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FEBRUARY 20, 2006
Is STM On The Mend?  STMicroelectronics (STM
) may finally be on the road to recovery. Like the rest of the microchip industry, STM has had a tough ride since 2000, when the stock peaked at 73. It plunged to 11 in 2002 and has since edged up to 18. Some analysts think the price now reflects the worst that could happen. With cost-cutting in place under new management and increased use of its chips in smart phones, music players, mobile TVs, and car safety cameras, STM is geared to take off, say some bulls. The recovery is not just "a flash in the pan" argues Andrew Griffin of Merrill Lynch (MER
), which has done nonbanking business with STM. Griffin, who rates the stock a buy, reports that executives are showing the "most confidence since the tech bubble." He says they expect to see years of restructuring bear fruit in the second half of 2006. CEO Carlo Bozotti predicts global chip sales will grow 7% to 10% in 2006. Revenues in 2007 will increase at double-digit rates, he adds. Another bull, Antoine Badel of Credit Suisse (CRS
) (it has done banking for the company) says STM has demonstrated that margins are recovering. Meeting forecasts in the past three quarters "should contribute to restoring investor confidence," he adds. Badel estimates STM will earn 95 cents a share in 2006 and $1.30 in 2007. He figures demand for wireless handsets will keep rising, mainly for Nokia (NOK
), which accounts for 17% of STM's sales.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
 By Gene G. Marcial
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