research and development (“R&D”) expenses. In compliance with our internal policies, certain cost items are not charged to the segments, including impairment, restructuring charges and other related closure costs, including ST-Ericsson plans, unused capacity charges, phase-out and start-up costs of certain manufacturing facilities, certain one-time corporate items such as the 2012 NXP arbitration award charge, strategic and special R&D programs or other corporate-sponsored initiatives, including certain corporate-level operating expenses and certain other miscellaneous charges. In addition, depreciation and amortization expense is part of the manufacturing costs allocated to the product segments and is neither identified as part of the inventory variation nor as part of the unused capacity charges; therefore, it cannot be isolated in the costs of goods sold.


	Year Ended December 31,
	2013		2012		2011
	(In millions)
Net revenues by product line and product segment:
Automotive (APG)	$	1,668	$	1,554	$	1,678
Industrial & Power Discrete (IPD)		1,801		1,747		2,104
Analog & MEMS (AMS)		1,306		1,320		1,335
Other SP&A		—		1		3
Sense & Power and Automotive Products (SP&A)		4,775		4,622		5,120
Digital Convergence Group (DCG)		735		888		1,084
Imaging, BiCMOS ASIC and Silicon Photonics (IBP)		462		437		722
Microcontrollers, Memory & Security (MMS)		1,367		1,147		1,175
Wireless (WPS)		704		1,345		1,552
Other EPS		1		9		33
Embedded Processing Solutions (EPS)		3,269		3,826		4,566
Others⁽¹⁾		38		45		49
Total consolidated net revenues	$	8,082	$	8,493	$	9,735

(1)	In 2013, “Others” includes revenues from the sales of Subsystems ($18 million) and sales of materials and other products not allocated to product segments ($20 million).


	Year Ended December 31,
	2013			2012			2011
	(In millions)
Operating income (loss) by product segment:
Sense & Power and Automotive Products (SP&A)	$	270		$	409		$	757
Embedded Processing Solutions (EPS)⁽¹⁾		(399	)		(883	)		(489	)
Others⁽²⁾		(336	)		(1,607	)		(222	)
Total consolidated operating income (loss)	$	(465	)	$	(2,081	)	$	46

	(As a percentage of net revenues)
Operating income (loss) by product segment:
Sense & Power and Automotive Products (SP&A)⁽³⁾		5.7	%		8.8	%		14.8	%
Embedded Processing Solutions (EPS)⁽¹⁾⁽³⁾		(12.2	)%		(23.1	)%		(10.7	)%
Others⁽²⁾		—			—			—
Total consolidated operating income (loss)⁽⁴⁾		(5.8	)%		(24.5	)%		0.5	%

(1)

The majority of Wireless’ activities included in EPS were run through ST-Ericsson JVS. In addition, Wireless includes other items affecting operating results related to the Wireless business. The noncontrolling interest of Ericsson in ST-Ericsson JVS’ operating results (which are 100% included in Wireless) was credited on the line “Net loss (income) attributable to noncontrolling interest” of our Consolidated Statements of Income until the deconsolidation. Since September 1, 2013, ST-Ericsson JVS has been accounted for as an equity investment.

(2)

Operating loss of “Others” includes items such as impairment, restructuring charges and other related closure costs including ST-Ericsson plans, unused capacity charges, phase-out and start-up costs of certain manufacturing facilities, certain one-time corporate items such as the 2012 NXP arbitration award charge and other unallocated expenses such as: strategic or special R&D programs, certain corporate-level operating expenses and other costs that are not allocated to the product segments, as well as operating earnings of the Subsystems and Other Products Group.

(3)	As a percentage of net revenues per product segment.

(4)	As a percentage of total net revenues.


	Year Ended December 31,
	2013			2012			2011
	(In millions)
Reconciliation to consolidated operating income (loss):
Total operating income (loss) of product segments	$	(129	)	$	(474	)	$	268
Unused capacity charges		(32	)		(172	)		(149	)
Impairment, restructuring charges and other related closure costs		(292	)		(1,376	)		(75	)
Strategic and other research and development programs		(15	)		(12	)		(13	)
Phase-out and start-up costs		(5	)		—			(8	)
NXP arbitration award		—			(54	)		—
Other non-allocated provisions⁽¹⁾		8			7			23
Total operating loss Others		(336	)		(1,607	)		(222	)
Total consolidated operating income (loss)	$	(465	)	$	(2,081	)	$	46

(1)	Includes unallocated income and expenses such as certain corporate-level operating expenses and other costs/income that are not allocated to the product segments.

Net revenues by location of shipment and by market channel

The table below sets forth information on our net revenues by location of shipment:


	Year Ended December 31,
	2013		2012		2011
	(In millions)
Net Revenues by Location of Shipment:⁽¹⁾
EMEA	$	1,958	$	2,100	$	2,328
Americas		1,221		1,253		1,342
Greater China-South Asia		3,400		3,555		4,359
Japan-Korea		1,503		1,585		1,706
Total	$	8,082	$	8,493	$	9,735

(1)

Net revenues by location of shipment are classified by location of customer invoiced or reclassified by shipment destination in line with customer demand. For example, products ordered by U.S.-based companies to be invoiced to Greater China-South Asia affiliates are classified as Greater China-South Asia revenues. Furthermore, the comparison among the different periods may be affected by shifts in shipment from one location to another, as requested by our customers.

The table below shows our net revenues by market channel in percentage of net revenue:


	Year Ended December 31,
	2013			2012			2011
	(As percentage of net revenues)
Net Revenues by Market Channel:⁽¹⁾
OEM		74.4			77.6			77.3
Distribution		25.6			22.4			22.7
Total		100.0	%		100.0	%		100.0	%

(1)	Original Equipment Manufacturers (“OEM”) are the end-customers to which we provide direct marketing application engineering support, while Distribution customers refers to the distributors and representatives that we engage to distribute our products around the world.

The following table sets forth certain financial data from our Consolidated Statements of Income, expressed in each case as a percentage of net revenues:


	Year Ended December 31,
	2013			2012			2011
	(As percentage of net revenues)
Net sales		99.6	%		98.7	%		98.9	%
Other revenues		0.4			1.3			1.1
Net revenues		100.0			100.0			100.0
Cost of sales		(67.7	)		(67.2	)		(63.3	)
Gross profit		32.3			32.8			36.7
Selling, general and administrative		(13.2	)		(13.8	)		(12.4	)
Research and development		(22.5	)		(28.4	)		(24.1	)
Other income and expenses, net		1.2			1.1			1.1
Impairment, restructuring charges and other related closure costs		(3.6	)		(16.2	)		(0.8	)
Operating income (loss)		(5.8	)		(24.5	)		0.5
Other-than-temporary impairment charge and realized gain on financial assets		—			—			3.3
Interest expense, net		0.0			(0.4	)		(0.3	)
Loss on equity-method investments		(1.5	)		(0.3	)		(0.3	)
Gain on financial instruments, net		—			0.0			0.3
Income (loss) before income taxes and noncontrolling interest		(7.3	)		(25.2	)		3.5
Income tax expense		(0.5	)		(0.6	)		(1.9	)
Net income (loss)		(7.8	)		(25.8	)		1.6
Net loss (income) attributable to noncontrolling interest		1.6			12.2			5.1
Net income (loss) attributable to parent company		(6.2	)%		(13.6	)%		6.7	%

2013 vs. 2012

Net revenues


	Year Ended December 31,				% Variation
	2013		2012		Year-Over-Year
	(In millions)
Net sales	$	8,050	$	8,380		(3.9	)%
Other revenues		32		113		(71.5	)
Net revenues	$	8,082	$	8,493		(4.8	)%

Our 2013 net revenues decreased compared to the year-ago period, mainly due to our decision to exit from ST-Ericsson, less favorable market conditions and a lower level of licenses. Net revenues decreased by 4.8% with a decrease of approximately 9% in average selling prices of which approximately 6% was due to a pure price effect and 3% was due to a less favorable product mix, partially offset by an increase of approximately 4% in volume. In 2013, net revenues excluding the Wireless product line increased by 3.2%.

