Vendors create 50/50 joint venture that will enable it to provide full solution to customers, boost competitiveness in market.
Ericsson and STMicroelectronics on Wednesday announced the creation of a mobile chipsets joint venture designed to build scale in the mobile applications space.
The new Geneva-based company, which has yet to be named, will be a 50:50 venture between Ericsson and STMicroelectronics. It should enable the companies to compete better with the likes of Qualcomm and Texas Instruments. Under the terms of the deal, the Swedish vendor will contribute its Ericsson Mobile Platforms business and make a cash payment of $1.1 billion, of which $700 million will be paid to STMicro, leaving the JV with a cash position of $400 million. STMicro will transfer its ST-NXP semiconductor business, which was created in April this year and launched earlier this month; STMicro will first buy the remaining 20% of ST-NXP it does not already own. "The customer is requiring a full solution," said Ericsson president and CEO Carl-Henric Svanberg, at the companies' press conference in London. "The JV will have the scale to successfully compete in the marketplace," he added. Svanberg explained that the move from 2G voice communications to mobile data and Internet services means customers need much more than just "the telephony part" that Ericsson was able to supply. And his counterpart at STMicro, Carlo Bozotti, agreed, noting that the deal will create "a company that will drive the convergence between the communications aspect... and the multimedia features." Both Svanberg and Bozotti were keen to point out that they have the backing of their customers, which include four of the top five global mobile phone manufacturers: Nokia, Samsung, Sony Ericsson and LG. "Why don't you combine with ST," customers advised, when Ericsson discussed its options with them, Svanberg said. The companies have put in place an integration management team to oversee the combination of the businesses. In addition, each will provide four members, plus STMicro will appoint a CEO and Ericsson an executive vice president. The chairman and the vice chairman will come from Ericsson and STMicro respectively. "That obviously is going to be me and Carlo," said Svanberg. The business as a whole will employ 8,000 people, but will be divided into two companies. It will be led by a development and marketing company, which will have 7,000 employees and will be consolidated into STMicro's sales. The smaller access technology design company will employ the other 1,000 people and its revenue will be consolidated by Ericsson. Ericsson's intellectual property will not be included in the deal. "The IPRs stay with Ericsson," Svanberg insisted. "The IPR fees are not involved in the JV." Responding to questions from the floor about the state of the Ericsson Mobile Platforms business, Svanberg also said the unit is breaking even, excluding revenue from intellectual property. The vendors insisted that the deal is not about making cost-savings, rather bringing together two complementary businesses, but admitted that there are some savings to be made. "There are opportunities for synergies and we will aggressively work to exploit the synergies," said Svanberg. "The prospects are good in terms of earnings accretion... and we believe a great potential for the long term," added Bozotti.
