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UPDATE 2-STMicro defends group's unity after breakup report

Friday, 12 Oct 2012 | 10:11 AM ET

* STMicro spokesman declines to make further comment

* STMicro has said plans new strategic plan in December

* Shares pare gains, up 6 percent

(Rewrites with company comments)

By James Regan and Valentina Caiazzo

PARIS/MILAN, Oct 12 (Reuters) - Europe's top semiconductor maker STMicroelectronics denied planning a demerger, saying it had no plans to undo the group's "unity" in response to a report that it planned a breakup which had sent its shares up by nearly a fifth.

Bloomberg had reported that STMicro was considering a reorganisation that could involve it being split up into its analog and digital businesses, and possibly selling its struggling mobile phone chip venture.

"STMicroelectronics denies the existence of initiatives which can compromise the unity of the company," STMicro said in a brief statement.

A spokesman declined to elaborate on the statement, which came as the group prepares to unveil a strategic plan in December to address softer demand and the changing needs of its customers.

Shares in STMicro pared their earlier gains, trading up 6 percent at 4.655 euros in Paris by 1317 GMT. In Milan, the stock was up 5.8 percent. The stock was 6.7 percent higher in pre-market trading in New York .

JPMorgan analyst Sandeep Deshpande said the shares had risen on hopes of splitting the analog and digital businesses as the former were funding losses at the latter.

"If the two assets were separated, then the analog assets would find a much higher value due to their profitability," Deshpande said. "The investor hope is that a trade buyer would then fund the losses associated with the digital assets and they would not be borne by STMicro investors."

NEW PLAN

STMicro shares, which had jumped to a six-month high before the company's statement, were trading in volumes representing five times their daily average over the past three months.

STMicro, which makes chips for mobile phones and computers, said last month it would unveil a plan in December with the aim of continuing to accelerate its adoption of a new financial model, "taking into account the changed market environment and some specific customer dynamics".

Bloomberg cited Samsung Electronics as a potential buyer for STMicro's digital assets, which could include its ST-Ericsson chip joint venture with Ericsson .

The sale would allow the company to focus on its semiconductors business, the news agency said.

STMicro and Ericsson said on Tuesday they had brought in an advisor on strategy for ST-Ericsson.

ST-Ericsson made an operating loss of $235 million in the second quarter as it suffered from a collapse in demand for phones from clients Nokia and Sony Ericsson .

STMicro, which competes with Analog Devices Inc and Texas Instruments Inc , had said in July that the global economic environment had weakened.

($1 = 0.7726 euros)

(Additional reporting by Dominique Vidalon and Blaise Robinson; Editing by David Holmes)

((elisabetta.jucca@thomsonreuters.com)(Tel +39 02 66129442)(Reuters Messaging: elisabetta.jucca.thomsonreuters@reuters.net))

Keywords: STMELECTRONICS BREAKUP/

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