You can chalk this up on your “Dead or Alive” board: The ST-Ericsson joint venture is officially on the dead side.
Chip company STMicroelectronics and telecommunications gear maker Ericsson laid their final cards on the table earlier this week, announcing plans to dissolve the unprofitable four-year-old Switzerland-based JV.
The writing has been on the wall for some time. In previous earning calls, both companies talked about the venture's financial troubles, and in December, ST formally announced a new strategic direction that involved letting go of its involvement in the failed company. (See: Earnings Season: A Mixed Bag From Europe and STMicro Shifts Strategy, Dumps ST-Ericsson.)
The companies tried to find a buyer, but that didn't pan out. And it's no wonder why. ST-Ericsson was the result of an attempt to bring together smartphone chip and software technology, but as The New York Times reports, “the venture stumbled when two of its biggest customers, Nokia and SonyEricsson, had troubles of their own in the smartphone segment, which reduced and eventually eliminated the need for ST-Ericsson parts.”
a joint venture but the sides are staying friends with technology benefits.
The eventual demise seemed even more imminent earlier in March when news broke about the departure of the joint venture's Chief Executive, Didier Lamouche.
So, now the winding down will look like this, according to a statement:
In line with what we announced in December last year, we have now moved to the next step of our exit process and found a solution with Ericsson that fully aligns with our new strategy. The agreement made with Ericsson represents a major step forward in reaching our new financial model target and allows us to further strengthen the skillsets of our company, by welcoming in ST, at completion, additional strong competences to fuel growth in specific key product areas. Moreover, it protects and leverages the ongoing ST-Ericsson's business, allowing us to reinforce our relationships with key customers, both of ST and of ST-Ericsson.
ST said it will focus on these areas going forward: application processors, RF, analog and power, as well as software and complex system integration.
ST-Ericsson's portfolio includes devices that are complementary to its focus on the fastest-growing segments of the wireless semiconductor market, such as system-optimized analog mixed signal and power management devices; high-quality, low-power audio and video enhancements; and innovative energy harvesting solutions.
The more important questions are:
- What happens to the supply chain when a joint venture like this fails?
- Do buyers migrate to products offered by the parent companies?
- Or, do you route a greater part of your business to other, more financially stable sources of supply?