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ST brings out new image

Posted: 25 May 2009     Print Version  Bookmark and Share

Keywords:semiconductor  outsourced manufacturing  digital consumer  market downturn 

Only days after STMicroelectronics N.V. hosted its Annual Investors' Day conference in New York, several analysts upgraded ratings on the company, boosting its market value by as much as 10 per cent and elevating the semiconductor company's equity performance above many of its peers in the industry.

ST's executives have longed hoped for such a day when the company's message of change resonated with the investment community, starting with the analysts who track the company to individual investors and extending into boardrooms at fund managers.

It would seem to be an easy job convincing anyone ST had dramatically changed even in only the last year but the company has been dogged in recent times by its previous failed promises and the perception in the market that it had not been very successful at executing strategic plans.

Carlo Bozotti, president and CEO at ST, set out to erase that perception in his May 15 presentation to investors. ST, he said, "is now a leaner, younger, more innovative, faster and yet powerful competitor in the world semiconductor arena."

ST has certainly changed. The company has exited the flash memory market by setting up Numonyx, a joint venture with Intel Corp. It bought NXP B.V.'s wireless IC business, merged the operation with its own internal division and then consolidated the group into ST-Ericsson, another J.V. formed after a merger with LM Ericsson's mobile platform business.

Furthermore, ST acquired Genesis Microchip to broaden "our expertise in the digital consumer marketplace," according to Bozotti, signed an agreement to collaborate on 32nm and 22nm CMOS manufacturing process with IBM Corp., and took steps to whittle down total operating costs, starting with a sharp year-over-year reduction in capital expenditure, in addition to job cuts.

"These are the milestones that truly have marked the evolution of ST, and these are the new foundations on which we intend to build our future," Bozotti said. "I believe that we at ST have made the right strategic choices and are correctly executing on them."

That message didn't sink in easily, though, hampered by impressions ST had in the past tripped in the execution stage of some of its grand plans.

Even as Bozotti detailed the changes that have occurred at ST, analysts peppered him with the same set of questions: How can ST say its portfolio has been pruned when it remains one of the most diversified companies in the industry; is ST worthy of being included in a fund manager's portfolio; are its quarterly sales projection of Rs.11,642.15 crore to Rs.12,148.33 crore ($2.3 billion to $2.4 billion) over the next 6 to 12 months versus Rs.8,605.07 crore ($1.7 billion) in the first quarter realistic and; has it gone far enough in stripping costs from operations?

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