STMicro sees boost from orders, ST-Ericsson

NEW YORK Wed May 23, 2012 7:09pm EDT

NEW YORK May 23 (Reuters) - The top executive of chip maker STMicroelectronics NV sees profit and revenue improvements in coming quarters as orders are increasing and joint venture ST-Ericsson is set to halve its quarterly loss by the fourth quarter.

In late April ST-Ericsson, the 50-50 wireless chip venture of STMicroelectronics and Ericsson, announced a strategy revamp aimed at cutting costs and improving revenue.

As a result STMicroelectronics Chief Executive Carlo Bozotti said on Wednesday that he now sees the revamp cutting ST-Ericsson's loss to about $140 million in the fourth quarter from about $280 million in the first quarter, improving STMicro's bottom line by about $70 million in the fourth quarter.

STMicroelectronics posted a GAAP net loss of $176 million in their last quarterly report for the first quarter.

"The improvement this year will be very significant," Bozotti told Reuters in an interview after the company's investor day in New York. "It's very urgent for us to make sure this business does not sink any cash. It needs to be self-sustaining from a cash perspective very rapidly."

ST-Ericsson represented 16 percent of STMicroelectronics revenue in 2011, the company said.

On top of improvements at ST-Ericsson, Bozotti said STMicroelectronics itself was seeing strong orders for its own chips that are used in products ranging from cellphones to cars.

"There is a trend for improvements in bookings that is very much across the board," said Bozotti, who is sticking with the company's target for a second-quarter revenue increase in the range of 7 to 8 percent compared with the first quarter's revenue of $2.02 billion.

The executive said that while it was too soon to give firm guidance for the third quarter, general industry trends and a snapshot the company's current order backlog suggest that another 12 to 13 percent revenue increase could be possible for the third quarter compared with the second quarter.

But he said "we need to have a prudent approach" as trends could change before STMicroelectronics provides its official third-quarter guidance in mid-July.

One bright spot for the wireless venture ST-Ericsson could come at the expense of bigger rival Qualcomm Inc, which is suffering from shortages of its most cutting edge chips for Long Term Evolution (LTE) a high-speed wireless technology.

Qualcomm, the cellphone chip market leader, has said that the shortage will not be fully resolved until 2013 because its contract manufacturer does not have enough 28 nanometer manufacturing capacity to meet demand.

As a result, ST-Ericsson CEO Didier Lamouche said he expects to pick up some new customers once his company starts producing its competing LTE chip in the fourth quarter of this year.

Even if Qualcomm quickly ramps up its production, "the customers will not put their eggs in the one basket anymore," Lamouche told Reuters. "It's a chance for us."

Lamouche said that a few phone makers were already designing the ST-Ericsson LTE chip into their phones, but declined to name them. The first phones with these chips will likely come on the market in first quarter, he said.

However, Lamouche conceded he is also losing out on sales for the LTE chip because ST-Ericsson's product launch was delayed by about six months as the development work took longer than it expected.

"If I had a product today I would have taken significant market share," Lamouche said.

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