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Continued ...

But STMicro gains that advanced technology - and has been prepared to give Ericsson a 50% stake and the right to name the chairman of the board in return for it. Without it, ST ran the risk of getting tied too closely into Nokia, getting over-dependent as TI has been, since the 3G project was the only really cutting edge aspect of its armory. Once separated from the other ST businesses, it was vital that the wireless arm had more arrows in its quiver, for all the importance of the Nokia win - whose actual revenue potential could still be squeezed by a rejuvenated TI. And while scale is important in the competitive world of handset silicon, and is helped by teaming with EMP, the most important factors to preserve margins and gain top tier customers revolve around getting first to the advanced functions and applications that smartphones and the mobile internet require. EMP brings strong capabilities in this respect, enabling ST to aim for something it could not have dreamed of before - challenging Qualcomm, which understands differentiation in the multimedia mobile web world better than anyone, rather than resigning itself to competing on price and low power in basic phones.

There are many decisions still to be made and risks still to be run, not least managing the merger of two entities with very different cultures and with some conflicts of interest between their parents. One important future decision will be whether to spin the JV off completely through an IPO or by distributing ownership stakes to ST and Ericsson shareholders. But once this deal is finalized, the handset chip sector, which has been through massive shake-up in the past year, will take on a new face, and one where there will be a serious new contender for leadership in the emerging mobile multimedia markets.

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