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2012-07-11 10:59:26
By Marie Mawad, Cornelius Rahn and Mathieu Rosemain on July 11, 2012
STMicroelectronics NV (STM), Europe s biggest chipmaker, whose shares have
slumped more than 70 percent since Apple Inc. (AAPL) (AAPL) s iPhone triggered
Nokia Oyj (NOK1V) s decline, is betting its future on cars.
Even with plummeting business from struggling customers in the wireless
industry such as Nokia and Research In Motion Ltd. (RIM), Chief Executive
Officer Carlo Bozotti said Asian demand for luxury cars loaded with
semiconductors will boost sales. Every new car produced last year contained at
least 25 automotive chips, with some models carrying more than 100, he said in
an interview.
As Geneva-based STMicroelectronics and Germany s Infineon Technology AG tie
their future more closely to the automotive industry, they are developing
semiconductors and sensors that boost engine power, monitor speed and correct
steering when cars veer off designated lanes. The car-chip market will expand
to more than $33 billion by 2016 from $23 billion last year, with China growing
17.7 percent each year, London-based researcher Strategy Analytics said.
STMicroelectronics is carrying a dead leg, which is the wireless business,
said Lee Simpson, a Jefferies International analyst. If you re a European
semiconductor company and you can supply to the German auto industry directly,
or to other European carmakers, you have a better tie, while the European
handset space is disappearing.
German Cars
In the first quarter, STMicroelectronics had an operating loss of $352 million,
of which $293 million stemmed from chips for mobile phones. In contrast,
operating profit in the cars business was $37 million. The company s top client
in the automotive industry is Germany s Robert Bosch GmbH, the world s largest
automotive supplier, with clients such as Volkswagen AG (VOW), Daimler AG
(DAI), Ford Motor Co. (F) (F) and Toyota Motor Corp. (7203)
The car industry, and especially the German one, is benefiting from appetite
in Asia for high-quality cars, said Bozotti, who has an electronic engineering
degree from the University in Pavia, Italy and took over as CEO in 2005. Car
manufacturers also use more and more electronic components to slash costs and
make cars more intelligent. We benefit twice.
There is plenty of room for growth in the car-chip market because no one yet
dominates it. STMicroelectronics ranked third in the market for automotive
chips with a 9 percent share, compared with 14 percent for market leader
Renesas Electronics Corp. (6723), which is based in Kawasaki, Japan, according
to Strategy Analytics. The researcher predicts the car-chip market in North
America will grow 8.1 percent each year and 6.1 percent in Europe.
Nokia Cuts
Infineon, the second-largest supplier, whose customers include Bayerische
Motoren Werke AG (BMW), last year opened manufacturing and research facilities
in Beijing to address multiple markets, including automotive. Neubiberg,
Germany-based Infineon in May raised its full-year forecast after quarterly
profit topped analyst estimates. It boosted its market share in the
automotive-chip segment by one percentage point to 9.8 percent over the past
year.
STMicroelectronics s sales to Nokia fell 30 percent in 2011 to $1 billion, less
than half the $2.1 billion it sold to the Finnish mobile-phone manufacturer
four years earlier, according to data published in the chipmaker s annual
reports.
Last month, Nokia forecast a wider second-quarter operating loss from handsets
and said it would cut as many as 10,000 jobs as it ceded market share to
iPhones and handsets by Samsung Electronics Co. (005930) Since the iPhone s
introduction in 2007, Nokia shares have fallen 93 percent, while
STMicroelectronoics dropped 72 percent.
Ericsson Venture
STMicroelectronics, which has the French and Italian governments as its main
shareholders, together holding a 27.5 percent stake, dropped 0.5 percent to
3.99 euros as of 9:45 a.m. in Paris. The stock had declined 13 percent this
year through yesterday while Infineon fell 9 percent in Frankfurt. The 49-
member Bloomberg World Semiconductors Index rose about 2 percent.
Other top mobile clients of STMicroelectronics such as BlackBerry maker
Research In Motion and France s Alcatel-Lucent SA (ALU) also posted lower sales
and operating losses for the three months through March. ST-Ericsson,
STMicroelectronics mobile- phone chip venture with Ericsson AB, said in April
it will eliminate 1,700 jobs. The venture hasn t turned profitable since being
formed in 2009.
China Slowdown
Still, the European chipmakers bet on strong Asian demand leading the car
market has risks.
Auto demand in China, the world s largest vehicle market, has slowed with the
economy. More Chinese cities may also restrict vehicle ownership after
Guangzhou this month imposed a quota on new cars to control congestion and
pollution, which Mizuho Financial Group Inc. predicts will threaten sales
growth of carmakers such as General Motors Co. (GM) (GM) and Volkswagen that
depend on growth in Asia to counter declining demand in Europe.
China s automakers association said today that passenger- car deliveries in
June rose 16 percent to 1.28 million units after a 23 percent gain in May.
Figures for both May and June last year were hurt by disruption from the Japan
earthquake. In the first five months, passenger-car sales increased 5.5 percent
to 6.33 million units after growth of 6.1 percent a year earlier.
Bozotti said STMicroelectronics s growth rate of 18 percent at the car division
last year is not sustainable. Instead, revenue from that segment will
increase between 5 percent and 10 percent this year and going forward, he said.
While the global economic slowdown is also affecting STMicroelectronics s
revenue from cars, which declined to $391 million in the first quarter from
$433 a year earlier, Bernd Laux, a Frankfurt-based analyst at Credit Agricole,
said the focus on car semiconductors will pay out in the long term.
There s enduring growth from the car industry because more and more
semiconductors make their way into cars, and that is only going to speed up
with the spread of hybrid and electric cars, he said. That trend, even when
it s tied to demand cycles, will make sure demand will keep going up.
To contact the reporters on this story: Marie Mawad in Paris at
mmawad1@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net;
Mathieu Rosemain in Paris at mrosemain@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at
kwong11@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net
http://www.businessweek.com/news/2012-07-10/
stmicro-inside-volkswagen-is-next-best-thing-for-chipmaker-tech