Ericsson enters shock joint venture

 

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By Reuters

Posted on 21 Aug 2008 at 17:41

Ericsson and STMicroelectronics will merge their wireless chip and software businesses to create a joint venture that will supply four of the world's top five mobile phone makers.

The new company will bring together the Mobile Platforms unit of Ericsson, the world's biggest mobile telecoms equipment maker, and ST-NXP wireless, the third-largest maker of wireless chips globally.

With pro-forma 2007 revenues or $3.6 billion, the venture will present a tougher challenge to wireless chip market leader Qualcomm and Texas Instruments.

The venture will build on ST's recent acquisition of NXP's wireless unit, while allowing Ericsson to focus more on its core telecoms infrastructure business after a series of profit warnings as it battles fierce price competition.

"In a business where scale matters, the complementary product portfolios contributed by the parent companies will deliver significant scale and synergies," say the two companies in a joint statement.

ST currently has Nokia (NOK1V.HE: Quote,

Sweden's Ericsson will pay STMicro $700 million, further boosting the cash pile of the chip maker, and will inject $400 million into the venture.

"Ericsson is in an instant creating a business with a critical mass and a market leading position within mobile platforms and at the same time focusing on the core operations," says Cheuvreux analyst David Hallden.

"This type of streamlining is of course positive and I don't think we should rule out that we will see more of this."

The new company will employ almost 8,000 people, about 5,000 from ST-NXP Wireless and roughly 3,000 from Ericsson.