STMicro to get new CEO, COO

Lucas van Grinsven, European Technology Correspondent

AMSTERDAM: Europe's biggest chip maker, STMicroelectronics, has named the head of its money-losing memory chip division as its new chief executive in a bid to raise margins and boost profitability.

Carlo Bozotti, a 51-year-old Italian born in a small village near Milan, was proposed by retiring chief Pasquale Pistorio, who will be 69 by the time of the 2005 annual meeting due to ratify the appointment.

Pistorio has run the Geneva-based firm since he masterminded the 1987 merger between Italy's only chip maker SGS Group with France's Thomson Semiconducteurs.

Under Pistorio's command the company, which has Finnish mobile phone giant Nokia as its biggest customer, saw an initial period of rapid growth but has experienced falling margins in recent years.

"His (Bozotti's) biggest job is to lift the profit margins of the whole company. It underperforms rivals such as Texas Instruments," said analyst Ewald Walraven at ING.

The appointment is partly explained by internal politics.

"ST had to find someone internal. The French and Italian interests need to be understood. That would be difficult for an outsider," said a London-based analyst who declined to be identified. "It's ironic that Bozotti, who runs the unit which causes the biggest problems, will be the new CEO."

But he said the problems of the memory division, despite healthy demand from makers of digital cameras and MP3 music players could not be blamed on Bozotti. The low margins were due to over capacity and subsequent low selling prices.

The memory chip division, one of ST's fastest growing units after big investments, was loss-making in all of 2003, and squeezed out a tiny $1 million operating profit in the fourth quarter on $458 million sales, or 22 percent of total revenues.

CRITICISM

Brokers such as JP Morgan have issued sharp criticism that ST has invested a lot of its resources into commodity memory chip products, while its successes in the last decade were based on producing tailored chips for mobile phone, automotive and consumer electronics companies.

Under Pistorio's tenure SGS-Thomson Microelectronics, renamed STMicroelectronics in 1998, accelerated its expansion as its sales grew sevenfold in 15 years, nearly twice as fast as the market average.

With 2003 sales of $7.2 billion STMicro is well ahead of its European rivals Infineon of Germany and Philips of the Netherlands and a global top five player.

But the firm's gross profit margin, a key gauge of its success, was 36 per cent in the fourth quarter and 35 per cent in the first, while investors had hoped for a quick return to levels above 40 per cent. Rivals such as U.S.-based Texas Instruments were already closing in on 45 per cent.

Putting 59-year old Frenchman Alain Dutheil in the newly created role of Chief Operating Officer complemented the appointment of Bozotti, a football and jazz fan. "Dutheil was also a candidate chief executive, but the younger guy gets the job," another analyst said.

Bozotti, an electronic engineering graduate of the University of Pavia with extensive international experience in sales and marketing, has a lower profile with investors than Dutheil who heads up Strategic Planning. But those who have met him like Bozotti, analysts said.

© Reuters