UPDATE 3-ST-Ericsson Q2 loss widens, sees market normalising

* Q2 operating loss widens to $165 mln vs year-ago $69 mln

* Says Q3 likely to confirm more normal market trend

* Says business environment remains uncertain in medium term

(Adds CEO, analyst comment)

By Niklas Pollard and Helena Soderpalm

STOCKHOLM, July 23 (Reuters) - Cellphones chipmaker ST-Ericsson (STM.PA) (ERICb.ST) reported a wider second-quarter loss on Thursday but said markets were stabilising as destocking in the industry was largely over.

The joint venture of Sweden's Ericsson and Franco-Italian chipmaker STMicroelectronics posted an adjusted operating loss of $165 million in April through June, its first full quarter of operation, down from a pro-forma loss of $69 million a year ago.

"More than six months into the year we can now feel more confident in stating that our market truly hit the bottom in the first quarter," ST-Ericsson Chief Executive Alain Dutheil told a news conference.

ST-Ericsson, the second-biggest maker of wireless chips after Qualcomm (QCOM.O) and just ahead of Texas Instruments TXN.N, said sales were $666 million, down from pro-forma revenue of $966 million a year ago but higher than the $562 million generated in the first quarter.

UBS said in a research note that sales at the joint venture were stronger than expected in the period.

"Despite this we are only seeing a marginal ($16m) improvement in operating profit quarter-on-quarter versus a $104 mln improvement in revenues... In comparison, Infineon and Texas Instruments' wireless businesses were both profitable," the investment bank said.

The company, which started operations in February, said sales in the quarter had still outperformed the usual seasonal pattern as destocking tapered off and demand picked up in China.

"While more normal seasonal market trends are likely to be confirmed in the next quarter, primarily driven by Asia, including China, the business environment remains uncertain in the medium term," it said in a statement.

POSITIVE SIGNS

The economic downturn has hit demand for chips this year and cellphone makers such as Sony Ericsson, another joint venture of Ericsson's, have forecast hefty contractions for the global handset market in 2009. [ID:nLG355102]

Dutheil said ST-Ericsson expected the global handset market to contract between 10 and 12 percent this year.

On Wednesday Qualcomm posted a small drop in fiscal third-quarter profit and issued a revenue target for the current three-month period that was below Wall Street expectations. [ID:nN22316736]

But some positive signs have emerged in recent weeks, with top phone maker Nokia (NOK1V.HE) posting better than expected second-quarter unit sales and forecasting flat or slightly higher industry sales in the third quarter. [ID:nN16441196]

ST-Ericsson supplies the world's biggest handset makers except Motorola MOT.N. Customers include Nokia, Samsung (005930.KS), Sony Ericsson and LG Electronics (066570.KS).

Earlier this week Texas Instruments posted a stronger than expected quarterly profit and outlook, but said demand remained low and that it needed to be prepared for little or no growth in the coming months. [ID:nB86748]

ST-Ericsson, whose manufacturing is done by STMicroelectronics and companies such as Taiwan Semiconductor Manufacturing Co (2330.TW) (TSM.N), said its restructuring programmes were proceeding as planned.

The venture's second-quarter operating loss was stripped of $35 million in restructuring charges and $24 million in amortisation of acquisition-related intangible assets, but included about $20 million of one-off costs stemming from the start-up of the venture.

Ericsson is scheduled to issue its second-quarter results on Friday while STMicroelectronics' report is due on July 28. (Additional reporting by Georgina Prodhan in London; Editing by Mike Nesbit, Greg Mahlich)