CORRECTED-UPDATE 2-Chipmaker STMicro forecasts modest revenue growth

Wed Jul 23, 2014 6:37am EDT

(Corrects 6th para to show European technology index was up 0.5 percent, not down 0.5 percent)

* Companies stepping up spending on chips this year

* Forecast for third quarter disappoints some analysts

* Chipmaker's shares fall 3.9 percent

* Franco-Italian firm posts first profit in 11 quarters

By Leila Abboud and Gwénaëlle Barzic

PARIS, July 23 (Reuters) - European chipmaker STMicroelectronics forecast revenue growth of about 3 percent in the third quarter, disappointing some analysts who expected a bigger lift from strong global demand for semiconductors.

The Franco-Italian company gave the guidance after posting second-quarter revenue and profit that met expectations, driven by sales of chips for cars and industrial products.

It said it was targeting third-quarter revenue growth of 3 percent, compared with the second quarter - plus or minus 3.5 percentage points; and a gross margin of 34.4 percent - plus or minus 2 points.

The revenue growth guidance was more modest than some analysts had expected given many companies are stepping up spending on a wide variety of chips this year, including for smartphones and tablets.

Global spending on semiconductors is expected to rise 6.7 percent this year to $336 billion, according to market researcher Gartner. STMicro's U.S. rival Texas Instruments has also predicted higher third-quarter sales on improved demand.

STMicro shares were down 3.9 percent at 6.69 euros at 0954 GMT, underperforming the European technology index which was up 0.5 percent.

"Despite a strong environment, STM struggles to deliver a good quarter and guides below expectations," said Pierre Ferragu, an analyst at Bernstein Research.

"The same old story seem to apply again: when the company gets positioned to turn around a division, another one gets into competitive troubles," said Ferragu.

He was referring to how stronger sales of chips for set-top boxes expected in the coming quarters contrasted with weaker ones seen for motion-sensor chips that power some high-end smartphones and videogame consoles.

Societe Generale analysts said in a note: "Management's goal of 3 percent seems relatively modest to us given the strength in automotive and industrial products."

RETURN TO PROFIT

STMicro, whose competitors also include Infineon and NXP Semiconductors, has struggled to keep up with rivals in recent years because of its higher cost base and difficulties suffered by mobile phone maker Nokia, once its largest customer.

In an attempt to make up lost ground, it has trimmed its product line, and particularly focused on cars, high-end smartphones and motion sensors, as well as exiting an unprofitable mobile-chip joint venture last year.

STMicroelectronics posted net revenue of $1.86 billion and a gross margin of 34 percent in the second quarter. Analysts had on average expected second-quarter sales of $1.89 billion, according to Thomson Reuters I/B/E/S.

It returned to profit for the first time since the third quarter of 2011 - posting net profit of $38 million, boosted by public funds for nanotechnology research in a programme called Nano2017.

STMicroelectronics shares had risen 19 percent this year ahead of the quarterly results because some investors have been betting on the stock being undervalued as the group recovers from the tough exit from the mobile chip venture.

It has outperformed the European technology index, which is down 0.4 percent over the same period.

Andrea Tuéni, sales trader at Saxo Bank, said the return to profitability was encouraging. "There is some profit-taking going on today ... since the market was expecting good results from STM," said Tuéni. (Additional reporting by Alexandre Boksenbaum-Granier; Editing by James Regan and Pravin Char)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.