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ST-Ericsson Break-Up Fallout

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.”

Break Up

Ericsson CEO Hans Vestberg (L) and ST CEO Carlo Bozotti are breaking off  a joint venture but the sides are staying friends with technology benefits.

Ericsson CEO Hans Vestberg (L) and ST CEO Carlo Bozotti are breaking off
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?

12 comments on “ST-Ericsson Break-Up Fallout

  1. Brian Fuller
    March 22, 2013

    The allure of huge consumer segments often grounds semiconductor ships. Recall Brian Halla, early in his National Semiconductor tenure, pushing the company into the PC business to compete against Intel. Wisely he changed course. 

    Perhaps more executives should do agree to a Ulysses Pact to ensure they sail right past the Sirens and the shoals. 

  2. t.alex
    March 23, 2013

    Besides Nokia and Sony Ericsson, who else were the customers then?

  3. Nemos
    March 24, 2013

    If you mean the ST customers , ST is a very big company in the Electronic industry as Chip malefactor apart from the mobile and smart phones a lot of industry controllers have ST chips inside.

  4. Nemos
    March 24, 2013

    It is sad to hear all the time about “divorce” before one year we hear the break up between Sony and Ericsson now between ST and Ericsson. The only question come up to my mind is what is going on with Ericsson. Why they let a such successfully company to fall ?

  5. Himanshugupta
    March 24, 2013

    I think sometimes a conflict of interest or fallout of a major customer can lead to breakdown of JV. However I think that JV are becoming a fasion in manufacturing in India atleast. There are so many MNCs who want to open a shop here but due to lack in local business they go for a local known manufacuting and marketing company. They are atleast booming in automotive sectors (Maruti-Suzuki, Hero-Honda, Mahindra-Renaut, Tata-Fiat, TVS-Pugeot etc). The list is long.

  6. HM
    March 25, 2013

    This fallout is no surprise. Was bound to happen. When this kind of fallout happens, nothing changes as far as buyers are concerned. They keep buying the same product.

  7. HM
    March 25, 2013

    so much agreed. ST profile was pretty impressive between these two. Was there any need for ST  to get into this union at all.

  8. Jennifer Baljko
    March 25, 2013

    @Brian – Not a bad strategy sailing pass sirens, but the forumla would benefit from some sort of equation that weighs “core products that warrant most investments and resources” and “flavor of the year where everyone seems to be migrating but is not a core corporate expertise.” Drives home the always tricky balance of how to diversify portfolios while strategically being true to core business missions.

  9. Jennifer Baljko
    March 25, 2013

    @t.alex – fourth quarter earnings report lists Samsung as a customer as well:

    “Samsung GALAXY S III mini is powered by an ST-Ericsson NovaThor ModAp, making it the fourth Samsung smartphone using the NovaThor platform.”


    Other info about partners and devices where the joint venture's products were used:

    http://www.stericsson.com/press_releases/Q42012.jsp

    http://www.stericsson.com/investors/Analyst%20Event%20Presentation%20%20MWC%202012%20.pdf

  10. t.alex
    March 25, 2013

    Jennifer, 

    thanks for the information. Even with Samsung as a customer, the break-up still happen though. They must have lost the synergy to work together.

     

  11. FLYINGSCOT
    March 25, 2013

    I think the break up was inevitable and it a good way to let each company focus on its core competences moving forward.  it is a shame though.

  12. Brian Fuller
    March 25, 2013

    @jennifer, excellent point. I remember the '90s and early 2000s in the semiconductor business when chip companies positioned themselves as the “PC company,” or “the communications company.” Some navigated that better than others. 

    But, as you point out, the ones who navigated best had that balance in mind. 

    (There there's always the time factor: “Must make our numbers now.”)

     

     

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