ST isn't ready yet to break into two separate companies, but it can't continue with business as usual. Start with getting rid of ST-Ericsson.
That's where the advantages of ST's multi-product offerings end and the challenges begin. If your sales are seesawing the way ST's have been, then there's a fundamental problem with the corporate structure and it's time the company's management finally acknowledge this and take steps to correct whatever ails the enterprise. Analysts predict ST's 2012 revenue will be approximately $8.44 billion, down more than 12 percent from the $9.63 billion it reported in 2011 when sales fell 6 percent from $10.3 billion. Current projections for 2013 aren't that impressive, either, with estimates ranging from as high as $9.75 billion (unrealistic) to as low as $8.7 billion (possible).
The swings in sales performance and margin-related pressures resulted in Standard & Poor's Ratings Agency putting ST on negative watch in August. ST, the research firm said, "is likely to report significantly lower revenues, operating margins, and free cash flows in 2012 than we previously expected, following a weakening of operating results that started in the second half of 2011."
Nothing that has happened since August has dramatically and positively changed ST's profile. The company's digital semiconductor business remains fragile due to problems at Nokia and persistent weak demand in Europe as a result of the region's economic challenges. While ST's analog, MEMs, microcontroller and discrete business have performed satisfactorily, this hasn't been sufficient to stem the losses. ST will likely end 2012 with negative operating margin (estimated by S&P's at about 9 percent) and a net loss for the entire year.
So what should ST be doing to spark growth? The idea of breaking the company into analog and digital businesses is tempting but it will only accelerate the ruin of the weaker digital business. However, ST cannot maintain its structural integrity without making some hard decisions about which markets it continue to compete in. I will address the question above in another report. For now, I believe it's time for ST to say goodbye to ST-Ericsson. Holding on to the business makes no sense notwithstanding the huge investments ST and Ericsson have put in it. The business should go on the block.
ST then might see clearly to address its second major problem: the convoluted ownership structure that puts the French and Italian governments in key positions to call the shots about its future.
Bojaji Ojo is editor in chief of EBN, an EE Times sister site.