STMicro predicts sales drop amid Bozotti's bid

STMicroelectronics NV, Europe's largest semiconductor maker, forecast first-quarter revenue will decline further as the company seeks to focus on chips for industries such as automotive and power management.

Sales will fall about 5 percent from the previous period, the Geneva-based company said today. That indicates three-month revenue totaling $1.74 billion. Analysts on average predicted $1.75 billion. The gross margin will be about 33.2 percent of sales, in line with estimates.

Fourth-quarter revenue dropped 9.2 percent from a year earlier to $1.83 billion. Chief Executive Officer Carlo Bozotti is seeking to boost earnings and reverse a three-year sales slump by focusing on more lucrative chips used in power-management products, videogame consoles, sensors for the automotive industry and wearable electronics. The company has also cut costs and ended an unprofitable mobile-phone chip venture with Ericsson AB in 2013.

The forecasts "reflect no one-time licensing revenue compared to the fourth quarter, ST's high exposure to New Year holidays in Asia as well as its shorter accounting calendar for the first quarter," STMicro said. Full-year sales are projected to rise, and the manufacturer will improve its cost structure, the company said. The chipmaker "will accelerate efforts to raise 2015 sales," Bozotti said on a conference call with analysts.

STMicro fell as much as 3.4 percent, the steepest intraday decline since Dec. 15, and was trading down 2.8 percent at 7.15 euros as of 12:49 p.m. in Paris. That pared the stock's gain in the past 12 months to 23 percent.

The forecast and fourth-quarter results signal that the euro's decline may not help STMicro as much as investors had expected, Janardan Menon, an analyst at Liberum Capital Ltd. in London, said in an interview. In the first quarter of 2014, STMicro reported sales of $1.83 billion. Fourth-quarter net income was $43 million, compared with a net loss of $36 million a year earlier.

"STMicro will take a few quarters to see the benefit of currency change" as foreign-exchange hedging contracts mature, Chief Financial Officer Carlo Ferro said on the call.

STMicro is among semiconductor makers seeking sales growth beyond the personal-computer and mobiledevice markets. This week, Dallasbased Texas Instruments Inc. forecast first-quarter revenue that may exceed analysts' estimates as demand for chips used in cars and industrial equipment systems fueled a return to revenue gains last year.

The European manufacturer has stepped back from a target of a 10 percent operating profit as a proportion of sales by mid-2015, instead projecting it will reach that goal "in the mid-term." That compares with a full-year margin of 3.5 percent in 2014. While cost cuts will improve profit in coming months, market trends in the fourth quarter and a potential continuation in softening demand will determine whether the chipmaker reaches the mid-term target, Bozotti said in November.