High five

High fivePasquale Pistorio is looking for a top five semiconductor world ranking after his company STMicroelectonics bucked the trend and had a good 1998. David Manners spoke to him
1998 was a good year for ST but a difficult year for the industry”, said Pasquale Pistorio , president and chief executive officer of STMicroelectronics, announcing his end of year results in Paris last week.
“We had growth in sales and profits during the worst recession in the history of the industry,” added Pistorio, “we were number nine in the world, we had the second best sales growth of any company in the top ten, we improved the geographic split of our business, we increased R&D expenditure to 16.2 per cent of sales, and we filed 671 new patents – 20 per cent more than in 1997”.  
  We are the champions… Pasquale Pistorio, president and chief executive officer of STMicroelectronics: “We were number nine in the world, we had the second best sales growth of any company in the top ten, we improved the geographic split of our business, we increased R&D expenditure to 16.2 per cent of sales, and we filed 671 new patents – 20 per cent more than in 1997”.
“Revenues in Q4 98 were nine per cent higher than in Q3 98 and 2.6 per cent higher than in Q4,” said Pistorio.
Q4 revenues topped $1.13bn. For the whole year, revenues grew 5.7 per cent to $4.25bn for a net profit of $411m representing 9.7 per cent of net sales. Gross margin for 98 was 38 per cent. “We have no debt and $154m in cash,” said Pistorio.
Sales revenues have grown every year in the last five except for 1997 and, last year, ST went up one place in the world rankings from number 10 to number nine.
The split of sales across the world was 22 per cent in America, 29 per cent of in Asia/ Pacific, 4 per cent in Japan and a 42 per cent in Europe.
Pistorio pointed out that ST’s R&D expenditure had always increased every year over the past five years, but capital expenditure on factories varied in accordance with market expectations.
Last year capital spending dropped from its 97 level. However the company has two unequipped fabs – in Agrate and Rousset – waiting to take advantage of any market upturn, and an eight inch fab in Singapore which can be ramped.
“We have all the ingredients to take advantage of the upturn when the recovery occurs in 99 or later,” said Pistorio.
He added that he believed that he had sufficiently close relationships with his production equipment suppliers to be able to get machines when the market turned.
“We have a strong dialogue with ASM and Canon about steppers and we believe they can respond quickly and that we will get equipment when it is needed,” said Pistorio. As to the timing of the recovery, Pistorio said he expected it “either in the first half or second half of 99”.
According to a presentation from ST’s chief economist, Jean-Philippe Dauvin, the recovery will not be very dramatic. He sees zero per cent increase in prices in 99 and seven per cent increase in unit shipments to produce a market worth $134bn.
“I may be too conservative”, said Dauvin, quoting Dataquest’s latest forecast of 14.6 per cent world market growth, Instat’s of 10 per cent, Pathfinder’s of 11.3 per cent, Future Horizons with nine to 14 per cent, IDC with eight per cent, VLSI at six per cent and IC Insights at 11 per cent.
Dauvin sees Asia Pacific growing nine per cent, Europe eight per cent, America seven per cent, and Japan three per cent
Driving recovery will be stalled industry investment. “In 1995 the industry was investing $5bn a month. By Q4 98 that was down to half a billion a month,” said Dauvin.
He pointed out the extraordinary results of the rush down the micron trail by semiconductor companies anxious to increase production without building new factories. “They are now getting 1000 64Mbit die to a wafer”, said Dauvin .
As a result of this push to more advanced processes, Moore’s Law had been drastically accelerated. From doubling the number of components that can be put on a chip every 18 months, the industry was now tripling the number every 18 months. “It’s a unique situation for our customers”, said Dauvin, “it is a good time for consumers”.
Over the next five years, to 2003, Dauvin sees the world semiconductor market moving to a new split: America 30 per cent, Europe and Asia/Pacific 24 per cent each, and Japan 19 per cent.
Driving Europe will be the PC industry, he reckons. “PC is getting big in Europe, it’s starting to be what the US was five years ago”, he said.
Although 20 per cent of ST’s revenues come from computer peripherals, the company says it only has insignificant revenues – less than $10m – from its x86 core activities which included, last year, the purchase of a controlling interest in the Silicon Valley company Metaflow.
Clearly, Pistorio would like to make ST one of the top five semiconductor companies in the world. To that end he may well be considering setting out on the acquisition trail while semiconductor assets are still relatively cheap.
He declined to comment on rumours that he had talked to Motorola about buying either their semiconductor group or their discretes division, but confirmed that ST wants to complete its purchase negotiations with the Scottish company Vision of Edinburgh in order to manufacture its CMOS imaging sensors which, ST believes, will eventually go into every PC.

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