STMicro to scale back chip-making as Chinese demand weakens

PARIS • STMicroelectronics plans to scale back chip manufacturing as demand weakens in China, putting pressure on chief executive officer Carlo Bozotti to consider a strategic change at Europe's biggest semiconductor supplier.

Fourth-quarter sales will fall about 6 per cent from the previous three-month period, the Geneva-based company said yesterday. That is equivalent to about US$1.66 billion (S$2.31 billion), compared with analysts' projection for US$1.83 billion on average.

Europe's largest semiconductor maker reported third-quarter net revenue of US$1.76 billion, a decline of 6.5 per cent from the year-ago quarter. The company reported an improved third-quarter gross margin of 34.8 per cent, but shy of the 35 per cent consensus which analysts were expecting.

The firm blamed a progressive deterioration in market conditions during the third quarter stemming from lower consumer spending in China spilling over to affect overall electronics demand in Asia and globally, particularly in the automotive segment.

"The softer market demand during the third quarter has led us to adjust down our manufacturing plan for the fourth quarter," Mr Bozotti said in a statement.

The company did not give details of its reduced manufacturing plan for the current quarter.

Mr Bozotti, into his 11th year running the company, has yet to deliver a promise to turn around STMicro's digital unit, which makes chips used in set-top boxes and smartphone sensors.

At the same time, STMicro's government shareholders in France and Italy are pushing for a dividend cut to allow the company to invest more in research and development, people familiar with the matter said this week.

Now, the CEO is also having to cope with slowing consumer spending in China, which is "impacting the dynamics of the distribution channel in the region and the industry more globally", he said in the release. China stepped up monetary easing last week with its sixth interest rate cut in a year to combat deflationary pressures.

Compared to the same period last year, STMicro reported falling quarterly sales in all of its product segments except micro-controllers.

Investors would be seeking clarity on the STMicro's merger- and-acquisition strategy.

The company has conducted internal analysis on a possible bid for Fairchild Semiconductor International, a San Jose, California-based supplier of semiconductors used to regulate power in electronics, chips for cars and electronic signal converters, other people familiar with the matter said this week.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on October 30, 2015, with the headline 'STMicro to scale back chip-making as Chinese demand weakens'. Print Edition | Subscribe