SP&A registered an increase of approximately 3%, while EPS revenues were down by approximately 15%. Within SP&A, all product lines except AMS increased their revenues with APG up by approximately 7% and IPD up by approximately 3%. Within EPS, Wireless product line sales registered a decline of approximately 48%, following the wind-down of the ST-Ericsson joint venture while DCG decreased by approximately 17%. IBP and MMS increased by about 6% and 19%, respectively, compared to the prior year.

By market channel, our revenues registered an increase in Distribution, which was up by approximately 3 percentage points, reaching a 26% share of total revenues. By location of shipment, all regions were negatively impacted mainly by the exit of ST-Ericsson. In 2013 and 2012, no customer exceeded 10% of our total net revenues.

Gross profit


	Year Ended December 31,						% Variation
	2013			2012			Year-Over-Year
	(In millions)
Cost of sales	$	(5,468	)	$	(5,710	)		4.2	%
Gross profit		2,614			2,783			(6.1	)
Gross margin (as percentage of net revenues)		32.3	%		32.8	%		—

In 2013, gross margin was 32.3%, decreasing by 50 basis points compared to the prior year, mainly due to the negative impact of selling prices, lower technology licensing revenues and a less favorable product mix, partially offset by improved manufacturing efficiencies, lower unused capacity charges and the absence of the $53 million one-time charge related to the 2012 arbitration award to NXP.

Selling, general and administrative expenses


	Year Ended December 31,						% Variation
	2013			2012			Year-Over- Year
	(In millions)
Selling, general and administrative expenses	$	(1,066	)	$	(1,166	)		8.6	%
As percentage of net revenues		(13.2	)%		(13.8	)%		—

The amount of our SG&A expenses decreased in 2013, mainly associated with the exit of ST-Ericsson and our cost savings initiatives. Our share-based compensation charges were $13 million in 2013, compared to $6 million in 2012.

As a percentage of revenues, our SG&A expenses amounted to 13.2% in 2013, decreasing compared to 13.8% in 2012.

Research and development expenses


	Year Ended December 31,						% Variation
	2013			2012			Year-Over- Year
	(In millions)
Research and development expenses	$	(1,816	)		$(2,413)			24.7	%
As percentage of net revenues		(22.5	)%		(28.4	)%		—

Our 2013 R&D expenses decreased compared to 2012, mainly due to the exit of ST-Ericsson and our cost savings initiatives. Our 2013 R&D expenses included $8 million of share-based compensation charges, compared to $3 million in 2012. Total R&D expenses were net of research tax credits, which amounted to $146 million in 2013; the amount was $152 million in 2012.

As a percentage of revenues, 2013 R&D equaled 22.5%, decreasing compared to 28.4% in the prior year.

Other income and expenses, net


	Year Ended December 31,
	2013			2012
	(In millions)
Research and development funding	$	57		$	102
Phase-out and start-up costs		(4	)		—
Exchange gain, net		8			5
Patent costs		(40	)		(20	)
Gain on sale of businesses and non-current assets		83			9
Other, net		(9	)		(5	)
Other income and expenses, net	$	95		$	91
As percentage of net revenues		1.2	%		1.1	%

Income from R&D funding was associated with our R&D projects, which, upon project approval, qualifies as funding on the basis of contracts with local government agencies. In 2013, we recognized an income, net, of $95 million, increasing compared to an income, net, of $91 million in 2012, mainly due to the sale of businesses and non-current assets associated with the Global Navigation Satellite System business in ST-Ericsson and with the sale of Portland Compiler Group in ST, partially offset by a lower amount of R&D funding. No grants from the Nano-2017 R&D program were recognized in 2013.

Impairment, restructuring charges and other related closure costs


	Year Ended December 31,
	2013			2012
	(In millions)
Impairment, restructuring charges and other related closure costs	$	(292	)	$	(1,376	)

In 2013, we recorded $292 million of impairment, restructuring charges and other related closure costs, of which:

•

$88 million in restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014;

•

$86 million in impairment and restructuring charges related to the ST-Ericsson exit;

•

$56 million in impairment charges on the DCG goodwill and dedicated intangible assets following our yearly impairment test;

•

$37 million in impairment and restructuring charges related to the manufacturing consolidation plans;

•

$9 million in restructuring charges related to the ST-Ericsson restructuring plans before deconsolidation;

•

$5 million impairment charge on Veredus as a result of the reclassification of its assets as Assets held for sale as of December 31, 2013. On January 13, 2014, we sold a 50% stake in Veredus shares to a third party investor; and

•

$11 million related to other restructuring initiatives.

Operating loss


	Year Ended December 31,
	2013			2012
	(In millions)
Operating loss	$	(465	)	$	(2,081	)
As percentage of net revenues		(5.8	)%		(24.5	)%

Our operating results improved compared to the prior year, positively impacted by lower impairment charges and savings in operating expenses, mainly in R&D, and negatively impacted by a lower level of gross profit primarily due to the reduced level of net revenues.

SP&A registered operating income of $270 million or approximately 6% of revenues, down from $409 million or about 9% of revenues, mainly as a consequence of increased operating expenses also following the reassignment to the segment of some resources from ST-Ericsson aimed to accelerate and improve product innovation for the segment. EPS registered an improvement in its operating loss from $883 million or approximately 23% of revenues to an operating loss of $399 million or about 12% of revenues, mainly due to the reduced level of operating expenses as a consequence of the exit from ST-Ericsson and the gain from the sale of businesses only partially offset by reduced gross profit due to the lower revenues level. The segment “Others” decreased its losses to $336 million in 2013, from $1,607 million in 2012, mainly due to lower impairment and restructuring charges.

Interest expense, net


	Year Ended December 31,
	2013			2012
	(In millions)
Interest expense, net	$	(5	)	$	(35	)

We recorded a net interest expense of $5 million in 2013, improving compared to $35 million in 2012, due to the lower cost of financing of the ST-Ericsson debt and a one-time interest payment received with respect to a U.S. tax refund in the second quarter of 2013.

Loss on equity-method investments


	Year Ended December 31,
	2013			2012
	(In millions)
Loss on equity-method investments	$	(122	)	$	(24	)

In 2013, we recorded a charge of $122 million, of which $104 million related to our share in 3Sun, which consisted of a $35 million operating loss and $69 million as non-cash item following their asset impairment, $7 million loss related to ST-Ericsson JVS which has been accounted for under the equity-method since September 1, 2013, $6 million loss in relation with MicroOLED SAS and $5 million loss for ST-Ericsson JVD. The 2012 amount represented a charge of $24 million, out of which $16 million related to 3Sun and $7 million to our proportionate share in the loss of ST-Ericsson JVD primarily reflecting our share of the impairment charge recorded by ST-Ericsson JVD as a result of their impairment test. The remaining $1 million loss related to other investments.

Gain on financial instruments, net


	Year Ended December 31,
	2013		2012
	(In millions)
Gain on financial instruments, net	$	—	$	3

Income tax expense


	Year Ended December 31,
	2013			2012
	(In millions)
Income tax expense	$	(37	)	$	(51	)

During 2013, we registered an income tax expense of $37 million, reflecting the actual tax charge calculated on our income before income taxes in each of our jurisdictions. This expense included the recognition of deferred tax assets, net of valuation allowances, associated with our estimates of the net operating loss recoverability in certain jurisdictions and our best estimate on additional tax charges related to potential uncertain tax positions and claims.

