STMicroelectronics Sees Revenue Falling This Quarter

Earnings Scorecard
Actual	Estimated*	Year-Ago
$0.50	$0.49	$0.21

French-Italian chipmaker and major flash memory player STMicroelectronics (STM Quote - Cramer on STM - Stock Picks) Thursday said its fourth-quarter earnings beat the consensus estimate by a penny.

The company said it earned $461.9 million, or 50 cents a share, compared with $184.3 million, or 21 cents a share, a year earlier. Analysts had expected the company would earn 49 cents a share, according to First Call/Thomson Financial. Revenue climbed to $2.19 billion from $1.48 billion.

But STMicroelectronics, which makes chips for everything from cell phones to DVD players to cars, said revenue would fall back about 8% in the first quarter from the fourth quarter due to inventory adjustments and the weakening macroeconomic climate. Earnings, the company said, would also slip back to the third-quarter level of 45 cents a share.

STMicroelectronics also said that in 2001, it would pull back on spending for new equipment and factories, cutting its $3.3 billion level in 2000 by $800 million, or 24%, to $2.5 billion, given market conditions. Other chip companies, like Texas Instruments (TXN Quote - Cramer on TXN - Stock Picks), have announced similar cutbacks, while others, such as Intel (INTC Quote - Cramer on INTC - Stock Picks) are gearing up for more spending this year.

STMicroelectronics was fairly confident that the chip market would turn around in the second half of 2001 after rough first and early second quarters. Revenue in areas like flash memory, which accounts for about 8% of STMicroelectronics' revenue, will continue to grow year over year, CEO and President Pasquale Pistorio said during a conference call Thursday. Unlike other kinds of memory, flash is able to retain its data when a device's power is instantly shut off.

"I love flash," Pistorio said, laughing during the call.

Pistorio expects flash revenue growth in the first quarter (from the fourth quarter) and sequentially throughout the year, but he doesn't expect it to double again for the year. In the fourth quarter, flash was up 24% from the previous quarter. For the year, it totaled $636 million. Industry analysts expect flash growth to slow in 2001, in part because of new manufacturing capacity, but also because of the slowing cell-phone market. The cell-phone market is one of the major end markets for one of the two types of flash.

Meanwhile, shares for a maker of flash products -- such as flash memory cards -- SanDisk (SNDK Quote - Cramer on SNDK - Stock Picks) were off sharply Thursday after the company gave a much more dismal flash outlook Wednesday after the market closed. SanDisk said that it expects revenue to drop 15% to 20% in the March quarter from the December quarter as customers continue to work off inventory. For 2001, the company predicts a 30% rise in revenue -- that's after revenues that were up 144% in 2000.

SanDisk shares recently were off $13.94, or 30%, at $32.25. STMicroelectronics is holding up, with shares recently trading up 50 cents, or 1.1%, at $45.69.