It believes market growth will be driven by further increases in silicon pervasion, higher levels of corporate spending and an improved balance between supply and demand in the industry.
Though a $192.9 million restructuring charge led it to record a $49 million loss in its third quarter, sales rose 9.6% to $1.8 billion and it forecasts that the current fourth quarter will show a 7% to 13% improvement.
Europe’s largest chipmaker is still facing a squeeze on margins, with the 13.1% growth in revenue so far this year had been driven by unit demand rather than the pricing leverage needed to raise profitability levels.
ST plans to increase capital expenditure by 33% to $1.6 billion in 2004. It plans to migrate 60% of its European and US six-inch wafer production either to finer geometry eight-inch wafer fabs or its six-inch fab in Singapore. This will mean the closure of two of its older fabs in France and Italy while it will upgrade two facilities in the same countries to eight-inch lines. It also plans to downsize by around half its fab in Carrollton, Texas. The whole process will lead to charges of about $350 million.
Current growth is being driven by double-digit sequential increases in digital consumer application and flash memory products, though ST said the 35.1% gross margin reflected a difficult pricing environment and lower utilization rates which characterized the first half of the third quarter. It said its backlog and fourth quarter order rates show solid sequential improvements in end-market demand.
The fascination now is whether ST will make a move to take over the semiconductor division of Motorola [MOT]. Last year it denied rumors that merger talks were underway, but a deal seems more feasible now that Motorola plans to spin out its chip operation.
This article was based on material originally published by ComputerWire.
