STMicroelectronics reported decent fourth-quarter results and gave investors a predictably soft first-quarter outlook that was in line with analysts expectations. ST provided more details surrounding its exit from the ST-Ericsson joint venture, and, while it will be expensive, the exit is a critical step forward for ST to sustain profitability in future.
Macroeconomic conditions are still sluggish, and sales were down sequentially in each business segment with the exception of the analog business, which experienced 7.5% sequential growth, thanks to chip design wins in popular smartphones launched before the holiday season. ST introduced several new analog product lines in 2012, and the response has been positive.
Gross margin dropped 250 basis points to 32.2% as a result of weak pricing and lower volumes due to inventory contractions, and, despite 8% sequential cuts to ongoing operating expenses, ST produced an operating loss of $142 million, excluding one-time items, relative to a loss of $79 million in the previous quarter.
ST also recorded a restructuring and goodwill impairment charge of $588 million in the quarter related to its exit of the ST-Ericsson. This charge follows a $690 million impairment charge in the third quarter, and we expect more charges to come as ST extracts itself from a joint venture that is churning out losses.
Looking ahead to the March quarter, STMicro expects revenue to decline about 7% because of a substantial decline in ST-Ericsson sales, which will also cause gross margins to contract to about 31%. ST management acknowledged that the company had struggled in the past year, but emphasized that possibilities would open up after exiting the ST-Ericsson joint venture, which is expected to be completed in the third quarter of 2013 and could require between $300 million-$500 million in additional charges.
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