ST ready to shed off old image

Only days after STMicroelectronics N.V. hosted its Annual Investors' Day conference in New York, several analysts have upgraded ratings on the company, boosting its market value by as much as 10 percent and elevating the IC firm's equity performance above many of its peers in the embattled industry.

ST executives have longed hoped for such a day when the company's message of change resonated with the investment community, starting with the analysts who track the company to individual investors and extending into boardrooms at fund managers.

It would seem to be an easy job convincing anyone that ST had dramatically changed even in only the last year but the company has been dogged in recent times by its previous failed promises and the perception in the market that it had not been very successful at executing strategic plans.

Carlo Bozotti, president and CEO at ST, set out to erase that perception in his May 15 presentation to investors. ST, he said, "is now a leaner, younger, more innovative, faster and yet powerful competitor in the world semiconductor arena."

ST evolution
ST has certainly changed. The company has exited the flash memory market by setting up Numonyx, a joint venture with Intel Corp. It bought NXP B.V.'s wireless IC business, merged the operation with its own internal division and then consolidated the group into ST-Ericsson, another J.V. ST-Ericsson, another J.V. formed after a merger with LM Ericsson's mobile platform business.

Furthermore, ST acquired Genesis Microchip to broaden "our expertise in the digital consumer marketplace," according to Bozotti, signed an agreement to collaborate on 32- and 22nm CMOS manufacturing process with IBM Corp., and took steps to whittle down total operating costs, starting with a sharp year-over-year reduction in capital expenditure, in addition to job cuts.

"These are the milestones that truly have marked the evolution of ST, and these are the new foundations on which we intend to build our future," Bozotti said. "I believe that we at ST have made the right strategic choices and are correctly executing on them."

That message didn't sink in easily, though, hampered by impressions ST had in the past tripped in the execution stage of some of its grand plans.

Even as Bozotti detailed the changes that have occurred at ST, analysts peppered him with the same set of questions: How can ST say its portfolio has been pruned when it remains one of the most diversified companies in the industry; is ST worthy of being included in a fund manager's portfolio; are its quarterly sales projection of $2.3 billion to $2.4 billion over the next 6 to 12 months versus $1.7 billion in the first quarter realistic and; has it gone far enough in stripping costs from operations?

The analysts eventually came around to Bozotti's point of view, agreeing following additional presentations that ST was taking the required steps that would help it emerge stronger from the current market downturn. Even James Crawshaw, an analyst at Standard & Poor's Equity, who weeks ago downgraded the company's stock price concluded ST could be now headed in the right direction.

"They set some clear long-term financial targets and explained their technology and manufacturing strategies. They also had lots of data that supported their argument that they are strongly positioned in multiple niches," Crawshaw said.

Paris-based Cheuvreux analyst Odon De Laporte was even more bullish on the company, saying in a report that ST has "taken the right steps to emerge stronger from the crisis." Glen Yeung, an analyst at Citi Investment Research & Analysis said he "came away from the event increasingly confident in our 'Buy' rating.