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STMicroelectronics Sees Costs Ahead in Chip Venture Exit

STMicroelectronics NV (STM), Intel Corp. (INTC)’s largest competitor in Europe, will spend as much as $500 million to exit its unprofitable wireless-chip venture with Ericsson AB (ERICB), as demand starts to recover in other segments.

The semiconductor manufacturer, based in Geneva, is finalizing plans to pull out of ST-Ericsson by the third quarter. Shutting down the venture is one of the options being considered, Stockholm-based Ericsson has said.

“The first priority for 2013 is the transition out from ST-Ericsson,” Chief Executive Officer Carlo Bozotti said during an earnings call, forecasting costs of $300 million to $500 million this year. “It is important for us to move on.”

Bozotti, 60 and in his eighth year as chief, has pushed to put more chips into cars and game consoles as mobile-phone manufacturing customers Nokia Oyj (NOK1V) and BlackBerry maker Research In Motion Ltd. (RIM) work on plans to come back from a sales slump.

STMicroelectronics shares rose 0.7 percent to 6.17 euros at 1:05 p.m. in Paris, taking the gain to 15 percent this year and giving the company a market value of 5.63 billion euros.

Demand Pickup

Semiconductor demand other than for wireless technology will pick up this year after early signs of a recovery across geographies and product segments, Bozotti forecast today. Competitor Infineon Technologies AG (IFX) also predicted demand will improve.

First-quarter revenue may drop 7 percent, plus or minus 3.5 percentage points, from a quarter earlier, because of weak sales at the ST-Ericsson venture, STMicroelectronics said in a statement. The decline would be about 3 percent excluding the venture. The gross margin will be 31.4 percent, plus or minus 2 percentage points.

“We are now starting to see some recovery,” Bozotti said. “Demand reached bottom in 2012 for ST products.”

The fourth-quarter net loss widened to $428 million from $11 million a year earlier, dragged down by $544 million one- time costs mainly from a writedown of wireless assets, STMicroelectronics said yesterday. Sales fell 1.3 percent to $2.16 billion, compared with the $2.12 billion average analyst estimate compiled by Bloomberg.

Profit Drag

The semiconductor industry has suffered in the past months from rapid swings in demand and stiff competition from Asia. Bozotti said pricing pressure in the market remains strong in the first quarter.

At the ST-Ericsson venture, formed in 2009, sales were hit as large customers such as Nokia and Research in Motion lost market share to Apple Inc.’s iPhones and Samsung Electronics Co.’s smartphones that use Google Inc.’s Android software. Plans were announced in April to eliminate 1,700 jobs and transfer some product development to STMicroelectronics.

Ericsson, STMicroelectronics’ partner in the wireless venture, said today all options were being considered for ST- Ericsson, including shutting the unit down. The network equipment vendor recorded an expense of 8 billion kronor ($1.3 billion) last quarter to write off the venture.

Bozotti declined to say how exiting ST-Ericsson may affect jobs at the unit and declined to detail the options being considered. “We are working with all our stakeholders,” he said. The French and Italian states, which together hold 27.5 percent of the company, are STMicroelectronics’ biggest shareholders.

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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