Exhibit 1.01
Conflict Minerals Report of STMicroelectronics N.V.
in accordance with Rule 13p-1 under the Securities Exchange Act of 1934
This Conflict Minerals Report (the “Report”) for the year ended December 31, 2018 is presented to comply with Rule 13p-1 under the Securities Exchange Act of 1934 and guidance in relation thereto promulgated by the Securities and Exchange Commission (the “SEC”) (collectively, the “Rule”).
In this Report, references to “ST”, “we”, “us” and “Company” are to STMicroelectronics N.V. together with its consolidated subsidiaries. Furthermore, the SEC defines “conflict minerals” as columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, which are limited to tantalum, tin, and tungsten; we therefore ascribe the same meaning to the term “conflict minerals” throughout this Report. The content of any website referenced in this Report is included for general information only and is not incorporated by reference in this Report.
In accordance with the Rule, this Report is available on our website at the following address: http://investors.st.com.
Business and products
We are a global leader in the semiconductor market, serving a broad range of customers across different areas. Our products are used in a wide variety of applications, which address four end markets: automotive, industrial, personal electronics and communications equipment, computers and peripherals.
Our main categories of products1 are as follows:
| · | Automotive and Discrete Group (ADG), comprised of dedicated automotive ICs (both digital and analog), and discrete and power transistor products for all market segments. |
| · | Analog, MEMS and Sensors Group (AMS), comprised of low-power high-end analog ICs (both custom and general purpose) for all markets, smart power products for Industrial, Computer and personal electronics markets, Touch Screen Controllers, Low Power Connectivity solutions (both wireline and wireless) for IoT, power conversion products, metering solutions for Smart Grid, specialized imaging sensors and modules, and all MEMS products for sensors or Actuators. |
| · | Microcontrollers and Digital ICs Group (MDG), comprised of general purpose and secure microcontrollers, EEPROM memories, Digital ASICs, Aerospace & Defense products including components for microwave and millimeter wave. |
A more detailed discussion of our product categories and the products relating to each category is contained in our Annual Report on Form 20-F in relation to the 2018 calendar year which was filed with the SEC on February 28, 2019.
1 We derive less than 0.09% of our total annual revenue from sales of promotional evaluation and development boards assembled by third party subcontractors, which represent prototypical system-level applications that include our integrated circuit products as well as components originating from third parties. These boards are useful to demonstrate the features and functionality of our semiconductor products and assist our customers in transitioning from initial prototype designs to final production releases. References herein to our “products” are to our integrated circuit products (excluding such boards) representing 99.91% or more of our total annual revenue.
Manufacturing processes
The manufacture of semiconductor products requires, among other things, the mastery of the properties of conductivity, isolation and/or amplification. The manufacturing of an integrated circuit can be divided into two phases. The first, wafer fabrication, is the extremely sophisticated and intricate process of manufacturing the silicon chip. The second, assembly, is the highly precise and automated process of packaging the die. Those two phases are commonly known respectively as “Front-End” and “Back-End”.
The manufacturing process of semiconductor products requires various materials, gases and chemicals. We have identified tin, tantalum, tungsten and gold (collectively, “3TG”) as being among the materials necessary to the functionality or production of certain of our products manufactured during the 2018 calendar year.
Supply chain
We are not engaged in the mining and trade of minerals, nor in any refining or smelting activities. We purchase materials, commodities, chemicals and gases which potentially contain a conflict mineral as part of their composition. In general, we do not conduct business directly with smelters and refiners.
Because of our large size, the complexity of our products, and the depth, breadth, and constant evolution of our global supply chain, it is difficult and resource-intensive to identify actors upstream from our direct suppliers. Accordingly, we participate in a number of industry-wide initiatives as described in section 2 below.
