STMicro Posts Loss as Profit Margin Target Delayed

STMicroelectronics NV (STM), Europe’s biggest semiconductor maker, reported a $142 million loss and delayed a profit-margin target after closing down its wireless venture with Ericsson AB. The stock fell to a six-month low.

The third-quarter net loss, equivalent to 16 cents a share, was weighed down by $120 million in impairment costs and compared with a $478 million loss, or 54 cents, a year earlier, the Geneva-based company said yesterday. Net revenue declined 7.1 percent to $2.01 billion, falling short of the $2.05 billion average of analysts’ estimates compiled by Bloomberg.

STMicroelectronics, which cited weaker-than-expected demand for smartphones in Asia during the quarter, now forecasts it will reach its target for 10 percent operating margin in mid-2015, about six months later than planned. Chief Executive Officer Carlo Bozotti called the slowing demand for its semiconductors, which are used in everything from game consoles to refrigerators, a “short-term correction.”

“It’s not just us, you’ll see it also from our competitors,” Bozotti said during a conference call. “Volumes are there, but they’re more focused on lower-end phones than higher-end phones.”

STMicroelectronics and Ericsson dissolved their partnership, which designed chips used in handsets, as customers such as Nokia Oyj (NOK1V) grappled with shrinking sales as they lost market share to Apple Inc. and Samsung Electronics Co. Bozotti has yet to prove that STMicroelectronics can reinvent itself by focusing on industries such as automotive, game consoles and high-end smartphone chipsets.

Photographer: Simon Dawson/Bloomberg

An STMicroelectronics NV microprocessor chip sits on display at the Mobile World Congress in Barcelona. Close

An STMicroelectronics NV microprocessor chip sits on display at the Mobile World Congress in Barcelona.

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Photographer: Simon Dawson/Bloomberg

An STMicroelectronics NV microprocessor chip sits on display at the Mobile World Congress in Barcelona.

Revenue Forecast

The company projected revenue for the current quarter to be little changed from the previous period, plus or minus 3.5 percentage points. That would mean a range of $1.94 billion to $2.08 billion, also trailing analysts’ estimates.

The shares dropped as much as 9.6 percent and closed 8.9 percent lower at 5.81 euros in Paris, paring their gains this year to 8.2 percent. The Franco-Italian chipmaker has a market value of 5.3 billion euros.

“Demand is especially softening in Asia, specifically impacting the mass market with the exception of automobile,” the CEO said on the call.

Since the split was completed in August, 1,800 employees have joined Stockholm-based Ericsson, which took on the modem business. STMicroelectronics absorbed about 1,000 workers and the venture’s other parts, except for the Global Navigation Satellite System group, which was sold off.

About 10 percent of the sales come from Nokia, BlackBerry Ltd. and HTC Corp. (2498), which “continue to underperform their market,” according to estimates in a note yesterday by Pierre Ferragu, an analyst at Sanford C. Bernstein. Bozotti said today the company’s exposure to BlackBerry is “very limited.”

The third-quarter gross margin was 32.4 percent, compared with the 33.75 percent average estimate compiled by Bloomberg from 10 analysts. The chipmaker said its operating margin was 2.7 percent for the period.

To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net; 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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