STMicroelectronics delays financial targets, CEO says governments distorting markets
5:50 am Wednesday, November 20th, 2024
(Reuters) -Computer chip maker STMicroelectronics (ST) pushed back its long-term financial targets on Wednesday following three guidance cuts this year, anticipating a slump in demand for industrial and automotive chips will persist into 2025.
ST, one of Europe’s largest semiconductor firms, expects to hit annual revenue of $20 billion and an operating margin above 30% by 2030, instead of 2027 as previously forecast.
The company said it will benefit from a strong position in China and from the parts of the AI market where it competes, such as power chips used in data centres and “edge” AI chips used in electronics devices.
CEO Jean-Marc Chery said the rise of Chinese carmakers is “really reshaping market dynamics”, along with government incentives and export restrictions. ST sells chips to both Tesla and Geely, among others.
Governments “have introduced distortion in the semiconductor industry landscape and led to unusual supply chain behaviour, such as double booking, over inventory buildup, and significant overcapacity investment,” he said at an investor day.
The U.S. and Europe have now joined China in subsidising their semiconductor sectors, with ST a beneficiary of aid in Europe, though Chery said he expects capital spending to decline over the next three years.
In the second half of next year, Chery expects automotive weakness to be countered by strength in industrial and electronics markets, though 2025 will be a transition year both in terms of revenue and operating margin.
Some analysts welcomed the update as positive for a company that has been hit hard by slumping industrial markets, with its stock declining 49% so far this year.
“The reiteration of ST’s financial targets today confirms our view that the current weakness the company is going through is cyclical, not structural,” brokerage Stifel said in a note.
The shares declined 0.7% to 23.08 euros by 0846 GMT.
“ST expects to exit 2027 with high triple-digit million-dollar savings compared to the current cost base,” the company added in the statement ahead of its investor day.
ST had flagged the launch of a company-wide programme to reshape its manufacturing footprint with its third-quarter earnings, but did not elaborate where those savings would come from.
Investors and analysts will be looking for details on the plan during Wednesday’s event.
(Reporting by Nathan Vifflin and Toby Sterling. Editing by Milla Nissi, Mark Potter, Elaine Hardcastle)
