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.
NxP did a smart thing by selling it's wireless business unit to ST. They sold it because it is an added weight that pulls them down on one side. So the lesson is "one should get to equilibrium at any cost".
Really tough for them with the uncertain economic climate adding to their sorrow. I think they started going downhill from the start of 2008 itself when the smartphones appearing on the scenes. Their STB market also isn't giving them the margins to keep other wireless chip designs going, so am keeping my fingers crossed on this one. They could be a prospective sale or candidate for split up as early as Q1-2012.
It will better help Ericsson if it focuses towards deploying new technologies on the switch side and promoting use of it as it has done fairly good on the control room/ network room electronics. If everyone will go behind tablet and smartphone market the switch room area will remain dry.
Well remember the ramping debt is shared so it is only $450 million each for ST and Ericsson. And who knows it might be better than that.
But that only 2011, what about the situation at the end of 2012?
ST-Ericsson has already indicated 500 jobs are set to be "affected" by restructuring.
Interesting story Peter...I would tend to agree, this can't go as is for too long...Ericsson is big but bleeding $900M cash in one year must be painful even for them...I would expect dramatic scale down of R&D, and focus on getting sales of already designed chips...layoffs to follow? Kris