Published: Thursday, 23 Jul 2009 | 6:12 AM ET

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Cellphones chipmaker ST-Ericsson reported a wider second-quarter loss on Thursday, but said markets were stabilizing as destocking in the industry was largely over. Meanwhile, Ericsson said it is bidding for Nortel's mobile network unit.

The joint venture of Sweden's Ericsson and Franco-Italian chipmaker STMicroelectronics posted an adjusted operating loss of $165 million in April through June, its first full quarter of operation, down from a pro-forma loss of $69 million a year ago.

"More than six months into the year we can now feel more confident in stating that our market truly hit the bottom in the first quarter," ST-Ericsson Chief Executive Alain Dutheil told a news conference.

ST-Ericsson, the second-biggest maker of wireless chips after Qualcomm and just ahead of Texas Instruments, said sales were $666 million, down from pro-forma revenue of $966 million a year ago but higher than the $562 million generated in the first quarter.

UBS said in a research note that sales at the joint venture were stronger than expected in the period.

"Despite this we are only seeing a marginal ($16m) improvement in operating profit quarter-on-quarter versus a $104 million improvement in revenues... In comparison, Infineon and Texas Instruments' wireless businesses were both profitable," the investment bank said.

The company, which started operations in February, said sales in the quarter had still outperformed the usual seasonal pattern as destocking tapered off and demand picked up in China.

"While more normal seasonal market trends are likely to be confirmed in the next quarter, primarily driven by Asia, including China, the business environment remains uncertain in the medium term," it said in a statement.

Positive Signs

The economic downturn has hit demand for chips this year and cellphone makers such as Sony Ericsson, another joint venture of Ericsson's, have forecast hefty contractions for the global handset market in 2009.

Dutheil said ST-Ericsson expected the global handset market to contract between 10 and 12 percent this year.

On Wednesday Qualcomm posted a small drop in fiscal third-quarter profit and issued a revenue target for the current three-month period that was below Wall Street expectations.

But some positive signs have emerged in recent weeks, with top phone maker Nokia posting better than expected second-quarter unit sales and forecasting flat or slightly higher industry sales in the third quarter.

ST-Ericsson supplies the world's biggest handset makers except Motorola. Customers include Nokia, Samsung, Sony Ericsson and LG Electronics.

Earlier this week Texas Instruments posted a stronger than expected quarterly profit and outlook, but said demand remained low and that it needed to be prepared for little or no growth in the coming months.

ST-Ericsson, whose manufacturing is done by STMicroelectronics and companies such as Taiwan Semiconductor Manufacturing, said its restructuring programs were proceeding as planned.

The venture's second-quarter operating loss was stripped of $35 million in restructuring charges and $24 million in amortization of acquisition-related intangible assets, but included about $20 million of one-off costs stemming from the start-up of the venture.

Ericsson is scheduled to issue its second-quarter results on Friday while STMicroelectronics' report is due on July 28.

Ericsson Bids for Nortel Assets

Swedish telecom equipment maker Ericsson said on Thursday it is in the bidding for Nortel's mobile network unit.

"We always look at opportunities that can be of interest for Ericsson and create value for us, and we are participating in this process to the point it makes sense," said Ase Lindskog, spokeswoman at Ericsson.

Canada's The Globe and Mail reported earlier on Thursday Ericsson had submitted a bid worth $730 million. Lindskog declined to comment on that figure.

Preliminary offers to compete with a $650 million "stalking horse" bid from Nokia Siemens Networks for Nortel's CDMA and LTE wireless technology businesses were due on Tuesday, and the auction is set for Friday, July 24.

A Nokia Siemens Networks spokesman said the firm would not comment on other bidders in the auction, and that it "looked forward to concluding the process with a successful outcome".

Canada's Research In Motion

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[RIMM  Loading...      ()   ] said on Monday Nortel had effectively blocked the BlackBerry maker from bidding potentially $1.1 billion for the Nortel's wireless business.

Nortel said in a statement late on Wednesday the auction would go ahead as planned, despite the objections from Research in Motion. Nortel said RIM was blocked from the auction because it refused to comply with procedural requirements.

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