STMicro CEO Lowers Revenue Targets, Blames U.S.-China Tensions

(Bloomberg) -- STMicroelectronics NV unexpectedly cut its operating margin estimates, blaming the uncertainty of U.S.-China trade tensions for limiting access to the large Asian market.

The mid-term targets are a revision from the company’s May 2019 expectations. Operating margin is now expected to be between 15% and 17%, down from from between 17% and 19%, the company said in an investor presentation Wednesday.

Chief Executive Officer Jean-Marc Chery said U.S.-China trade tensions combined with impact of the pandemic on sales into automotive and industrials, and warned that global supply chains are struggling, weighing on prices which are “above the normal trend.”

The stock fell as much as 12.2% on Wednesday, the most since March. Shares were down 10.5% at 10:27 a.m. in Paris.

STMicro’s operating margin target of 15%-17% is “low by industry standards and expectations,” Mirabaud analyst Neil Campling wrote in a note.

U.S. President Donald Trump has continued to roll out punitive measures against China despite losing the U.S. presidential election earlier this month to Biden, a Democrat. The U.S. has pressured allies to shun equipment from Huawei Technologies Co., barred dozens of China’s largest tech companies from buying American parts, and even slapped bans on ByteDance Ltd.’s TikTok and Tencent Holdings Ltd.’s WeChat.

Chery said the company expects revenue from Huawei to be zero in 2021 and onwards, but added that he expected revenue in the fourth quarter to be “well above mid-point of guidance.” In October, the company gave guidance of $2.99 billion for the period.

STMirco’s gross margin is now expected to be 39% to 40% for the mid-term, down from 40% to 41% as planned in 2019, and said its margin on earnings before interest, taxes, depreciation and amortization have been revised down to 25% to 26% from 27% to 27%.

The company said its $12 billion revenue target is unchanged for its mid-term estimate. STMicro Chief Financial Officer Lorenzo Grandi said cited “foreign exchange headwinds” on top of geopolitical troubles.

“We experience increased tensions between geographical areas and a worldwide pandemic that is not yet over,” Grandi added during the presentation.

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