STMicroelectronics, Changan Automobile Unite - Analyst Blog

European chip-making company, STMicroelectronics STM and Changan Automobile have announced a strategic partnership to set up a laboratory — Changan–ST Automotive Electronic Joint Laboratory — at the latter's Global Research Institute.

Headquartered in Chongqing, Changan Automobile is a Chinese automobile manufacturer. The company has total assets worth RMB103.3 billion yuan with more than 80,000 employees. China's fourth largest automaker in 2012, Changan Automobile produced up to 1.9 million units. Its product range comprises passenger cars and microvans as well as small trucks and vans for commercial use.

This new lab is designed to facilitate advanced research and development solutions in safety, body, car infotainment, powertrain and other automotive applications.

Per the agreement, STMicroelectronics will offer its latest automotive semiconductor products, technologies and solutions for a wide range of automotive applications, including Engine Management Systems, airbags and Braking Management Systems. The collaboration will lead to the development of automotive solutions to improve vehicle performance and fuel efficiency.

The automotive electronics market is expected to witness strong growth over the coming years. According to an IMS research report, the global market for automotive electronics is set to rise to $240 billion in 2020, from $157 billion in 2010, an increase of more than 50%. Another report, from Market Research.com, states that the market is estimated to reach $314.4 billion by 2020.

The major trends driving demand for increased penetration of electronics in automobiles include regulatory mandates for improving fuel economy, requirements for advanced safety systems, consumer demand for safety, security, comfort and growth of hybrid and electric vehicles.

Consequently, STMicroelectronics' increasing focus on developing better solutions for the automotive electronics market should yield good returns. The partnership will enhance its automotive business and customer base, in turn, strengthening its foothold in China.

In the first quarter of fiscal 2014, STMicroelectronics' loss was narrower than the Zacks Consensus Estimate of 3 cents. Total revenue of $1.83 billion was down 9.4% sequentially and 9.2% year over year.

STMicroelectronics carries a Zacks Rank #3 (Hold). Stocks that have been performing well and are worth considering include Universal Electronics UEIC, Applied Micro Circuits Corporation AMCC and Exar Corp. EXAR. All these stocks sport a Zacks Rank #1 (Strong Buy).