Last updated: January 25, 2011 5:12 pm

STMicro benefits from recovery in chip sector

ST Microelectronics capped 2010 with a solid set of fourth-quarter results as Europe’s largest semiconductor company continued to benefit from a strong recovery in the chip sector and a recent restructuring.

However, STMicro’s shares fell on news that losses its ST-Ericsson wireless joint venture had widened. STMicro also warned that group sales in the first three months of this year, traditionally the weakest and slowest of the chip cycle, would be lower sequentially by about 7 to 12 per cent.

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The Franco-Italian group was hit hard by the downturn but has streamlined its business, spinning off loss-making ventures and merging its wireless business into a joint venture with Ericsson.

“In the last eight quarters, ST went through the most severe economic recession in 2009 and successfully capitalised on the 2010 market recovery. Throughout this time frame we remained focused on our growth and profitability objectives,” said Carlo Bozotti, president and chief executive.

STMicro – whose chips are used in cars, computers and a range of consumer electronic devices – swung to a fourth-quarter net profit of $219m or $0.24 per share, compared with a loss of $70m the year before, on sales up 6.6 per cent at $2.8bn. Profits were at the top end of STMicro’s range and ahead of consensus forecasts by analysts.

For the full year, net profits rose to $830m or $0.92 per diluted share, compared to a net loss of $1.1bn or $1.29 per share in 2009, on sales up 21.6 per cent to $10.3bn.

“The ST-Ericsson results were worse than I expected, but the core business is going from strength to strength,” said Didier Scemama, technology analyst at RBS. “STMicro is positioned in the right segments for strong growth and they have unique products which will give them a lead in the market.”

Mr Bozotti said the group’s turnround was now complete and he expected to see continued improvement, including from ST-Ericsson, by the second half of the year.

He said that while the chipmaker’s growth was expected to be “more moderate” in 2011, the group expected “to deliver above-market revenue growth accompanied by further year-over-year improvements in quarterly operating profitability”.

Earlier this month, bigger US rival Intel reported strong fourth-quarter earnings and said sales have been buoyed by strong demand for its chips in servers in data centres. However, the group, which dominates the personal computer market, is yet to gain a significant share of the fast-growing market for chips for smartphones and tablet computers such as the iPad.

Texas Instruments, which reported on Monday, said it was benefiting from high demand for its chips in iPhones and tablets.

Shares in STMicro, which have risen more than 40 per cent over the past year, closed down 3 per cent in Paris at €8.30.

Additional reporting by Jennifer Thompson in Paris

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