STMicro Stock Drops as Ericsson Venture Hampers Sales Outlook
STMicroelectronics NV (STM), Europe’s largest chipmaker, fell the most in six weeks in Milan trading after saying second-quarter sales will be held back by a decline at its joint venture with Ericsson AB.
STMicro dropped as much as 45 cents, or 5.3 percent, to 7.99 euros, the biggest intraday decline since March 15, and was down 3 percent as of 10:52 a.m. That pared the stock’s gain this year to 4 percent, valuing the Geneva-based manufacturer at 7.45 billion euros ($10.9 billion).
The partnership with Stockholm-based Ericsson, dubbed ST- Ericsson, makes chips for mobile phones. The venture has been struggling to turn around after it was formed in 2008 to increase ties with handset makers and cut research costs. The chipmaker is completing a shift to a new lineup targeting smartphone and tablet markets.
“Second-quarter guidance is below expectations due to wireless,” Adrien Bommelaer, an analyst at Matrix Corporate Capital LLP, said today in a report to clients. “This weakness reflects lower-than-expected sales translating into lower margins at ST-Ericsson.”
STMicro’s revenue in the current quarter may fall by as much as 2 percent or increase by as much as 5 percent from first-quarter figures, “taking into account ST-Ericsson’s anticipated sequential net sales decline,” the manufacturer said yesterday in a statement.
Margin Outlook
STMicro forecast that second-quarter sales will amount to $2.48 billion to $2.66 billion. Analysts were predicting revenue of $2.7 billion, according the average of 10 estimates compiled by Bloomberg. The gross margin this quarter is expected to be about 38.7 percent of sales, plus or minus 1 percentage point, the company said.
“Guidance for the second quarter is a little bit short mainly due to ST-Ericsson,” Chief Executive Officer Carlo Bozotti said in a Bloomberg Television interview. The March 11 earthquake in Japan “is having an effect on the supply chain,” and “there will be better visibility in a quarter from now.”
The ST-Ericsson venture said in a separate statement that first-quarter sales fell to $444 million from $577 million in the fourth quarter of 2010. An “ongoing decline” in older- model semiconductors will cause net sales in the current three- month period to fall from first-quarter figures, it said.
“We are disappointed that sales will fall further in Q2, given we were expecting new products to more than offset the decline in legacy products,” Odon de Laporte, an analyst at Cheuvreux, said today in a report to investors.
Profit Triples
STMicroelectronics’ first-quarter profit tripled to $170 million from $57 million a year earlier, helped by gains from its automotive applications and microelectromechanical systems. Sales rose 9 percent to $2.54 billion. Profit had been predicted at $157 million on sales of $2.58 billion, according to analyst estimates compiled by Bloomberg.
“It’s difficult to give a new formal indication” on the global chip market, Bozotti said on a conference call. “There is now a risk that it’s going to be lower” than the 5 percent to 8 percent industrywide growth predicted in January
Nokia Oyj (NOK1V), the world’s largest maker of mobile phones and STMicroelectronics’ biggest customer, reported a 1.4 percent decline in first-quarter profit on April 21 and forecast that operating margins at the handset business will fall this quarter. Nokia accounted for 13.9 percent of STMicroelectronics’ net revenue last year.
Bozotti said that, even as the impact of the Japan earthquake in March “has been manageable from ST’s perspective” the company remains “vigilant and prepared to adjust to and support any shifts in demand or changes to the semiconductor supply-chain in the near-term.”
To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
STMicroelectronics CEO Carlo Bozotti
Antoine Antoniol/Bloomberg
Carlo Bozotti, chief executive officer of STMicroelectronics NV.
Carlo Bozotti, chief executive officer of STMicroelectronics NV. Photographer: Antoine Antoniol/Bloomberg
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