With the debts owed to its parents mounting rapidly Peter Clarke ask how long ST and Ericsson will continue to bankroll their wireless chip joint venture.
ST-Ericsson had a breakeven target of the second quarter 2012 but, citing slower expected ramping of volume requirements at some customers, the company has pushed that out and on the call Delfassy gave no indication as to when ST-Ericsson could breakeven except to say "as soon as possible."
Making a loss of $221 million on revenue of $385 million is, for me, a frightening financial statistic roughly akin to being in free-fall. At the end of 2Q10 ST-Ericsson had $43 million in the bank and owed nothing to its parent companies. At the end of 1Q11 ST-Ericsson owed $234 million and at the end of the 2Q11 ST-Ericsson owed its parents $445 million.
On the conference call ST-Ericsson executives did not disagree with an analyst who estimated the company's loss rate as being about the same in the second half of the year as it was in the first half so ST-Ericsson could be close to owing $900 million by the end of the year.
The company has said it will restructure to lose about 500 jobs and cut $120 million of annualized costs by the end of 2012 but it seems this can only slow things down.
Chief financial officer Tim Lucie-Smith agreed there would be "negative cash flow in the coming quarters" and said the company's plan was for the company to be funded by loans from its shareholders. There are no plans to change that, he said. The shareholders are monitoring this on a quarterly basis, Lucie-Smith said.
ST-Ericsson is suffering because Nokia is turning to Windows with Qualcomm, and STE is not yet qualified, ST-Ericsson is suffering because they are well placed in TD-SCDMA in China which is suffering a slow ramp. The company is being squeezed in the middle between mobile chipset suppliers such as Qualcomm and Samsung and the agile fabless chip companies coming out of China and Taiwan
How many quarters of ramping debt will STMicroelectronics and Ericsson tolerate as they themselves come under shareholder pressure?
Related links and articles:
Losses swell, outlook flat at ST-Ericsson
ST-Ericsson restructures, break-even recedes
ST-Ericsson sets out 'NovaThor' roadmap
Losses widen at ST-Ericsson