ST to exit ST-Ericsson in 2013

LONDON – As part of a strategic plan to improve its financial situation European chip company STMicroelectronics has announced its intention to exit from its mobile digital joint venture ST-Ericsson. ST announced in a conference call Monday (Dec. 10) that it intends to have left the joint-venture by the end of the third quarter of 2013 and that it is already in negotiations on the options.

At the same time CEO Carlo Bozotti told analysts that ST would focus on five key product areas where it already leads in the global market or where it can soon be the leader. These five product areas are MEMS and sensors, smart power, automotive electronics, microcontrollers and application processors for digital consumer.

In the area of application processors ST will abandon the mobile digital sector but continue to make set-top-box chips, cable modems, DisplayPort connection chips, network processors, car infotainment and ASICs for gaming.

As part of the re-organization ST will be divided into two product segment groups: sensors, smart power and automotive and embedded processing, Bozotti said. Both segments are expected to be profitable and cash generating.

ST said the changes will reduce the company's quarterly net operating expenses from about $900 million to between $600 million and $650 million by the beginning of 2014 excluding restructuring charges. The business would target 10 percent or more operating margin.

In separate announcement Ericsson said it would work with ST to find a suitable strategic solution but did not announce an intention to sell its stake in the joint venture. "Ericsson continues to believe that the modem technology, which it originally contributed to the joint venture, has a strategic value for the wireless industry," the company said in a brief statement. "For Ericsson, a key priority in this process is a successful market introduction of the new LTE modems that it is certain will be very competitive and needed in the market," it added.

"Mobile broadband is a very important market but not for ST," Bozotti told analysts during the conference call.

Click on image to enlarge.
Major changes in the wireless market over the last three years have driven ST's decision. Source: ST's strategic plan presentation.

ST said it will continue to support ST-Ericsson with application processors, IP and manufacturing process technology during the disengagement. This will include the fully-depleted silicon-on-insulator (FD-SOI) process which ST has pioneered at 28-nm and with a road-map to 20-nm.

Meanwhile will not abandon the mobile digital market altogether. It will still manufacture motion, environmental, image and touch sensors for that market; as well as audio amplifiers, microphones, secure microcontrollers, AMOLED display drivers.

However, Bozotti and ST declined to comment on the current value of the ST-Ericsson joint venture or what sort of costs disposal of ST-Ericsson would incur if it could not achieve a sale of the business.

ST-Ericsson has been losing several hundred millions of dollars per quarter since its formation in February 2009 and has built up large debts with its parent companies. Bozotti said that ST-Ericsson had been caught out by a dramatic change in the mobile digital equipment market that started about two years ago with changes in operating system and a trend towards vertical integration amongst certain market leading companies. ST-Ericsson had also suffered because of change at a former major customer of ST's, Bozotti said.




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