30 JANUARY 2002

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ST forecasts weaker Q1 after Q4 steadies

Europe's largest chip maker STMicroelectronics reported brisker sales in the fourth quarter, following three dismal quarters, but predicted another dip in business before it clears the industry's worst ever slowdown.

A pick-up in revenues and operating profit versus the third quarter implied ST may have seen the worst of the over-capacity plaguing the chip industry, but the group said its gross margin would not bottom out until the first quarter of 2002.

CEO Pasquale Pistorio forecast first-quarter revenues would decline between three and seven percent due to a seasonal effect and pressure on prices, and said gross margin should slip to around 31 percent before improving thereafter as demand grows.

Franco-Italian ST posted quarterly sales of $1.448 billion, 33.9 percent below year ago levels but above analyst forecasts.

Full-year revenues declined 19 percent to $6.357 billion - meaning ST maintained its track record of outperforming the wider semiconductor industry, where revenues slid 32 percent last year. ST said the markets it serves -- which excludes the PC DRAM memory market - shrank by 26 percent in 2001.

Gross profit, which is closely watched by analysts, edged down slightly in the fourth quarter, however, and ST's gross margin slipped to 31.7 percent from 33, hurt by low utilisation rates as ST cut output to reduce inventory overhang.

While earnings were only a tenth of year-ago levels, they showed a sequential rise as cost controls took effect. Operating profit climbed to $70.6 million from $48.2 million in the third quarter, and net profit to $45.0 million versus $35.8 million.

Diluted earnings per share inched up to $0.05 from $0.04 in the third quarter.

The figures were not far off average expectations for sales of $1.404 billion, EPS of $0.05 and a gross margin of 32.8 percent, according to a Reuters poll of 12 analysts.

Industry watchers - who will have to wait until a Paris news conference early on Wednesday to glean further comments from ST on its 2002 outlook, are on tenterhooks for concrete signs of an industry recovery from a year-long slump.

Earlier yesterday, the chief executive of Germany's Infineon said he saw signs of a pick-up in demand for chips, helping ST shares claw back a three percent loss on Monday after more negative comments from the group.

The world's biggest chip maker, Intel, posted fourth-quarter results last week that also exceeded analyst forecasts, but said it saw no signs yet of a recovery and cut its planned spending for 2002 by 25 percent.

ST shares - which are valued well over sector peers - closed down $1.19 at $29.52 in New York as tech stocks were rattled by concerns over earnings, after ending up 1.83 percent at 34.03 euros in Paris, lifted by Infineon's upbeat remarks.

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt