LONDON Brokerage firm Nomura Securities has sharply reduced its estimates and share price targets for STMicroelectronics NV, but remains upbeat about the long term outlook for the chipmaker despite the hefty decline expected in Q1 and 25-30 year-on-year decline for all of 2009.
The chip group also received some positive news Wednesday (28 Jan) as the European Commission decided not to raise any objections under state aid rules to the financial support of 457 million euros (about $600 million) being granted by France to the Nano2012 R&D program.
The support is part of a strategic investment program of 3.6 billion euros (about $4.8 billion) being coordinated by STMicroelectronics that is expected to create 650 jobs.
A day earlier STMicroelectronics outlined a major cost-cutting effort in 2009, including a plan to shed 4,500 jobs.
In total, STMicroelectronics (Geneva) plans to reduce its costs by over $700 million in 2009. The actions are focused on ''resizing'' the company's manufacturing operations and streamlining expenses. The company also set a capital spending budget of about $500 million for 2009, representing a 50 percent reduction in comparison to 2008.
The company reported revenues of $2.28 billion, down 16 percent year-on-year, driven by weakness in the wireless, computer and automotive markets.
Dr Gunnar Plagge, who heads the Semiconductors practice at Nomura (London) noted: " 2010 is going to bee a horrible year but I remain confident that ST will pull through. The difference between ST and other chipset vendors in that it already has the customers on board."
This, he said, is in stark contrast to many of the others who are still struggling to find customers to take their 3G basebands.
"In 2010 ST should begin to see meaningful revenues from Nokia which combined with benefits from the restructuring program will make a big difference to earnings. I think that 2009 could see a number of competitors exit the market leaving ST as the only credible alternative to Qualcomm for 3G chipsets."
Plagge added this is likely to trigger a big upswing in interest in ST's products and underpin the earnings recovery.
Despite the negative forecast for all of 2009 that in effect dashes any hope of a recovery in H2 09 Plagge said: "I am warming up to ST as I think earnings and the share price have bottomed but it could easily be a long bottom before a recovery in 2010."
Nomura cut its estimates and reduced its price target to Euros 5.10 per share compared to an earlier target of Euros 6.50 and retraining a buy recommendation.
In a note to investors, Nomura said: "We are
expecting some recovery in end markets at the
end of 2010 and factoring in the EMP (Ericson Mobile Platforms) joint venture and a likely significant effect from the start of the Nokia single chip 3G programme in 2010."
It has s been a tough time for the chip industry. AMD, Intel, IBM, NXP, On Semi, TI and others have announced layoffs amid poor results.
This week, Texas Instruments Inc. said it will lay off 12 percent of its workforce, or approximately 3,400 employees, as it restructures operations following one of the worst sequential and year-over-year quarterly performances in the history of the analog and digital signal processor company.
The other shoe recently dropped at Intel Corp., as the chip giant will close two fabs and three IC-assembly factories.
TSMC talked about a bear scenario for the global semiconductor market to shrink by 30 percent this year, while Marvell Technology cut its Q409 revenue outlook expecting revenue to decline 34-37 percent quarter-on-quarter versus previous guidance of
a drop of only 8-13 percent quarter on quarter.
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