STMicroelectronics NV (STM) and Ericsson AB (ERICB) agreed to split up their unprofitable ST-Ericsson chip venture after failing to find a buyer for the business, cutting about 1,600 jobs as they divide the assets.
Ericsson said today it plans to assume about 1,800 of the venture’s 4,350 employees and contractors in countries including Sweden and Germany, and will continue developing ST-Ericsson’s modem technology. STMicroelectronics will take on the venture’s existing products and 950 employees, mainly in France and in Italy, and incur costs of as much as $450 million.
STMicroelectronics and Ericsson are winding down the 50-50 partnership, which designs chips used in mobile phones, after a three-month search for a buyer failed to produce results. The partnership has accumulated $2.7 billion in net losses since it started in 2009 as it struggled to introduce higher-powered chipsets and platforms while the low-end handset business at customer Nokia Oyj (NOK1V) shrank.
“In 2009 the situation was different, we started with a great base of European customers,” STMicroelectronics Chief Executive Officer Carlo Bozotti said on a conference call. “Unfortunately this customer base has changed.”
Ericsson fell 1.4 percent to 84.25 kronor at 10:30 a.m. in Stockholm. It had advanced 31 percent this year before today. STMicroelectronics, which had gained 9.6 percent this year, climbed 3 percent to 6.06 euros in Paris. The stock lost 4.4 percent on March 12 after Bloomberg reported that ST-Ericsson failed to find a buyer.
Potential buyers that were approached, including customer Samsung Electronics Co., declined to make an offer, people familiar with the matter said last week. Samsung is “a great customer for us and we continue to work for a lot of products with this company,” Bozotti said today, declining to comment on any talks for Samsung taking over the venture.
The modem business will become a standalone unit at Ericsson and will probably report an operating loss of 500 million kronor ($77 million) in the fourth quarter, Ericsson said. Ericsson already set aside 3.3 billion kronor in the fourth quarter last year to cover costs related to strategic changes at ST-Ericsson.
“We want to be top three in modems,” CEO Officer Hans Vestberg said in a phone interview today. “This is our ambition and I think we have the right capacity, competencies , slimmed- down organization and product for it.”
Losses from the business to be integrated are “worrisome” and could weigh on Ericsson stock, Erik Paulsson, an analyst at Pareto Securities in Stockholm, said in a note to clients.
ST-Ericsson Chief Operating Officer Carlo Ferro was named chief executive officer to oversee the transition. Previous CEO Didier Lamouche quit last week. The formal transfer of the ST- Ericsson assets to the parents will probably be completed in the third quarter, the companies said.
Reintegrating workers into the parent companies could help minimize job cuts at ST-Ericsson as some European governments, especially Socialist President Francois Hollande-led France, are against firings.
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