STMicroelectronics NV, the Franco-Italian semiconductor manufacturer, has recorded a robust start to the year with net income up 16.5% to $105.2m after revenue showed a 10.7% growth to $1.1bn. While earnings per share rose 10.7% to $0.72, the market was looking for a bigger improvement and in Paris the shares fell back 3% to 98.95 euros ($105.19).

In an industry where the commodity side of the business has left some major companies bleeding heavily after the recent recession, ST reckons that it has the balance right by aiming at roughly a 60%-40% split between what it describes as differentiated products – items where ST’s products are distinct from other manufacturers – and the commodity items.

In the first quarter, differentiated products accounted for 65.1% of revenues and gross margins of 38.4% were scarcely different from the 38.3% recorded in the same period last year. While the squeeze has been applied to sales, general and administrative expenses, which have been trimmed from 11.9% to 10.7%, R&D spending has increased by 16.3% over the past year and now accounts for 17.4% of net revenue compared with 16.6% 12 months ago.

The star performer in the first quarter was the telecommunication, peripherals and automotive group, which accounted for 48% of total revenues and recorded a 28.6% increase in sales with strong demand for ICs for hard disk drives, cellular phones and automotive applications. A surge in demand for FLASH memory products enabled the memory product group to hoist sales by 20.5% so it now accounts for 16% of total sales.

ST’s two other divisions faced problems, however. The consumer and microelectronics group recorded a 2.3% fall in sales while a dramatic drop in prices left the discrete and standard IC group recording a 12.7% slump in sales though unit shipment showed a modest increase.

Happily, a patent dispute with Intel was resolved in the first quarter, with each company able to tap the others’ IP when required. This kind of deal, say ST officials, is important to give its designers freedom to get on with their work without constantly worrying about whether they are infringing another company’s patent.

With around $1.1bn in cash, ST is in a position to pick up any number of companies to strengthen its product range though directors insist that organic growth is the main way forward. Aware that it too could be the victim of an unwelcome takeover bid, ST will shortly ask shareholders to approve a poison pill to keep predators at bay.