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Chip player faces new global realities head-on

Posted: 01 Dec 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Carlo Bozotti? STMicro? Europe chip maker? memory market? Peter Clarke?

Bozotti: Electronics is a global business, and the leading players are global in their approach.

The global forces buffeting the industry have set Europe's chip giants on a course of self-reinvention. Infineon Technologies' memory spinout, Qimonda AG, went public last August. And in September, Philips sold the bulk of its semiconductor division to a group of private equity investors. By comparison, STMicroelectronics (ST) has stood pat. Back in 2005, it entered a new phase when Carlo Bozotti replaced charismatic industry icon Pasquale Pistorio as president and CEO. Since then, Bozotti has consolidated operations at home while looking beyond Europe's borders to build manufacturing and design muscle as well as market share.

Bozotti came to the top job at ST at the end of a mid-cycle IC inventory correction that had troubled chipmakers in 2004. In his first year as CEO, he took the company through a series of cost-reduction initiatives, closing several 6-inch wafer fabs across Europe and consolidating almost all of ST's mature 6-inch manufacturing at its mammoth Ang Mo Kio campus in Singapore.

While Bozotti's changes were company-specific, ST and its long-time rivals and partners in Europe are all reacting to new global realities. Infineon's Qimonda raised $546 million in its initial public offering on the New York Stock Exchange August 8. Consumer giant Royal Philips Electronics NV chose a different route to dispose of its Philips Semiconductorsit agreed to sell 80.1 percent of the operation, now reinvented as NXP, to a consortium of equity companies.

So do the maneuvers leave ST the last major chip company standing in Europe?

"I don't see it like that," said Bozotti. "Electronics is a global business, and the leading players are global in their approach. We do 51 percent of our revenue in Asia, and we're growing more rapidly in Asia than elsewhere. China is worth $600 million a quarter to us, and Japan is 25 percent of the market we serve in terms of product categories."

Noting that "one-third of ST's manufacturing is euro-denominated," Bozotti said the eastward shift of manufacturing operations "is driven by the customers" and influenced not only by labor costs, "but also plant utilization and flexibility."

Manufacturing isn't the only function moving east. "Similarly, design needs to be close to customers," Bozotti said, "so that should be in Asia. We have 1,500 software engineers in India and 1,000 non-manufacturing staff in China. So design is spread, with about two-thirds euro-denominated."

Strengthening customers
Bozotti's focus is on Asia, particularly China, where he believes the next generation of electronics giants is emerging. "We've decided to create a new regional headquarters in Shanghai to support our U.S. and European customers, and to grow the local industry and grow local standards," said Bozotti.

As for Japan, he said, "the difference between ST and Texas Instruments in terms of revenue is mainly Japan. So that represents a major opportunity for us."

"What we do have in Europe is manufacturing process development," Bozotti said, referring to the Crolles2 Alliance among ST, NXP and Freescale. By conducting basic manufacturing process research at Crolles, France, the alliance has arguably allowed ST and Philips to catch up with world leaders in semiconductor manufacturing.

A potential fly in the ointment, however, is that NXP is reevaluating Crolles2 in the wake of its divestiture from Philips. NXP CEO Frans van Houten has told EE Times that the nature of NXP's Crolles 2 participation going forward "is the subject of a decision we need to make by the end of this year."

As for opportunities posed by the European Union's expansion in 2004 to include some central and eastern European countries, Bozotti said, "We have a design unit in Prague, but eastern Europe is not a big market for us. Eastern Europe and Russia is about a $4 billion or $5 billion marketabout 2 percent of the world market. Some customers are thereNokia is in Hungary and the Baltic states, and there are a number of automotive companies in the Czech Republic. But we don't see the same growth in eastern Europe as we do in Asia."

Memory opportunity
As partnerships grow in significance for ST, Bozotti hinted that another memory deal may be in the works.

ST already teams with Hynix on NAND flash and has a one-third share in Hynix-ST Semiconductor Ltd. It also has a NOR flash and non-volatile memory research partnership with Intel Corp.

"Partnerships to achieve scale in memories are vital, and we are very pleased with the progress we have achieved. We may have another opportunity in the memory area," Bozotti said.

While he declined to provide more details, the possibilities could include an alignment with Micron Technology Inc. or the introduction of another partner to expand the Wuxi fab. For now, the common link between ST and Micron is that they are each partnered with Intel on flash; Micron's venture with Intel, IM Flash Technologies Inc., concentrates on NAND technology.

Hynix, meanwhile, said that it plans to raise $750 million for the expansion of Hynix-ST Semiconductor Ltd. manufacturing capacity before the end of June 2007. Bozotti said that the details of how the expansion would be funded had not been decided.

The leaders in flash memory production are Samsung, with about 50 percent of the market; Toshiba and its customer SanDisk Corp., with about 25 percent; and Hynix, with about 15 percent, according to memory market research reports.

Fertile ground
The partnership strategy used in memories can also be applied in areas such as power and multimedia convergence, Bozotti said. ST's microcontroller, power and analog group represents a $2 billion chunk of revenue, he said. The automotive, power management, factory automation and medical electronics sectors present multiple applications in which the relatively simple control of complex systems made up of sensors, actuators, MEMs and microfluidics could yield great value, Bozotti said.

"We want to exploit the technology better. We have a 5 percent market shareit's low, but we are gaining. We want to be the leader in this area," said Bozotti.

ST recently formed a wide-ranging initiative with Freescale to cooperate in automotive applications.

Meanwhile, the heavy dependence on software in the multimedia convergence segmentincluding everything from STBs and HDTV to mobile phones and disk drivesmakes the area ripe for partnership, Bozotti said. But, again, he provided no details.

In a competitive environment that sometimes boils down to "acquire or be acquired," ST clearly expects to acquire, but has been relatively inactive. Is an acquisition move on the agenda?

"We are working on a few opportunities," Bozotti said, noting that ST has "generated $600 million in cash over the last 15 months or so," is "sitting on a cash position of $2.5 billion" and has "a positive debt-to-equity ratio."

Bozotti cited two classes of acquisition: "There's the small- to medium-sized acquisition. Then there are the big things, the complex things."

ST has "the financial strength to move on the first" type he said, and its "criteria have been set out for some time. We need complementarity in products; we need geographical synergy, so something in Japan would be good. And we need a deal to be positive financiallypreferably in the second year."

- Peter Clarke
EE Times Europe

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