SGS-THOMSON MICROELECTRONICS 1996 EARNINGS INCREASE 19% ON 16% REVENUE GAIN
1996 Net earnings rise to $625 Million

• SGS-THOMSON Microelectronics NV - CONSOLIDATED STATEMENTS of INCOME
• SGS-THOMSON Microelectronics NV - SELECTED CONSOLIDATED FINANCIAL DATA
• SGS-THOMSON Microelectronics NV - CONSOLIDATED BALANCE SHEETS

January 22, 1997

SGS-THOMSON Microelectronics today announced financial results for the fourth quarter and year ended December 31, 1996.

Net revenues for 1996 were $4.12 billion, an increase of 16% from the $3.55 billion in revenues reported in 1995. Gross profit for the year increased 17% to $1.70 billion which represents a gross margin of 41.4% of net revenues for the year, compared to 41.0% in 1995. Operating income for the year increased 23% to $799.4 million, or 19.4% of net revenues.

Net earnings for the year increased 19% to $625.5 million, compared to $526.5 million for 1995. Earnings per share rose 11.7% to $4.50 from $4.03 reported in 1995. Per share earnings in 1996 were based upon weighted average shares outstanding of 138.7 million compared to 130.6 million in 1995.

Commenting on full year results, Pasquale Pistorio, President and Chief Executive Officer of SGS-THOMSON, commented: "We are very pleased by the Company's strong financial performance in 1996, particularly as it was achieved within a very difficult market environment for the semiconductor industry. Our concentration on differentiated products provided consistency to our financial results throughout a period that was characterized by industry-wide volatility".

Differentiated products represented 58.6 % of net revenues in 1996, compared to 51.5% of net revenues in 1995. In 1996, SGS-THOMSON derived approximately 31% of its revenues from key customers with whom the Company has formed strategic alliances.

Capital expenditures totaled $1.12 billion for the year ended December 31, 1996, compared to $1.00 billion in 1995. Research and development expenses increased by 21% to $532.3 million in 1996 and represented 12.9% of net revenues.

At December 31, 1996, cash, cash equivalents and marketable securities totaled $556.4 million and total debt was $623.1 million including $194.9 million of long-term debt. Shareholders' equity stood at $3.26 billion.

For the 1996 fourth quarter, net revenues were $1.06 billion, up 9% from net revenues of $975 million reported in the1995 fourth quarter. Net earnings were $142 million, or $1.02 per share, a decrease of 15.5% and 18% respectively from net earnings of $168 million, or $1.24 per share reported for the comparable period of 1995.

Gross profit for the fourth quarter was $401.9 million or 38.0% as a percentage of net revenues, compared with 39.4% in the 1996 third quarter (net of a one time revenue from licensing fees). This was attributable to a combination of current under-utilization of non-VLSI fabs, the temporary de-saturation of the Phoenix fab due to a change in product mix and continued price pressure, mainly on the commodity portion of the Company's product portfolio. Operating income was $187 million and represented 17.7% of 1996 fourth quarter net revenues.

Mr. Pistorio continued: "Fourth quarter earnings compared to the 1995 fourth quarter benefited from an overall 4.1% decline in total operating expenses in spite of a 9.3% increase in Research and Development expenses. This resulted primarily from a 9.4% reduction in selling, general and administrative expenses and a 13.4% increase in other income".

"We continued to drive our differentiated products business -- which accounted for a record 61.3% of net revenues in the 1996 fourth quarter -- and the Company remained capacity-constrained in its leading-edge, submicron technologies".

Outlook
The statements contained in this outlook are forward-looking statements that involve a number of risks and uncertainties. In addition to factors noted below, among the other factors that could cause actual results to differ materially are the following : the cyclicality of the semiconductor and electronic systems industries; capital requirements and the availability of funding; competition; new product development and technological change; manufacturing risks; order cancellation or reduced bookings by key customers or distributors; intellectual property developments; international events and currency fluctuations; problems in obtaining adequate raw materials on a timely basis; and the loss of key personnel. Unfavorable changes in the above or other factors listed under "Risk Factors" from time to time in the Company's SEC reports, including the Prospectus dated October 18, 1995 (pages 9 through 16) could materially affect the Company.

"Looking ahead", Mr. Pistorio continued, "With lead times shrinking throughout the industry, we are entering the first quarter of 1997 with less order visibility than we have historically enjoyed. From what we know today, we expect 1997 first quarter net revenues to be close to third quarter 1996 levels. We also anticipate that overall pricing pressures will continue, and therefore, in spite of productivity improvements, gross margin could be slightly below fourth quarter 1996 levels."

In conclusion Mr. Pistorio added "While first quarter conditions continue to be uncertain, we believe that the subsequent quarters of 1997 will show progressive improvement compared to the 1997 first quarter as the Company continues to emphasize differentiated products and high growth applications. Recent contracts with key customers and new design wins in such high growth areas as hard disk drives, set top boxes and digital cellular phones give us confidence that SGS-THOMSON will continue to outperform the industry average in 1997."

Products - Technology
During the fourth quarter, the Company further enhanced its position in the emerging market for new consumer electronics products, with the announcements of a joint development with Microsoft for DVD products and the licensing of the MPACT media processor from Chromatic Research. These announcements, combined with new product introductions, such as a Dolby AC-3 decoder for DVD, position SGS-THOMSON at the forefront of the multimedia revolution.

The strength of the Company's position in these fields is reflected in its ability to define industry standards, such as the Video Interface Port, which was announced in December and initiated with the support of competitors, to create an architecture for using video in PCs.

In November 1996, SGS-THOMSON announced it has successfully processed first wafers in the next generation of technology, using a 0.25 micron drawn CMOS process (0.20 micron effective gate length). The process will be used to manufacture 'superintegrated' ICs for high speed applications, such as computers; for low power applications, such as digital mobile phones; and for advanced consumer digital entertainment systems.

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