Net loss (income) attributable to noncontrolling interest


	Year Ended December 31,
	2013			2012
	(In millions)
Net loss (income) attributable to noncontrolling interest	$	129		$	1,030
As percentage of net revenues		1.6	%		12.2	%

In 2013, we recorded $129 million loss attributable to noncontrolling interest, mainly relating to Ericsson’s interest in the ST-Ericsson joint venture prior to the deconsolidation as of September 1, 2013. In 2012, we recorded a $1,030 million loss attributable to noncontrolling interest, which mainly included Ericsson’s

ownership in ST-Ericsson JVS. All periods also included the recognition of noncontrolling interest related to our joint venture in Shenzhen, China for assembly operating activities and Incard do Brazil for distribution. Those amounts were not material.

Net loss attributable to parent company


	Year Ended December 31,
	2013			2012
	(In millions)
Net loss attributable to parent company	$	(500	)	$	(1,158	)
As percentage of net revenues		(6.2	)%		(13.6	)%

In 2013, we reported a net loss of $500 million, significantly improving compared to 2012 due to the aforementioned factors. In 2012, we reported a net loss of $1,158 million.

The 2013 net loss attributable to the parent company was $(0.56) per share compared to $(1.31) per share in 2012.

In 2013, the impact after tax of impairment, restructuring charges and other related closure costs and other one-time items, a non U.S. GAAP measure, was estimated to be approximately $(0.33) per share, while it was estimated to be approximately $(0.98) per share in 2012.

2012 vs. 2011

Net revenues


	Year Ended December 31,				% Variation
	2012		2011		Year-Over- Year
	(In millions)
Net sales	$	8,380	$	9,630		(13.0	)%
Other revenues		113		105		7.3
Net revenues	$	8,493	$	9,735		(12.8	)%

Our 2012 net revenues decreased compared to the year-ago period, which benefited from more favorable market conditions. Net revenues decreased by 12.8% driven by a decrease of approximately 7% in volume and a decline in average selling prices by approximately 6%.

Net revenues decreased by approximately 10% for SP&A and 16% for EPS. Within EPS, Wireless product line revenues registered a decline of approximately 13%.

By market channel, the relative breakdown between OEM and Distribution remained similar from one period to the next.

By location of shipment, all regions were negatively impacted in terms of revenues by the difficult market conditions. In 2012, no customer exceeded 10% of our total net revenues while the Nokia group of companies accounted for slightly more than 10% of our total net revenues in 2011.

Gross profit


	Year Ended December 31,						% Variation
	2012			2011			Year-Over- Year
	(In millions)
Cost of sales	$	(5,710	)	$	(6,161	)		7.3	%
Gross profit		2,783			3,574			(22.1	)
Gross margin (as percentage of net revenues)		32.8	%		36.7	%		—

In 2012, gross margin was 32.8%, decreasing by 390 basis points compared to the prior year, principally due to the negative impact of declining selling prices, lower sales volume, higher unused capacity charges and $53 million NXP arbitration award charge, partially offset by a favorable currency effect and a more favorable product mix.

Selling, general and administrative expenses


	Year Ended December 31,						% Variation
	2012			2011			Year-Over- Year
	(In millions)
Selling, general and administrative expenses	$	(1,166	)	$	(1,210	)		3.6	%
As percentage of net revenues		(13.8	)%		(12.4	)%		—

Our SG&A expenses decreased in 2012 mainly due to the favorable impact of the U.S. dollar exchange rate and cost saving initiatives. Our share-based compensation charges were $6 million in 2012, compared to $16 million in 2011.

As a percentage of revenues, our SG&A expenses amounted to 13.8%, slightly increasing in comparison to 12.4% in 2011 due to lower volumes of sales.

Research and development expenses


	Year Ended December 31,						% Variation
	2012			2011			Year-Over- Year
	(In millions)
Research and development expenses	$	(2,413	)	$	(2,352	)		(2.6	)%
As percentage of net revenues		(28.4	)%		(24.1	)%		—

Our R&D expenses increased compared to 2011, mainly because 2011 benefited from a $100 million billing of R&D services. On the other side, the 2012 R&D expenses benefited from ongoing cost saving measures and restructuring initiatives mainly in ST-Ericsson and a more favorable exchange rate. Our 2012 R&D expenses included $3 million of share-based compensation charges, compared to $8 million in 2011. Total R&D expenses were net of research tax credits, which amounted to $152 million in 2012; the amount was $159 million in 2011.

As a percentage of revenues, 2012 R&D equaled 28.4%, increasing compared to 24.1% in the prior year.

Other income and expenses, net


	Year Ended December 31,
	2012			2011
	(In millions)
Research and development funding	$	102		$	128
Phase-out and start-up costs		—			(8	)
Exchange gain, net		5			8
Patent costs		(20	)		(28	)
Gain on sale of non-current assets		9			15
Other, net		(5	)		(6	)
Other income and expenses, net	$	91		$	109
As percentage of net revenues		1.1	%		1.1	%

In 2012, we recognized an income, net, of $91 million, decreasing compared to 2011 mainly due to the lower level of funding.

Impairment, restructuring charges and other related closure costs


	Year Ended December 31,
	2012			2011
	(In millions)
Impairment, restructuring charges and other related closure costs	$	(1,376	)	$	(75	)

In 2012, we recorded $1,376 million of impairment, restructuring charges and other related closure costs, of which: $1,234 million as a non-cash impairment on our Wireless goodwill and other intangible assets; $66 million related to the ST-Ericsson restructuring plan announced in April 2012, primarily consisting of employee termination benefits, as well as $2 million impairment charges on long-lived assets with no future use; $23 million related to the manufacturing restructuring plan as part of the closure of our Carrollton (Texas) and Phoenix (Arizona) sites of which $21 million was recorded as an impairment on the Carrollton building and facilities; $21 million related to the ST-Ericsson restructuring plans previously announced in 2011 and 2009; $20 million was recorded in relation to our Digital restructuring plan announced in October 2012 and was composed of employee termination benefits, as well as $7 million impairment charges on intangible assets with no future use; $8 million related to other restructuring initiatives; and a $4 million impairment charge on certain intangibles.

In 2011, we recorded $75 million of impairment, restructuring charges and other related closure costs, of which: $37 million was recorded in relation to the manufacturing restructuring plan as part of the closure of our Carrollton and Phoenix sites, and was composed of one-time termination benefits, as well as other related closure charges, mainly associated with the Phoenix fab, where production was terminated in the first quarter of 2011; $26 million related to the cost savings plan announced in June 2011 by ST-Ericsson, primarily consisting of employee termination benefits; $7 million related to the workforce reduction plans announced in April and December 2009 by ST-Ericsson, pursuant to the closure of certain locations; and $5 million related to other restructuring initiatives.

Operating income (loss)


	Year Ended December 31,
	2012			2011
	(In millions)
Operating income (loss)	$	(2,081	)	$	46
As percentage of net revenues		(24.5	)%		0.5	%

Our operating results deteriorated compared to the prior year mainly due to the non-cash impairment charge on Wireless goodwill and other intangible assets, the impact of lower revenues, higher restructuring charges, the NXP arbitration award charge and higher unused capacity charges. Furthermore, 2011 benefited from a $100 million billing of R&D services. This resulted in an operating loss of $2,081 million in 2012 compared to an operating income of $46 million in 2011.

Our segments reported a decline in their profitability levels compared to the year-ago period, mainly due to lower levels of revenues. SP&A operating income was $409 million or approximately 9% of revenues in 2012, down from $757 million, or about 15% of 2011 revenues. In 2012, EPS registered an operating loss of $883 million or about negative 23% of revenues, down from a $489 million operating loss or approximately negative 11% of 2011 revenues. Wireless product line operating loss increased from $812 million in 2011 to $885 million in 2012, of which the largest part was generated from ST-Ericsson JVS; 50% of this loss was attributed to Ericsson as noncontrolling interest below operating income (loss). The segment “Others” increased its losses to $1,607 million from $222 million in 2011, mainly due to higher impairment and restructuring charges (which accounted for $1,376 million in 2012 compared to $75 million in 2011), the higher amount of unused capacity charges (which accounted for $172 million in 2012 compared to $149 million in 2011) and the NXP arbitration award charge of $54 million in 2012.

