SGS-Thomson Microelectronics BV is forecasting that semiconductor market growth will slow in the second half of 1994 from the strong levels of 1993 said Pasquale Pistorio, the company’s president and chief executive. He told Reuters that industry experts forecast market growth of 14% to 15% in 1994, around half 1993’s levels, adding that excess demand experienced in 1993 would be soaked up by capacity SGS-Thomson has been installing. By 1995 there could be excess capacity, as the semiconductor cycle continues to dip from its 1993 peak, but this might be compensated for by economic recoveries, particularly in Japan. We may have a softer landing, he said. He reckons that SGS-Thomson is well-placed to weather the downturn in the chip cycle, and that the former chronic loss-maker would fare better than the industry average.
Strategic partnerships
Last year marked the start of a new phase of SGS-Thomson’s development after its first five years of existence, he said 1992 ended a period of restructuring and that SGS-Thomson had closed a technological gap with its competitors, particularly in CMOS technology. Last year it sealed two more strategic alliances, with Seagate Technology Corp and Northern Telecom Ltd, as part of its policy of concluding strategic partnerships with major customers, another being Alcatel Alsthom SA. The company increased its employee base in 1993 to 19,500 worldwide from 18,000 at the end of 1992, Pistorio said. Of these, 500 new jobs were created in France and 350 in Italy, and the rest were in assembly plants. The company has no need to tap the second half of its promised capital increase yet: the French and Italian governments, which own 45% each, last year paid the company $500m out of a planned $1,000m injection, and the second tranche is due in 1995. The $1,000m figure depends on the company’s earnings and ability to grow: he confirmed the previous forecast that it made profit of $150m on turnover of over $2,000m in 1993, which compares with a net profit of just $3m in 1992 on turnover of $1,600m, after years of losses, saying that the figures were hardly affected by the cash injection. The $500m paid last year helped SGS-Thomson to cut borrowings to under $300m at the end of 1993 from $808m a year earlier, and bring the debt-to-equity ratio down to 28% at the end of 1993 from 200% in mid-1992. Last year we generated internally all the cash needed to finance all our capital investment plus a litte bit he said – SGS-Thomson made capital investments of $480m and invested $300m in research and development in 1993.Our debts are less than $300m. What do you do? Take the money and put it in the bank? he said, referring to the second $500m tranche due next year. When SGS-Thomson needs more equity, it will obtain it either from existing shareholders or from outside, he said, acknowledging that French and Italian press reports have suggested the second tranche could be in jeopardy. They have also floated the possibility that France and Italy, each embarking on big privatisation programmes to reduce their budget deficits, might sell off all or part of SGS-Thomson. I am favourable if there is some partial opening to the market. But that’s my personal opinion, Pistorio said. Timing is up to the shareholders: it’s not something that is urgent.
