STMicro Forecast Beats Estimates on Auto, Networking Business

  • Chipmaker’s quarterly sales helped by auto, internet of things
  • Macroeconomic risks, especially in Europe, could impact demand

STMicroelectronics NV, Europe’s biggest semiconductor maker, forecast sales in the third quarter will grow faster than analysts had expected, though macroeconomic uncertainties linger and could impact demand for chips. The company’s growth forecast beat analysts’ estimates and led the stock to a six-month high in Paris.

Key Points

  • Sales-growth forecast for the third quarter is slightly ahead of analysts’ expectations. JP Morgan and Oddo Securities said in notes earlier this week they’d look for the company beating estimates on a forecast that boosts shares and reassures investors about STMicro’s ability to grow revenue.
  • Revenue was in line with analysts’ estimates and rose 5.6 percent to $1.7 billion in the second quarter, versus the first.
  • Chips used in the automotive industry and so-called internet of things, a term encompassing the idea of connecting machines, helped fuel growth in the second quarter. Sales gained in all regions compared with the first quarter.

The Big Picture

STMicro has failed to generate consistent profit during a decade with Chief Executive Officer Carlo Bozotti at the helm, cutting jobs and restructuring, though his tailoring to new customers including carmakers is starting to pay off. The company is now fighting to keep a tight grip on costs while spending enough to keep up with emerging opportunities from virtual reality and artificial intelligence to the internet of things.

Key Details

  • STMicro forecast sales will grow 5.5 percent in the third quarter from the second --amounting to $1.79 billion -- and gross margin will improve to 35.5 percent. Estimates before the company’s earnings publication were for third-quarter sales of $1.77 billion, or roughly 4 percent growth, and gross margin of 35.2 percent.
  • The company sees macroeconomic uncertainties, especially in Europe, that could impact the economy as well as semiconductor demand in the second half. Brexit is among risk factors cited.
  • In the second quarter, STMicro swung back to a profit of $23 million helped by an improvement of the gross margin to 33.9 percent. Analysts had predicted quarterly profit of $9 million and gross margin of 34.2 percent.
  • Restructuring the set-top box chip business is generating savings. STMicro had said in January it will close the unit and fire or redeploy 2,000 people into new jobs.

Market Reaction

  • The shares rose as much as 9.8 percent to 6.47 euros in Paris and were trading 5.3 percent higher as of 9:52 a.m.

To contact the reporter on this story:
Marie Mawad in Paris at mmawad1@bloomberg.net
To contact the editor responsible for this story:
Nate Lanxon at nlanxon@bloomberg.net

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