STMicroelectronics NV reported a smaller loss for the September quarter on a sharp reduction in impairment and restructuring charges but the chipmaker is still facing headwinds in several of its markets in addition to industrywide inventory correction and softer demand across the semiconductor market.
In response, ST said it will continue to focus on growth initiatives and new product introduction programs as well as opportunities in stronger market segments. The company will also be intensifying its ongoing cost-reduction activities, including curtailing operating expenses and tightly managing manufacturing costs.
Despite these actions, president and CEO Carlo Bozotti said ST may not achieve its approximately 10 percent operating margin target until 2015. The news led to a drop in the company’s market valuation with shares dropping more than 7 percent during trading on Wednesday.
“Our initiatives to reduce costs, such as achieving our net operating expenses target, and improving our manufacturing, are on track,” Bozotti said, in a statement. “However, the timing for us to achieve our operating margin target will depend greatly on our level of revenues. Based on current visibility including market conditions, reaching this operating margin target is now expected in mid-2015, about six months later than originally expected.”
Geneva, Switzerland-based ST said its net loss fell to $142 million, or 16 cents per share, on a Generally Accepted Accounting Principles (GAAP) basis in the three months ended Sept. 28, compared with net loss of $478 million, or 54 cents per share, in the year-ago quarter. In the September 2102 quarter ST reported a charge of $713 million for impairment and restructuring but this fell to $120 million in the recently ended quarter. Revenue for the September quarter fell to $2 billion, slightly below analysts’ consensus estimate and down 5 percent, from $2.2 billion in the year-ago period.
The weaker financial performance was not a surprise. Changes in some of ST’s markets continue to impact the company financially. The biggest revenue decline during the September quarter occurred in the wireless unit with sales for the segment falling to $135 million from $176 in the immediately preceding quarter and $359 million in the year-ago quarter.
Other segments of ST’s business helped make up the shortfall from the wireless division. Sales of microcontrollers, memory and security components rose to $360 million from $296 million and the imaging, BICMOS, ASIC and silicon photonics unit surged 69 percent to $144 million from $85 million in September 2012. Other divisions delivered what Bozotti described as “mixed” performance with sales in the analog & MEMS unit rising slightly to $329 million from $324 million while the automotive business recorded sales of $418 million from $391 million.
“Our financial performance during the third quarter was mixed,” Bozotti said. “On one hand, we saw overall year-over-year revenue improvement of 3.9 percent across our business outside of the wireless product line. We believe this exceeds the year-over-year revenue performance of our served market. On the other hand, this growth was milder than expected due to a muted order pattern during the quarter driven by softness in high-end smartphones in Asia and the mass market in Asia, including the cable set-top box market in certain countries.”
ST forecasts fourth quarter sales will likely be unchanged from the September quarter.