Mobile chip price war benefits Nokia, boosts consolidation

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Mobile chip price war benefits Nokia, boosts consolidation

By CAROLINE GABRIEL

Published: 5 February, 2009

READ MORE: Nokia | Semiconductor

The contracting handset market will put increased pressure on the cellphone chip suppliers to consolidate, and this week saw the finalization the joint venture between Ericsson and STMicro, which creates a viable European challenger to Qualcomm in this sector, even as Texas Instruments and Freescale pull back, and Broadcom's ambitions have so far made little progress.

Although 2008 saw a 3.8% drop in semiconductor consumption, PCs and cellphones remained the bulk of the business, according to new figures from Gartner. The top 10 OEM firms accounted for one-third of total sales, or $91.6bn of chip sales. The biggest buyers of chips were Hewlett-Packard on the PC side and Nokia for phones, and both strengthened their hands because of falling prices. "HP and Nokia showed that manufacturers benefited from a significant decline in average selling prices," said Gartner. "In addition, Nokia continued to shift its semiconductor sourcing strategy away from designing ASICs for its handsets to using off-the-shelf application specific standard products (ASSPs)."

The as-yet unnamed entity formed from the merger of ST-NXP Wireless and Ericsson Mobile Platforms will be hoping for an increased share of this business. As announced last August, the deal brings together two companies with strong offerings across the wireless board, especially in 3G and 3G+, and with important customer relationships, such as STMicro's with Nokia for HSPA, and Ericsson's with Intel for embedded laptop 3G. The merged entity supplies four of the top five phonemakers (and the missing one is the ailing Motorola).

Ericsson contributed $1.1bn net to the 50:50 venture, out of which $700m was paid to ST. Prior to the closing of the transaction, ST exercised its option to buyout NXP's 20% ownership of ST-NXP Wireless. Alain Dutheil, CEO of ST-NXP Wireless and COO of STMicro, will be CEO and president of the new company. Each parent appoints four directors to the board with Carl-Henric Svanberg, CEO of Ericsson, as the chairman of the board and Carlo Bozotti, CEO of STMicro, as vice chairman.