January 24, 2012 7:33 am

ST-Ericsson suffers Nokia setback

ST-Ericsson, which makes microchips used in mobile phones, warned of a “significant sequential decline” in sales in the first quarter of 2012, as sales decline at Nokia, one of its biggest customers.

The company, a joint venture between Sweden’s Ericsson, and STMicroelectronics, the Franco-Italian chipmaker, saw sales decline 28 per cent to $1.65bn in 2011 and its losses widen to $841m.

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“From a financial perspective, it is clear that both sales and operating results will continue to be challenging over the coming quarters, due to the reduction in the short term of new product sales with one of our largest customers,” said Didier Lamouche, chief executive.

Although Mr Lamouche did not specifically name Nokia, it is well-known that ST-Ericsson is a key supplier of chips for older Nokia mobile phones, which have rapidly fallen out of favour in the past year as customers have moved to Apple’s iPhone and handsets using Google’s Android operating system.

Nokia is thought to account for around 30 per cent of ST-Ericsson’s sales.

Carlo Bozotti, chief executive of ST Microelectronics said: “The revenues of Nokia have collapsed and this is why the revenues of ST Ericsson are not what we expected.”

Sales of Nokia’s Symbian smartphone are believed to have declined more than 36 per cent, after the company announced it was moving to phones using Microsoft’s Windows operating system.

Nokia has lost market share and was overtaken by Samsung as the world’s largest handset maker by sales last autumn.

The Finnish mobile maker, which reports annual results on Thursday, is expected to show a fourth quarter loss and a 21 per cent decline in sales.

STMicroelectronics said ST-Ericsson would conduct a strategic review and could take “additional action” to help it reach profitability. This could involve taking an impairment charge on the value of the holding in ST-Ericsson.

The company has shed thousands of jobs over the past few years in an effort to bring its cost base down.

Mr Bozotti said last year he expected the business to begin recovering by the end of 2011 but the deadline has once again been pushed back.

The poor results at ST-Ericsson offset strong results for STMicro’s other business units. The MEMS unit, which makes tiny gyroscopes used in Apple iPhones and in games controllers, saw sales nearly double to $600m. The sale of chips for car manufacturers was up 18 per cent.

However, the struggling wireless business dragged down annual sales 5.9 per cent to $9.73bn, while net income fell from $830m to $650m in 2011.

“Based on current visibility, we believe bookings have bottomed. Looking into the first quarter, we expect billings to bottom,” said Mr Bozotti.

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