STMicroelectronics CEO: Chip Market Will Lead PC, Networking Recovery

GENEVA - Expressing confidence in the semiconductor market's gradual return to growth, STMicroelectronics President and CEO Pasquale Pistorio said ST is "well positioned to grow faster" than the 23 percent clip for 2004 he predicted earlier.

STMicroelectronics reported Thursday (Jan. 29) that its 2003 fourth-quarter net revenues jumped 17 percent sequentially to $2.1 billion. ST's strong quarter, said Pistorio, "demonstrates our capacity to grow faster than the markets we serve."

ST's profitability, however, did not keep pace with revenue growth, as gross margins ws 36 percent - a marginal improvement over the 35.1 percent posted in the third quarter. Pistorio called this "disappointing," assigning most of the blame to the continuing decline of the U.S. dollar. He also cited ST's product group mix shifting towards lower-margin devices along with competitive pricing pressure.

Pistorio called a 35-percent gross margin "the bottom." He said the company expects to progressively improve throughout the year, with gross margins reaching 40 percent in the fourth quarter of 2004 - and possibly sooner. ST expects to accomplish this by restructuring the company's 6-inch fabs, migration of products to 0.13 micron or below process technology and an emphasize on new products, Pistorio said.

ST is already transferring "60 percent of 6-inch production from European and U.S. sites to either 8-inch or Singapore 6-inch fabs," he added.While no increase in wafer fabrication is expected at the Crolles 1 fab in France, some growth is expected at the 8-inch wafer fab at Crolles 2, according to Alain Dutheil, ST's corporate vice president. He predicted that ST's wafer fab capacity both in Singapore and Rousset, France, will double in 2004. Pistorio stressed that ST's investment is focused on increasing "the quality of capacity."

ST continues to focus on five segments: communications, digital consumer, automotive, industrial/smart cards and computer peripherals. "There will be no changes in our strategy since 1987," Pistorio said. In fact, he added, on a sequential basis, all major product groups posted double-digit revenue increases.

Pistorio said he is convinced ST's strategy is sound since all its best product segments are indispensable for building system-on-chips using converging IP and technologies. Pistorio said, "You must master mobility, security, connectivity, storage and multimedia" in designing complex converging systems such as camera phones, digital consumer and automotive products, he said. "Very few companies have such a broad segment of product portfolio," said Philippe Geyres, corporate vice president and general manager responsible for ST's consumer and microcontroller groups.

ST is also broadening its customer base. Forty-three percent of its 2003 sales came from strategic partners like Nokia, Alcatel, Pioneer, Thomson, Seagate, Bosch and Hewlett-Packard. ST's top 30 customers contributed about 63 percent of ST's total sales in 2003. In its efforts to broaden the company's reach, Pistorio said, "high performance analog products, originally developed for our top customers, are now available to a broader customer base."

Jean-Philippe Dauvin, ST's group vice president and chief economist, said the pace of the chip recovery is quickening, driven by the recovery of the U.S. economy. The jobless U.S. recovery has been driven by expansion of fixed investment, which means "the increase of IT spending," he explained.That has led to a market recovery in PC sales, while the recovery of the networking market is expected around mid-2004, he predicted. The recovery of consumer products already started two years ago, he added.

"In 2003, we already saw the beginning of renewal in the wireless business," said Pistorio. This year "will be 'wireless and plus,' while 2005 will see the wireless infrastructure and wireline business coming back."