INTERVIEW-STMicroelectronics has growth ambitions
03:43 a.m. Jul 31, 1998 Eastern
By Marcel Michelson
GENEVA, Switzerland, July 31 (Reuters) - European semiconductor group
STMicroelectronics NV aims to carve out five percent of the world
market, from some three percent now, in a sector growing an average 15
percent per year.
Pasquale Pistorio, chairman and chief executive officer of the group
formerly known as SGS-Thomson Microelectronics NV, said in an interview
he was mainly aiming at internal growth but would consider acquisition
opportunities.
Pistorio, who said it was possible his company would tap the share
market again after this year's stock offering, also said a merger with
another company was unlikely.
He said ST's current 11 percent return on equity was insufficient,
although good in the current industry down cycle, and said ST would try
to return to above 15 percent in 1999 while his long term aim remained
an ROE of more than 18 percent.
''According to the experts, the (semiconductor) market is growing 15
percent compound per year. In fact, in the next five years it will grow
even faster. That means a doubling of the market every five years,''
Pistorio said during an interview in ST's small Geneva corporate
headquarters.
''If you want to grow faster than that and gain market share, you see
the challenge!,'' he said.
ST had a market share of 3.2 percent for the first half of 1998. In
1997, it ranked number 10 in the world in sales terms, behind Philips
and ahead of Mitsubishi and Siemens.
Intel leads the league table, followed by NEC, Motorola, Texas
Instruments, Toshiba, Hitachi, Samsung, Fujitsu and Philips.
Pistorio said ST wanted to reach five percent market share in the period
2010 to 2015, because experts believe that after 2015 the semiconductor
market will have become mature.
''We have grown faster than the market in the past 15 years, we believe
that we have all the ingredients and conditions to grow faster than the
market in the next several years and therefore eventually the target is
not impossible,'' he said.
''Our motto is profitable growth and the accent is on profitable,'' he
added.
Pistorio said that ST needed to reach the threshold of five percent
because in the future only companies with a share of at least that size
would remain in the big league while the others would fall behind. This
is due to the volumes of sales needed to fund the manufacture and
development of chips.
''Like in any industry, there will be consolidation in (the)
semiconductor industry. This means there will be very few companies that
remain in the big-league, big broad range suppliers with more than five
percent market share. Then a vacuum and then below, many specialists
with a market share below 0.5 percent,'' Pistorio said.
''Our ambition is to grow faster than the market, essentially by
internal growth but not insensitive to opportunities. If the opportunity
will show, we will capitalise on the opportunity to speed up the growth
by some acquisition,'' he said.
''Our strategy, our five-year plan, is designed on growing internally,''
he added. ''A merger is a very big acquisition. We have done it in the
past but now it is really in the realm of fantasies. Acquisitions are in
the range of possibilities.''
ST has a number of alliances with rival semiconductor companies, such as
Mitsubishi, Philips and Siemens, but Pistorio called those
''pre-competition co-operation.'' These alliances are aimed at spreading
costs and risks and cutting time-to-market.
ST also has alliances with Hitachi for digital computer products and
recently signed an agreement with IBM for chips for hard-disk drives and
so-called intelligent assistants like hand-held computers. More such
deals are possible.
ST invested some $1.0 billion in 1997 and is likely to invest the same
this year. This includes a recent decision to build new factories at
existing sites in Crolles, France, and Agrate and Catania in Italy. ST
will invest $300 million in the next five years in Morocco and has
increased its investment in Shenzhen, southern China, to $100 million
from $70 million.
The combined investments in capital expenditure and research is higher
than profit and depreciation, which means ST is cash negative to the
tune of $118 million in the first half.
After the recent share offering it has cash in the bank.
Pistorio said that the entire industry was cash negative and this was no
problem as long as investors, who do not get a dividend, expect a good
return on investment.
''If we need money we will go back to the market, we could do another
share offering,'' he said, adding there were currently no plans to do so
in the coming 18 months.
A French and an Italian state-owned consortium each have a 28.1 percent
stake in ST.
Copyright 1998 Reuters Limited. |
