Following steady deterioration in its financials, STMicroelectronics is making big changes, including a corporate reorganization, and the cessation of development on new products for set-top boxes.
The latter action triggered a global workforce review that will include reassignments for 600 employees in the set-top operation and a general layoff of as many as 1,400.
STMicroelectronics NV (NYSE: STM) has been vowing to figure out what its options were for the underperforming set-top business since at least the second quarter. The company finally decided it will "discontinue the development of new platforms and standard products for set-top-box and home gateway. The slower than expected market adoption of leading-edge products and increasing competition on low-end boxes, combined with the required high level of R&D investment, has led this business to generate significant losses in the course of the last years."
Consequently, the company will redeploy about 600 employees currently associated with the set-top-box business to its digital automotive and microcontroller operations.
Broadcom Corp. (Nasdaq: BRCM) and STMicro have been dominating the market for chips for set-tops, with the former claiming nearly two thirds of the market and the latter taking nearly a third, leaving scraps for everyone else.
STMicro's portfolio of set-top products includes processors, tuners, demodulators, DOCSIS broadband circuitry and MoCA solutions. Customers include Bharti Airtel Ltd. (Mumbai: BHARTIARTL) in India.
The market for set-tops has been getting more and more difficult for everyone, however, naturally putting pressure on suppliers too.
The STB market seems to be bifurcating now into almost two separate markets -- one for low-cost, no-frills boxes and dongles in low-income areas of the world and the other for pricey, advanced models in the wealthier regions, observes Alan Breznick, contributing analyst with Heavy Reading.
"Plus, in the US and elsewhere, media streaming boxes are increasingly replacing pay-TV set-tops in the home with cord-cutting and the like. So there are fewer households with your typical basic digital STBs these days," Breznick said.
Overall, the STB market is shrinking in the well-developed western nations and booming in the lesser developed areas of the world, like China, India and Brazil.
"So Iím not surprised that the total number of shipments went down last year for the first time since 2002," Breznick said. IHS reported this contraction in the second quarter of this year.
As a result, the chip makers have more types of STB devices to cover and canít achieve the same volumes and economies of scale. Plus, their profit margins are undoubtedly lower on the low-cost boxes and dongles, Breznick said.
Broadcom is the most obvious and most likely beneficiary of STMicro's withdrawal from the space, but no market likes to be so heavily dependent on a single supplier. STMicro's gradual withdrawal could also have other outcomes, including one of the also-ran suppliers getting more business.
Breznick noted that Intel Corp. (Nasdaq: INTC) has been "pretty aggressive in the space."
Another possibility is some other chip company deciding to buy the STMicro unit. The likelihood of that might depend on who in the STB chip unit is being reassigned. If the remnants of the employee base in the unit are the ones with the greatest STB expertise, the unit could be an attractive buy; if it's a caretaker crew, perhaps not so much.
Meanwhile, STMicro will reorganize into three business units (down from seven) all reporting to CEO Carlo Bozotti. The Automotive & Discrete Group will focus on smart cars specifically and the Internet of Things (IoT) in general. The other two divisions will be the Microcontrollers & Digital ICs group, and an Analog & MEMS group.
Carmelo Papa, previously the head of STMicro's Industrial & Power Group, is retiring. Also, COO Jean-Marc Chery is now in charge of the company's technology and manufacturing organization.
STMicro's Q4 net revenue was down both year-over-year and sequentially. Income -- both operating income and net -- plunged. Margins are gradually eroding. The company is spending more on R&D.
— Brian Santo, Senior Editor, Components, T&M, Light Reading