Morningstar | ST Seeks to Power Through the Latest Chip Industry Slowdown
STMicroelectronics is Europe's largest chipmaker and holds one of the broadest product portfolios in the industry. We are pleased to see the company make structural improvements to its product mix and margin profile, and we think it has some promising growth opportunities on the horizon in microcontrollers, sensors, and automotive products.STMicro had some struggles in years past, regularly failing to earn robust profitability due to investments in money-losing digital chip businesses and share loss in other chip products, among other stumbling blocks. However, the company has turned around nicely as it has exited the ST-Ericsson wireless joint venture and reduced its investments in various digital chips. Nonetheless, it still competes in some highly competitive segments of the chip industry, such as commoditylike discrete chips that carry lower margins than analog chips and microcontrollers from U.S.-based peers.Still, STMicro's leading analog technologies and strong position in the automotive market are reasons to be optimistic about the future, with especially promising opportunities in time-of-flight sensors and silicon carbide-based power products. Government regulations and the demand for safer, greener, smarter cars are leading to increased electronic content per vehicle. Broad-based analog chipmakers like STMicro stand to profit from greater demand for advanced infotainment systems, battery management solutions, and sensors associated with new safety features like blind-spot detection. Broad-based microcontroller sales also appear to be nice growth avenues, which should more than compensate for the businesses ST recently exited. All in all, we anticipate decent growth and profitability improvement as well as an attractive dividend yield out of STMicro. However, we see wider moats and even more attractive product mixes and margin profiles across several pure-play U.S.-based analog chipmakers under our coverage.
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