Wireless Only Ray Of Light For Chip Vendors

Last week, in our post on the three chip companies, Qualcomm, Broadcom, Texas Instruments, we saw that demand had improved, especially in China. In its first quarter report on April 29, STM, which had annual revenue of $10 billion in 2008, observed improved demand in Asia but said it needed time to confirm the trend. Let’s take a closer look at its performance as well as that of Infineon and Tessera.

STMicroelectronics (NYSE:STM) reported a wider first quarter loss of $541 million, or $0.62 per share, compared to a loss of $84 million, or $0.09 per share last year. Excluding charges, loss was $0.31 per share. Revenue declined 33% to $1.66 billion due to significant weakness across most geographies and market segments. Analysts expected a loss of $0.33 per share on revenue of $1.67 billion. Q4 analysis is available here.

Gross margin in the quarter was 26.3%, down from 36.1% last quarter with unused capacity charges negatively impacted gross margin by over 8 percentage points. STM reduced inventory levels by $184 million in the quarter and plans to continue its inventory reduction.

Finally, this quarter STMicro returned to a net cash from a net debt position. At March 28, 2009, ST’s total cash equaled $2.9 billion and total debt was $2.65 billion. Net cash is now $254 million from a net debt of $545 million at the end of 2008.

Except for the Wireless segment, all segments posted y-o-y and sequential declines due to the global economic slowdown. Wireless revenue increased 49.1% to $518 million but declined 9.9% q-o-q. The Automotive, Consumer, Computer and Telecom Infrastructure Product Group (ACCI) revenue declined 40% y-o-y and 30% q-o-q to $627 million. Industrial and Multisegment Sector (IMS) revenue declined 35.5% y-o-y and 37% q-o-q to $499 million.

STMicro plans to reduce costs by over $700 million in 2009. In the first quarter, it reduced its headcount by 3,200. It discontinued manufacturing operations at its assembly plant in Morocco and in mid-April closed its Texas wafer fab. Also, the wireless joint venture it entered into a with Ericsson in February recently announced a restructuring program that is expected to save $230 million annually.

For the second quarter 2009, STMicro is planning for revenues to be in the range of $1.73 billion to $1.93 billion. With continued inventory reduction, fab loading will run at levels of about 50%, driving gross margin to down to the mid 20s as a percentage of sales. Analysts expect Q2 revenue of $1.72 billion. The stock is currently trading around $7 with market cap of about $6 billion. It hit a 52-week low of $3.73 on March 6.

Last week, Infineon Technologies AG (FSE:IFX/OTCQX:IFNNY) reported its ninth straight quarterly loss in its second quarter and cut its 2009 outlook. Q2 revenue was down 29% y-o-y and 10% q-o-q to €747 million. The sequential decline is a result of decline across all segments except Wireless Solutions. The group net loss reduced to €258 million or loss of €0.32 per share from loss of €1.96 billion last year when it had heavy charges related to the Qimonda memory unit. Earlier coverage is available here, here, and here.

Infineon deconsolidated the ailing Qimonda in the quarter and incurred a charge of €100 million. Following losses on memory-chip prices that fell below production costs and after failing to get sufficient financing, Qimonda had filed for bankruptcy in January. Apart from the memory unit, Infineon has also been badly hurt by the collapse in the global automotive market.

Infineon has worked hard to reduce its capital expenditure and bring down free cash outflows to €22 million. It reduced inventories aggressively by 18% q-o-q. It has also reduced its headcount to 26,400 from 29,100 at the end of September 2008. Further, it has reduced working hours and implemented unpaid leave, which will not incur any charges.

Infineon expects third quarter revenue to increase by 10% driven by positive signs from the wireless segment. Although Nokia expects handset sales to decline by 10%, volumes at its other customers, LG and Apple, are ramping up.

For the full year, Infineon expects revenue to decrease by more than 20% y-o-y. The company must pay back about €50 million to its credit consortium before the end of September.

The bankruptcy of Qimonda has affected revenues at Tessera, an IP licensing company and a leading miniaturization technology provider with annual revenue of $248 million. Last week, Tessera (NASDAQ:TSRA) reported first quarter results that met expectations despite nonpayment from its major customer, Qimonda, mainly because the former reigned in its litigation expenses. Q4 analysis is available here.

Q1 revenue was $114.6 million up 93% y-o-y and 66% q-o-q. Net income  was $39.5 million, or $0.82 per share. Non-GAAP net income was $48.0 million or $0.98 per diluted share.

Tessera generated $80.0 million in free cash flow and ended the quarter with $383.8 million in cash with no debt. Its cash position improved by $85.2 million and the Amkor settlement accounted for $64.1 million.

Litigation expense was down sequentially 51%. Due to this significant reduction, total GAAP expenses were lower by 18% y-o-y and 13% q-o-q. Excluding litigation, GAAP operating expenses were 4% lower sequentially and up only 13% y-o-y.

Since January, Tessera has reorganized its business into two reporting segments, Micro-electronic and Imaging & Optics. Within segments it has two revenue growth categories, royalties and licensees and products and services.

Micro-electronics revenue was $106.6 million up 130% y-o-y and 81% q-o-q mainly due to the Amkor settlement. Imaging & Optics revenue was $8 million. Within this, royalties and license fees were $5.3 million up 34% y-o-y and 48% q-o-q while product and service revenue was $2.7 million, down 60% y-o-y and 52% q-o-q mainly due to the slowdown in semiconductor equipment purchases.

For the second quarter of 2009, Tessera expects total revenue to range between $46 million and $49 million, down from $56.3 million in 2008. Micro-electronics revenue is expected between $40 and $42 million, negatively impacted by the weak demand in the DRAM and wireless markets, in addition to Qimonda’s financial condition. Imaging & Optics revenue is expected between $6 and $7 million.

During the first quarter, Tessera acquired additional key silent air cooling patents. It also successfully displayed first images from its 3-megapixel version of the OptiML wafer-level camera. It signed an additional licensee, Q Technology Limited, for its optimal wafer-level optics. Finally, the company announced plans to buy assets of Dblur Technologies, a developer of software lens technology for cell phone cameras.

Further in the quarter, Tessera demonstrated two new technologies: a wireless miniature camera integrating its face tracking technologies, the storage and correction of algorithms, wafer-level packaging and a single-element lens as well as a collection of Intelligent Scene Analysis Technologies.

The stock is currently trading around $15 with a market cap of about $730 million. It has recovered well from its 52-week low of $8.33 on December 2.