Other-than-temporary impairment charge and realized gains on financial assets


	Year Ended December 31,
	2012		2011
	(In millions)
Other-than-temporary impairment charge and realized gains on financial assets	$	—	$	318

In 2011, the income of $318 million represented a balance of (i) a realized gain on financial assets of $323 million as a result of the cash settlement from Credit Suisse against the transfer of ownership of the whole portfolio of Auction Rate Securities, and (ii) an other-than-temporary impairment charge of $5 million as an adjustment of the fair value of certain marketable securities.

Interest expense, net


	Year Ended December 31,
	2012			2011
	(In millions)
Interest expense, net	$	(35	)	$	(25	)

In 2012, we registered an expense increase compared with the year-ago period, mainly due to ST-Ericsson increased utilization of the parent’s loan facility. As in 2011, ST-Ericsson had a one-off sale of certain R&D tax credits anticipating their collection by three years and also interest expenses related to the sale without recourse of its trade receivables.

Loss on equity-method investments


	Year Ended December 31,
	2012			2011
	(In millions)
Loss on equity-method investments	$	(24	)	$	(28	)

In 2012, we recorded a charge of $24 million, out of which $16 million related to 3Sun and $7 million to our proportionate share in the loss of ST-Ericsson JVD primarily reflecting our share of the impairment charge recorded by ST-Ericsson JVD as a result of their impairment test. The remaining $1 million loss related to other investments. The 2011 amount represented a charge of $28 million, out of which $23 million related to our proportionate share in ST-Ericsson JVD’s net results, including amortization of basis difference. The remaining $5 million loss related to other investments.

Gain on financial instruments, net


	Year Ended December 31,
	2012		2011
	(In millions)
Gain on financial instruments, net	$	3	$	25

The $3 million gain on financial assets in 2012 was mainly associated with the gain of $2 million related to the repurchase of our 2016 Convertible Bonds and $1 million related to the sale of some marketable securities. The $25 million gain on financial assets in 2011 was mainly associated with (i) the gain of $20 million related to the sale of the remaining Micron shares and the unwinding of the related hedging of our equity participation in Micron received upon the Numonyx disposal, and (ii) a gain of $4 million recorded following unsolicited repurchases of a portion of our 2016 Convertible Bonds with an accreted value of $318 million, inclusive of the swap, for a cash consideration of $314 million.

Income tax expense


	Year Ended December 31,
	2012			2011
	(In millions)
Income tax expense	$	(51	)	$	(181	)

During 2012, we registered an income tax expense of $51 million, reflecting the actual tax charge calculated on our income before income taxes in each of our jurisdictions. This expense included the recognition of deferred tax assets, net of valuation allowances, associated with our estimates of the net operating loss recoverability in certain jurisdictions and our best estimate on additional tax charges related to potential uncertain tax positions and claims. The 2012 income tax expense was also impacted by the additional valuation allowances recorded on certain deferred tax assets related to ST-Ericsson, which are no longer supported by tax planning strategies, partially due to our decision to exit the joint venture.

Net loss (income) attributable to noncontrolling interest


	Year Ended December 31,
	2012			2011
	(In millions)
Net loss (income) attributable to noncontrolling interest	$	1,030		$	495
As percentage of net revenues		12.2	%		5.1	%

In 2012, we recorded $1,030 million loss attributable to noncontrolling interest, which mainly included Ericsson’s ownership in ST-Ericsson JVS. In 2011, we recorded $495 million loss attributable to noncontrolling interest, which mainly included $413 million of the ST-Ericsson JVS losses and $92 million charge for a valuation allowance related to part of ST-Ericsson’s accumulated net operating losses.

All periods also included the recognition of noncontrolling interest related to our joint venture in Shenzhen, China for assembly operating activities and Incard do Brazil for distribution.

Net income (loss) attributable to parent company


	Year Ended December 31,
	2012			2011
	(In millions)
Net income (loss) attributable to parent company	$	(1,158	)	$	650
As percentage of net revenues		(13.6	)%		6.7	%

In 2012, we reported a net loss of $1,158 million, a significant decline compared to 2011 due to the aforementioned factors. In 2011, we reported a net income of $650 million.

The 2012 net loss attributable to the parent company was $(1.31) per share compared to diluted earnings of $0.72 per share in 2011.

In 2012, the impact after tax of impairment, restructuring charges and other related closure costs and other one-time items, net of tax, was estimated to be approximately $(0.98) per share.

Quarterly Results of Operations

Certain quarterly financial information for the years 2013 and 2012 are set forth below. Such information is derived from our unaudited Consolidated Financial Statements, prepared on a basis consistent with the Consolidated Financial Statements that include, in our opinion, all normal adjustments necessary for a fair statement of the interim information set forth therein. Operating results for any quarter are not necessarily indicative of results for any future period. In addition, in view of the significant volatility we have experienced in recent years, the increasingly competitive nature of the markets in which we operate, the changes in products mix and the currency effects of changes in the composition of sales and production among different geographic regions, we believe that period-to-period comparisons of our operating results should not be relied upon as an indication of future performance.

Our quarterly and annual operating results are also affected by a wide variety of other factors that could materially and adversely affect revenues and profitability or lead to significant variability of operating results, including, among others, capital requirements and the availability of funding, competition, new product development, changes in technology, manufacturing problems, litigation and possible IP claims. In addition, a number of other factors could lead to fluctuations in operating results, including order cancellations or reduced bookings by key customers or distributors, IP developments, international events, currency fluctuations, problems in obtaining adequate raw materials on a timely basis, impairment, restructuring charges and other related closure costs, as well as the loss of key personnel. As only a portion of our expenses varies with our revenues, there can be no assurance that we will be able to reduce costs promptly or adequately in relation to revenue declines to compensate for the effect of any such factors. As a result, unfavorable changes in the above or other factors have in the past and may in the future adversely affect our operating results. Quarterly results have also been and may be expected to continue to be substantially affected by the cyclical nature of the semiconductor and electronic systems industries, the speed of some process and manufacturing technology developments, market demand for existing products, the timing and success of new product introductions and the levels of provisions and other unusual charges incurred. Certain additions of our quarterly results will not total our annual results due to rounding.

In the fourth quarter of 2013, based upon published industry data by WSTS, the TAM and the SAM increased year-over-year by approximately 8% and 3%, reaching approximately $80 billion and $36 billion, while sequentially, the TAM and the SAM both decreased by about 1% and 2%, respectively. In the fourth quarter of 2013, our average effective exchange rate was approximately $1.34 to €1.00, compared to $1.31 to €1.00 in the third quarter of 2013 and $1.30 to €1.00 in the year-ago quarter. Our effective exchange rate reflects actual exchange rate levels combined with the impact of cash flow hedging programs.

Net revenues


	Three Months Ended						% Variation
	December 31, 2013		September 28, 2013		December 31, 2012		Sequential			Year-Over- Year
	(Unaudited, in millions)
Net sales	$	2,008	$	2,005	$	2,111		0.2	%		(4.9	)%
Other revenues		7		8		51		(14.3	)		(87.0	)
Net revenues	$	2,015	$	2,013	$	2,162		0.1	%		(6.8	)%

Year-over-year comparison

Our fourth quarter of 2013 net revenues were $2,015 million, decreasing by 6.8% compared to the year-ago period. Excluding the phasing out of the Wireless product line, revenues increased by 3.9% as a result of higher volume by about 6%, partially offset by a decline in average selling prices by approximately 2%.

By product segment, SP&A registered an increase of approximately 4%, while EPS revenues were down by approximately 19%. Within SP&A, all product lines except AMS, which decreased by approximately 15%, increased their revenues with APG up by approximately 22% and IPD up by approximately 7%. Within EPS, Wireless product line sales registered a decline of approximately 62%, following the wind-down of the ST-Ericsson joint venture while DCG decreased by approximately 27%. IBP and MMS increased by about 27% and 22%, respectively, compared to the prior year quarter.

