ST’s strategic plan continues to confuse

In its strategy document, ST sets the target of an operating profit of 10% of sales. Fine; all companies need a target. But Bloomberg, as you might expect, appears to have done its homework and says that ST must increase sales by 25% in order to achieve this. ST's statement says it 'reconfirms its new financial business model targeting 10% or more operating margin. The company is focused to rapidly achieve operating margin of 10%, while targeting a significantly higher level of profitability by 2017'. As you will note, nothing about increasing revenues. ST has set itself the target of cutting its operating expenses by a third during 2013. Currently around $900million, the company is looking to cut this to between $600m and $650m. But it has, so far, not given any hints about how it might achieve this goal, although dumping its interest in ST-Ericsson might well help. Selling part of the business won't work either. More interesting is Bloomberg's contention that ST must boost its sales to something like $10billion a year if its strategy is to make any sense. Currently, ST is on a annual run rate of around $8bn. So how will Carlo Bozotti, ST's ceo, achieve the target of selling more while spending less? ST has some attractive products in its portfolio, but there's nothing obvious – at least for the moment – for which customers will be beating its doors down. Granted, semiconductor revenues are expected to start growing again, but even so, ST will have to outperform the market significantly in order to make that level of sales. Bozotti probably has a brilliant solution – but if he does, it's not obvious to the financial community for the moment what exactly it is. Perhaps Bozotti could be cast as the Michael Caine character in another remake of The Italian Job. He appears to be ideally qualified to utter the line: "Hang on, I've had a great idea …"