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STMicroelectronics Forecasts Revenue Growth Amid Wireless Losses

April 23, 2013

STMicro Sales Forecast Trails Estimates as Wireless Losses Mount

An employee uses an STMicroelectronics NV Mobile Projector device to project an image onto a wall at the Mobile World Congress in Barcelona. Photographer: Simon Dawson/Bloomberg

STMicroelectronics NV (STM), Intel Corp. (INTC:US)’s biggest competitor in Europe, forecast new products and chip demand will boost sales in the second half as it winds down a wireless venture with Ericsson AB that has contributed to six consecutive quarterly losses.

Europe’s biggest chipmaker predicted second-quarter sales growth of about 7 percent, excluding the wireless business. The projection “seems to be ahead of analog peers and implies share gains,” Bank of America Merrill Lynch analysts led by Didier Scemama wrote in a note to clients.

“Outside wireless we’ve had a good trend for about 15 weeks. We are still working on understanding the sustainability of it, but so far so good,” Chief Executive Officer Carlo Bozotti said today on a conference call. “Our focus now is to grow the top line of our wireless products without ST- Ericsson.”

Demand in the wireless business failed to pick up in the first quarter, Geneva-based STMicroelectronics said. The company last month agreed to split up its four-year-old venture with Ericsson that makes chips used in mobile phones. Bozotti is pushing to put more chips into cars and game consoles instead, as handset customers Nokia Oyj (NOK1V) and BlackBerry are trying to reverse a sales slump.

The first-quarter net loss was $171 million, bringing total losses over the past six quarters to about $1.3 billion, STMicroelectronics said yesterday.

‘Recovering Trends’

STMicroelectronics rose 5.8 percent to 5.94 euros at 11:06 a.m. in Paris. They have gained 11 percent this year, valuing the company at 5.4 billion euros ($7 billion).

Second-quarter total revenue will grow by 3 percent, plus or minus 3.5 percentage points, STMicroelectronics said. Analysts on average had projected a 6 percent increase to $2.13 billion.

“Core STM is progressing well, in line with recovering trends in the semiconductor industry,” Janardan Menon, an analyst at Liberum, wrote in a note.

Texas Instruments Inc. (TXN:US), the largest maker of analog chips, yesterday forecast sales and profit that may top some analysts’ estimates, helped by increased orders from makers of automotive and industrial-machine parts.

Semiconductor makers are trying to cope with sharp price and demand swings in the industry. Asian and U.S. suppliers have gained market share by switching to the so-called “fab-less” models, allowing them to adjust designs and production more quickly, adding to the challenges for European chipmakers such STMicroelectronics and Infineon Technologies AG. (IFX)

Wireless Costs

Impairment, restructuring and related closing costs for the first quarter were $101 million, of which $87 million were related to ST-Ericsson, STMicroelectrics said.

“Wireless sales are going to gradually go down as we phase out ST-Ericsson by more or less the middle of next year,” Bozotti said. “It will depend on customers.”

Nokia, which uses STMicroelectronics chips in its mobile phones, last week reported its smallest quarterly revenue in 13 years, while handset sales of 61.9 million units missed analysts’ estimates by 11 million units.

STMicroelectronics’s first-quarter revenue slipped 0.4 percent at $2.01 billion while the gross margin was 31.3 percent, in line with analyst estimates compiled by Bloomberg.

The company forecast gross margin of about 32.7 percent in the current quarter, plus or minus 2 percentage points, also in line with estimates.

Under last month’s agreement, STMicroelectronics will take ST-Ericsson’s existing products and 950 employees, mainly in France and Italy. Ericsson plans to assume 1,800 of the company’s workers to continue developing its modem technology. About 1,600 jobs will be eliminated.

The chipmaker, which has the French and Italian governments as its biggest shareholders, separately said yesterday it will appeal a decision by a Dutch court ordering it to stop supplying HTC Corp. (2498) with microphones used in smartphones after Nokia complained the chipmaker broke an exclusivity agreement with the Finnish company.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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