ST isn't ready yet to break into two separate companies, but it can't continue with business as usual. Start with getting rid of ST-Ericsson.
It's difficult finding anyone today who doesn't believe chip giant STMicroelectronics NV urgently needs a new growth strategy. And that pertains to people both within and outside the European semiconductor giant.
Generally, company executives and industry analysts believe the Swiss-based semiconductor company must channel a new course for its future. The disagreement comes in deciding whether ST should drastically reorganize its operations and product portfolio—which means jettisoning burdensome and non-core offerings—or simply fine tune its current strategy, stay the course and gradually build up a formidable position in its market-leading products.
ST has said it will early in December unveil its plans and attempt to put to rest finally speculations about its future. Those speculations have centered on alleged plans by ST to
split itself into two business units, a move the company has rejected.
No one in the investment community would be surprised if ST decided to go ahead with a split or dump ST-Ericsson, the communications IC joint venture with Ericsson that's considered a dead weight around the two companies' corporate necks. ST's management shouldn't be shocked, either, if investors react negatively to a plan that doesn't surgically pinpoint and addresses the company's perceived problems. In other words, ST must come up with a reorganization plan that confirms executives realize the company cannot continue with business as usual.
A breakup of ST into two companies—one focused on analog and the other on digital ICs—makes little sense in my opinion. The worn dialogue pitting analog and digital companies against each other in terms of return on investments is irrelevant in today's world. In fact, it is a short-sighted take on what semiconductor companies must do nowadays to not merely survive but be competitive. The analog and digital worlds co-exist and will continue to do so. For the biggest chip companies, analog and digital offerings are complementary and in fact may be critical to winning business at major OEMs.
ST's most important strengths lie in the extensive product offerings and the wide range of markets served, including automotive, computing, communications, control systems, consumer and industrial automation. This has allowed the company to offset weakness in any particular market sector with strength in other segments. And, while its growth has been less than impressive lately—annual sales will decline for the second consecutive year in 2012—the company's performance could have been worse had it not been able to rely on faster-growing product lines to counter the impacts of its weak segments.