ST’s Parental Woes
The woes of being an ST-Ericsson parent seem never ending.
On top of running up a $700 million debt – increasing at $200 million a quarter – ST has now announced that it has been ordered to pay $59m to NXP which will cut its Q1 gross margin by 2.6%.
The charge was said to relate to ‘underloading charges’ for wafers supplied by NXP to ST-Ericsson between October 1 2008 and December 31 2009.
Curious that ST-Ericsson’s management didn’t get the price of wafers sewn up.
The charge was imposed by an International Chambers of Commerce arbitration tribunal.
ST says the charge will be taken in its Q2 quarter and will reduce Q2 gross margin to 30.4% plus or minus 1.5%.
The announcement of the expected gross margin reduction had the surprisingly potent effect of knocking 6% off ST’s share price.
ST is expected to have revenues of $2.1bn in Q2.
This level of revenues, if maintained throughout the year, will take ST back to the $8.8 billion annual revenues it recorded in 2005 for a gross margin of 34.2% – the year former CEO Pasquale Pistorio retired.