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Renesas Mobile and STE in fight to survive

STMicro and Ericsson reportedly fail to find buyer for their joint venture, while Renesas may put mobile chip unit up for sale


Published: 13 March, 2013

READ MORE: M&A | Europe | Japan | Semiconductor

The handset baseband chip market is in turmoil, and two players, Renesas Mobile and ST-Ericsson, are facing an uncertain future.

The partners in the lossmaking STE joint venture, STMicro and Ericsson, are both looking to pull out in the third quarter of this year, but they have reportedly failed to find a buyer or even a new co-investor, according to Bloomberg sources. As a result, the only option may be to wind down the firm altogether, which could result in a fire sale for assets such as its NovaThor integrated processor/baseband architecture.

According to six people "familiar with the situation", potential buyers such as Samsung were approached but failed to make an offer.

This week, STE's CEO Didier Lamouche resigned to "pursue other opportunities", and no successor was named. Under his watch, the company has made some progress, especially in China and TDD technologies, but has continued to suffer from the shrinking of business from its former top customer, Nokia, and a slow transition from legacy products to NovaThor. All these factors have limited the impact of some advanced technology breakthroughs, and STE has failed to win significant business from the increasingly dominant Qualcomm, or to see off new baseband challengers like Broadcom.

The venture has accumulated $2.7bn in net losses since 2009. The parents could then split certain other assets between them - for instance, Ericsson might take back an R&D site in Lund, Sweden, which it originally contributed to the JV along with its Ericsson Mobile Platforms chip unit; while STMicro, which put in its ST-NXP venture, might keep hold of a site in Grenoble, France. STMicro continues to play in other aspects of the mobile chip market, such as microcontrollers and touchscreens.

Moving some activities back to the parents could limit job losses, which would attract European government anger. STE has already made significant job cuts, but still employs 1,200 people in France, where president Francois Hollande has opposed company scaledowns, and 1,400 in Sweden. STMicro itself is 27.5%-owned by the French and Italian governments though it is headquartered in Switzerland. JPMorgan Chase is advising on options for the venture.

STMicro would not comment but Ericsson said it was still exploring all options and both owners were eager to find a solution.

Meanwhile, Japan's Renesas Electronics announced that it is kicking off a review of the strategic options for its own mobile chip unit, Renesas Mobile, and may look for a buyer. The group has already accelerated a restructuring program, realigning its portfolio and production sites, as well as cutting jobs. However, the group said that it needs further actions, with market conditions proving tougher than expected.

Like STE, Renesas Mobile, which was built around the acquisition of Nokia's own modem business, has come up with some advanced products - including the first integrated LTE/3G modem after Qualcomm's - but has not succeeded in winning significant business outside Japan. It has suffered "significant losses" since the Nokia deal in 2010, after which it was spun off, and last year secured a $1.8bn bail-out loan from the Japanese government.

The parent group will now explore divestiture of the mobile unit, or explore alternative business models for it. The review will exclude operations related to car information systems and the industrial equipment business.

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