Conflict minerals policy
ST began to address the conflict minerals issue as early as 2007 by requiring our tantalum suppliers to confirm they were not sourcing metals from conflict areas. We are a member of the Responsible Business Alliance (the “RBA”), have adopted the RBA’s Code of Conduct and participate in the Responsible Minerals Initiative (the “RMI”), which is a program run jointly by the RBA and the Global e-Sustainability Initiative (the “GeSI”). We require all our suppliers and subcontractors to provide evidence that they are not sourcing 3TG through any channels that fund armed groups in the Democratic Republic of the Congo (DRC) or an adjoining country (collectively, the “Covered Countries”).
Additional information on our Policy Statement on Conflict Minerals and Responsible Minerals Sourcing (our “Policy Statement”) is available at: www.st.com/conflict-free_minerals. In addition, the respective websites of the RBA, the RMI and the GeSI are available at http://www.responsiblebusiness.org/, http://www.responsiblemineralsinitiative.org/ and http://gesi.org/.
Design of due diligence
Our due diligence measures have been designed to conform, in all material respects, to the framework in The Organisation for Economic Co-operation and Development (“OECD”) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (the “OECD Guidance”) and the related Supplements for tin, tantalum, tungsten and gold, as well as related RBA recommendations. The OECD is an international organization that is endorsed by the United Nations and currently offers the only recognized framework available for such use.
Management system
In addition to implementing our Policy Statement as outlined above, evidencing our top management’s commitment to the issue, we have implemented our conflict minerals management system in alignment with the OECD Guidance. We have established roles and duties within the Company’s relevant internal organizations involved in the program. The roles and duties established for several key internal organizations are outlined below.
Our Corporate Quality and Social Responsibility organizations are responsible for the following:
| · | proactively working with our customers to define the scope and form of our conflict minerals disclosures; |
| · | defining the strategy and annual objectives related to the implementation of the conflict minerals programs within the Company and the coordination thereof with the appropriate internal organizations responsible for sourcing and purchasing materials and subcontracted services and products (including our Global Procurement Organization); |
| · | establishing the appropriate internal and external communication content on these programs through the relevant and necessary media and according to our internal processes, including, without limitation, our Policy Statement and dedicated content in our annual Sustainability Report, both of which are made available on our website; and |
| · | reviewing and updating our conflict minerals management procedures on a regular basis. |
Our Global Procurement Organization helps to implement our conflict minerals program by supporting the communication of Company requirements to our suppliers and monitoring our suppliers’ engagement and progress in relation to our conflict minerals program.
Our Global Outsourcing Business Management group helps to implement our conflict minerals program by supporting the communication of Company requirements to Back-End subcontractors and monitoring our subcontractors’ engagement and progress in relation to our conflict minerals program.
Our Wafer Foundry group supports our conflict minerals program by communicating our requirements to wafer foundries and by monitoring our suppliers’ engagement and progress in relation to our conflict minerals program.
In addition, our conflict minerals program is included as part of our sustainability and quality strategies and is highlighted as a key objective for each of our relevant internal organizations, in addition to the key internal groups discussed above, as applicable within the scope of their respective activities. A working group with representatives from the principal organizations involved regularly reviews the progress of our conflict minerals program implementation. Based on need as appropriate for the situation, such working group implements the appropriate risk mitigation measures.
Industry-wide initiatives
As we are a participating member of the RBA, we employ due diligence methodologies defined by a joint working group comprised of RBA and GeSI representatives. Tools available for participants in the RBA include a template known as the Conflict Minerals Reporting Template (the “CMRT”). The CMRT was developed to facilitate disclosure and communication of information regarding smelters that provide material to a company’s supply chain. It includes questions regarding a company’s conflict-free sourcing policy, engagement with its direct suppliers, and a listing of the smelters a company and its suppliers use. In addition, the CMRT contains questions about the origin of conflict minerals included in a company’s products, as well as supplier due diligence. Written instructions and recorded training illustrating the use of the tool are also available. The CMRT is used by many companies in their due diligence processes related to conflict minerals.
