Tags: STMicroelectronics | slows | cycles | STM

STMicroelectronics Slows On Cycles

By    |   Friday, 02 Dec 2011 01:34 PM

Semiconductor company STMicroelectronics (STM) is experiencing a cyclical slowdown in business starting in the second half of 2011. As Europe's largest semiconductor company, STM must compete on a global basis. The company has several features which may be attractive to investors as it slows on normal business cycles.

STMicroelectronics is based in Geneva and the shares trade as American Depositary Receipts (ADRs) on the NYSE. The company has five European plants plus one in Singapore plant for wafer fabrication. Testing and packaging is completed at company facilities in North Africa and Asia.

STM products are produced for the auto, home entertainment and mobile communications industries. About 40 percent of STM production is for companies located in Europe and East Asia, and the balance is split between the Americas and Asia.

For the first nine months of 2011, STMicroelectronics reported revenue of $7.54 billion, up slightly from $7.51 billion for the same period of 2010. Adjusted net income for the period was 43 cents per share, down from 48 cents.

The earnings estimate for the full year is 48 cents per share, compared to 74 cents earned in 2010. The consensus estimate for 2012 is 40 cents, but the analysts’ forecasted range is wide, from a low of 9 cents per share up to 80 cents.

Second-half slowdown

Third quarter revenues of $2.44 billion were down 5 percent from the second quarter and almost 9 percent below 2010 third quarter sales. Management guidance forecasts an additional 8 percent revenue drop in the fourth quarter to a range of between $2.15 and $2.3 billion. The effect will be a decline in gross margin to 33.5 percent from 35 percent in the third quarter and 39 percent in 2010.

Investors interested in STMicroelectronics must be willing to wait for a turnaround in semiconductor sales, one which management is positive will happen. In the meantime, the stock pays an attractive quarterly dividend, with a current yield close to 6 percent. The company has little debt and plenty of cash to support the dividend during a slow period.

Recently, the analysts from Williams Financial reiterated their sell rating on the stock, noting the reduced expectations for fourth quarter guidance from management.

The company next reports on Jan. 24.

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Semiconductor company STMicroelectronics (STM) is experiencing a cyclical slowdown in business starting in the second half of 2011. As Europe's largest semiconductor company, STM must compete on a global basis. The company has several features which may be attractive to...
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2011-34-02
Friday, 02 Dec 2011 01:34 PM
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