Ericsson looks to offload its stake in STE chip venture
Says it will not buy out its partner STMicro, and will take $1.2bn charge for writing down value of ST-Ericsson
Published: 20 December, 2012
READ MORE: M&A | Sweden | ST-Ericsson | Semiconductor
Ericsson said it will not buy out STMicro from their chip joint venture, but will record a charge of SKR8bn ($1.2bn) for writing down the value of ST-Ericsson. Its partner recently announced its intention of exiting the struggling unit, which focuses on mobile device processors and basebands but has been lossmaking since its formation, battling to make an impact against Qualcomm and newer rivals like Intel and Nvidia.
The non-cash expense will be booked this quarter. The Swedish firm said additional funding of SKR3bn is its "current best estimate" as its explores various strategic options for its 50% stake. A buyer for the whole unit could emerge, though the price would probably be at fire sale levels - however, STE does have an established, if shrinking customer base, and a strong architecture, NovaThor, in the important integrated processor/baseband sector. Many players are struggling to deliver a fully integrated smartphone system-on-chip for LTE, to rival Qualcomm's expertise in this area - Broadcom, for instance, recently pointed to this being a multiyear project.
However, many analyst think it is more likely that STE will just be shut down, with some of its IPR and technology assets perhaps sold separately, but without the overheads of staff and manufacturing deals. "Ericsson's announcement sounds like a preparation to shut the venture down," Lars Soederfjell, an analyst at Aalandsbanken in Stockholm, told Bloomberg. "Ericsson could also try to find a buyer partially, but it's very difficult to find a buyer for the whole entity. When they say they're exploring strategic options, to me that basically means they're getting rid of things. The fact that the share reaction isn't too negative shows how investors are saying 'oh, finally'.". Ericsson shares fell 4% on the news.
The vendor insists the technology it put into STE - a combination of its Ericsson Mobile Platforms business and STMicro's mobile joint venture with NXP - still has "strategic value" for the industry. The two firms together invested $1.8bn in cash and some wireless technologies into the venture in 2009. As of the end of September, Ericsson's share of operating losses from STE totalled SKr9.5bn.
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