In addition, the RBA and GeSI developed in 2010 the RMI, which is a voluntary initiative in which an independent third party audits smelter procurement and processing activities and determines if the smelter has provided sufficient documentation to demonstrate with reasonable confidence that the minerals it processed originated from conflict-free sources. In 2012, the RMI, the London Bullion Market Association (“LBMA”) and Responsible Jewelry Council (“RJC”) announced their mutual cross-recognition of gold refiner audits. All three programs focus on independent third party audits of refiners’ due diligence in conformity with the OECD Guidance, which recognizes refiners as a key “choke point” in the gold supply chain.
We, along with other leading participants in the electronics industry, rely on the RMI’s Responsible Minerals Assurance Process (“RMAP”) or an equivalent industry-wide program for audits of smelters and/or refiners. Further details on this program are available on the RMI’s website at the address referenced above.
Methodology
The Company undertook due diligence on the source and chain of custody of its necessary conflict minerals. Our due diligence measures consisted of:
| · | conducting a supply-chain survey with direct suppliers and subcontractors using the CMRT to identify the smelters and refiners which contribute refined conflict minerals to our products; and |
| · | comparing the smelters and refiners identified by direct suppliers and subcontractors via the supply-chain survey against the list of smelter facilities which have received a “conformant” validation by the RMAP. |
We conducted an inquiry, using the CMRT, with all of the suppliers and subcontractors which we identified within our supply chain. All such suppliers and subcontractors responded to our due diligence inquiry.
We reviewed the responses received against criteria developed to determine which responses required further engagement with our suppliers. These criteria included untimely or incomplete responses as well as inconsistencies within the data reported in the CMRT.
CMRT inquiry responses
We rely on the good faith efforts of our suppliers and subcontractors to provide us with reasonable representations of the processing facilities used to supply the necessary conflict minerals in our products. As a result of our inquiry via the CMRT, our suppliers and subcontractors reported to us a total of 253 smelters as sources of 3TG during the 2018 calendar year, two of which we had discontinued as sources as of December 31, 2018, as reflected in the table below. The table below indicates the percentage of reported smelters sourcing each metal which were RMAP conformant as of December 31, 2018. Information relating to RMAP conformant smelters is extracted from the RBA database. The information presented in the below table represents the state of affairs as of December 31, 2018, but should not be interpreted as necessarily having applied consistently throughout the entire 2018 calendar year. Although we have received, and regularly continue to receive, updates to the RMAP conformance information presented in this table, we have presented it as of December 31, 2018.
| Metal | Gold | Tantalum | Tin | Tungsten |
| Total number of smelters declared during 2018 calendar year which remained as sources of 3TG as of December 31, 2018 | 99 | 39 | 73 | 40 |
| Percentage of above smelters which were RMAP conformant as of December 31, 2018 | 100% | 100% | 100% | 100% |
Analysis of our products in light of due diligence results
From the figures in the above table, we can conclude that 100% of the smelters declared to us by our suppliers and subcontractors which remained as our sources of 3TG as of December 31, 2018 were validated by the RMAP as being conformant as of December 31, 2018. We have included in Table 1 on Appendix I to this Report a list of these processing facilities as well as their identification number as used by the RMAP.
Two of the 253 smelters declared to us by our suppliers and subcontractors were RMAP conformant at some point during calendar year 2018 but no longer qualified as such as of December 31, 2018 and were therefore removed from our authorized sources of 3TG as of such date. We are not in a position to know whether a certain 3TG material which was used in the manufacture of a product during 2018 originated with one of such smelters before or after it lost its status as RMAP conformant. We have identified these smelters and the month during which we were notified of their removal from the RMAP conformance list in Table 2 on Appendix I to this Report.
| 3. | Further Risk Mitigation |
Discussion is included below as to certain efforts we are making, and will continue to make, to further mitigate the risk that our necessary conflict minerals do not benefit armed groups, including steps we are taking to improve our due diligence.
