ST trims outlook again

June 15, 2001 Posted: 0533 GMT

PARIS/MILAN, June 14 (Reuters) - French-Italian chip maker STMicroelectronics added to the uncertainty surrounding the semiconductor industry on Thursday when it cut already lacklustre forecasts for second quarter sales and profit margins.

ST, Europe's biggest semiconductor group, forecast second quarter sales would fall to between $1.55 billion and $1.60 billion, which would mark an 18 percent decrease from the first quarter and a 16 percent fall from the same 2000 period.

Two months ago the company -- whose shares fell as much as nine percent in early trade on anticipation of a profit warning -- was forecasting second quarter sales of $1.65 to $1.8 billion.

ST attributed the lower forecasts to the demand-led downturn that has been hitting chip makers globally since late last year.

ST predicted gross profit margins would slip to about 38 percent, down from its previous forecast of 40-42 percent and the lowest seen in more than two years.

CEO Pasquale Pistorio told a conference call that last minute order postponements had triggered the revision.

"We are not talking about cancellations but orders that have been pushed back into the third quarter," Pistorio said, adding that ST was still confident it gained market share this quarter.

Coming on the heels of a profit warning from its biggest client, mobile phone giant Nokia, ST's revised outlook was not a complete surprise to analysts, but still saw ST shares close down 4.23 percent at 38.52 euros.

The new forecast brings ST -- which normally outperforms the broader chip market -- closer to bearish forecasts for a 16 to 18 percent fall in global chip market sales this year.

"This raises the question of whether ST will be able to keep gaining market share on its rivals. A gross margin of 38 percent is really at the low end of what we normally see at the bottom of a down cycle," said an analyst at a Paris brokerage.

"This also shows that orders have failed to come in and relieve high inventory. That pushes back when we can expect to see a recovery. It's unlikely to be before mid-2002, and we can't expect ST's margins to be back at 45 percent before the end of next year," he said.

Pistorio said that price pressure in many of ST's markets was accelerating and said that second-quarter turnover in sales of flash memory chips, while above year-ago levels, would likely show a double-digit decrease from the previous quarter.

Overall, sales of chips for the telecoms industry, for computer peripherals and for smart card devices, were declining year-on-year and sequentially, ST said.

The company also noted that some of the pressure on margins was due to lower-than-expected capacity utilisation rates at its six-inch semiconductor wafer plants.

The company has historically fared better than its bigger rivals during market downturns due to its wide product mix and it was sheltered from the recent slump in the personal computer market as it only sells chips for PC peripherals, like printers.

However, industry watchers are now forecasting the PC market will recover before other chip markets like telecoms, where ST has a strong presence with flash memory chips for cellphones.

Last month ST cut back its planned capital expenditure budget for this year to $1.5 billion from the $1.9 billion previously planned, again blaming the sluggish market.

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