STMicro to Cut Chip Manufacturing After Missing Estimates

  • Fourth-quarter sales to decline about 6% from previous period
  • Shares fall up to 8.4% in early trading, erasing gains in 2015

STMicroelectronics NV plans to to scale back chip manufacturing as demand weakens in China, putting pressure on Chief Executive Officer Carlo Bozotti to consider a strategic change at Europe’s biggest semiconductor supplier. The shares dropped as much as 8.4 percent in Paris.

Fourth-quarter sales will fall about 6 percent from the previous three-month period, the Geneva-based company said Thursday. That’s equivalent to about $1.66 billion, compared with analysts’ projection for $1.83 billion on average. The gross margin will be 33.5 percent, compared with analysts’ 36.2 percent estimate. Third-quarter revenue and margins also trailed predictions.

Bozotti, into his 11th year running the company, has yet to deliver a promise to turn around STMicro’s digital unit, which makes chips used in set-top boxes and smartphone sensors. At the same time, STMicro’s government shareholders in France and Italy are pushing for a dividend cut to allow the company to invest more in research and development, people familiar with the matter said this week.

Now, the CEO is also having to cope with slowing consumer spending in China, which is “impacting the dynamics of the distribution channel in the region and the industry more globally,” he said in the release. China stepped up monetary easing last week with its sixth interest-rate cut in a year to combat deflationary pressures.

The company didn’t give details of its reduced manufacturing plan for the current quarter. Compared to the same period last year, STMicro reported falling quarterly sales in all of its product segments except micro-controllers.

The shares lost 5.2 percent to 6.14 euros at 1:15 p.m. in Paris, erasing all their gains this year. German rival Infineon Technologies AG had jumped more than 30 percent in 2015 through Wednesday. Texas Instruments Inc., which last week forecast higher-than-expected sales and profit, is up 10 percent.

Investors would be seeking clarity on the STMicro’s merger-and-acquisition strategy. The company has conducted internal analysis on a possible bid for Fairchild Semiconductor International Inc., a San Jose, California-based supplier of semiconductors used to regulate power in electronics, chips for cars and electronic signal converters, other people familiar with the matter said this week.

STMicro has no plan to make an offer for Fairchild, Bozotti said Thursday on a conference call with investors. Mergers and acquisitions may be of interest to the company, but that’s not on the table at the moment, he said.

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