STMicroelectronics N.V. became a top five semiconductor company by focusing narrowly on a core group of 30 customers, most of them among the industry's largest. But the company quietly ditched that policy recently when president and chief executive Pasquale Pistorio, determined to move the Geneva company out of what he termed the "zone of instability," told his managers that ST would start servicing hundreds and possibly thousands of new customers.
It's not that ST has suddenly become enamored of the mass market. Pistorio insisted in an interview with EBN last week at the company's New York office that ST will not become a purveyor of commodity components.
But the emergence of new markets and players (notably in the Far East), the declining revenue base among many big OEMs, and ST's desire to rise above the chip industry's consolidation are forcing the company to cast a wider net. "The seven to 10 IDMs [integrated device manufacturers] that would remain as the industry consolidates would each have an IC market share above 5%--some, like Intel, would be above 10%--and then there are the companies
in the 0.5% to 5% range," Pistorio said. "These [latter companies] are the ones in the instability zone. Today, many of us are in that zone. [But] once you pass 5%, you enter the zone of stability; . . . you have the dimension of scale to compete in any chosen area."
It should not take too much for the company to step into that zone. Analysts estimate its share of the semiconductor market this year at 4.5%, and ST hopes to clear the 5% hurdle by 2007. That will require tapping new customers, Pistorio said.
In pursuit of that objective, the company has been adding engineers, other technical experts, and broadening its sales and marketing teams. In October and earlier this year, the company met in France, Italy, and the United Kingdom with groups of 300 midsize potential customers drawn from all over Europe.
The meetings, dubbed "Two Wings to Fly," presented attendees with ST's new product portfolio and outlined details of its plan to win their business. These companies and others in their category manufacture products like industrial automation and air-conditioning systems, point-of-sale terminals, and alarm systems, and constitute 40% of the IC market, according to a spokesperson for ST.
"These companies don't have a lot of resources but they want ready-to-use products," the spokesperson said. "Our product portfolio is so diverse that we can service most of them with standard or application-specific parts."
To serve this group of customers, many of which the company hopes to attract through distribution, ST has been hiring technical employees it calls market interface experts for its five business groups. It has also overhauled its Web- site to be more user friendly for customers searching for applications.
The company recently launched its Partner Portal, a secure Website where customers can exchange information and which offers visibility on product delivery dates. ST expects to increase its spending on these e-tools, according to Pistorio.
"We are improving dramatically our e-tools in order to have interactive consultation," Pistorio said. "If you want to reach a broader customer base, you need thousands of engineers; you can't do it alone through salespeople. That's why we are adding coverage in applications and e-tools, and are fine-tuning the portfolio to expand the number of products that are multisocket."
The company defines its multisocket applications as standardized products that can be easily adapted for customers in any of its five business groups: consumer and microprocessor; memory products; discrete and standard ICs; telecommunications and peripherals; and new ventures.
Pistorio said ST's goal is to raise its market share in the entire IC industry to 5% by 2007, a sort of a 20th anniversary gift to itself. And at least one analyst believes this objective is within reach. Filippo Faccenda, in the Milan, Italy, office of Banca Leonardo S.p.A., said that ST can secure a 4.8% IC market share by 2005.
"The increase in market share will be obtained thanks to ST's large product portfolio, which makes the company less volatile and more oriented toward application convergence," Faccenda said.
By the end of 2005, the company will likely have a new chief executive. Pistorio, now 67, insists that he will step down when his contract expires in the spring of that year. If he has his way, his successor will preside over a vastly altered company from the one Pistorio now steers.
Though largely unannounced, some of the changes being implemented by Pistorio will deeply impact the evolution of the company. To execute its customer diversification plan, ST is considering the creation of two strata: the first consisting of top-tier manufacturers, which contributed 65% to the company's 2002 revenue of $6.3 billion; and the second made up of small to midsize businesses.
"We have been extremely successful in building our growth with strategic partners, our Top 30 customers. [And] we are very proud that we have served those customers so well that they have trusted us with so much of their purchasing power," Pistorio said. "We intend to continue to serve them with the same dedication, but now it is time to leverage the knowledge we have and broaden the customer base.
"With the same portfolio you can serve many other customers with a modest incremental investment in technical marketing and some improvement in the products."