STMicroelectronics Predicts First-Quarter Sales Decline on Wireless Slump

STMicroelectronics NV (STM), Europe’s largest semiconductor maker, predicted that first-quarter revenue will fall as much as 10 percent from the previous three months because of lower sales at its wireless business.

Revenue will decline to within a range of $1.97 billion to $2.1 billion from $2.19 billion in the fourth quarter because of “a very significantly weaker revenue performance from ST- Ericsson,” its wireless-chip joint venture with Ericsson AB (ERICB), the Geneva-based company said in a statement.

“ST-Ericsson continues to struggle in its transition to its new products,” said Jon Erensen, an analyst at research firm Gartner Inc. “The outlook for 2012 is disappointing and ST-Ericsson will need to turn the business around quickly or it may find it difficult to get into serious engagements with customers worried about its financial situation.”

ST-Ericsson hasn’t been profitable since its formation in 2009. The venture, which is shifting to new products, said its fourth-quarter net loss widened to $231 million from $177 million a year earlier. Net sales fell to $409 million from $577 million.

STMicroelectronics fell as much as 7.9 percent to 5.18 euros, the biggest intraday drop since Oct. 25, and was down 4.6 percent at 10:09 a.m. in Paris trading, giving it a market value of 4.89 billion euros ($6.4 billion).

Nokia’s Woes

“Last year, the ST-Ericsson joint venture suffered unprecedented challenges in terms of their major customer and its change of strategy,” STMicroelectronics Chief Executive Officer Carlo Bozotti said in a Bloomberg Television interview today, referring to handset maker Nokia Oyj. (NOK1V) ST-Ericsson “is focusing on improving execution and an important priority for this year is lowering the breakeven point for the operations.” The rest of STMicroelectronics “is pretty solid,” he said.

Nokia has had difficulty producing handsets that can compete with Apple Inc.’s iPhone or models running Google Inc.’s Android. In November, the company released its first smartphones in Europe running Microsoft Corp. software, a bid to turn around its fortunes.

“We see the opportunity to continue to grow in selected markets during 2012, but we remain concerned about the macroeconomic uncertainty,” Bozotti said. The company is running its plants at less than full capacity, he said. “Based on current visibility we believe bookings have bottomed.”

Speed of Recovery

The company is “confident about the recovery” of the chip market, “but we’re not clear on the speed of such recovery,” Bozotti said in a briefing today.

Asked whether ST-Ericsson may make further job cuts, Bozotti said: “We’re not in a position to give any details. There are many things that can be done but it’s premature to comment on those.”

ST-Ericsson named Didier Lamouche as its new CEO in November to help it gain share in the growing market for smartphone chips. Lamouche has been asked by the parent companies to carry out a review of the venture’s strategic plan and financial prospects. Even as STMicroelectronics is “firmly committed” to supporting ST-Ericsson, it may consider “additional actions” to accelerate ST-Ericsson’s path to profitability, according to the statement.

Possible Writedowns

“In such an event, or in case of a significant worsening of business prospects, the value of ST-Ericsson for ST could decrease to a value significantly lower than the current carrying amount of ST-Ericsson on our books and we may be required to take an impairment charge,” the company said.

In June, ST-Ericsson announced cost cuts aimed at saving $120 million a year and dropped its target date to become profitable. The venture previously predicted it would break even in the second quarter of this year. Exane BNP Paribas analyst Jerome Ramel said in a note that he doesn’t “see how ST- Ericsson can return to breakeven with the current cost base.”

“It is clear that both sales and operating results will continue to be challenging over the coming quarters, due to the reduction in the short term of new product sales with one of our largest customers,” Lamouche said in the statement.

Bozotti said today that the new management at ST-Ericsson is reviewing the business plan, “the roadmap to sustainable profitability,” as there are opportunities such as “extracting more synergies in cooperating with the two parents, working on the products and expanding the customer base.” The new plan will be formalized during the first quarter, he said.

Profit Margin

STMicroelectronics posted a loss in the fourth quarter as demand for chips decreased amid Europe’s financial crisis. The net loss was $11 million, compared with net income of $219 million a year earlier. Sales declined 23 percent to $2.19 billion. Analysts surveyed by Bloomberg had estimated a net loss of $30.6 million and revenue of $2.22 billion.

STMicroelectronics forecast that the first-quarter gross margin, the percentage of revenue left after subtracting manufacturing costs, will be about 33 percent, plus or minus 1.5 percentage points, from 33.4 percent in the fourth quarter “reflecting an improved, but still high level of unsaturation at our facilities.”

Texas Instruments Inc. (TXN) reported fourth-quarter sales and profit yesterday that topped analysts’ estimates, signaling that the market for electronic components is pulling out of a slump. The Dallas-based company is the world’s largest maker of analog chips -- semiconductors that are key components in everything from satellites to refrigerators.

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

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