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STMicro will pay NXP $1.55 billion to own 80% of the venture, which it claims will combat falling prices and increasing research and development costs. NXP also has a "put and call" option allowing it to exit its 20% stake in three years.

"My first-blush reaction is that it looks like a lot of money.

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But on the flip side, it's a positive that we're consolidating the industry," says American Technology Research analyst Doug Freedman.

Another analyst, John Dryden of Charter Equity Research, claims STMicro could be making a mistake by "taking on increased exposure to a declining and highly competitive market" rather than expanding its share of the wireless chip business.

Nokia, STMicro's biggest customer, claims the deal is a good thing for the handset industry: "We welcome the emergence of this joint venture creating a strong player serving the top mobile phone manufacturers, understanding the needs of these customers and providing the required speed of innovation," says Nokia's head of sourcing and procurement, Jean-Francois Baril.

The deal is expected to close in the third quarter of this year, and will give the newly formed company control of 14% of the market.