STMicro Exits Set-Top Boxes, Eliminates Jobs as Sales Waneby
Stock jumps as CEO seeks strategic changes to revive profit
Chipmaker projects revenue will continue to drop this quarter
STMicroelectronics NV said it will shut down its set-top-box chip business and eliminate or redeploy 2,000 jobs as Chief Executive Officer Carlo Bozotti seeks to cut losses at the unprofitable unit. Shares of Europe’s biggest semiconductor maker jumped.
The restructuring comes as fourth quarter earnings showed a decline on all key indicators from the previous quarter: Net income dropped to $2 million, the gross margin fell to 33.5 percent and revenue shrank to $1.7 billion. STMicro said Wednesday it expects further declines and forecast first-quarter revenues will decrease by about 3 percent compared to the final quarter of 2015, and the gross margin to be about 33 percent.
Chips for set-top boxes are part of STMicro’s digital unit, for which Chief Executive Officer Bozotti had committed to making a strategic decision early in 2016 after a lengthy and unfruitful revamp. More than 10 years at the helm, Bozotti, 63, has been facing pressure to make strategic changes, amid headwinds from slowing consumer spending in China.
“Trends and cost reduction plans are clearly positive,” Liberum analyst Janardan Menon said in a note. “Things are heading the right way.”
Apple Inc. on Tuesday said it’s beginning to see softness in the Chinese economy, in a sign that the market is no longer able to offset sluggishness elsewhere or counter the broader slowdown in the global smartphone market.
Shares of STMicro gained 5.9 percent to 6.37 euros at 9:23 a.m. in Paris. They had lost 18 percent in the past year through Tuesday.
STMicro has been weighing options for more than 8 months for the digital segment, following two years of scaling down product lines and cutting costs. It said Wednesday it will reduce as many as 1,400 positions in France, Asia and the U.S., as well as redeploy 600 employees from the set-top box unit to other businesses like the one dedicated to chips for cars. Savings from the set-top box exit are estimated at $170 million and restructuring costs will be about the same, STMicro said.
The digital business, which also makes chips used in smartphone sensors and networking equipment, has been a drag on the company’s sales growth as Bozotti seeks new customers in segments from automotive to industrial equipment. Hundreds of job cuts at the digital segment have been among the options considered since August last year, prompting quarrels among STMicro’s biggest shareholders, the French and Italian governments, which together own 27.5 percent, people familiar with the matter have said.