November 16, 2018 / 2:32 PM / 2 years ago

European chipmakers see new growth drivers to weather volatile demand

* Play down reliance on iPhone production

* See market becoming weaker on microcontrollers

* Expect long-term demand from auto industry

By Mathieu Rosemain

BARCELONA, Nov 16 (Reuters) - European chipmakers tried to play down market concerns about a potential slowdown in global demand at an investor conference in Barcelona this week, striking an upbeat tone on orders from car and smartphone makers.

Recent price falls due to weaker demand for memory chips and a build-up of inventory levels have led some analysts to note the risk of a potential downturn in the global semiconductor industry.

U.S.-based Nvidia became the latest semiconductor maker to warn on sales on Thursday, blaming unsold chips piling up with distributors and retailers after the evaporation of a cryptocurrency mining boom, which had fuelled demand for processing power.

Chip gear maker Applied Materials also gave a disappointing forecast, adding to a drag on semiconductor shares.

Fears of a possible heightening of the trade war between China and the United States, which could hit the sector, has weighed on the shares of STMicroelectronics, Infineon and Dialog Semiconductor, whose executives attended Morgan Stanley's TMT conference in Barcelona.

While industry executives acknowledged that business was under pressure, they also saw new sources of demand in areas such as electric cars and smartphones.

"The visibility is not really great," STMicro's new boss Jean-Marc Chery told the conference, with reference to microcontrollers.

"We have seen an inventory correction in the third quarter and we confirm that the fourth quarter will still see this correction," he added. "The only thing I can tell you is that I don't see the economy collapsing."

Franco-Italian STMicro supplies 3D sensors for iPhone models. Its shares rose at the start of 2018 on upbeat investor expectations about demand from Apple, but they have now fallen by a third this year.

STMicro's shares were down 1.5 percent on Friday as its peers also fell after Nvidia's disappointing forecast.

Still, Chery said STMicro was working on expanding its customer base to Android smartphone makers, which could potentially boost sales for its sensors.

The chief executive of Anglo-German rival Dialog, which supplies power management products found in many Apple products, said the outlook for the chip market, including for the smartphone business and its implications for 3D sensors, was constantly changing.

"It is a volatile market, so there will be change almost weekly in terms of the forecast for the rest of the quarter or into the following quarter," Jalal Bagherli said this week.

"For us, because of the broader base with this customer, it's less of an issue."

The automotive industry has also been a key driver of demand for semiconductors over the last few quarters. Industry executives said that trend would continue as carmakers use more and more electric components in a new generation of electric and semi-autonomous vehicles.

"In automotive a lot of the things are pretty long term," Infineon Chief Executive Officer Reinhard Ploss said at the conference.

"We have a nice environment in Germany but also elsewhere. A lot of our growth is fuelled by power semiconductors... We have a significant production base and can ramp that," he said. Ploss's optimism contrasts with recent profit warnings from carmakers citing weakening demand and trade frictions. Shares of Infineon ,whose largest business line is automotive, have shed 24 percent this year.

Yet STMicro, which counts electric carmaker Tesla among its biggest customers, would agree - and volume is only part of the equation, according to Chery.

"Clearly, now there's a very strong acceleration from carmakers about the fact they need to invest in R&D, in manufacturing, to accelerate their offering in electrical vehicles," the CEO said.

"We are convinced that the number of vehicles will remain flat... but components will continue to grow."

Additional reporting by Douglas Busvine Editing by Susan Fenton

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