STM chip-maker reports return to profit, sees demand slow

French-Italian microchip maker STMicroelectronic, reporting a return to profit in the third quarter, warned on Wednesday that demand for its processors could fall.
The group's share dropped 9.17 percent to 5.05 euros around midday after it announced some $100 million (78 million euros) in cost-cutting measures.
STM, which makes products widely used in high-tech industries, said its third-quarter profit was $72 million -- compared with a net loss of $142 million in 2013 -- but predicted a downturn in the October-to-December period.
Turnover had already fallen back by 6.3 percent to $1.88 billion in the second quarter, mainly because STM stopped selling products taken on from ST-Ericsson but also because of lower demand in August, the company said.
Its hookup with Ericsson for cellphone chips was the source of major losses over several quarters.
"The slowing demand that we saw in August, especially in the mass market for microcontrollers, put a brake on the turnover growth we expected for the second quarter," said CEO Jean-Marc Chery.
"It continued into September and we predict a resulting 3.5 percent decrease in turnover in the fourth quarter of 2014," Chery told AFP.
The gross margin stood at 34.3 percent compared with an operational margin of 4.0 percent, not counting the costs of restructuring and depreciation provisions, while free cash flow was $140 million.
Earnings per share in the third quarter doubled to eight US cents from four cents in the second quarter. In the third quarter last year the company reported losses per share of 16 cents.
Most analysts doubt that STM can achieve its target of a 10 percent operational margin by mid-2015.
The gross margin should reach 33.8 percent in the last quarter of the year as a result of unused production capacity.
STM shares already took a hit earlier in October after US rival Microchip Technology cut its sales forecast for the upcoming quarter citing disappointing business activity, especially in China.
Microchip's shares plunged more than 12 percent, bringing down with them STM's, which dropped nearly six percent, and those of Micron Technology and Texas Instruments.
On October 20, IBM agreed to pay $1.5 billion to GlobalFoundries, an Emirates semiconductor foundary, to take on its losing chip-making unit.