STMicroelectronics: On the rise
STMicroelectronics ascends the ranks of the world's chipmakers
Caitlin Kelly -- Movers & Shakers, 8/15/2002
STMicroelectronics is now the world’s third-largest independent semiconductor company, below Intel and Toshiba and just ahead of Samsung, Texas Instruments, and NEC, according to Gartner Dataquest. Only two years ago, the company ranked sixth. In 2001, the company recorded net revenue of $6.36 billion, with net earnings of $257.1 million.
 “We are looking very closely for acquisitions in North America. With $2.4 billion in cash, we have a lot of possibilities there.” Alain Dutheil, Corporate Vice President, STMicroelectronics |
Reflecting ST’s recent successes, CEO Pasquale Pistorio was named CEO of the year by Frost and Sullivan. “He has a phenomenal background in the industry and, because of his understanding of semiconductors, has single-handedly got the company going,” Ramachandran says. “He has broadened the company’s base and very much diversified the product range to bring in as much new technology as possible, not just sit on current products.”
Headquartered in Geneva, ST is the world’s leading supplier of MPEG-2 decoder ICs, digital set-top box ICs, and EPROM nonvolatile memories, according to Gartner Dataquest. The company is also leading supplier of analog ICs, according to research firms Suppli Corp and Databeans Inc.
The company has 40,000 employees, 12 advanced R&D units, 32 design and application centers, 18 manufacturing sites, and 74 sales offices in 27 countries. Current expansion plans include upgrading existing facilities and building new 8-inch, submicron fabs around the world. Two 8-inch fabs recently went into operation in France and Italy, with a sixth starting up in Singapore and a seventh in Italy. A 12-inch pilot line is under construction in France.
The company’s growth has been impressive. In 1994, ST was the 15th-largest company in the field. Between 1998 and 2001, the company averaged sales growth of 20 percent a year. ST was formed in 1987 from the merger of SGS Microelettronica of Italy and Thomson Semiconductors of France, adopting its current name in 1998.
Tim Mahon, an analyst with Credit Suisse First Boston, recently increased his estimates for the company’s fiscal-year 2002 revenue, from $6.13 billion to
$6.24 billion. While the Memory Products Group was the weakest in Q1, prices stabilized and orders picked up, he notes. Thanks to ST’s dominant position in set-top boxes and its increasing market share in DVD chips, the Consumer and Microcontroller Groups gained 6 percent. The company expects a 50 percent increase in DVD sales in Q2.
| “We ramp up slowly, but we can react very quickly if needed.” Alain Dutheil, Corporate Vice President, STMicroelectronics |
Alain Dutheil, corporate vice president for strategic planning and human resources, says ST’s key strengths lie in innovation and globalization. Strategic alliances with customers—“far beyond a simple buy-and-sell relationship”—allow shared information on every aspect of business, from cost structure and reduction to intellectual property. Sixty percent of business comes from 30 customers, of which 13 are key, Dutheil says. “Twenty of these close relationships would be the maximum,” he says. “This kind of process takes many many years to establish.”
R&D, on which ST will spend 15 to 16 percent of revenues this year, “is absolutely key,” Dutheil says. In 2001, ST spent only half of its peak of $3.3 billion in capital investment. While each new plant costs $1 to $2 billion to build, only 20 percent of that figure is the actual cost of construction, Dutheil says; only when ST is ready to start production will it spend the additional 80 percent on equipment. For example, the new French plant is currently only 50 percent equipped and the one in Singapore only 25 percent. “We ramp up slowly, but we can react very quickly if needed,” Dutheil says.
In April, STMicroelectronics signed an agreement to buy Alcatel’s microelectronics activities for $343.2 million. The two companies will jointly develop DSL chipsets. The move also makes ST a preferred Alcatel supplier, expanding a long-standing alliance. The deal brings a large number of experienced engineers to ST, enabling the company to compete more effectively in the telecom arena for wireline and wireless applications. The two companies also agreed recently to develop chipsets for mobile phones and other wireless-connectivity applications.
In April, ST also announced a deal whereby AMI Semiconductor will buy from ST the just-acquired mixed-signal business of Alcatel Microelectronics. ST and AMI also signed a supply agreement under which AMI will provide some manufacturing services for ST.
ST faces a number of competitors, their numbers multiplied
by the very diversity of ST’s products. But that diversity helps the company weather downturns in one industry while selling to another. “They can quickly produce lines they already have products for and they have a finger in practically every market there is,” Ramachandran says.
If ST has any weakness to overcome, he says, it is its European focus. “The real boom is going to be in Asia-Pacific, and they have to position themselves,” Ramachandran says. “They should have a lot more presence there.” The Asia-Pacific region accounts for 36 percent of ST’s sales, while Europe accounts for 34 percent and North America 19 percent. The company is looking to North America to help balance those numbers. “We are looking very closely for acquisitions in North America,” Dutheil says. “With $2.4 billion in cash, we have a lot of possibilities there.”
