STMicro sees chip market growing 6 percent in 2006

MILAN (Reuters) - STMicroelectronics sees the semiconductor market growing 6 percent in 2006 and expects a return to double-digit growth in 2007 and 2008, chief executive Carlo Bozotti said on Wednesday.

Europe's second-largest chipmaker, whose forecasts are closely watched by the industry, has been plagued by mounting inventories and fierce competition in the past year but Bozotti said he saw the trend improving.

"(Consensus is) for overall growth of the semiconductor market at 5-10 percent. The formal indication from the company is for a 6 percent increase," he said at a briefing after third-quarter results were released overnight.

"We want to grow above the market."

The Franco-Italian group said late on Tuesday that third-quarter profit fell 53 percent but that demand for wireless chips, along with cost cuts, was driving improved results. Net income dropped to US$89 million or 10 US cents per diluted share.

STMicro's results come after sector rivals Intel Corp, the world's biggest chipmaker, pointed to strong demand this month and Advanced Micro Devices reported a forecast-beating profit, fuelled by strong computer chip sales.

STMicro benefited particularly from the strength of its mobile phone business, its largest in terms of sales, which saw revenues rise 9 percent between the second and third quarter.


Christmas cheer?

For the remainder of 2005, Bozotti confirmed he expected Christmas sales of electronic goods to lift the chipmaker's results "significantly above the market", while the first three months of 2006 would be hit by negative seasonal factors.

"The first quarter (of 2006) is seasonally not favourable, but we expect that in relative terms, compared with the first quarter of 2005, we will perform much better," he said.

STMicro on Tuesday forecast sales to pick up in the fourth quarter and grow sequentially between 3 and 9 percent while gross margin would reach between 35 and 37 percent.

Executives said inventories remained a problem for STM but they said they expected the situation to improve in the last months of 2005.

"It looks like the inventory situation is behind us, but we have yet to see signs of a recovery. It will depend on Christmas sales," chief operating officer Alain Dutheil said.

Bozotti said the group was still looking for potential partners for its weak flash memory business which narrowed losses in the third quarter.

The operating loss from the memory division, which accounts for around 22 percent of sales, fell to US$17 million from US$66 million in the previous quarter.

"We are absolutely committed to generating shareholder value from the memory group. We are working on internal actions to improve results and are looking at potential partnerships in this field where dimension of scale is very important," he said.

Additional reporting by Astrid Wendlandt in Paris.

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