By market channel, our revenues registered an increase in Distribution, which was up by approximately 4 percentage points, reaching a 27% share of total revenues, compared to 23% in the fourth quarter of 2012.

By location of shipment, all regions decreased on a year-over-year basis; Japan-Korea, Greater China-South Asia and EMEA were mainly negatively impacted by the exit of ST-Ericsson while Americas were mainly impacted by a decrease in DCG revenues.

In the fourth quarter of 2013, no customer exceeded 10% of our total net revenues. In the fourth quarter of 2012, the Samsung group of companies accounted for approximately 11% of our net revenues.

Sequential comparison

On a sequential basis, our revenues were almost flat (+0.1%) with an approximate 3% increase in average selling prices due to a more favorable product mix, offset by an approximate 3% decrease in units sold.

By product segment, SP&A revenues increased by approximately 2% mainly driven by a more favorable product mix, while EPS registered a decrease of approximately 3% primarily due to a decrease in volume. Within the SP&A segment, APG and AMS increased their revenues by approximately 8% and 2% respectively while IPD revenues decreased by about 2%. Within EPS, all product lines registered a decrease in revenues by approximately 12% for IBP, about 3% for DCG and about 1% for both Wireless product line and MMS.

By market channel, the fourth quarter of 2013 showed a sequential increase for Distribution, which reached a 27% share of revenues from the 25% share registered in the third quarter of 2013.

By location of shipment, all regions declined sequentially except Greater China-South Asia, which increased by approximately 4% on a sequential basis

Both in the fourth and the third quarters of 2013, no customer exceeded 10% of our total net revenues.

Gross profit


	Three Months Ended									% Variation
	December 31, 2013			September 28, 2013			December 31, 2012			Sequential			Year-Over- Year
	(Unaudited, in millions)
Cost of sales	$	(1,353	)	$	(1,361	)	$	(1,465	)		0.6	%		7.6
Gross profit		662			652			697			1.5			(5.0	)
Gross margin (as percentage of net revenues)		32.9	%		32.4	%		32.3	%		—			—

Fourth quarter gross margin was 32.9%, increasing on a year-over-year basis by approximately 60 basis points, mainly due to improved manufacturing efficiencies and lower unused capacity charges, partially offset by declining selling prices and lower technology licensing revenues compared to the prior year quarter.

On a sequential basis, gross margin in the fourth quarter increased by 50 basis points, mainly due to improved manufacturing efficiencies, partially offset by a negative currency effect, the negative impact of selling prices and a higher amount of unused capacity charges.

Selling, general and administrative expenses


	Three Months Ended									% Variation
	December 31, 2013			September 28, 2013			December 31, 2012			Sequential			Year- Over- Year
	(Unaudited, in millions)
Selling, general and administrative expenses	$	(249	)	$	(253	)	$	(291	)		1.5	%		14.2	%
As percentage of net revenues		(12.4	)%		(12.6	)%		(13.5	)%		—			—

The amount of our SG&A expenses decreased on a year-over-year basis, mainly due to the wind-down of ST-Ericsson and our cost savings initiatives. As a percentage of revenues, our SG&A expenses amounted to 12.4%, decreasing in comparison to 13.5% in the prior year’s fourth quarter and 12.6% in the prior quarter.

Research and development expenses


	Three Months Ended									% Variation
	December 31, 2013			September 28, 2013			December 31, 2012			Sequential			Year-Over- Year
	(Unaudited, in millions)
Research and development expenses	$	(407	)	$	(423	)	$	(585	)		3.7	%		30.4	%
As percentage of net revenues		(20.2	)%		(21.0	)%		(27.1	)%		—			—

R&D expenses both decreased year-over-year and sequentially mainly due to the ST-Ericsson wind-down and the benefits of our cost savings initiatives.

The fourth quarter of 2013 included $3 million of share-based compensation charges compared to $1 million in the fourth quarter of 2012 and $2 million in the third quarter of 2013. Fourth quarter 2013 R&D expenses were net of research tax credits, which amounted to $43 million, compared to $42 million in the fourth quarter of 2012 and $34 million in the third quarter of 2013.

As a percentage of revenues, fourth quarter 2013 R&D equaled 20.2%, a decrease of approximately 690 basis points compared to the year-ago period driven by the reduction in our operating expenses and notwithstanding the level of reduced revenues. On a sequential basis, expenses to revenues percentage decreased by 80 basis points due to decreasing operating expenses.

Other income and expenses, net


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Research and development funding	$	28		$	9		$	41
Phase-out costs and start-up costs		(3	)		(1	)		—
Exchange gain, net		2			2			1
Patent costs		(13	)		(12	)		(5	)
Gain on sale of businesses and non-current assets		1			81			2
Other, net		(3	)		(1	)		(2	)
Other income and expenses, net	$	12		$	78		$	37
As percentage of net revenues		0.6	%		3.8	%		1.7	%

In the fourth quarter of 2013, we recognized an income, net, of $12 million, mainly due to R&D funding of approximately $28 million.

Impairment, restructuring charges and other related closure costs


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Impairment, restructuring charges and other related closure costs	$	(29	)	$	(120	)	$	(588	)

In the fourth quarter of 2013, we recorded $29 million of impairment, restructuring charges and other related closure costs, of which: $20 million restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014, $5 million impairment charge on Veredus as a result of the reclassification of its assets as Assets held for sale as of December 31, 2013, $2 million restructuring charges related to the manufacturing consolidation plans and $2 million related to other restructuring initiatives.

In the third quarter of 2013, we recorded $120 million of impairment, restructuring charges and other related closure costs, primarily consisting of: $56 million recorded as impairment charges on the DCG goodwill and dedicated intangible assets following our yearly impairment test, $35 million recorded as impairment and restructuring charges related to the manufacturing consolidation plans and $22 million recorded as restructuring charges related to our headcount reduction initiative targeting quarterly net operating expenses in the range of $600 to $650 million by the beginning of 2014.

In the fourth quarter of 2012, we recorded $588 million of impairment, restructuring charges and other related closure costs, of which: $544 million was recorded as a non-cash impairment on our Wireless goodwill and other intangible assets, $20 million was recorded in relation to our Digital restructuring plan announced in October 2012 and was composed of employee termination benefits, as well as $7 million impairment charges on intangible assets with no future use, $16 million was related to the ST-Ericsson restructuring plan announced in April 2012, primarily consisting of employee termination benefits and $8 million was related to other restructuring initiatives.

Operating loss


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Operating loss	$	(11	)	$	(66	)	$	(730	)
As percentage of net revenues		(0.6	)%		(3.3	)%		(33.8	)%

The fourth quarter of 2013 registered an operating loss of $11 million compared to an operating loss of $66 million in the prior quarter and an operating loss of $730 million in the year-ago quarter. The fourth quarter of 2013 registered an improvement in our operating results, both year-over-year and sequentially, driven by lower operating expenses and lower impairment and restructuring charges.

By product segment, SP&A reported an increase in its operating income compared to the prior quarter. Our EPS segment increased sequentially its operating losses, mainly due to the one-time positive impact recorded in the third quarter 2013 for the sale of businesses. The segment “Others” decreased its losses to $41 million, from $123 million in the prior quarter, mainly due to lower impairment and restructuring charges. On a year-over-year basis, our SP&A segment operating income decreased from $106 million in the year-ago quarter to $96 million while EPS improved its results from a loss of $182 million to a loss of $66 million. The segment “Others” significantly decreased its losses due to lower impairment and restructuring charges.

Interest expense, net


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Interest expense, net	$	(3	)	$	(2	)	$	(9	)

We recorded net interest expense of $3 million in the fourth quarter of 2013, improving on a year-over-year basis, due to the lower cost of financing related to ST-Ericsson debt.

