Apple Supplier STMicro Joins Choir Warning Weak Smartphone Sales

(Bloomberg) -- STMicroelectronics NV warned of near-term weakness in the global smartphone market, becoming the latest Apple Inc. semiconductor supplier to signal tepid sector demand.

The European chipmaker, which gets about 10 percent of its revenue from the iPhone maker, said it’s experiencing “weak demand” for smartphones in the first half but expect that will improve later. “For the second half of the year, we see healthy demand, with a strong backlog across all our product groups, end markets, including smartphones, and regions,” Chief Executive Officer Carlo Bozotti said in an earnings statement Wednesday.

Investors have been seeking clues on how well the iPhone X has been selling since its November debut. A disappointing sales outlook from Taiwan Semiconductor Manufacturing Co., Apple’s main chip supplier, rekindled concerns last week that the smartphone industry’s best days may be behind it. Apple’s five largest device assemblers also reported a sharp slowdown in monthly sales. Before that, the International Monetary Fund said the industry may have peaked.

Given Apple’s contribution to STMicro’s revenue, any impact from fewer iPhone sales should be limited, analysts at Liberum said before the earnings report. STMicroelectronics reported net income of $239 million for the first quarter, slightly better than analysts’ average revenue for $234 million.

For the second quarter, STMicro forecast that revenue will increase 1.5 percent at guidance mid-point from the prior period, or be about $2.26 billion, compared with analysts’ prediction for $2.23 billion. The outlook for 40 percent gross margin is in line with estimates.

The chipmaker had already warned in January of first-quarter seasonal weakness in the smartphone segment. After reporting a strong end to 2017, the company said its focus on markets including chips for cars and industrial applications will pay off if smartphones go through a rough patch.

After years of restructuring, STMicroelectronics is more resilient than it was a few years ago and can sustain a potential slowdown in the semiconductor business and the global economy, Bozotti said earlier this year in an interview. After more than a decade at the helm, the CEO is due to retire this year and hand the top job to company veteran Jean-Marc Chery.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net.

To contact the editors responsible for this story: Giles Turner at gturner35@bloomberg.net, Reed Stevenson, Peter Elstrom

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