News & Analysis
Comment
Python
This is the normal end of a company which has been managed by poor people ...
chipmonk
Unfortunately ( or fortunately ) W. European policymakers do not think the same ...
Why ST should sell ST-Ericsson to China
Peter Clarke
3/15/2012 8:59 AM EDT
LONDON – Europe's largest chip company STMicroelectronics NV should persuade Ericsson AB that they sell off their mobile chip joint venture ST-Ericsson, but probably to some aspiring Chinese company. That is likely to produce the quickest and most profitable – or least loss-making – exit for the two parent companies from what has become a failed project.
ST-Ericsson is currently massively loss-making and has built up debts of $800 million with its parent companies over a three year period while losing nearly $2 billion. And things are slated to get worse before they get better.
According to a Reuters report Didier Lamouche, the CEO brought in to replace Gilles Delfassy late last year, is going to cut hard in a restructuring plan designed to take out cost – and that a trimmed down ST-Ericsson will start to look good for sale – eventually. However, the same report, quoting unnamed sources, said potential buyers in the western hemisphere, the likes of Intel and AMD, may want to wait one or two years to see the beneficial results of the cuts.
A spokesperson for ST-Ericsson said the company has no comment on the Reuters report but added that STMicroelectronics and Ericsson remain committed to the joint venture and that it is a fundamental part of ST's digital convergence strategy. It is interesting to note that ST-Ericsson is almost exactly three years old and that it may be Ericsson that wants to disengage from the joint venture and had expected ST to buy out its 50 percent.
I don't think ST-Ericsson or ST have that much more time. In a note in the most recent financial results ST-Ericsson said "Our shareholders will continue to support funding our transitional financial needs." This of course begs the question of "transition to what?" and "how long will that transition take?" The fact is that ST-Ericsson is a three-year old joint venture that has acted like a boat-anchor on the progress of STMicroelectronics.
It is true that ST-Ericsson wrapped up a lot of the previous problems of ST, specifically an overdependence on faltering Nokia as a customer, but pushing the problem into a joint-venture along with other European wireless chip business units belonging to NXP and Ericsson, was clearly not the solution.
|
|
|
|
|
Navigate to related information
eewiz
3/15/2012 1:43 PM EDT
Apple only buys companies that extremely key to their business and where they can clearly make a differentiation. Wireless is commodity business and they already have a good partner in Qualcomm. So doesnt make sense for Apple to buy STE.
An acquisition by Huawei/mediatek/spreadtrum, is definitely plausible. They would take all the tech, train the local staff and layoff the current employees. Will be kinda sad end for STE.
Any thoughts on how they could revive STE?
Sign in to Reply
junko.yoshida
3/15/2012 3:58 PM EDT
It was a couple of years ago when a senior executive who used to work for a large European chip company once told me: "Europe would never let ST-E go bankrupt."
As plausible as it sounded then, I wonder how true it still remains.
I guess the question to ask today is: Can Europe afford to do that?
And yet, laying off so many employees in Europe is too problematic. ST-E needs help.
Considering ST-E's great engineering talents and assets -- many brain powers from NXP, ST and Ericsson -- are there, I'd think that there are parts of ST-E that are attractive to certain companies.
Whether such potential buyers are Chinese is an open question, but Peter's thesis here does make sense to me.
Sign in to Reply
KB3001
3/15/2012 4:32 PM EDT
I agree Europe will do everything possible to save STE and keep it in Western if not European hands. That said, Europe as a whole is not competitive anymore, and unless fundamental reforms take place, any government subsidy, in whatever form, is simply throwing good money after bad IMO.
Sign in to Reply
Roger
3/15/2012 4:34 PM EDT
Excellent article Peter !
ST_Ericsson should be offered to the brazilian government, since they are looking to participate in the semiconductor market.
Sign in to Reply
Jeanshack
3/15/2012 4:43 PM EDT
Just like like Qualcomm, STE has a well round expertise in App engines,3G LTE, TD LTE, Wireless LAN, BT, GPS, FM, RF etc. Nobody is going to be interested in having all these, even the Asian tech companies in this business have some expertise or the other.
Huawei has their own family of app engines, MTK has modem and app engines, it is unlikely a new entrant would want their bets placed on STE.
One feasible option is to break up the company and sell it off in pieces, Huawei might want modem and connectivity. MTK could use connectivity or their APP engine, Broadcom could use their APP engine too. The other option could be a sale to someone like LG who has a consumer electronics presence and the financial clout but lack the expertise in platforms.
STE was formed by market pressures and they never got around to execute. For the past 3 years they have been continuously taking blows, Qualcomm already had 30% of the market, last year they also made this huge mistake of placing all their bets on Nokia and to top it off NVIDIA & TI had a resurgence. MTK, Broadcom and Infineon were always competing in the exact same space as their legacy products. Then these are just excuses!
Sign in to Reply
Jeanshack
3/15/2012 4:44 PM EDT
Just like like Qualcomm, STE has a well round expertise in App engines,3G LTE, TD LTE, Wireless LAN, BT, GPS, FM, RF etc. Nobody is going to be interested in having all these, even the Asian tech companies in this business have some expertise or the other.
Huawei has their own family of app engines, MTK has modem and app engines, it is unlikely a new entrant would want their bets placed on STE.
One feasible option is to break up the company and sell it off in pieces, Huawei might want modem and connectivity. MTK could use connectivity or their APP engine, Broadcom could use their APP engine too. The other option could be a sale to someone like LG who has a consumer electronics presence and the financial clout but lack the expertise in platforms.
