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STMicro boss admits: 'We need to do more pruning'

All not well in the silicon rose garden

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STMicroelectronics NV plans to close or sell another 10 to 15 per cent of its operations as Europe’s largest chip maker attempts to cut costs up against a strong euro.

CEO Carlo Bozotti told the Financial Times that the massive restructure that STMicro has undertaken over the past year was not enough.

"We need to do more pruning," said Bozotti, who has been in charge of STMicro since 2005. "We have taken many measures in the past year, but the euro-dollar exchange rate is a real challenge."

The company’s sales were all in dollars, but “40 per cent of our manufacturing costs and two-thirds of our research and development costs” were in euros, he said.

STMicro has seen costs leap five per cent a quarter on a weak dollar which has put a dent in the firm’s profit margin. In the first quarter the company saw $140m wiped off its operating profits, pushing STMicro into the red with a net loss of $84m.

Bozotti told the FT that he was looking to sell three to five of 30 product units. His review of the business is ongoing and he hopes to make a decision in the next few months.

He is also looking to outsource 20 per cent of manufacturing by 2010 – that compares with just 10 per cent of its chip-making ops today.

Last month STMicro, which supplies the likes of mobile giants Nokia, Samsung and Sony Ericsson with wireless chips, decided to merge its wireless semiconductor business with rival NXP.

That strategic move was viewed by many as the company’s latest attempts to consolidate costs in the face of concerns about a slowdown in customer spending and a looming recession.

In April it also completed the merger of its cash-starved flash memory units with chip giant Intel creating a new company called Numonyx.

STMicro’s share value has fallen more than 44 per cent in the past year. ®

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