With the debts owed to its parents mounting rapidly Peter Clarke ask how long ST and Ericsson will continue to bankroll their wireless chip joint venture.
LONDON – Gilles Delfassy, president and CEO of wireless chip joint venture ST-Ericsson (Geneva, Switzerland), said it's tough right now but that the company is encouraged by the traction it is getting for its new products.
He was talking to analysts on a telephone conference to discuss ST-Ericsson's second quarter 2011 financial results. And the ST-Ericsson situation IS tough right now. The trouble is it is set to remain tough for the rest of 2011 and probably throughout 2012. And the rate at which the company is generating losses begs the question how long STMicroelectronics and Ericsson can afford to wait for things to come good.
ST-Ericsson made a net loss of $221 million on sales revenue of $385 million in the second quarter. The third quarter, in which sales would normally see a sequential jump, is going to be flat, the company said.
The reason for those flat sales is because the so-called legacy products, those created before the formation of ST-Ericsson in February 2009 are declining rapidly while the new chip designs and platforms have, in many cases, yet to reach volume. ST-Ericsson now reckons that new products are responsible for about 45 percent of the $385 million sales in 2Q11 but a large part of the problem is that ST-Ericsson was strongly coupled to Nokia, which is having its own annus horribilis.
And even as Nokia turns to Microsoft and the WindowsPhone operating system for its future smartphones that means Nokia is turning to Qualcomm for those chipsets, at least initially.
But the design-win traction that Delfassy is so encouraged by is only good to the ST-Ericsson shareholders if the company gets designed into smart phones and tablet computers that go on to be a roaring success. Any number of design wins at mobile device wannabes or has-beens who go on to sell just a few units will do ST-Ericsson little good. It is therefore all about being in the winning smartphone and tablet computer designs. And the fast moving mobile device market is not any easy one to second guess.
Background: I worked for an associated company for many years.
Good comments all. Having at first succeeded in the cellular “protocol wars” of the early 90s, Ericsson acquired an over confidence. Her international handset divisions reported North American and Asian market development towards big screen and battery models even before the advent of smart phones. Their opinion was that in the coming battle between computers and cell phones, the “computer first but also a cell phone” approach was right. Ericsson thought those few to be Smartphones would be well served by Symbian…the exact opposite idea of their subsidiaries. They also missed the importance of data while insisting they had an early lead.
This all resulted in a merger of the handset business with Sony and splitting off Ericsson Mobile ICs…platforms. Regretfully nothing changed until Sony was very irritated threatening that, “Something must change or the relationship will terminate.” How did this involve Ericsson now Ericsson-ST? Sony-Ericsson was a captive (and by far the largest) customer. They were insulated from the market delivery chronically late and over price IC and SW stacks. The mobile chip set was also slow and provided limited graphics. Eventually that didn’t matter because the “computer part” of the phone came to dominate but Ericsson-ST had no good offering. Sony saw this (not admitted publicly) as at least a hindrance and worse possibly a way for Ericsson to reach into the venture and take more than their fair share. All that the Sony Ericsson subsidiaries feared came true and this fell through to punish Ericsson-ST. So much for this kind of vertical integration!
Well 2012 will be a bumper year with a new product offering in the smartphone market with a number of major handset providers, beyond that it becomes murky, if they dont break even by end of 2012 i think they will exit
In my opinion, the core of the problem is the CEO of ST-Ericsson. The company is indeed facing difficult times, but to create a game changing event, you need more than just a medium to good CEO, you need a brilliant CEO (a visionnary would be even better, but there is shortage of them - dixit AMD :-)).
ST-Ericsson is competing in a field where the brightest companies of today are fighting a war to death: Apple, Samsung, Qualcomm, Texas Instruments, Intel, Broadcom, Nvidia. The current product line of ST-Ericsson is just good, nothing really innovative. No strong differentiator in the smartphone/tablet market. To make a come back, you need a ground breaking innovation, something that will make your customer win over their competition. ST-Ericsson does have that today, so no real come back to be expected.
My message to Carlo Bazotti and Hans Vestberg:
- either urgently move Delfassy to a VP position, and get yourself some very agressive CEO
- or sell ST-Ericsson to Nvidia, AMD or Intel (Ottelini sure would look into buying it) at the best price you can get, and see the shares of your respective companies double in a few months.