NEWS | Wednesday, 06 February 2008

Weak dollar put us USD310 million behind - ST

David Darmanin

The recent publication of ST Microelectronics fourth quarter financial reports for 2007 announced a yearly operating loss of USD545 million. ST’s international chief Carlo Bozotti is saying that the weak dollar is the deficit’s main cause, but top analysts did not buy it.
In the three months of summer 2007, Bozotti shut down a total of four manufacturing plants based in the US, diverting a portion of the conglomerate’s chip and wafer manufacturing production to Asia.
Also in 2007, ST ran into an expense of USD249 million in relation to an agreement entering into a flash business partnership, recording a 93 per cent drop in profits and a fall in net income to USD 20 million from a profit of USD276 million in the fourth quarter of 2006. The 2007 net loss of USD477 million, compares to a 2006 net profit of USD782 million.
ST CEO Carlo Bozotti said he hoped to get capital expenditure down to around 10 per cent on sales in 2008.
In his statement, Bozotti said: “While we continue to make significant improvements in a number of areas - such as our product portfolio, competitiveness, capital intensity, manufacturing performance and cost structure - the financial benefits of our actions are difficult to see, as a rapidly weakening US dollar absorbs much of our progress. We estimate that on a constant currency basis our 2007 operating profit, excluding restructuring and impairment charges, would have been about $310 million higher than the reported figure of $683 million and would have been about $240 million higher than the comparable operating profit figure of $754 million in 2006. Therefore, ST will continue to take the necessary actions and portfolio efforts required to further improve the Company’s operating leverage.”
According to analysts, blaming the weak dollar for a negative impact of operating profit by USD 300 million is not realistic. On this issue, Electronics Weekly reported that analyst Future Horizons CEO Malcolm Penn said: “If you’re a global company you should balance the global risk of currency fluctuations by operating globally, so what you lose in one currency you should make up in another. The big companies are finding it difficult to adapt to the changed environment,” he added, “they are very slow and cumbersome just because they are big.”
For the full year 2007, the effective average exchange rate for the Company was approximately USD 1.35 to €1.00, compared to USD 1.24 to €1.00 for the full year 2006.
It is not clear whether the ever weakening US currency shall influence Malta’s ST operation. The spokesperson for Malta’s ST plant did not want to comment.

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