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Slowdown Hits Chip Giant

Ray Le Maistre
LR Mobile News Analysis
Ray Le Maistre, Editor-in-Chief
11/28/2008

STMicroelectronics NV (NYSE: STM), which supplies chips to mobile device, set-top box, and PC manufacturers, is the latest firm to feel the impact of the global economic slowdown, warning Friday that its fourth-quarter revenues are going to fall by a greater margin than previously forecast.

The company, one of the largest suppliers of wireless chipsets to handset vendors such as Nokia Corp. (NYSE: NOK) and Samsung Corp. , announced in October that its fourth-quarter revenues were set to be between flat and down by 8 percent, compared with its third-quarter revenues of $2.7 billion, putting the range at between $2.48 billion and $2.7 billion.

It also said at the time that its gross margin was expected to improve sequentially to 38.8 percent (plus or minus one percent).

Now, though, STMicro says it has experienced "a recent slowdown in the billings, recent and substantial changes in customers’ demand and order push-outs for the month of December. This situation reflects the well-known weaknesses in the industry, across most geographies and market segments, and, in particular, in wireless, automotive, and computer peripherals." (See Nokia Cuts Device, Networks Outlook.)

As a result, its fourth-quarter revenues are now set to be between $2.2 billion and $2.35 billion, or down by up to 18.4 percent sequentially. In addition, its gross margin is now expected to be around 38 percent (plus or minus one percent).

STMicro says it will continue to "aggressively implement cost-control initiatives and is progressing in its accelerated effort to capture the cost synergies from the recent creation of ST-NXP Wireless." (See STM's $3B Mobile Chip Biz and 1 + 1 + 1 Does Not Equal 3.)

By early afternoon, STMicro's shares were trading at €5.12, down by more than 6 percent, on the Paris stock exchange.

STMicro is not alone in experiencing a slowdown in chipset demand: Industry giant Intel Corp. (Nasdaq: INTC) announced earlier this month that it expects its fourth-quarter revenues to be significantly below previous expectations.

The chip vendors are by no means the only communications sector companies to be hit by the global economic slump –- see Capex Watch: VimpelCom Cuts Back, Capex Watch: Expect Shrinkage in 2009, Nortel Culls 1,300 Jobs, Loses $3.4B, Hatteras Chops Headcount, Europe Hit With Big Telecom Jobs Cuts, and Slowdown Crunches Sonus for further examples.

— Ray Le Maistre, International News Editor, Light Reading

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