STMicroelectronics, Europe’s largest semiconductor company, which has a big facility in Malta, returned to profit in the first quarter of 2010 – the first time it has done so since 2007 – as the economic recovery led to an increased demand for chips.

Carlo Bozotti, president and chief executive, said demand had been stronger than expected and revenues could rise as much as 31 per cent in the second quarter.

The Franco-Italian company made a profit of $57 million in the first three months of the year, compared with a loss of $541m last time. The year-ago losses were inflated by $232 million in losses on equity investments. First-quarter revenues rose 40 per cent to $2.32 billion, led particularly by demand for chips used in cars and computers.

“Our first-quarter revenues, well in line with our expectations, reflected the significant rebound from the economic crisis and solid demand for our products. Although supply chain constraints somewhat limited our revenues opportunities, we fully participated in the market recovery with our new and innovative products,” Mr Bozotti said.

The results fell short of analyst expectations, however, and the shares, which have increased 47 per cent in value during the past year, fell 3.21 per cent to €7.44 in morning trade.

STMicro’s results were held back by losses at ST Ericsson, the wireless chip joint venture it set up with Ericsson of Sweden less than a year ago. ST Ericsson is still struggling to cut costs to compete in the fiercely competitive market for mobile phone chips, and net losses at the company widened to €154 million from €125 million in the fourth quarter.

Mr Bozotti said he expected revenues at ST Micro to grow 6-12 per cent, bringing revenues to $2.45 billion–$2.59 billion.