LONDON – Europe's largest chip company STMicroelectronics NV (Geneva, Switzerland) laid out details of its corporate strategy to financial analysts here Thursday (May 16) as it winds down ST-Ericsson, its failed joint venture in mobile processors.
The strategic plan had already been announced in December 2012 along with the decision to exit from ST-Ericsson, but Georges Penalver, chief strategy officer for ST, told the analysts community that ST is being constructed as two product-oriented business segments that would each be financially sustainable blocks. The first block encompasses ST's sensor, power and automotive products and is essentially ST's successful analog business and its digital automotive business. The second block is ST's embedded processing business and is the non-automotive digital business including microcontrollers and processors for digital consumer applications.
Penalver added that in the interests of "transparency" and starting from 2Q13 ST would report financial results for each of the two segments, including revenues, operating income and free cash flow.
Georges Penalver, chief strategy officer for STMicroelectronics.
Prior to Penalver taking the podium CEO Carlo Bozotti had said that the two segments were addressing a total available market of about $140 billion in 2013, almost equally split between the two segments and expected to grow at about 5 percent. Bozotti said ST's goal is to outgrow the targeted markets, at about 7.5 percent. Bozotti spoke optimistically saying: "Out ambition is to be closer to double-digit growth without ST-Ericsson. The mood in California is busy. In Japan the mood is much better."
The company is targeting 10 percent or more operating margin with net operating expenses of $600 million to $650 million per quarter by the beginning of 2014. Bozotti stressed repeatedly that the operating expense reduction to close to $600 million per quarter was a fundamental part of the plan and said that 25 percent of the management team's incentives this year are based on achieving the target.
"We want to get back to the level of revenues we had, without ST-Ericsson, before the start of the European debt crisis at the beginning of 2011," said Bozotti. ST is therefore aiming at $9 billion annual revenue – compared with $8.49 billion in 2012 – and 10 percent operating income.
The wind down of revenues from ST-Ericsson is expected to happen quickly now that customers have been put on end-of-life notice, Carlo Ferro, the president and CEO of ST-Ericsson said. It will likely decline from about $200 million per quarter to tens of millions of dollars in the first quarters of 2014, he added.