STMicro Sees Chips Rebound But No Margin Boost From iPhones

(Bloomberg) -- STMicroelectronics NV forecast a rebound in smartphones chips thanks to customers including Apple Inc., but said that growth won’t benefit profitability as new products ramp up.

Revenue will grow about 10 percent in the third quarter from the second to roughly $2.5 billion, and gross margin will be about 40 percent, the company said in a statement Wednesday. Before the earnings report, analysts had predicted revenue of $2.46 billion and gross margin of 40.3 percent for the third quarter.

“We are growing significantly in the third and fourth quarters in personal electronics, in particular smartphones. This growth from a gross margin point of view is not accretive,” Finance Chief Lorenzo Grandi said on an earnings call with analysts. “Gross margins will be impacted by this ingredient of product mix.”

Analysts anticipate that new iPhones, due typically in September will act as revenue catalysts for STMicro. Another Apple supplier, AMS AG, eased concerns about smartphone chip demand with a strong quarterly outlook, driving a rebound in semiconductor shares this week. But AMS’s weaker-than-expected margins raised some questions and the company postponed a profitability target.

Shares of STMicroelectronics fell 3.2 percent at 10:12 am in Paris and Milan trading.

With a new CEO at the helm, STMicro is sticking to a strategy of diversifying customers from phone makers to car-makers and industrials to navigate demand swings. After years of restructuring, the company has insisted it’s more resilient and can sustain a potential slowdown in the semiconductor business and global economy.

In the second quarter, STMicro reported sales of $2.27 billion, gross margin of 40.2 percent and profit of $261 million. Analysts had predicted second-quarter revenue of $2.26 billion, gross margin of 40 percent and net income of $250 million.

STMicro had reported “weak demand” in smartphone components up until around mid-May, but been predicting a strong improvement in the second half of the year. It sees continued “healthy demand” in the cars and industrials market, Chief Executive Officer Jean-Marc Chery said in the release Wednesday.

Before the earnings publication, shares of STMicro had gained about 13 percent this year and 44 percent over the past 12 months. That’s outpaced the Cac 40 index performance in Paris, which has gained about 2 percent in 2018 and 5 percent over 12 months.

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