ST-Ericsson, the joint venture formed years ago by STMicroelectronics N.V. and Ericsson LM is now history, concluding a saga that initially started five years ago with the bundling together of the wireless operations of two of the continent’s leading semiconductor vendors.
Ericsson and ST said in a statement that they had completed the “transaction to split up ST-Ericsson” with each company inheriting some of the employees, product lines, liabilities and remaining assets of the embattled business. Ericsson got the “design, development and sales of the LTE multimode thin modem solutions,” the companies said. The business inherited by Ericsson came with about 1,800 employees while ST got 1,000 workers involved in the non-LTE multimode thin modems, including the global navigation satellite system unit.
“We have finalized the agreement fully on track to our plan, with minimized social impact and lower exit costs than anticipated,” said Georges Penalver, executive VP and chief strategy officer at ST. We welcome our new employees as we are adding strong competencies in the areas of embedded processing, RF, analog and power technologies, as well as in software and complex system integration, to fuel growth in many of our product areas where we have significant business opportunities”.
The two companies had better hopes for ST-Ericsson but the Geneva, Switzerland-based business ran into stiff headwinds following brutal sales declines at two of its biggest customers, in addition to unexpected changes in the wireless communications market that devastated the entire industry. ST had hoped to establish a bigger, stronger and globally competitive wireless IC business by cobbling together units from its own operation and another one from NXP Semiconductor, itself a spin-off from Royal Philips Electronics.
ST began the process of creating a wireless IC powerhouse for Europe’s leading communications OEM by forming a joint venture – ST-NXP – with NXP Semiconductor in 2008 but as the partner embarked upon a radical reorganization and product trimming, ST bought out NXP and one year later combined the business into a new JV with Ericsson. The timing of that transaction was not favorable to the partners and failure to attract new customers in a shrinking sales environment all but doomed the joint venture.
The statement released today tried to put a positive spin on what was obviously a tough decision by the two JV partners. ST estimated its cost related to the winding down of the joint venture this year at between $300 million and $350 million but noted the employees it is adding would help advance its product offerings in key market segments. As for Ericsson, the company declared its commitment to LTE multimode thin modems and said the products are crucial to its future in the networked society.
“Ericsson continues to see great value in the LTE multimode thin modems as they are an important part of our vision of 50 billion connected devices in a Networked Society,” said Douglas Gilstrap, senior vice president and chief strategist at Ericsson. “The market potential is there and Ericsson will now focus on bringing the best modems to market, and work closely with customers to integrate them into their products.”