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ST-Ericsson is dead after failing to find buyer

Ericsson and STMicro to divide some of the assets and wind up the venture, with the loss of 1,600 jobs


Published: 18 March, 2013

READ MORE: M&A | Europe | ST-Ericsson | Semiconductor

The grand hopes which attended the creation of the ST-Ericsson mobile chip joint venture are now entirely extinguished as STMicro and its Swedish partner close down the firm. The partners finalized their JV four years ago and promised a European powerhouse to balance the rising dominance of Qualcomm. Instead, they got saddled with rising debts and losses and in recent months, have failed to find a buyer for STE. Now they will wind up the JV altogether, with the loss of about 1,600 jobs.

The two firms will divide the assets and the remaining employees. Ericsson said it would take on about 1,800 of the unit's 4,350 employees and contractors, in countries including Sweden and Germany. Perhaps surprisingly, it will also continue to develop STE's flagship 3G/4G modem technology, despite a recent push to divest non-core businesses, especially those related to devices (like Sony Ericsson).

Its Swiss-based partner will take over other existing products. Some may be integrated back into the core range, where STMicro offers many components for mobile devices. In particular it has focused recently on chips for the internet of things, and has shown off breakthroughs like 'non-touch touchscreens'. It will also assume 950 employees, mainly in France and in Italy, and incur costs of as much as $450m.

The equally owned venture has stacked up net losses of $2.7bn since its formation in February 2009. Despite some ambitious roadmaps, it has struggled with the transition from legacy products to its new NovaThor platform, and despite some strengths such as TD-SCDMA in China, it has failed to win the major handset deals from Qualcomm and others.

There were still some hopes that the parents would find a buyer for all or some of STE. In the past two years there has been a rush for modem technology among mobile processor makers, though many have already made their choices - Intel relieved another European dinosaur of its mobile unit when it took over Infineon Wireless; Nvidia bought UK start-up Icera. So the timing for STE was poor, since most app processor vendors are now on the way to an integrated processor/baseband platform, considered essential to compete in mainstream smartphones and with Qualcomm.

Sources say Samsung was one potential buyer approached, but declined to make an offer. Though the Korean firm is building up its mobile silicon armory, it already has LTE modem technology and, if it wants further assets, is likely to look to a local player, or at least to one with less baggage, in terms of older products and European employment contracts. Reintegrating employees into the parent firms should minimize job losses and placate some European governments such as that of France, which still owns a stake in STMicro.

Ericsson, which put its former Ericsson Mobile Products unit into the venture, will now run the modem business as a standalone division, which is likely to report an operating loss of SKr500m ($77m) in the fourth quarter, the Swedish firm said. It has already set aside SKr3.3bn in 2012 to cover costs related to strategic changes at STE.

STE's CEO Didier Lamouche resigned last week and the JV's COO Carlo Ferro was named temporary CEO to oversee the transition. The formal transfer of assets to the two parent firms is likely to be completed in the third quarter.

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