STMicro Bailing Out on Joint Venture with Ericsson

In an effort to cut costs and catch up with U.S.-based rivals Qualcomm and Texas Instruments, STMicroelectronics (STMicro) said it's bailing out of its loss-making chip joint venture with Ericsson. The fabless joint venture, ST-Ericsson, reportedly lost $841 million in 2011.

"Today we are announcing the new ST, aligned with the new market environment,” said Carlo Bozotti, President and CEO of ST. "Based on that, we have made the decision to exit ST-Ericsson after a transition period. We will continue to support ST-Ericsson as their supply-chain partner, advanced process-technology partner and application-processor IP provider."

Back in August 2008, the two companies announced an agreement to merge Ericsson Mobile Platforms and ST-NXP Wireless into a joint venture. ST-NXP Wireless contributed its "multimedia and connectivity solutions as well as a complete world-class 2G/EDGE platform and strong 3G offering." Previously ST-NXP Wireless was launched as an 80-20 venture between STMicro and NXP.

Then back in October 2012, STMicro said that it planned to cut costs by $150 million a year by the end of 2013, but there was speculation that up to 500 jobs could be affected. The new strategy announced on Monday narrows the company's focus down to two main areas: its digital business with makes embedded processing solutions, and its analog business which makes chips for motion sensors, power management, and the automotive industry.

"In Embedded Processing Solutions the company will focus on the core of the electronics systems rather than on wireless broadband access," the company said. "The Embedded Processing Solutions segment includes microcontrollers, imaging products, digital consumer products, application processors and digital ASICs."

STMicro said the new strategy will reduce the company's quarterly net operating expenses by $600 million to $650 million per quarter by early 2014, and operating margins would increase to reach 10-percent. Currently operating costs are roughly $900 million per quarter – the operating margin was only 2.4-percent in 2011.

How STMicro plans to reduce operating costs and whether its own workforce of 500,000 would actually be affected is unknown at the point, but Reuters points out that the French and Italian governments own a combined 27.5-percent of the company, so job cuts would be "politically touchy" – even more so considering the current global economy.

STMicros' mobile chip venture with Ericsson had been reportedly unprofitable since it was formed back in 2009, but even more so when its then-largest customer, Nokia, began losing marketshare to Apple and Google. Even more, successive cost-cutting plans – including the elimination of 1,700 jobs back in April and shifting some development over to STMicro – failed to bring the venture into positive numbers.

Reuters said Ericsson declined to comment other than saying it would work with STMicro to find a "suitable strategic solution" for ST-Ericsson -- details would be ironed out in coming negotiations. ST-Ericsson said in a press release on Monday that it will continue its cooperation with ST as its supply chain partner, advanced process technology partner and application processor IP provider. 

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