STMicroelectronics Stock Forecast

So many of the technologies that underpin our lives today—from radios and solar panels to computers and mobile phones—can be attributed to a single humble device: the semiconductor.

The term “semiconductor” itself comes from the fact that these objects are average conductors of electricity, neither excellent conductors (such as copper) or poor conductors (such as sand). This simple property forms the backbone of the modern semiconductor device, which is at the heart of the digital revolution that has continued to this day.

With semiconductors such an integral part of current and future economic growth, it’s no surprise that investors would look toward semiconductor companies as an interesting place to park their money.

One such company is STMicroelectronics [NYSE: STM], one of the biggest names in the industry and in the European market in particular.

Shares of STM were at their peak during the dot-com bubble in the 1990s and early 2000s, reaching over $90 at their highest point. The stock currently trades at a small fraction of that price; however, it has exhibited a streak.

What do you need to know about STMicroelectronics stock: how have shares of STM performed in the recent past, and how are they likely to perform in the future?

What Does STMicroelectronics Do?

STMicroelectronics [NYSE: STM], often called simply “ST,” is a multinational French and Italian manufacturer of semiconductor devices and other electronics.

The company was formed in its current state in 1987 by the merger of SGS Microelettronica and Thomson Semiconducteurs.

Headquartered in Geneva, Switzerland, STMicroelectronics also has major outposts in Singapore, Tokyo, Shanghai, and Coppell, Texas.

Beyond these regional offices, ST also runs 11 manufacturing sites and 80 sales and marketing offices in nearly three dozen countries.

In total, the company employs an estimated 45,000 people, which makes it the largest manufacturer of semiconductor chips in Europe. Jean-Marc Chery has served as ST’s president and CEO since May 2018.

The company is divided into four separate segments:

  • Automotive and Discrete Group (ADG),
  • Analog and MEMS Group (AMG),
  • Microcontrollers and Digital ICs Group (MDG), and
  • Others.

Collectively, these divisions manufacture products including automotive integrated circuits, power transistors, low-power analog integrated circuits, touch screen controllers, general-purpose microcontrollers, and low power connectivity solutions for Internet of Things (IoT) devices.

ST’s major competitors include other semiconductor makers such as Texas Instruments, Intel, Nvidia, Infineon, and NXP.

Is STMicroelectronics a Buy?

Let’s start with the good news: why potential investors should be interested in STM stock.

The past several years have seen both ups and downs for shares of STMicroelectronics [NYSE: STM]. In both 2016 and 2017, the stock’s value nearly doubled, and shares remained near this local maximum until June 2018, when they began a protracted decline.

Yet after a jump at the start of the year, STM stock has begun a slow climb back to its 2017 highs.

Much of the growth in 2016 and 2017 can be attributed to the company’s relationship with tech giant Apple, which used ST’s semiconductor chips as a key component of the new iPhone X’s facial recognition system. Thanks to this partnership, ST’s Q3 2017 results were strong, and the company’s stock responded in kind.

After a lackluster second half of 2018, STM stock popped again in January of this year after reporting good Q4 2018 earnings.

Revenue increased by 7 percent year over year to $2.7 billion, while net income was $418 million or $0.46 per share, slightly ahead of analysts’ estimates.

What are the Risks of Buying STMicroelectronics?

While STM stock has had a good run since the start of the year, it’s not clear whether this resurgence will be able to continue indefinitely into the future.

In the short and medium term, the fate of companies like STMicroelectronics [NYSE: STM] will be caught up in the ongoing trade war between the U.S. and China.

While ST is headquartered in Europe and is more diversified than many of its competitors, tensions between the two countries have contributed to a general weakness in the semiconductor industry, which operates many of its manufacturing locations on Chinese soil.

These global anxieties were one reason why STMicroelectronics stock plunged by 17 percent in October 2018, despite good Q3 2018 results.

ST’s sales in the third quarter of 2018 increased by 18 percent year over year to reach $2.5 billion, just ahead of analysts’ estimates. However, the company’s management noted concerns about the “soft market conditions” in China, leading them to significantly cut their revenue projections for the next quarter.

STMicroelectronics Stock Forecast: Summary

While STMicroelectronics [NYSE: STM] is recovering from the stock’s crash in the back end of 2018, there are also serious issues on the horizon with the semiconductor industry.

In Q1 2019, global semiconductor chip sales dropped to $101 billion, decreasing from $116 billion in Q1 2018. This represents the greatest decline year over year since the global recession a decade ago.

Due to fears of a global economic slowdown and a churning U.S.-Chinese trade war, shares of STM don’t look like a great investment right now, despite the stock’s modest resurgence this year. If another recession is coming, semiconductor companies like ST could be seriously impacted.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.