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Updated from 6:29 p.m. EDT


(STM) - Get STMicroelectronics NV ADR RegS Report

, the leading European chipmaker, posted sharply higher second-quarter profits after the close Wednesday but delivered sales a little short of expectations, citing order push-outs and testing problems.

Net income of $148 million marked an 86% increase from last year's levels. On a per share basis, earnings amounted to 16 cents, in line with Wall Street expectations and up from 9 cents a year ago.

Geneva-based STMicroelectronics (ST) said net revenues for the quarter ending in June totaled $2.17 billion, up 28% from last year's levels. That's slightly below the consensus estimate for $2.20 billion.

Gross margin stood at 37.4%, up from 35.7% a year ago.

In a statement, Chief Executive Officer Pasquale Pistorio said the company saw a 13.2% sequential increase in gross profit on a 7% sequential revenue gain. He said gross margin was higher than ST expected, helped by higher utilization rates and other manufacturing efficiencies.

He added that quarterly revenues "could have been higher, had it not been for some order push-outs in the computer peripherals market and short-term testing bottlenecks affecting our ability to ship certain products."

ST said second-quarter sequential revenue growth was broad based, with four out of its five targeted market segments showing gains. The automotive, consumer, and industrial markets were the strongest contributors to growth, in line with the company's expectations.

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Telecom, including wireless and networking ASICs

application specific integrated circuits, was up over 2004 first quarter levels, but softness in hard disk drive applications caused the computer chip segment to post a moderate sequential decline, the company said in a prepared statement.

Also, flash memory chip sales increased 9.7% sequentially to $304 million.

ST projected third-quarter revenues will increase 2% to 8% from the prior quarter, implying sales in the range of $2.22 billion to $2.35 billion, compared to the consensus estimate for $2.31 billion. The guidance equates to a year-over-year revenue increase of 23% to 30%.

Wall Street analysts were expecting earnings of 20 cents for the third quarter.

Contributing to growth will be applications such as wireless, networking, and data storage. Flash sales should continue to grow faster than the company average.

Gross margin should decline by about 100 basis points to about 37.5%, plus or minus 50 basis points, due to expenses to resolve technical problems and negative currency impact.

ST plans to hit gross margins of at least 40% in the fourth quarter, said Pistorio. That outlook assumes currency exchange rates remain similar to that expected in the third quarter and that ST sees a more favorable product mix and improved manufacturing efficiencies as it migrates to finer geometries in its semiconductor fabrication rates.

In regular trading Wednesday, shares closed down 27 cents, or 1.3%, to $19.94.

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