Income (loss) on equity-method investments


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Income (loss) on equity-method investments	$	(12	)	$	(8	)	$	(11	)

In the fourth quarter of 2013, we recorded a charge of $12 million, of which $7 million related to our share of the losses in ST-Ericsson JVS, which has been accounted for under the equity method since September 1, 2013 and $5 million related to our share in 3Sun.

Income tax expense


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Income tax expense	$	(8	)	$	(49	)	$	(39	)

During the fourth quarter of 2013, we registered an income tax expense of $8 million, reflecting actual tax charges and benefits in each jurisdiction as well as the true-up of tax provisions based upon the most updated visibility on open tax matters in several jurisdictions.

Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimations of our tax provisions. Our income tax amounts and rates depend also on our loss carry-forwards and their relevant valuation allowances, which are based on estimated projected plans and available tax planning strategies; in the case of material changes in these plans, the valuation allowances could be adjusted accordingly with an impact on our tax charges. We currently enjoy certain tax benefits in some countries. Such benefits may not be available in the future due to changes in the local jurisdictions; our effective tax rate could be different in future periods and may increase in the coming years. In addition, our yearly income tax charges include the estimated impact of provisions related to potential tax positions which have been considered uncertain.

Net loss (income) attributable to noncontrolling interest


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Net loss (income) attributable to noncontrolling interest	$	(2	)	$	(17	)	$	361

In the fourth quarter of 2013, we recorded $2 million representing the income attributable to noncontrolling interest mainly relating to our joint venture in Shenzhen, China for assembly operating activities. In the third

quarter of 2013 and in the fourth quarter of 2012, the corresponding amounts were an income of $17 million and a loss of $361 million, respectively. These amounts mainly reflected Ericsson’s share in the ST-Ericsson JVS joint venture’s result, prior to the deconsolidation as of September 1, 2013.

Net loss attributable to parent company


	Three Months Ended
	December 31, 2013			September 28, 2013			December 31, 2012
	(Unaudited, in millions)
Net loss attributable to parent company	$	(36	)	$	(142	)	$	(428	)
As percentage of net revenues		(1.8	)%		(7.1	)%		(19.8	)%

For the fourth quarter of 2013, we reported a net loss of $36 million, improving sequentially and year-over-year.

Earnings per share for the fourth quarter of 2013 was $(0.04) compared to $(0.16) in the third quarter of 2013 and $(0.48) per share in the year-ago quarter.

In the fourth quarter of 2013, the impact per share after tax of impairment, restructuring charges and other related closure costs and other one-time items, a non U.S. GAAP measure, was estimated to be approximately $(0.03) per share, while in the third quarter of 2013, it was estimated to be approximately $(0.13) per share. In the year-ago quarter, the impact of impairment, restructuring charges and other related closure costs and other one-time items was estimated to be approximately $(0.37) per share.

Impact of Changes in Exchange Rates

Our results of operations and financial condition can be significantly affected by material changes in the exchange rates between the U.S. dollar and other currencies, particularly the Euro.

As a market rule, the reference currency for the semiconductor industry is the U.S. dollar and the market prices of semiconductor products are mainly denominated in U.S. dollars. However, revenues for some of our products (primarily our dedicated products sold in Europe) are quoted in currencies other than the U.S. dollar and as such are directly affected by fluctuations in the value of the U.S. dollar. As a result of currency variations, the appreciation of the Euro compared to the U.S. dollar could increase, in the short-term, our level of revenues when reported in U.S. dollars. Revenues for all other products, which are either quoted in U.S. dollars and billed in U.S. dollars or in local currencies for payment, tend not to be affected significantly by fluctuations in exchange rates, except to the extent that there is a lag between the changes in currency rates and the adjustments in the local currency equivalent of the price paid for such products. Furthermore, certain significant costs incurred by us, such as manufacturing costs, SG&A expenses, and R&D expenses, are largely incurred in the currency of the jurisdictions in which our operations are located. Given that most of our operations are located in the Euro zone and other non U.S. dollar currency areas, including Singapore, our costs tend to increase when translated into U.S. dollars when the dollar weakens or to decrease when the U.S. dollar strengthens.

In summary, as our reporting currency is the U.S. dollar, exchange rate fluctuations affect our results of operations: in particular, if the U.S. dollar weakens, our results are negatively impacted since we receive a limited part of our revenues, and more importantly, we incur a significant part of our costs, in currencies other than the U.S. dollar. On the other hand, our results are favorably impacted when the dollar strengthens. The impact on our accounts could therefore be material, in the case of a material variation of the U.S. dollar exchange rate.

Our principal strategy to reduce the risks associated with exchange rate fluctuations has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of materials, purchases and services from our suppliers denominated in U.S. dollars, thereby reducing the potential exchange rate impact of certain variable costs relative to revenues. Moreover, in order to further reduce the exposure to U.S. dollar exchange fluctuations, we have hedged certain line items on our Consolidated Statements of Income, in particular with respect to a portion of the costs of goods sold, most of the R&D expenses and certain SG&A expenses, located in the Euro zone, which we account for as cash flow hedging contracts. We use three different types of hedging contracts, consisting of forward contracts, collars and options.

Our Consolidated Statements of Income for 2013 included income and expense items translated at the average U.S. dollar exchange rate for the period, plus the impact of the hedging contracts expiring during the period. Our effective average exchange rate for 2013 and 2012 was $1.31 for €1.00. Our effective exchange rate was $1.34 for €1.00 for the fourth quarter of 2013 and $1.31 for €1.00 for the third quarter of 2013, while it was $1.30 for €1.00 for the fourth quarter of 2012. These effective exchange rates reflect the actual exchange rates combined with the impact of cash flow hedging contracts that matured in the period.

The time horizon of our cash flow hedging for manufacturing costs and operating expenses may run up to 24 months, for a limited percentage of our exposure to the Euro and under certain currency market circumstances. As of December 31, 2013, the outstanding hedged amounts were €660 million to cover manufacturing costs and €489 million to cover operating expenses, at an average exchange rate of about $1.3671 to €1.00 and $1.3626 to €1.00 (considering the options and collars at strike), maturing over the period from January 2, 2014 to December 4, 2014. As of December 31, 2013, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred profit of approximately $39 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, compared to a deferred profit of approximately $24 million before tax at December 31, 2012.

We also hedge certain manufacturing costs denominated in Singapore dollars (SGD); as of December 31, 2013, the outstanding hedged amounts were SGD 149 million at an average exchange rate of about SGD 1.2540 to $1.00 maturing over the period from January 9, 2014 to December 4, 2014. As of December 31, 2013, these outstanding hedging contracts and certain expiring contracts covering manufacturing expenses capitalized in inventory resulted in a deferred loss of approximately $1 million before tax, recorded in “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity.

Our cash flow hedging policy is not intended to cover our full exposure and is based on hedging a portion of our exposure in the next four quarters and a declining percentage of our exposure in each quarter thereafter. In 2013, as a result of our cash flow hedging, we recorded a net profit of $33 million, consisting of a profit of about $14 million to R&D expenses, a profit of about $16 million to costs of goods sold and a profit of $3 million to SG&A expenses, while in 2012, we recorded a net loss of $71 million.

In addition to our cash flow hedging, in order to mitigate potential exchange rate risks on our commercial transactions, we purchase and enter into forward foreign currency exchange contracts and currency options to cover foreign currency exposure in payables or receivables at our affiliates, which we account for as fair value instruments. We may in the future purchase or sell similar types of instruments. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk”. Furthermore, we may not predict in a timely fashion the amount of future transactions in the volatile industry environment. No assurance may be given that our hedging activities will sufficiently protect us against declines in the value of the U.S. dollar. Consequently, our results of operations have been and may continue to be impacted by fluctuations in exchange rates. The net effect of our consolidated foreign exchange exposure resulted in a net gain of $8 million recorded in “Other income and expenses, net” in our 2013 Consolidated Statement of Income compared to a net gain of $5 million recorded in 2012.

