STMicro Has the Right Idea
ST Microelectronics (STM) lowered its chip sales forecast for 2006 and believes sales will grow 6-11% in 2007. The 6-11% is higher than the average industry growth of the last 10 years, and we would expect growth nearer the bottom than the top end of that range, but we don’t think it is an outrageous forecast.
What’s more, STM has been doing what we believe all semiconductor firms should be doing: namely reducing spending on new capacity. According to their most recent earnings release:
Capital expenditures were $399 million in the 2006 second quarter and $696 million for the first half, compared to $363 million and $927 million in the 2005 similar periods, respectively.
However, despite management taking the right steps, the stock is underperforming its semiconductor peers. It will be interesting, over the next few months, to see if that changes.
Disclosure: William Trent has a long position in SMH.
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