STMicro Sees Rising Revenue on Chips for Cars, Wearables

Updated on

STMicroelectronics NV forecast rising revenue for the third quarter as demand for chips used in cars and industrial machines is offsetting slowing personal-computer sales. The stock rose the most in almost two years.

Sales will climb as much as 6 percent from the previous three-month period, Europe’s largest chipmaker said Thursday. That’s equivalent to as much as $1.87 billion. Analysts on average predicted $1.85 billion. The gross margin will be about 35 percent of revenue, the Geneva-based company said. Analysts had estimated 35.3 percent.

STMicro is benefiting from rising orders for more lucrative chips sold to makers of vehicles, wearable electronics and industrial machinery. Still, PC sales are declining as more consumers rely on tablets and smartphones to get online. That, along with weaker demand in markets including China, is holding back STMicro’s ability to consistently generate profits.

“Everything was in line in a tough market,” said Janardan Menon, a London-based analyst at Liberum Capital Ltd. “Given the circumstances, the results and guidance are pretty good.”

Shares of STMicro rose as much as 7.2 percent in Paris trading, the steepest intraday advance since Sept. 12, 2013, and were up 6.9 percent to 7.28 euros at 12:15 p.m., giving the chipmaker a market value of 6.6 billion euros ($7.2 billion). They had gained about 10 percent this year through Wednesday. The French and Italian governments are among STMicro’s biggest shareholders.

Second-quarter net income fell to $35 million from $38 million a year earlier, STMicro said. A first-quarter net loss of $22 million ended a positive streak earlier this year, after extensive restructuring had helped the company return to profit in 2014. It warned then of slowing demand from PC and Chinese customers.

IPhone Miss

STMicro forecast third-quarter sales will increase 2.5 percent from the previous three months, plus or minus 3.5 percentage points. The gross margin will be 33 percent to 37 percent, or about 35 percent on average, it said.

“We see solid growth in micro-controllers and automotive,” Finance Chief Carlo Ferro said during a conference call. For the rest, “we see lower-than-average evolution or eventually not growth.”

STMicro’s attempts to consistently generate profits have been challenged by mixed customer trends. While efforts to tailor to makers of cars, wearable electronics and a variety of automated machinery have paid off, products such as PCs, smartphones and tablets also matter in determining how fast the company can reach its long-term financial targets. Lower-than-expected iPhone shipments by Apple Inc. this week sent the shares of European suppliers including STMicro lower.

STMicro is joining rivals such as Texas Instruments Inc. in getting affected by weaker orders from PC-equipment makers. Global PC shipments are set to fall 6.2 percent in 2015, the fourth consecutive year of declines amid competition from tablets and smartphones, researcher IDC said in May. Meanwhile economic growth in China is projected to slow to 7 percent this year, the least since 1990.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE