A focus on R&D effectiveness

Product responsibility, as an area of focus within corporate responsibility, looks at where there may be crossover between our product development activity and our social and ethical obligations. As Executive Vice President of our largest product group, Home, Personal and Communication Products (HPC), Philippe Geyres is in an excellent position to update us on some of the key issues.

Philippe, clearly product development is the lifeblood of our company, and this is reflected in our focus on R&D effectiveness as one of our key Execution Excellence programs. How successful was this program in 2005?

The priority for product development is time to market – how quickly we can get our designs into production. The ultimate measurement of success is the market share of the company, and we also track the weight of new products in ST sales. For new, we mean less than two years old.

What we did was track at company level 20 priority projects – five of them technology process development and 15 product development. We also reallocated resources to the priority projects, and in 2005, 10% of our total R&D workforce – 1,000 engineers – moved to different projects. With this new focus we started to see improvements in market share and new products. The third quarter of 2005 was the lowest point, but in the fourth quarter, signs of recovery were evident and the positive trend is continuing early 2006. Among the projects we completed on time there is a 3G base-band for cellular phones and a 2 megapixel camera, the new generation of Nomadik application processors endorsed by Nokia, and a big success in high-definition TV, being the first with single-chip decoders in 90nm.

ST has some significant R&D activities in developing countries. Can you tell us more about this, and the economic and wider social value that it brings in those areas?

Our first criterion in deciding where to locate our R&D activities is where we have the knowledge and skills. Given the history of ST, this is first Europe – in France, Italy and also the UK – and of course, in the USA too. The second criterion is where the innovation of our customers is, and the USA in computers and Europe in telecoms continue to play an important role here. But we see more and more innovation happening in Asia, by Asian and western companies. The third criterion is the cost of labor, but this must be considered in the context of available skills and the situation of the country in question.

We can in fact do R&D anywhere in the world. Of course one country can have experience and skills that are preferable to another, but these can be learned. That is how we started working in Singapore and India 15 years ago, and in Morocco and Tunisia five years ago. In the case of Tunisia and Morocco, there is the added advantage of being in the same time zone, and being close to our sites in Europe where, in France in particular, there can be strong interaction because of the language.

There is no doubt that our presence in these countries, and the expertise we bring, helps develop skills and specializations that support long-term development at a national level.

And what about the human rights of workers in these countries?

In R&D jobs, the working conditions are the same as in Europe and the USA, with the same tools and the same access to knowledge. There may be some minor differences in working time due to local legislations, but there are absolutely no violations of human rights. And this is true everywhere in ST, in R&D, in manufacturing, in any job.

Our R&D activities often depend on partnerships and alliances with national public laboratories, customers, and even competitors. What are the risks and opportunities of this kind of engagement?

Yes, there is maximum cooperation with many different parties. One of the reasons is the investment needed to develop new process technologies. To stay in the race we partner with Philips Semiconductor and Freescale on process R&D in Crolles in France as part of the Crolles2 Alliance. This has been going for many years now, but we extended it in 2005 to intellectual property 'blocks' of design. These are elements of products that are common between us and on which we can collaborate, even if we keep competing and differentiating at product level.

We also have a network of strategic alliances within which we do lots of R&D with customers. The design is partially done by the customer and partially by ST – with Nokia in telecoms, for example, or with Western Digital and Seagate in computer peripherals. We already had 12 of these key alliances and in 2005, we added a further 12 customers.

At a national level, we also have very strong links and long-term cooperation with national labs and universities in various countries: France, Italy, Singapore, the USA, and others. Going back to supporting the development of emerging countries, we have developed very strong links with several universities and engineering schools, and take a very active role in building up the curriculum and training students. In Morocco, this is a formal program, open to several universities and engineering schools, and the presence of ST has great significance for the country's future in the high-tech industry. Our initiative has been sponsored by the Prime Minister himself.

How is HPC organized to respond to the CEO's desire to capitalize on our innovation to respond to growing market demands for energy-saving products?

We can distinguish here between our products themselves, which consume less energy as technology develops, and the way our microchips help the electronic device they form part of consume less energy. We have introduced this latter approach, for example, in television sets and audio systems. Saving five watts per TV may not seem a lot, but when you consider that each TV is active for around five hours a day and that there are 500 million TVs out there, you realize the difference it can make. It's the same for the microchips we design for automotive engine control, to make the car more fuel-efficient.

So our products have a huge capacity for contributing to the reduction of overall energy consumption. In 2005, we began to measure this contribution, and although it is just a start – in 2006 we will have better figures – we have already identified that products with energy-saving characteristics account for 4.3% of our total revenues.

Philippe Geyres
Executive Vice President, Home, Personal, Communication Groups (HPC)