Restructuring Turns STMicro Red - TheStreet

Swiss-based chip giant

STMicroelectronics

(STM) - Get Report

swung to a loss on heavy restructuring charges, while slightly exceeding Wall Street's top- and bottom-line estimates.

Sales at the company, which makes analog chips and a type of memory known as flash, rose 9.6% from last year to $1.80 billion, slightly above analyst estimates for $1.75 billion.

STM posted a net loss of $49.1 million or 6 cents a share, down from last year's profit of $131.2 million or 15 cents a share. The loss reflects a pretax charge of $192.9 million ($129.5 million after-tax) related to a previously announced restructuring plan and a nonoperating pretax charge of $21.6 million for bond repurchases.

Excluding those items, the company posted pro forma EPS of 11 cents, a penny above expectations.

In a prepared statement, CEO Pasquale Pistorio said revenues came in at the high end of guidance, driven by double-digit sequential increases in digital consumer applications and flash memory products. Gross margin of 35.1%, while in line with expectations, reflected what he described as "the difficult pricing environment and the lower utilization rate which characterized the first half of the third quarter."

He noted that year-to-date industry growth has been mostly driven by unit demand, rather than the pricing leverage needed to raise profitability levels.

STM expects fourth-quarter revenues to grow by 6% to 12% from the prior quarter, which would mark an improvement of about 7% to 13% from last year's levels.

That forecast implies a revenue range of between $1.91 billion and $2.02 billion, both above Wall Street expectations for $1.89 billion.

Gross margins should increase to the range of 36% to 37%, reflecting a 50-basis-point penalty from a recent black-out in Italy.

Pistorio estimated that STM's capital expenditures will grow by a third from an estimated $1.2 billion in 2003 to $1.6 billion next year.

In the latest quarter, STM drew 33% of its sales from communications. That category would include revenue from leading customer

Nokia

(NOK) - Get Report

, which last year accounted for 18% of STM's sales. The lead handset maker recently predicted strong unit volumes in the cell-phone market, which bodes well for that area of STM's business.

Of the remainder of STM's business, 18% was from computers; 20% from consumer devices; 13% from autos; and 16% from industrial.

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