GENEVA Amid lackluster results in Q4 and a gloomy outlook for Q1 STMicroelectronics Inc. on Wednesday (Jan. 26) said that it plans to take a $60 million impairment charge for scaling back its efforts in the modem and other non-strategic chip markets.
ST will also accelerate its cost reduction initiatives, including a plan to consolidate certain functions within the company. It also plans to be more selective in terms of fab capacity orders, as part of an ongoing but slower-than-expected effort to improve its manufacturing capacity.
"The company is undertaking several near-term actions to improve financial performance," said Pasquale Pistorio, president and chief executive, in a statement. "First, the company plans to eliminate certain low volume, non-strategic product families whose return on net assets in the current environment does not meet internal targets. In particular, the company will scale back the access programs focused on customer premises equipment (CPE) modem products."
This effort will result in impairment charges of approximately $60 million in the first quarter of 2005, according to ST (Geneva).
Pistorio outlined other measures as well. "The company will accelerate cost reduction initiatives, including: a more selective process in dedicating capacity to new orders, with priority to higher margin products; optimization of the product and production mix in memory; consolidation of certain central function activities to control overhead; and launching an aggressive cost savings program focused on purchasing," he said.
The cost-cutting efforts follow a lackluster quarter for the company. Net revenues for the fourth quarter were $2.328 billion, up 4.3 percent sequentially from the $2.231 million reported in the prior quarter, and 10.2 percent above the $2,113 million in last year's fourth quarter.
Net income equaled $187 million in the 2004 fourth quarter, essentially flat compared to the $189 million reported in the 2004 third quarter and up significantly in comparison to 2003 fourth quarter net income of $144 million. Earnings per diluted share were $0.20 for the 2004 fourth quarter, the same as the $0.20 earned in the 2004 third quarter. In the 2003 fourth quarter, earnings per diluted share totaled $0.16.
The company met Wall Street's expectations in the quarter. It was supposed to earn $0.20 on sales of $2.32 billion.
"Within a challenging market environment, ST's fourth quarter sequential revenue growth was 4.3 percent representing the high end of our initial guidance of flat to 5 percent growth sequentially," the ST executive said. "This performance was largely driven by seasonal as well as stronger end-market demand, notably within wireless, data storage and automotive applications, all areas where ST has traditionally been a market leader."
Going forward, ST faces some challenges in a tough market. Over the last year or so, ST has been working to improve the company's overall manufacturing capacity (see July 25, 2003 story).
Apparently, the company is still working on the plan. "Our manufacturing restructuring plan to enhance our cost structure and competitiveness is moving ahead and we expect it to be completed by mid-2006, somewhat later than previously anticipated to accommodate qualification requirements of our customers," the company CEO said.
For the first quarter, ST projects that its revenues will decrease 4-to-12 percent, in comparison to the 2004 fourth quarter.