STMicroelectronics Faces Major Declines Amid Market Shifts
STMicroelectronics STM shares have dropped 48.6% so far in 2023, contrasting sharply with returns from the Zacks Semiconductor-General industry and the Zacks Computer & Technology sector, which reported gains of 127.4% and 29.8%, respectively.
In that same period, competitors like NVIDIA NVDA, Amtech Systems ASYS, and Texas Instruments TXN have seen their stocks rise by 183.2%, 35.9%, and 15.7%, respectively.
This slide in STM’s stock is mainly due to falling customer backlogs and order entries during the third quarter, particularly in the Industrial and Automotive sectors. Customers are shifting away from fully battery electric vehicles (EVs) to hybrid models and prioritizing economy over premium vehicles.
In response, STMicroelectronics has teamed up with Renault group’s Ampere, a key player in the EV sector. This partnership aims to enhance their offerings in the electric vehicle market.
Through the collaboration, STMicroelectronics and Renault Group will focus on supplying Silicon Carbide power modules for an inverter intended for Ampere’s ultra-efficient electric powertrain. Combining Ampere’s EV technology with STMicroelectronics’ power electronics expertise, the designed powerbox will optimize performance for all Ampere electric vehicles, including both 400 Volt and 800 Volt battery models, aiming to provide better range and quicker charging times.
Price Trends and Market Consensus for STM
STMicroelectronics N.V. price-consensus-chart | STMicroelectronics N.V. Quote
Potential Recovery Through Strategic Collaborations
The company’s ongoing efforts to form long-term partnerships may help improve stock performance in the near future. A notable collaboration with Qualcomm Technologies, a subsidiary of Qualcomm Incorporated, aims to develop next-generation industrial and consumer IoT solutions using edge AI.
This agreement includes the integration of Qualcomm’s AI-driven wireless technologies with STMicroelectronics’ STM32 microcontroller ecosystem. Such collaborations are set to enable developers to integrate connectivity software seamlessly into STM’s MCUs, leading to faster adoption through STM’s global sales channels.
Growth Opportunities in the Industrial Sector
A significant recent product launch is the EVLDRIVE101-HPD motor-drive reference design. This compact design features a 3-phase gate driver, STM32G0 microcontroller, and a 750W power stage all on a 50mm circular PCB, allowing it to fit into various applications including drones and robotic systems. This innovation is particularly beneficial for industrial equipment like pumps and automation systems.
Another advancement is the introduction of ultra-low-power STM32 MCUs, which can reduce energy usage by up to 50%. This innovation decreases the frequency of battery replacements, minimizing both waste and the need for batteries in designs that can utilize solar energy.
STMicroelectronics has also released the ST Edge AI Suite, a collection of software tools that simplifies the development of embedded AI applications, showcasing its commitment to innovation.
Weak Projections for Q4 and FY24
Looking ahead, STMicroelectronics projects fourth-quarter revenues to reach $3.32 billion, suggesting a 22.4% year-over-year decline. The Zacks Consensus Estimate aligns with this forecast, also indicating a decline of 22.5% in revenue.
Expected gross margins are around 38%, reflecting a decrease of about 400 basis points influenced by product mix and inventory costs. The earnings consensus is projected at 35 cents per share, which represents an 18.6% decrease over the past month and a significant 69.3% drop compared to last year.
For the entire year of 2024, revenues are estimated at $13.27 billion, translating to a 23.2% year-over-year drop, attributable to diminished Automotive revenues and a slight decline in Industrial revenue, though Personal Electronics might partially counterbalance this. Earnings for the full year are expected at $1.65 per share, showing a 63% decrease year-over-year.
Moreover, STMicroelectronics has noted a anticipated slower recovery in the Industrial sector and modest growth in Automotive sales heading into the second half of the year.
Investor Guidance on STM Stock
Despite the challenges, STMicroelectronics’ innovative product developments and strategic partnerships underscore its long-term growth potential. However, the immediate outlook remains uncertain due to macroeconomic factors and the need for inventory adjustments.
With solid fundamentals and a favorable Zacks Value Score of A, STM remains a compelling investment option. Yet, in light of current market conditions, potential investors should exercise caution before purchasing the stock.
Currently, STMicroelectronics holds a Zacks Rank #3 (Hold), suggesting that current shareholders should maintain their positions while new investors might benefit from waiting for a more opportune entry point.
For those interested in more investment opportunities, a list of today’s Zacks #1 Rank (Strong Buy) stocks can be accessed here.
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