Maybe not so much lack of engineering skills, but maybe thinking in Europe needs to change. Clear out the banking type scandals, have smaller companies with less red tape, get the lazy off social life support/ welfare, and actually contribute (ie. Don't outsource to China at costs that don't allow them to produce quality, and then sell the stuff at German quality prices). Markups are too high in Europe or the UK (and Oz), so they will never be able to compete with Asian suppliers. Tax rates and the dole don't help either -- its that simple.
Ideally, you would expect a product company to have solid engineering/management skills, but in most cases they have minimal skills and talent (focus more on profit margin and staying afloat and Wall Street expectations, no more focus on real enegineering talent), and so there are plenty of repeated mistakes along the way.
That was my original thinking...but then, when you think about all the other telecom operator-related stuff you need to do (beyond chip design)especially when the world has so many different cellular standards with different flavors, it suddenly dawned on me that this may be a business that NO chip company wants to be in. Seriously, it appears to require a lot of people to address the "global" cellular market.
ST-Ericsson have never seemed a solid company to me. They seemed a mish-mash of several divisions that were formed by necessity rather than some unique ideology such as what Apple have.
ST should be even more ruthless and define a very clear ideology of how they will re-dominate.
The point of the story is this: As more and more chip companies are asked to do everything from chip design to software development and designing a "platform," chip companies ought to get paid more or find another bis model ( or simply going out of business.) Especially in a highly competitive mobile chip world, this sure ain't looking sustainable.
No doubt ST's exit is a major blow to Ericsson. It would be very interesting to see who would want to partner with them now to fill ST's void. Or who knows, Ericsson will shut the handset modem shop altogether.