STMicro hit by falling sales at Nokia

Shares in STMicroelectronics fell more than 10 per cent on Tuesday after Europe’s largest chipmaker by revenues warned of lower sales in the third quarter, due to difficulties at Nokia, one of its biggest customers.

STMicroelectronics Q2 results
SalesNet profitEarnings per shareDividend

The Franco-Italian company said its wireless business, a key supplier of semiconductors used in Nokia phones, saw sales decline by 34 per cent to $347m in the second quarter, as demand for Nokia handsets fell faster than expected.

Losses at the wireless unit widened by 51 per cent to $207m.

Carlo Bozotti, chief executive, said sales at STMicro overall could fall as much as 5 per cent in the third quarter as the wireless chip business, which come mainly from ST Ericsson, its joint venture with the Swedish telecoms equipment company, continued to drag on performance. Analysts had been expecting an uplift of about 4 per cent in what is usually a strong three months for sales.

STMicro shares fell €0.69 to €5.71, their biggest daily fall in a decade.

Mr Bozotti said there had been a “significant reduction in the demand outlook from a major customer”, which had “made the guidance lower than we expected”.

Nokia’s handset shipments declined 34 per cent in the second quarter, and the company was overtaken by Apple in smartphone sales. Nokia is estimated to account for about 30 per cent of ST Ericsson’s sales.

“The poor results at ST Ericsson were not a surprise after the warnings from Nokia and Texas Instruments. But the outlook they gave was dire,” said Adrien Bommelaer, analyst at Matrix Corporate Capital.

Mr Bozotti said the company had cut production at several factories as demand fell. Although no permanent job losses were planned, Mr Bozotti said the company was cutting back on temporary staff.

The troubles at the wireless business mask an otherwise strong quarter for the company, in which sales of chips to car manufacturers, for example, rose 28 per cent. Carmakers use the semiconductors for functions such as transmission and power steering, and demand for more cars in emerging markets such as China is fuelling growth.

Overall sales at STMicro were up 1.3 per cent at $2.57bn, in line with expectations. Stripping out ST Ericsson, growth would have been 17 per cent.

Net income was at $420m, up nearly 18 per cent. The rise reflected a $357m payment from Credit Suisse, the final part of a settlement the bank was in 2009 forced to pay, after it was sued for mishandling STMicro’s investments. Diluted earnings per share were 46 cents.

Mr Bozotti said he remained committed to the ST Ericsson joint venture, and was confident the business would begin to recover by the end of the year.

ST Ericsson has started producing chips that handle high-speed internet connections for smartphones, such as Samsung’s Galaxy S4 Android phone.

Mr Bozotti said the company was making an effort to get the chips into more Android handsets. It has trials with seven of the nine largest handset manufacturers.

“We are keen to go faster,” he said. “There will be some material results in the last quarter and a significant turnaround next year.”

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