STMicroelectronics (STM) and Globalfoundries (GFS) have joined forces to build a semiconductor chip manufacturing plant in France. Swiss-based STMicroelectronics is a multinational chipmaker, with France and Italy as its largest shareholders, with around 14% each. California-based Globalfoundries is an American semiconductor company that manufactures chips on contract.
STM’s French Semiconductor Project
STMicroelectronics and Globalfoundries are expected to invest €5.7 billion in their French semiconductor factory. The companies are hoping for financial support from the French government towards the project. The facility will produce chips for cars, Internet of Things (IoT) devices, and mobile applications.
For France and the EU, the project is expected to create thousands of new jobs in the region. The facility is also expected to enable Europe to reach its goal of contributing 20% of global chip production by 2030.
In a bid to reduce reliance on Asian supplies, Europe and America are trying to build their chip manufacturing capacity. In the U.S., the Chips Act promises more than $50 billion in subsidies for domestic chip manufacturing investments. While building its own capacity, the U.S. has sought to curb China’s rise in the semiconductor industry. For example, the U.S. has sought to block ASML Holding (ASML) from selling its chipmaking machines to China.
What Does the French Project Mean for STMicroelectronics?
Although the primary goal of the French chip project seems to be building Europe’s semiconductor manufacturing capacity, for STMicroelectronics it is about attaining a sales target. The company counts on the project to help it achieve its target of more than $20 billion in annual revenue.
Wall Street’s Take on STM
The consensus among analysts is a Strong Buy, based on three Buys and one Hold. The average STMicroelectronics price target of $59 implies almost 90% upside potential to current levels. Shares have declined 38% year-to-date.
STM Scores a Perfect 10
STMicroelectronics scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Key Takeaway for Investors
A look at STMicroelectronics’ risk profile shows that production and regulation are among the company’s major risk factors. Participating in the government-backed chip manufacturing program could minimize the company’s production and regulatory challenges.
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