ST Set To Run Out Of Cash Next Year.

STMicroelectronics will run out of cash next year at its current burn rate. Rumours are that it is already in talks with the French government for a bail-out.

‘ST’s cash and cash equivalents, marketable securities and restricted

cash equalled $2.07bn and total debt was $1.54bn,’ say ST’s Q2 results.

 

ST-Ericsson is running up debt at $250m to $300m a quarter and STMicroelectronics is responsible for half that debt. So, on present trends it looks as if the company will run out of money about this time next year.

 

Negotiating with the French government for a bail-out must be embarrassing for ST CEO Carlo Bozotti who received a $1.5 million bonus in 2011 for leading the company to the same revenue run-rate it had in 2005 when he took over as CEO.

 

Of course there are things ST could do to avoid insolvency. One is to spin off the Analogue, Automotive and  Power segment which has profitable revenues of around $7bn.

 

That would avoid it being dragged down by the digital VLSI business.

 

The writing on the wall for the digital VLSI business came when ST did not equip the 300mm Catania fab built by former CEO Pasquale Pistorio for which Pistorio had secured a government grant of over half a billion euros.

 

Not building the fab means that ST does not have the capacity to expand in digital VLSI at a time, like now, when advanced capacity is tight.

 

Also ST is looking for FD-SOI volume capacity – so far only promised by Globalfoundries – because ST hasn’t got the capacity to make volume FD-SOI itself.

 

If the French government does not bail-out ST, then a break-up seems likely. The only alternative would be insolvency.

 

Which raises the intriguing question? If ST goes bankrupt, will Bozotti get a bonus?

Tags: french government, stmicroelectronics

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20 Comments

  1. David Manners
    August 02, 2012 09:54

    Ha Ha Didier L, le mot juste.

  2. Didier L
    August 02, 2012 09:40

    Hey bro! Scotty’ A. made a cartoon out of you!
    http://www.dilbert.com/strips/comic/2012-08-02/
    Dear Scotty; when will I get mine? ^^

  3. Carlo B. (anonymous)
    August 01, 2012 09:01

    I’m really scared by this thread.
    If unionists are beginning to understand finance, this shows that this is the beginning of the end!

  4. DS UNSA Sophia (Laurent)
    August 01, 2012 01:41

    I think it means that the estimate of ST’s “consolidated equity” takes into account the debt of ST-Ericsson to ST (it is the intrinsic value of the company, that is currently several billions).
    If ST-Ericsson bankrupts, the consolidated equity of ST will be reduced by that amount, but there will be no impact on its cash.

  5. David Manners
    July 31, 2012 14:13

    I hope you’re right, Laurent, but someone wiser about balance sheets than me points out that the $672 million debt piled up by ST-E on ST is put in the ST accounts under the ‘assets’ column. This would make the situation rather worse than it seems.

  6. David Manners
    July 31, 2012 14:01

    That is very revealing abou the change in attitudes at ST, sittingdown, thank you. But what a sad state of affairs for ST.

  7. sittingdown
    July 31, 2012 13:46

    In the days of the wise Pistorio when the Executive Incentive Plan was created the formula for the reward included several coefficients. The last one was a multiplier in the range of 0 to 1. If the company made no net profit this multiplier was zero regardless of the others even being all ones. If the company broke even the multiplier was still zero. If the company was slightly profitable but less than the previous year then that multiplier was still zero. If the net profits were on target with budget then the multiplier started to move pro-rata up to 1 according to a predefined level of profits above budget.
    In which year was the formula for the EIP changed? And why was it changed? Psquare was a very honourable person and a great professoinal who cherished the well being of ST. The current management follows the bankers: what’s in it for me? To hell with the rest.

  8. DS UNSA Sophia (Laurent)
    July 31, 2012 11:11

    I do not think so.
    Due to the initial agreement between Ericsson and STMicroelectronics, the ST-Ericsson’s financial results are consolidated into those of ST.
    Therefore, the current ST results already include ST-Ericsson’s losses and Ericsson has already paid to ST its share of those losses.
    Then the ST cash situation is sustainable.

  9. David Manners
    July 31, 2012 09:45

    The source is quoted within the article, Laurent,. ST-E is piling up debt at $250m+ a quarter and ST is responsible for half the debt of ST-E. Yet ST has a cash less debt balance of about $500m.

  10. DS UNSA Sophia (Laurent)
    July 30, 2012 23:22

    ??? What is the source of this article?
    That is true that ST management is questionnable, and lack of vision of our CEO is a pity.
    Moreover in considering his incredible bonus of this year compared to so disastrous results.
    But cash situation is clear and not at all what is described here.
    The source of your article is certainly not a member of a national or an european working council because they have access to confidential figures that not corresponding to yours.

  11. David Manners
    July 26, 2012 20:59

    What a bunch of so-and-sos – 4 to 1 against the audit. yes there’s not much hope there, {Anonymous] unless that nice-looking M. Hollande starts to exercise some moral rectitude. Do the French do moral rectitude?

  12. Anonymous
    July 26, 2012 20:01

    Well these are the people who will vote STM their support
    “French MPs throw out proposal to audit their expenses”
    http://www.bbc.co.uk/news/world-europe-19004353

  13. July 26, 2012 08:58

    “…Which raises the intriguing question? If ST goes bankrupt, will Bozotti get a bonus?”
    It’s not exactly intriguing, is it? Bozotti will surely get a bonus, any which way ST goes – a) breakup b) breakdown or c) breakup followed by breakdown :-)
    Because a lot of corporate logic goes into making any of the above scenarios happen. It’s a lot of hard work – blood, sweat and tears (at CXO levels!). Haggling with EU unionists, negotiating with the Chinese, smarting with American consultants and lawyers …heck, if Bozotti would write his memoir one day, he might even acknowledge that doing semiconductor business (= survival) was probably easier than orchestrating a demise :-)

  14. David Manners
    July 25, 2012 20:31

    No that’s next year’s bonus, Boiler, only joking. You’re right it was a typo. I’ve corrected it in the post

  15. Boiler
    July 25, 2012 20:07

    Was his bonus really $1.5 billion? That almost has to be a typo I would think.

  16. David Manners
    July 25, 2012 15:52

    Good point, Expat, tho I think one of the reasons the UK government got fed up with the electronics industry was the awful top management. Arnie wouldn’t invest in ICs; John Clark did but didn’t have a strategic view. The UK government was spending a third as much on ICs as the US government in the late 1960s and backed Inmos in the late 70s – so the UK government wasn’t averse to electronic engineering. Now, the EU authorities have as little confidence in the top management of the European semi industry, as the UK government had in the top managers running the big UK electronics companies in the ’80s.

  17. Expat
    July 25, 2012 15:42

    Well, putting aside the fun to be had bashing the French for one moment, one sad fact is they are lucky they are not British. At least the French recognise the importance of electronics engineering. The British establishment would have sold ST off for peanuts and trashed the entire industry years ago. Oh wait…they did didn’t they….

  18. Not Telling
    July 25, 2012 15:11

    lol – cash mountains to serious demise…
    Plus don’t forget europen member staes are NOT allowed to own business, but when did that ever stop the French? car makers, semiconductors….
    Why is it only the UK abides by the EU rules?

  19. David Manners
    July 25, 2012 15:07

    No, Not Telling, he was trained as a designer of NAND flash ICs.

  20. Not Telling
    July 25, 2012 15:05

    ST post Pistorio, reminds one of GEC post Weinstock.
    Bozotti wasn’t trained as a corporate banker by chance was he ?

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