STE was formed by market pressures and they never got around to execute. For the past 3 years they have been continuously taking blows, Qualcomm already had 30% of the market, last year they also made this huge mistake of placing all their bets on Nokia and to top it off NVIDIA & TI had a resurgence. MTK, Broadcom and Infineon were always competing in the exact same space as their legacy products. Then these are just excuses
Sign in to Reply
Jeanshack
3/15/2012 4:48 PM EDT
Just like like Qualcomm, STE has a well round expertise in App engines,3G LTE, TD LTE, Wireless LAN, BT, GPS, FM, RF etc. There won't be any takers for all of these, even the Asian tech companies in this business possess some expertise or the other.
Huawei has their own family of app engines, MTK has modem and app engines, it is unlikely a new entrant would want their bets placed on STE.
One feasible option is to break up the company and sell it off in pieces, Huawei might want modem and connectivity. MTK could use connectivity or their APP engine, Broadcom could use their APP engine too. The other option could be a sale to someone like LG who has a consumer electronics presence and the financial clout but would want expertise in platforms too.
It is a fact that STE was formed by market pressures and they never got around to execute. For the past 3 years they have been continuously taking blows, Qualcomm already had 30% of the market, last year they also made this huge mistake of placing all their bets on Nokia and to top it off NVIDIA happened & TI had a resurgence. MTK, Broadcom and Infineon were always competing in the exact same space as their legacy products. Then these are just excuses!
Sign in to Reply
shub
3/15/2012 4:52 PM EDT
Chinese can be one of the option but i think if they can break company in 3 division Apps Processor, Modem & connectivity then they have potentail of customers for Apps (AMD or ST itself keeping it as they use same ARM core in different product), Modem (being sold to TI if intrested or merging it with recent Japanese + samsung colloboration) and NVIDIA can purchase Connectivity solution.
Sign in to Reply
ibm221
3/15/2012 8:27 PM EDT
STE appears to be the junkyard for st-E-NXP ?
In this case some smart folk can take the equipment and some 'key' employee and fill in the void.
Anyway it would be tough for anyone to swallow so big a piece of trash.
the ex-qimonda is a good example,
Sign in to Reply
Neo1
3/15/2012 10:21 PM EDT
ST has been runnign sick from many year now, even before the Erricson collaboration. They never understood the mobile revolution and struggled to keep up by reacting late and never made any compelling products these last couple of years. They are still strong in the STB market but that doesn't have the volumes like mobile phone or tablets to keep them afloat.
The Management was clear lacking and it has finally brough a once illustrious company to it's knees. Well, they still keep it running the socialist way by borrowing from their future.
Sign in to Reply
pepcat
3/16/2012 4:31 AM EDT
I agree. I think ST has usually looked at the competitors before deciding to start any innovative program, and this is one of the reasons why it is often late to market.
Sign in to Reply
fordownloads1
3/16/2012 6:29 AM EDT
We all live in a capitalistic society. It doesn't matter whether ST-E serves Europe or NOT. What matters is how to save a company and make it profitable.
Having said that, ST-E seems over-staffed and may need to become lean and mean org.
Sign in to Reply
junko.yoshida
3/16/2012 7:01 AM EDT
It's easy to be an arm-chair analyst. But really, if there is one thing you want from ST-E today, what is it?
LTE modem? (But its IPs share the same roots as that of Nokia. Now that Renesas bought Nokia's modem business, ironically, Renesas is the owner of that IPs)
Many of us discussed breaking up the ST-E business, but one could also argue that the strength of ST-E today lies in the fact that it has ALL the elements necessary to make the next smartphone chips.
Sign in to Reply
trekorvar
3/17/2012 1:37 AM EDT
The new ST-Ericsson LTE/HSPA/GSM modem (in e.g. Thor M7400 and NovaThor L8540) is based on ex-EMP (Ericsson Mobile Platforms) architecture and accelerator IP, and ex-NXP DSP. There is no connection to the Renesas (ex-Nokia) modem.
Sign in to Reply
elctrnx_lyf
3/17/2012 2:39 AM EDT
STE should identify the key areas before it is completely dies in this competition.
Sign in to Reply
chipmonk
3/17/2012 2:40 AM EDT
Unfortunately ( or fortunately ) W. European policymakers do not think the same way as Wall St. / City of London or the masses who have swallowed their Kool-aid of so - called "free - market".
Germany just put out a couple of 100 billons to bail out Greece.
Whats a few more billions if there are no alternative to STE for addressing Europe's hardware needs ? Sale of Volvo to China was quite enuff !
The British, who lost industrial competitivenes to France & Germany almost since the advent of the steam locomotive ( invented actually by the Frenchman Cugnot years before Trevithick ), have long abandoned hard work and innovation needed to promote social responsibility and instead have depended on colonial exploitation and unabashed manipulation of the english speaking masses of America to do their bidding.
It is British interference in US media & policies since Thatcher that have greased the skids for our suicidal policies in the name of "free trade".
Sign in to Reply
Python
3/17/2012 7:06 AM EDT
This is the normal end of a company which has been managed by poor people (Philips Semi., ex. VLSI France,ex. SiLabs US, shark investor KKR, arrogant ST France, Ericsson) more interested to take over the power from the previous direction than to develop competitive and innovative solutions. This is as well very representative of the history of electronic in Europe. Let's see what will be the next steps of auto-destruction !! We shall certainly have very good suprises.
Sign in to Reply