EUROPE's biggest chip maker, ST Microelectronics, whose share price slumped more than 70% since Apple's iPhone triggered Nokia's decline, was betting on cars, its CEO, Carlo Bozotti, said yesterday.

Even with plummeting business from struggling customers in the wireless industry such as Nokia and Research In Motion, Mr Bozotti said Asian demand for luxury cars loaded with semiconductors would boost sales. Every new car produced last year contained at least 25 chips, with some models carrying more than 100, he said.

As Geneva-based ST Microelectronics and Germany's Infineon Technology tie their future more closely to the car industry, they are developing semiconductors and sensors that boost engine power, monitor speed and correct steering when cars veer off designated lanes.

The car-chip market would expand to more than $33bn by 2016 from $23bn last year, with China growing 17,7% each year, research firm Strategy Analytics said.

ST Microelectronics was "carrying a dead leg, which is the wireless business", said Lee Simpson, a Jefferies International analyst. "If you're a European semiconductor company and you can supply to the German auto industry directly, or to other European car makers, you have a better tie, while the European handset space is disappearing."

In the first quarter, ST Microelectronics reported an operating loss of $352m, of which $293m stemmed from chips for cellphones. In contrast, operating profit in the cars business was $37m. The company's top client in the vehicle industry is Germany's Robert Bosch, the world's largest supplier, with clients such as Volkswagen, Daimler, Ford and Toyota.

"The car industry, and especially the German one, is benefiting from appetite in Asia for high-quality cars," said Mr Bozotti. "Car manufacturers also use more and more electronic components to slash costs and make cars more intelligent. We benefit twice."

There is plenty of room for growth in the car-chip market because no one yet dominates it. ST Microelectronics ranked third in the market for automotive chips with a 9% share, compared with 14% for market leader Renesas, according to Strategy Analytics. The researcher predicted the car-chip market in North America will grow 8,1% a year and 6,1% in Europe.

Infineon, the second-largest supplier, whose customers include BMW, opened facilities in Beijing last year. In May, Infineon raised its full-year forecast after quarterly profit topped analyst estimates. It has boosted its market share in the automotive-chip segment by one percentage point to 9,8% over the past year.

ST Microelectronics's sales to Nokia fell 30% last year to $1bn, less than half the $2,1bn it sold to the Finnish cellphone manufacturer four years earlier, according to Nokia's data.

Last month, Nokia forecast a wider second-quarter operating loss from handsets and said it would cut as many as 10000 jobs as it ceded market share to iPhones and handsets by Samsung. Since the iPhone's introduction in 2007, Nokia's share price has fallen 93%, while that of ST Microelectronics dropped 72%.

The share price of ST Microelectronics, which had the French and Italian governments as its main shareholders, together holding a 27,5% stake, dropped 0,5% to ?3,99. The stock declined 13% this year, while Infineon fell 9% in Frankfurt.

Other top mobile clients of ST Microelectronics, such as BlackBerry maker Research In Motion and France's Alcatel-Lucent, also posted lower sales and operating losses for the three months to March 31. ST-Ericsson, ST Microelectronics' cellphone-chip venture with Ericsson, said in April it would cut 1700 jobs. The venture has not turned a profit since its founding in 2009.

Still, the European chip makers' bet on strong Asian demand leading the car market has risks.

Vehicle demand in China, the world's largest vehicle market, has slowed with the economy. More Chinese cities may also restrict vehicle ownership after Guangzhou imposed a quota on new cars this month to control congestion and pollution, which Mizuho Financial Group said threatened sales growth of car makers such as General Motors and Volkswagen.

China's car makers' association said yesterday that passenger-car deliveries last month rose 16% to 1,28-million after a 23% gain in May. Sales for May and June last year were hurt by the earthquake in Japan.

Mr Bozotti said ST Microelectronics's growth rate of 18% at the car division last year was "not sustainable". Instead, revenue from that segment would increase between 5% and 10% a year.

While the global slowdown is also affecting ST Microelectronics's revenue from cars, which declined to $391m in the first quarter from $433m a year earlier, Bernd Laux, a Credit Agricole analyst, said a focus on car semiconductors would pay off in the long term.

Bloomberg