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Ericsson Joins Mobile Chip Challenger

Ericsson AB (Nasdaq: ERIC) and STMicroelectronics NV (NYSE: STM) got together today to create a 50-50 joint venture company combining Ericsson's mobile platform business and STMicro's ST-NXP Wireless mobile semiconductor joint venture, a move that signals that wireless chipset companies are having to bulk up to compete. (See Ericsson, STMicro Form JV.)

The news follows STMicro's joint venture with NXP Semiconductors N.V. (Nasdaq: NXPI) in April this year that created a $3 billion mobile chipset company. STMicro is now expected to buy out NXP's 20 percent stake in this joint venture before the new joint venture deal with Ericsson closes. (See STM's $3B Mobile Chip Biz, STMicro, NXP Merge Wireless, and ST, NXP Combine.)

Together, the mobile assets of ST-NXP Wireless, combined with Ericsson's platform business, will create a more powerful competitor for Broadcom Corp. (Nasdaq: BRCM), Qualcomm Inc. (Nasdaq: QCOM), and Texas Instruments Inc. (NYSE: TXN) The new joint venture company will have pro-forma 2007 revenues of $3.6 billion and a combined customer base that includes Nokia Corp. (NYSE: NOK), Samsung Corp. , Sony Ericsson Mobile Communications , LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , and Sharp Electronics Corp.

Ericsson will contribute its 3G and so-called 4G Long-Term Evolution (LTE) mobile platform technology to the new venture. ST-NXP Wireless, meanwhile, brings multimedia and connectivity solutions as well as a 2G/EDGE platform and 3G offering. ST-NXP Wireless's product portfolio also covers Chinese 3G technology TD-SCDMA, WiFi, ultrawideband (UWB), and location technology.

"We've got the industry's strongest solution, including 2G/3G, HSPA, LTE and a whole range of multimedia applications from ST," said Ericsson CEO Carl-Henric Svanberg on a call with analysts today. "We also have the strongest customer base in the industry."

"It's a bold move, but we decided to go for leadership," said Carlo Bozotti, president and CEO of STMicro.

The new venture will have a cash position of $400 million. Ericsson will chip in $1.1 billion net to the joint venture, out of which the joint venture will pay $700 million to STMicro.

The new company will employ 8,000 people -- 5,000 from ST-NXP Wireless and 3,000 from Ericsson Mobile Platforms. The joint venture will be fabless and use silicon technologies and manufacturing from STMicro as well as other providers.

The company will be headquartered in Geneva, where STMicro is based. Svanberg will be chairman of the board and Bozotti will be vice chairman.

Ericsson's mobile platforms business is part of the Swedish vendor's Multimedia division, which Svanberg described as a high cost and relatively low sales business when the company reported second quarter results last month. Ericsson is in the midst of a cost-cutting program to shave off SEK4 billion ($624 million) from its annual expenses. (See Ericsson Sinks on Q2 Profit Dip, Ericsson Cuts Jobs as H2 Bites, and Ericsson Trims 500 Jobs.)

— Michelle Donegan, European Editor, Unstrung

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