Published: 16 March, 2012
The ST-Ericsson joint venture has been struggling with losses and product transitions since its formation and is now poised for major restructuring, which many observers believe to be the prelude to a sale.
According to Reuters, parents Ericsson and STMicro are considering selling STE to another chip firm, which would give it greater scale to compete in the wireless market with Qualcomm and others. Some think STMicro will buy its partner out, a mirror of the Swedish giant's recent exit from another JV, Sony Ericsson. That would reverse the logic that a separate mobile chip company would generate greater value and have keener focus than a unit within a diverse group, thinking which led ST to put its wireless activities first into a partnership with NXP, in 2008, and then to form STE in February 2009.
However, that logic has so far not been proven, since STE is still suffering from the decline of its legacy products, which its new NovaThor offerings have not yet managed to outbalance. NovaThor is an innovative and highly integrated platform but has made little impact on Qualcomm, which has about half of the market for smartphone apps processors, and has mainly flourished in the Chinese TD-SDCMA and TD-LTE sectors.
However, it might be attractive to an acquirer also seeking to dent Qualcomm's power. Rumored candidates include AMD, which has failed to come up with an offering for the smartphone market and is thought to be looking for ARM-based partners. Companies which are weak on the modem side could also benefit from STE's huge experience in this field, and NovaThor combines the baseband and processor in the same way as Qualcomm's Snapdragon - an increasingly important trend as handsets get smaller and more power efficient.
Nvidia acquired Icera, and Intel bought Infineon Wireless, to fill the modem gap, but both might be keen to add further to their platforms, though Intel is unlikely to take on an ARM-based solution just when Atom is starting to gain mobile ground. Texas Instruments has also been tipped, again because it lacks basebands to complement its successful OMAP processors, having virtually exited that space in 2008-9, a move it may now regret.
And Peter Clarke of EETimes believes the best candidate would be an up-and-coming Chinese or Taiwanese chipmaker in need of higher end products and a quick route into 3G, LTE and tier one OEMs. Mediatek and Spreadtrum would be obvious examples, as well as Huawei-backed HiSilicon, while Clarke also cites Rockchip, Xincomm, Leadcore Technology and Nufront.
Any acquisition is likely to wait until new CEO Didier Lamouche executes his turnaround plan, details of which should be outlined by the end of this month, says Reuters' source. This is likely to include swingeing cuts, as STE has huge losses (totalling $2bn over three years) and hefty debts to its parents, which have been causing rising criticism among STMicro shareholders. Some ST shareholders are keen for the Swiss-based firm to emulate another struggling European giant, Infineon, which revamped its wireless business and then sold it to Intel, while refocusing the core business on less glamorous, but high growth sectors such as M2M modules and automotive.