Mitigating the effects of multi-sourcing
Certain of the challenges we encountered in our due diligence were a result of multi-sourcing. We conduct business with a large number of suppliers in obtaining the materials required for our products, in an effort to ensure continuity in our supply chain. Those suppliers, in turn, work with a large number of smelters and refiners to source materials (including conflict minerals) which ultimately are contained in our products. As a consequence, each of our material parts is linked to several suppliers and, consequently, to several smelters, each with a potentially differing conflict mineral status.
Our suppliers also service other semiconductor manufacturers and other electronics industry participants whose supply needs may or may not coincide with ours. Accordingly, the total number of smelters from which our suppliers source materials may exceed the number of such smelters whose conflict minerals are ultimately contained in our products.
Currently, the representations included within the responses to our CMRT inquiries which we receive from our suppliers and subcontractors cover all smelters providing materials to them, and do not necessarily correlate solely to the smelters whose minerals are contained only in our products (and not in those of other customers of such suppliers and subcontractors without also being contained in our products). This adds further complexity to linking the conflict minerals used in a particular product category to a specific source of origin, as the list of all potential smelters provided by our suppliers may be broader than the list of only those smelters from which our suppliers source conflict minerals for use in our product categories (and may include smelters sourcing conflict minerals for end use by other customers of such suppliers and not us).
A result of this complexity is that we are forced to include all smelters providing materials to our suppliers and subcontractors when performing our due diligence on the origin of the conflict minerals contained in our products, as our suppliers and subcontractors do not always provide us with a list that excludes the smelters whose conflict minerals are not contained in our products.
One method in which we expect to improve our due diligence is to continue to work with our suppliers and subcontractors with a view to obtaining certifications which are better tailored only to our end products, as opposed to blanket company-wide certifications from each supplier or subcontractor. For example, the CMRT contains a reporting category in which reporting parties can more specifically link a particular smelter to a particular product, which we will encourage our suppliers and subcontractors to complete. During the 2018 calendar year, we made progress with certain of our suppliers in obtaining more specific disclosures which are more closely aligned with our actual sourcing of materials. As a result of this effort, we may be able to eliminate in the future certain smelters from the list of potential smelters from which the conflict minerals contained in our products may originate. As referenced above, during 2018 we discontinued sourcing of materials from two gold smelters in a continuing effort to depart from non-RMAP conformant smelters within our supply chain. Such two smelters are identified in Table 2 of Appendix 1 to this Report.
Additional initiatives
We do not directly conduct business with most of the smelters from which the conflict minerals in our products originate. We have, however, conducted our own investigative research with respect to certain smelters, which is aimed at supplementing information available to us through the RMAP. We also have maintained direct contact with certain smelters which previously did not participate in the RMAP conformant smelters program, and we have succeeded in influencing them to seek full RMAP conformant smelters validation. We expect our continuing efforts to focus on increasing and/or maintaining our suppliers’ and subcontractors’ compliance with the RMAP conformant smelters program as it applies to the smelters and refiners from which such suppliers and subcontractors source conflict minerals which may ultimately be contained in our products.
A significant portion of our supply chain is not required to file reports with the SEC under Sections 13(a) or 14(d) of the Securities Exchange Act of 1934, and is therefore not concerned by reporting obligations pursuant to the Rule. Accordingly, the influence that we are able to exert on our supply chain is due in large part to market forces created as a result of a cumulative effort by us and other participants in the electronics industry to ensure compliance with the RMAP conformant smelters program by their lower tier providers. In general, we intend to continue to request that our suppliers and subcontractors not source materials for us from any smelters which have not been validated by the RMAP conformant smelters program (and to discontinue sourcing from any smelters which fail to maintain their RMAP conformant smelters validation status).
Cautionary Note Regarding Forward‑Looking Statements
Some of the statements contained in this Report that are not historical facts 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 and adversely from those anticipated by such 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. 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 Report as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any information or forward-looking statements set forth in this Report to reflect subsequent events or circumstances.
