Nokia’s troubles hit chipmaker STMicro

Nokia’s troubles hit chipmaker STMicro
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Nokia‘s troubles hit chipmaker STMicro

Nokia’s troubles hit chipmaker STMicro
MILAN: STMicroelectronics NV fell the most in more than two years in Paris trading after Chief Executive Officer Carlo Bozotti said there will be a “correction” in sales and gross margin in the third quarter because of difficulties at customer Nokia Oyj.

STMicroelectronics, Europe’s largest semiconductor maker, expects “some glitches at our major wireless customer,” Bozotti said in an interview. Nokia, the Finnish mobile-phone maker that’s ceding market share to Apple Inc, is STMicro’s top client.

The CEO predicted a “significant reduction in the demand outlook from a major customer compared to previous expectations.” The Geneva-based company expects “to absorb this important, negative bubble from our major customer in the third quarter,” he said.

STMicroelectronics has been hit by the performance of Nokia, which is turning to Microsoft Corp for smartphone software as it struggles to keep up the pace with rivals’ products based on Google Inc’s Android.

STMicroelectronics has also been affected by losses at ST-Ericsson, its chip joint venture with Ericsson AB, which has struggled to turn profitable since being formed in 2009. The chipmaker has a market value of 5.27 billion euros ($7.63 billion).

ST-Ericsson

The company is “committed to” ST-Ericsson, Bozotti said in a conference call. He predicted a “significant increase” in revenue at the venture next year and added that the financial performance “must improve.”
“Nokia has had a major impact on the outlook,” said Saverio Papagno, an analyst at AZ Fund Management in
Luxembourg. “Visibility is very low and in this phase it’s difficult to say whether the lower demand will affect only the third quarter or last longer.”

Nokia, the world’s largest maker of mobile phones, on July 21 reported its first quarterly loss since
2009 after handset sales slumped following an accord to shift to Microsoft software. Nokia expects the handset unit to deliver an adjusted operating margin of “slightly above breakeven” in the third quarter.

Global forecast
Exane BNP Paribas downgraded STMicro to “underperform” from “neutral”. Analyst Jerome Ramel cited the “ugly” third-quarter guidance and the “collapse” in the gross margin. Banca Akros cut its recommendation on the shares to “reduce” from “hold,” citing an outlook “projecting revenues quite below expectations.”

ST-Ericsson said July 20 that its second-quarter net loss widened to $221 million from a year earlier as sales fell. ST-Ericsson, whose clients include Nokia and Samsung Electronics Co, expects net sales “to be about flat sequentially,” in the third quarter.

ST-Ericsson last month announced cost cuts aimed at saving $120 million a year and pushed back the date at which it expects to become profitable. The cuts will “affect up to 500 employees worldwide,” the company said.

STMicroelectronics said last night that second-quarter net income rose 18 per cent to $420 million on increased demand for chips used in cars and a settlement payment from Credit Suisse. Net revenue advanced 1.4 per cent to $2.57 billion.

STMicroelectronics said June 9 that it received $356.8 million from Credit Suisse as “full and final” payment to settle outstanding litigation concerning auction-rate securities. The chipmaker projected pretax profit of about $329 million in the second quarter as a result.

Chip sales for the industry will be between flat and 5 per cent higher this year, Bozotti said.

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