The assets and liabilities of subsidiaries are, for consolidation purposes, translated into U.S. dollars at the period-end exchange rate. Income and expenses, as well as cash flows, are translated at the average exchange rate for the period. The balance sheet impact, as well as the income statement and cash flow impact, of such translations have been, and may be expected to be, significant from period to period since a large part of our assets and liabilities and activities are accounted for in Euros as they are located in jurisdictions where the Euro is the functional currency. Adjustments resulting from the translation are recorded directly in equity, and are shown as “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity. At December 31, 2013, our outstanding indebtedness was denominated mainly in U.S. dollars and in Euros.

For a more detailed discussion, see “Item 3. Key Information — Risk Factors — Risks Related to Our Operations”.

Impact of Changes in Interest Rates

Interest rates may fluctuate upon changes in financial market conditions and material changes can affect our results of operations and financial condition, since these changes can impact the total interest income received on our cash and cash equivalents and marketable securities, as well as the total interest expense paid on our financial debt.

Our interest income (expense), net, as reported in our Consolidated Statements of Income, is the balance between interest income received from our cash and cash equivalents and marketable securities investments and interest expense paid on our financial liabilities (including the sale without recourse of receivables) and bank fees (including fees on committed credit lines). Our interest income is dependent upon fluctuations in interest rates, mainly in U.S. dollars and Euros, since we invest primarily on a short-term basis; any increase or decrease in the market interest rates would mean an equivalent increase or decrease in our interest income. Our interest expenses are also dependent upon fluctuations in interest rates, since our financial liabilities mainly consist of European Investment Bank Floating Rate Loans at Libor and Euribor plus variable spreads. Our 2016 Convertible Bond was fully redeemed in the second quarter of 2012. On March 17, 2013, we repaid with available cash the residual Euro 350 million outstanding 2013 Senior Bonds with a principal amount at issuance of Euro 500 million.

At December 31, 2013, our total financial resources, including cash and cash equivalents and marketable securities, generated an average interest income rate of 0.28%. At the same date, the average interest rate on our outstanding debt was 0.90%.

Impact of Changes in Equity Prices

As of December 31, 2013, we did not hold any significant equity participations, which could be subject to a material impact in changes in equity prices. However, we hold equity participations whose carrying value could be reduced due to further losses or impairment charges of our equity-method investments. See Note 10 to our Consolidated Financial Statements.

Liquidity and Capital Resources

Treasury activities are regulated by our policies, which define procedures, objectives and controls. The policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office. The majority of our cash and cash equivalents are held in U.S. dollars and Euros and are placed with financial institutions rated at least a single A long-term rating, meaning at least A3 from Moody’s Investor Service (“Moody’s”) and A- from Standard & Poor’s (“S&P”) or Fitch Ratings (“Fitch”), or better. Marginal amounts are held in other currencies. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Our total liquidity and capital resources were $1,894 million as of December 31, 2013, decreasing compared to $2,493 million at December 31, 2012. As of December 31, 2013, our total liquidity and capital resources were comprised of $1,836 million in cash and cash equivalents, $1 million in short-term deposits and $57 million in marketable securities, all considered as current assets.

As of December 31, 2013, marketable securities were $57 million invested in senior debt securities at floating rate issued by primary financial institutions with an average rating of Baa2/A-/A from Moody’s, S&P and Fitch, respectively. The Floating Rate Notes are classified as available-for-sale and reported at fair value, with changes in fair value recognized as a separate component of “Accumulated other comprehensive income (loss)” in the Consolidated Statements of Equity, except if deemed to be other-than-temporary. Since the duration of the marketable securities portfolio was 0.05 year, the value of the securities as of December 31, 2013 corresponded to par value. As such, the cumulative change in the fair value of our marketable securities portfolio was not material as of December 31, 2013. The fair value of these securities is based on market prices publicly available through major financial information providers. The market price of the marketable securities is influenced by changes in the credit standing of the issuer but is not significantly impacted by movement in interest rates. In 2013, we reported proceeds of $184 million pursuant to sold or matured treasury bills and Floating Rate Notes.

In 2011, we received cash proceeds of $356.8 million from Credit Suisse as the full and final payment for the settlement of all outstanding litigation concerning Auction Rate Securities. Upon receipt of the funds, the ownership of the whole portfolio was transferred to Credit Suisse. We booked a pretax gain of approximately $329 million in 2011 as a result of the settlement, out of which $6 million was reported on the line “selling, general and administrative” and $323 million as a realized gain on financial assets. This $356.8 million plus the $75 million already cashed in made a total amount of $431.8 million that exceeded all losses and costs associated with the litigation.

Liquidity

We maintain a significant cash position and a low debt-to-equity ratio, which provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities.

During 2013, our net cash decreased by $414 million, due to the net cash used in investing and financing activities exceeding the net cash from operating activities, primarily due to the repayment of the residual outstanding 2013 Senior Bonds in the amount of $455 million, net payments for tangible assets and the dividend payments.

The components of our cash flow for the last three years are set forth below:


	Year Ended December 31,
	2013			2012			2011
	(In millions)
Net cash from operating activities	$	366		$	612		$	880
Net cash used in investing activities		(379	)		(396	)		(287	)
Net cash from (used in) financing activities		(388	)		135			(529	)
Effect of changes in exchange rates		(13	)		(13	)		(44	)
Net cash increase (decrease)	$	(414	)	$	338		$	20

Net cash from operating activities. The net cash from operating activities in 2013 was $366 million, decreasing compared to $612 million in the prior year period. Net cash from operating activities is the sum of (i) net income (loss) adjusted for non-cash items and (ii) changes in assets and liabilities. The decrease in net cash from operating activities in 2013 compared to 2012 resulted from the less favorable changes in assets and liabilities, which was partially balanced by the net loss adjusted for non-cash items:

•

Net income (loss) adjusted for non-cash items increased to $333 million of cash generated in 2013 compared to $109 million in the prior year period, mainly due to the improved operating results;

•

Changes in assets and liabilities generated cash for a total amount of $33 million in 2013, compared to $503 million of cash generated in the prior year period, mainly due to a negative change in trade payables ($139 million), trade receivables ($57 million) and inventories ($22 million). In 2012, changes were positive, mainly associated with a favorable variation in inventories ($191 million) and trade payables ($148 million). Furthermore, the negative trend in trade receivables also included an unfavorable net cash impact of $72 million, deriving from the sales, with no recourse, of trade and other receivables, compared to a favorable $26 million in 2012.

Net cash used in investing activities. Investing activities used $379 million of cash in 2013, mainly due to payments for the purchase of tangible assets and for intangible and financial assets, partially offset by the proceeds from the sale of marketable securities. Payments for purchase of tangible assets, net of proceeds, totaled $531 million, compared to $476 million in 2012.

Net cash from (used in) financing activities. Net cash used in financing activities was $388 million in 2013 compared to $135 million generated in 2012, mainly due to the $455 million repayment of the residual outstanding 2013 Senior Bonds. The financing activities in 2013 included $346 million in dividends paid to stockholders, compared to $355 million paid in 2012.

