深陷泥淖，ST-Ericsson还能坚持多久？

How long has ST-Ericsson got?

Peter Clarke

Gilles Delfassy, president and CEO of wireless chip joint venture ST-Ericsson (Geneva, Switzerland), said it's tough right now but that the company is encouraged by the traction it is getting for its new products.

He was talking to analysts on a telephone conference to discuss ST-Ericsson's second quarter 2011 financial results. And the ST-Ericsson situation IS tough right now. The trouble is it is set to remain tough for the rest of 2011 and probably throughout 2012. And the rate at which the company is generating losses begs the question how long STMicroelectronics and Ericsson can afford to wait for things to come good.

ST-Ericsson made a net loss of $221 million on sales revenue of $385 million in the second quarter. The third quarter, in which sales would normally see a sequential jump, is going to be flat, the company said.

The reason for those flat sales is because the so-called legacy products, those created before the formation of ST-Ericsson in February 2009 are declining rapidly while the new chip designs and platforms have, in many cases, yet to reach volume. ST-Ericsson now reckons that new products are responsible for about 45 percent of the $385 million sales in 2Q11 but a large part of the problem is that ST-Ericsson was strongly coupled to Nokia, which is having its own annus horribilis.

And even as Nokia turns to Microsoft and the WindowsPhone operating system for its future smartphones that means Nokia is turning to Qualcomm for those chipsets, at least initially.

But the design-win traction that Delfassy is so encouraged by is only good to the ST-Ericsson shareholders if the company gets designed into smart phones and tablet computers that go on to be a roaring success. Any number of design wins at mobile device wannabes or has-beens who go on to sell just a few units will do ST-Ericsson little good. It is therefore all about being in the winning smartphone and tablet computer designs. And the fast moving mobile device market is not any easy one to second guess.

No breakeven target date given

ST-Ericsson had a breakeven target of the second quarter 2012 but, citing slower expected ramping of volume requirements at some customers, the company has pushed that out and on the call Delfassy gave no indication as to when ST-Ericsson could breakeven except to say "as soon as possible."

Making a loss of $221 million on revenue of $385 million is, for me, a frightening financial statistic roughly akin to being in free-fall. At the end of 2Q10 ST-Ericsson had $43 million in the bank and owed nothing to its parent companies. At the end of 1Q11 ST-Ericsson owed $234 million and at the end of the 2Q11 ST-Ericsson owed its parents $445 million.

On the conference call ST-Ericsson executives did not disagree with an analyst who estimated the company's loss rate as being about the same in the second half of the year as it was in the first half so ST-Ericsson could be close to owing $900 million by the end of the year.

The company has said it will restructure to lose about 500 jobs and cut $120 million of annualized costs by the end of 2012 but it seems this can only slow things down.

Chief financial officer Tim Lucie-Smith agreed there would be "negative cash flow in the coming quarters" and said the company's plan was for the company to be funded by loans from its shareholders. There are no plans to change that, he said. The shareholders are monitoring this on a quarterly basis, Lucie-Smith said.

ST-Ericsson is suffering because Nokia is turning Windows with Qualcomm and STE is not yet qualified, ST-Ericsson is suffering because they are well placed in TD-SCDMA in China which is suffering a slow ramp. The company is being squeezed in the middle between mobile chipset suppliers such as Qualcomm and Samsung and the agile fabless chip companies coming out of China and Taiwan

How many quarters of ramping debt will STMicroelectronics and Ericsson tolerate as they themselves come under shareholder pressure?