Ericsson is putting its wireless microchip business into a joint venture with its Franco-Italian rival STMicroelectronics as the companies look to expand their customer base in the face of slowing mobile phone sales.
The new business, which will be jointly run by the two firms, will be number three in the mobile chip industry behind the US leaders Qualcomm and Texas Instruments. Based in Geneva, the as yet unnamed venture will employ nearly 8,000 people in a unit that last year would have generated $3.6bn (£1.9bn) in revenues.
The deal was warmly welcomed by Nokia, one of the venture’s key customers, as “a positive move” that would create a “strong industry player”. Analysts, however, pointed out that the Finnish firm, which makes four out of every 10 handsets sold worldwide, is no fan of Qualcomm, having been embroiled in bitter legal disputes with the US firm, and a stronger European rival would suit the company.
Ericsson is putting its mobile platforms business, which specialises in modems and designing multimedia phones, and $1.1bn in cash into the venture. STMicroelectronics, created just last month through the merger of STMicro’s mobile phone chip business with NXP Semiconductors of the Netherlands, will put in its wireless chip-design business, worth an estimated $1.2bn.
The venture will supply chips for handsets ranging from bottom-of-the-range pre-pay phones to the next generation of internet-enabled multimedia devices. As well as Nokia, the new venture will count SonyEricsson, Samsung, LG and Sharp as its major customers. The only one of the top five handset makers the venture does not supply is the US-based Motorola.
Ericsson’s chief executive, Carl-Henric Svanberg, will be chairman of the board of the business and STMicroelectronics’ chief executive, Carlo Bozotti, will be vice-chairman.
The deal comes as sales of mobile phones begin to show some signs of slowing down and there is consolidation in other parts of the industry. Last month, for instance, Nokia took control of the British mobile phone software company Symbian. Nokia helped create the business, with the UK-based Psion, 10 years ago.
Yesterday’s deal will allow Ericsson to focus on its telecoms networks business, which has suffered as the credit crunch bites and operators rein in spending.
Analysts warned that the venture could be bad news for the UK-based Arm Holdings, which designs processor chips for mobiles. Nick James at Panmure Gordon said the deal - along with STMicro’s acquisition of NXP - represents “a pretty intense wave of consolidation”.
Though the deal does not directly challenge Arm’s position as the dominant processor architecture for mobile phones, he said, “it does reduce the number of potential licensees and may put further pressure on Arm’s licensing revenue.”
