NEW YORK What downturn? asked Pasquale Pistorio, president and chief executive officer of ST Microelectronics, at the company's yearly "field trip" to meet with Wall street analysts Wednesday (May 28).
According to Pistorio, ST Micro has managed well in the past two years despite a weak global economy and an industry recession. "We have been able to maintain stability without compromising the integrity of our organization," said Pistorio.
One reason for ST's relative success in the downturn is its strategic relationships with other companies, which constituted 47 percent of net revenues in 2002, according to Alain Dutheil, corporate vice president, strategic planning: "The CAGR [cumulative average growth rate] of ST net revenues for 1998 to 2002 has been 10.4 percent, while the CAGR for revenues from strategic partners has been 15.1 in the same timeframe."
"Our Motorola/Philips/ST Micro pooling of research sources for technology development below 90 nm with each company using the results in a non-competitive is one example of our win-win strategy," said Pistorio. He claimed that pooled funding of $15 billion is only matched by behemoths like Intel.
Strategic alliances with Texas Instruments on wireless interfaces such as OMAPi in December 2002 and more recently with TI and Nokia for developing CDMA chips is another strategic direction that has helped ST keep its head above water in this downturn.
Pistorio said ST Micro management was able to maintain financial and operational flexibility by building new fabs cost effectively. At its Singapore AMK8 facility, for example, ST Micro is jockeying work areas between the fab and support buildings in four phases to match the demands for Flash and BiCMOS logic to be fabbed in 130- and 180-nm processes.
Also, finding low-cost workers has helped. ST has 1,000 employees in India and 600 in China, all working for much less than workers in the West.
Pistorio also cited the company's migration from a product-based orientation to one based on platforms that includes all software tiers for developing applications tied to hardware. Its "system-above-chip" (SaC) approach is being used to differentiate its system-on-chips (SoCs) from other SoC providers. SaCs use ST's core Omega silicon platform hardware backed up by ST-developed drivers, APIs and reference designs for consumer applications.
One SaC, a complete single-chip DVD will be on the market by Christmas, and "a single-chip DVD recorder chip will be ready by Christmas 2004," said Philippe Geyres, corporate vice president, for the consumer and microcontroller groups. His group broke $1 billion in sales in 2002. "We have had the last six quarters of sustained growth", added Geyres. First quarter of this year the CM groups sales ended at $282 million.
The semiconductor industry is expected to grow 6 percent this year, according to ST Micro's Jean-Philippe Dauvin, group vice president and chief economist: "The cycle correction was over after the first quarter this year, the market is gaining traction and it's all due to the increased demand for silicon in wireless, automotive and consumer electronics."
Dauvin predicted IT spending would take off next year, thereby contributing to the predicted 8 percent growth in semiconductor content in IT products in 2004. Overall, Dauvin predicts that the semiconductor market will grow 11 percent this year to $156 billion and 20 to 24 percent in 2004 to between $187 billion and $195 billion.
STMicroelectronics reaffirmed that its second quarter 2003 revenues and gross margins will be within the range of $1.68 billion to $1.72 billion, and that its gross margin would be approximately 36 percent.
"In the end, the one caveat to a sustained turnaround is the state of the world economy," said Pistorio. While not conceding that ST is not in any better or worse position than other major semiconductor houses, he cautiously concluded: "It is important to be ready for the upturn".