Free Cash Flow (non U.S. GAAP measure). We also present Free Cash Flow, which is a non U.S. GAAP measure, defined as (i) net cash from operating activities plus (ii) net cash used in investing activities, excluding payment for purchases (and proceeds from the sale) of marketable securities, short-term deposits and restricted cash, which are considered as temporary financial investments. The result of this definition is ultimately net cash from operating activities plus payment for purchase and proceeds from sale of tangible, intangible and financial assets, proceeds received in sale of businesses, payment for business acquisitions, net proceeds from sale of stock received on investment divestiture and payment for funding of joint ventures liquidation. We believe Free Cash Flow, a non U.S. GAAP measure, provides useful information for investors and management because it measures our capacity to generate cash from our operating and investing activities to sustain our operations. Free Cash Flow is not a U.S. GAAP measure and does not represent total cash flow since it does not include the cash flows generated by or used in financing activities. Free Cash Flow reconciles with the total cash flow and the net cash increase (decrease) by including the payment for purchases (and proceeds from the sale) of marketable securities, short-term deposits, restricted cash and net cash from joint ventures deconsolidation, the net cash from (used in)

financing activities and the effect of changes in exchange rates. In addition, our definition of Free Cash Flow may differ from definitions used by other companies. Free Cash Flow is determined as follows from our Consolidated Statements of Cash Flows:


	Year Ended December 31,
	2013			2012			2011
	(In millions)
Net cash from operating activities	$	366		$	612		$	880
Net cash used in investing activities		(379	)		(396	)		(287	)
Excluding:
Payment for purchase and proceeds from sale of marketable securities, short-term deposits, restricted cash, net and net cash from joint ventures deconsolidation		(166	)		(183	)		(881	)
Payment for purchase and proceeds from sale of tangible, intangible assets and businesses, payment for funding of joint ventures liquidation, payment for business acquisitions and net proceeds from sale of stock received on investment divestiture⁽¹⁾		(545	)		(579	)		(1,168	)
Free Cash Flow (non U.S. GAAP measure)	$	(179	)	$	33		$	(288	)

(1)

Reflects the total of the following line items reconciled with our Consolidated Statements of Cash Flows relating to the investing activities: Payment for purchase of tangible assets, Proceeds from sale of tangible assets, Payment for purchase of intangible and financial assets, Proceeds from sale of intangible and financial assets, Proceeds received in sale of businesses, Payment for funding of joint ventures liquidation, Payment for business acquisitions, net of cash and cash equivalents acquired, Net proceeds from sale of stock received on investment divestiture.

Free Cash Flow was negative $179 million in 2013, deteriorating compared to positive $33 million in 2012, primarily due to lower cash generated from operating activities.

Capital Resources

Net Financial Position (non U.S. GAAP measure). Our Net Financial Position represents the balance between our total financial resources and our total financial debt. Our total financial resources include cash and cash equivalents, marketable securities, short-term deposits and restricted cash, and our total financial debt includes bank overdrafts, short-term debt and long-term debt, as represented in our Consolidated Balance Sheets. Net Financial Position is not a U.S. GAAP measure but we believe it provides useful information for investors because it gives evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents and marketable securities and the total level of our financial indebtedness, which included the 50% of ST-Ericsson indebtedness up to September 1, 2013 when we deconsolidated ST-Ericsson. Consequently, we have in prior periods presented the Net Financial Position attributable to ST (“ST Net Financial Position”), which did not include the ST-Ericsson indebtedness towards Ericsson, our partner in ST-Ericsson JVS. Our Net Financial Position for each period has been determined as follows from our Consolidated Balance Sheets:


	Year Ended December 31,
	2013			2012			2011
	(In millions)
Cash and cash equivalents	$	1,836		$	2,250		$	1,912
Marketable securities		57			238			413
Restricted cash		—			4			8
Short-term deposits		1			1			—
Total financial resources		1,894			2,493			2,333
Bank overdrafts and short-term debt		(225	)		(630	)		(740	)
Long-term debt		(928	)		(671	)		(826	)
Total financial debt		(1,153	)		(1,301	)		(1,566	)
Net Financial Position		741			1,192			767
ST-Ericsson net debt to Ericsson		—			—			400
ST Net Financial Position	$	741		$	1,192		$	1,167

Our Net Financial Position as of December 31, 2013 was a net cash position of $741 million, decreasing compared to the net cash position of $1,192 million at December 31, 2012, as a result of our negative Free Cash Flow and dividends payment.

At December 31, 2013, our financial debt was $1,153 million, composed of (i) $225 million of current portion of long-term debt and (ii) $928 million of long-term debt. The breakdown of our total financial debt included: (i) $1,132 million in European Investment Bank loans (the “EIB Loans”), (ii) $20 million in loans from other funding programs, and (iii) $1 million of capital leases. The EIB Loans are comprised of four long-term amortizing credit facilities as part of our R&D funding programs. The first for R&D in France was drawn in U.S. dollars from 2006 to 2008 for a total amount of $341 million, of which $97 million remained outstanding as at December 31, 2013. The second for R&D projects in Italy, was drawn in U.S. dollars in 2008 for a total amount of $380 million, of which $163 million remained outstanding as of December 31, 2013. The third, signed in 2010, is a €350 million multi-currency loan to support our industrial and R&D programs. It was drawn mainly in U.S. dollars for an amount of $321 million and only partially in Euros for an amount of €100 million, of which $401 million remained outstanding as of December 31, 2013. The fourth, signed in the first quarter of 2013, is a €350 million multicurrency loan which also supports our R&D programs. It was drawn in U.S. dollars for an amount of $471 million.

Additionally, we had unutilized committed medium-term credit facilities with core relationship banks of $730 million. At December 31, 2013, the amounts available under our short-term lines of credit were unutilized.

Our long-term debt contains standard conditions, but does not impose minimum financial ratios.

As of December 31, 2013, debt payments due by year were as follows:


	Payments Due by Period
	Total		2014		2015		2016		2017		2018		Thereafter
	(In millions)
Long-term debt (including current portion)	$	1,153	$	225	$	205	$	195	$	119	$	117	$	292

In February 2006, we issued $1,131 million principal amount at maturity zero coupon senior convertible bonds due in February 2016. The bonds were convertible by the holder at any time prior to maturity at a conversion rate of 43.833898 shares per one thousand dollar face value of the bonds corresponding to 42,694,216 equivalent shares. In order to optimize our liability management and yield, we repurchased a portion of our 2016 Convertible Bonds during 2009 (98,000 bonds for a total cash consideration of $103 million and corresponding to 4,295,722 shares) and in 2010 (385,830 bonds for a total cash consideration of $410 million and corresponding to 16,912,433 shares). On February 23, 2011, certain holders redeemed 41,123 convertible bonds at a price of $1,077.58, out of the total of 490,170 outstanding bonds, or about 8%. In the third and fourth quarters of 2011, we repurchased 248,645 bonds for a total cash consideration of $270 million, corresponding to 10,899,080 shares. On February 23, 2012, certain holders redeemed 190,131 convertible bonds at a price of $1,093.81, out of the total of 200,402 outstanding bonds, representing approximately 95% of the then outstanding convertible bonds. In addition, on March 12, 2012, we accepted the further put of 4,980 bonds for a cash consideration of $5 million. On March 28, 2012, we published a notice of sweep up redemption for the remaining 5,291 bonds outstanding, which were redeemed on May 10, 2012. As of December 31, 2013, there were no bonds remaining outstanding.

In March 2006, STMicroelectronics Finance B.V. (“ST BV”), a wholly owned subsidiary, issued the 2013 Senior Bonds. These bonds, which matured on March 17, 2013, paid a quarterly coupon rate of the three-month Euribor plus 0.40%. On March 17, 2013, we repaid at maturity with available cash the residual outstanding 2013 Senior Bonds in the amount of $455 million.

On December 19, 2013, Moody’s lowered our senior debt rating from “Baa2” to “Baa3” with stable outlook. On December 18, 2012, S&P lowered our senior debt rating from “BBB+” to “BBB” with negative outlook. We are also rated “BBB-” from Fitch on an unsolicited basis.

Contractual Obligations, Commercial Commitments and Contingencies

Our contractual obligations, commercial commitments and contingencies as of December 31, 2013, and for each of the five years to come and thereafter, were as follows:⁽¹⁾


	Total		2014		2015		2016		2017		2018		Thereafter
Operating leases⁽²⁾	$	242	$	54	$	37	$	29	$	26	$	22	$	74
Purchase obligations⁽²⁾		434		383		48		3		—		—		—
of which:
Equipment and other asset purchases		163		163		—		—		—		—		—
Foundry purchases		92		92		—		—		—		—		—
Software, design, technologies and licenses		179		128		48		3		—		—		—
Other obligations⁽²⁾		481		155		120		100		80		24