Ericsson is disengaging with a second foreign partner in as many years. The Stockholm-based equipment company is dissolving its four-year-old joint venture with French-Italian chipmaker STMicroelectronics. Ericsson disengaged with Japanese conglomerate Sony Corp. in 2012.
The ST-Ericsson joint venture was never profitable, according to media reports and public records. Under the dissolution agreement, Ericsson and STMicroelectronics will take back most of the employees they contributed to ST-Ericsson, a Geneva-based joint venture created in February 2009 that had produced chips and modems for smartphones.
ST-Ericsson attempted to commercialize the smartphone chip and software technology developed by the two companies. However, the venture ran into difficulty when two of its biggest customers, Nokia and SonyEricsson, had troubles of their own in the smartphone segment, which reduced the need for ST-Ericsson parts.
“Overall, I think the two joint ventures – ST-Ericsson and SonyEricsson -- highlight how hard it is for Ericsson to branch out from its core wireless network infrastructure business,” said Wayne Lam, senior analyst, Wireless Communications with IHS. “However, I would treat each case separately as handset market dynamics are quite different that those of wireless component suppliers.”
Sony retained the mobile phone business of SonyEricsson following a cash payment to Ericsson.
“ST-Ericsson was caught up with an out-sized customer in Nokia,” Lam said. “When The Finnish handset maker's business went into decline due to the rise of the smartphones, ST-Ericsson was not able to cope with that loss of business and went into financial distress. Also, it plays in an industry that is currently dominated by one player -- Qualcomm.”
Ericsson and STMicroelectronics agreed to take the following steps:
- Ericsson will take on the design, development and sales of the LTE multimode thin modem products, including 2G, 3G and 4G multimode.
- ST will take on the existing ST-Ericsson products, other than LTE multimode thin modems, and related business as well as certain assembly and test facilities.
- Start to close down the remaining parts of ST-Ericsson.
The formal transfer of the relevant parts of ST-Ericsson to the parent companies is expected to be completed during the third quarter of 2013, subject to regulatory approvals.
After the split up it is proposed that Ericsson will assume approximately 1,800 employees and contractors, with the largest concentrations in Sweden, Germany, India and China. ST will assume responsibility for approximately 950 employees, primarily in France and in Italy, to support ongoing business and new products development within ST.
ST-Ericsson Chief Operating Officer Carlo Ferro has been appointed president and chief executive of ST-Ericsson, effective April 1, 2013, to complete the transition.
