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STMicroelectronics: This Chip Company Is A Cheaper And Less Risky Option

Feb. 05, 2019 4:42 PM ETSTMicroelectronics N.V. (STM)12 Comments
Gio Danisi profile picture
Gio Danisi


  • STMicroelectronics is a well-established tech company, with a reliable business and legitimate growth perspective.
  • Its fundamentals look more solid than those of other leaders in the chip or semiconductor manufacturing industry, which have benefited from a robust bull market in the last few years.
  • The company is priced for modest growth, so earning beats are likely to happen, an ideal situation for investors.

STMicroelectronics (NYSE:STM) is one of the oldest semiconductor companies. It has been listed as a public company since 1994, but it was founded several years before, in 1987, as a merger between an Italian and a French tech company.

Today, it is still an Italian/French company, although it is formally registered in Amsterdam, Netherlands, with several facilities and research centers located in France (mainly Grenoble, Rousset, and Tours) and Italy (Milan and Catania). Other important STM's centers are located in Malta and Singapore.

Its research activity greatly contributes to the company's main assets, owning around 18,000 patents. Over the years, it has developed proprietary technologies like TSV, BCD, FD-SOI, VIPower, ThELMA and FlightSense, to name a few. These innovating know-hows allow the company to stand out from competitors and provide a buffer that will protect STM's future expansion in its main business areas: ADAS, MEMS, and Imaging Sensors, as well as Microcontrollers.

STMicroelectronics is a promising long-term investment

STM stock hasn't followed a straight growing path since IPO. As we can see from the picture below, the initial successful years (coinciding with the famous internet bubble at the end of the last century) were followed by several disappointing periods of underperformance.

Source: Dividend Channel

The company was not able to successfully deal with the normal cyclicality of its addressable market, especially after the problems experienced by Nokia (NOK) and the huge loss STM suffered from the pro forma bailout of its former main customer. At the peak of its expansion, Nokia controlled almost 40% of the global mobile phone market and bought more than $2B in STM's components a year.

Yet, after years of stagnation, STM managed to get back on track, with a new strategy that allowed it to gain considerable shares of promising and fast-growing markets, like ADAS and IoT, as well as

This article was written by

Gio Danisi profile picture
Private “part time” value investor. I've been managing my personal funds since May 2008.As stocks are just pieces of businesses I try to look at mine with an enterpreneurial approach: that's why my portfolio is made-up by 6-8 holdings, which I follow costantly. My holding period is ideally "forever", even though I can't exclude to make some changes from time to time.

Analyst’s Disclosure: I am/we are long STM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

10 Feb. 2019
It's true the calls are not as fun as they used to be, just because the CEO is now able to articulate meaningful statements. Bozotti had no clue...
hi Mr. GIO .. H ope all is well .. glad to see FOLLOERS growing as you continue to be on the right side of trading .. i like your analyzation of STM and will start soon .. keep us all informed .. THANKS
Gio Danisi profile picture
Kind reader: I hope you enjoy reading.
If you are interested in further information about the companies included in this article, don't forget to "follow" me.
Best Regards
jd99 profile picture
Excellent company - JM Chery has been at the co for years but has only been CEO for a year or so. They analyst calls aren't as fun anymore since Bozotti retired though Chery will still scold people for dumb questions. While MCUs are very competitive they have a fabulous position in 32 bit MCUs and seem to be the go to product these days. Their analogue power business is the up and comer and where they'll invest heavily in the next decade. The reason for the very cheap valuation is the short cycle consumer exposure and especially Apple - the imaging division is best in class but very competitive and Apple of course have a history of dumping key suppliers. Utilisation is maxed out and they have to spend on 300mm expansion to grow which consumes most of their cashflow. Margins are low and they really should merge with Infineon given spending overlaps but they refused last year to discuss anything. For Tesla fans they have been a key technology enabler via Silicon Carbide power parts. Agree STM is a buy for the next few years.
I could never make head or tail of Bozotti's replies!
10 Feb. 2019
The Infineon merger would absolutely make sense. Difficult to execute because the overlaps are significant, especially in Automotive Power. But Infineon is weak where ST is strong i.e. sensors, MCUs and SiC power so there are also great synergies. And, in an industry that is becoming mature, size matters.
UP & DOWN profile picture
Isn’t the corporate headquarters in Geneva Switzerland ?
@Gio Danisi

Thanks for the article -- you don't see much on SA about STM.

With that said, didn't STM do something about 3 years ago that is a hard warning to potential investors: cut the dividend 40%? That did not seem to hurt their stock price until mid-2018, from whence it dropped ~30%. Now it could sure use the support of the unreduced dividend, if not one that got raised from time to time instead of cut and held flat since.

I collected 16 of the $0.1/qtr/share dividend until it got cut and continue to hold STM for now but am not adding any semi's until they become stupid-cheap, as in 75% down from peak with a meaty dividend yield.

Ciao and gratzie
Things have changed. They had a tie-up with Erickson which cost them heaps. They somewhat lost the plot for a while, with too much capacity.

But they gradually re-organized and always had important products, eg time-of-flight distance measuring devices, and acceleration/angle/gradient sensors (MEMS).

As shown in article above:
"Automotive and Power Discrete Group (ADG);
Analog, MEMS and Sensors Group (AMS);
Microcontrollers and Digital ICs Group (MDG)"

These are used in cars and phones. iPhone used the angle sensors, which turned the image round as the phone was moved.

They make good routine electronics stuff.

(Sad to say, a Swedish company which had the same know-how but not the fabrication plant, has sold out to the Chinese).

STM is run by Europeans and the Italian and French govt have considerable holdings. And yes, its in Geneva.

(note: the US company APTIV is headquartered in Dublin!!, I think)
With the relentless price squeeze the auto manufactures' put on suppliers can the ADG group make money ?
Gio Danisi profile picture
thank you for commenting. I am not a dividends fan, or a dividend seeker. if you check my articles I rarely speak about dividends paid by companies I follow, I even don't check if a company pays dividends or not.
From my point of view paying dividends is a waste of resources for a company and as a shareholder I am definitely against the practice. I prefer buy-backs or R&D investments with cash in excess.
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