ST-Ericsson (Part 1): A New Force in Wireless Semiconductors

By Guest Author Nalini Kumar Muppala

ST-Ericsson plans to be a major force in the wireless semiconductor IC space, and I believe that it has the wherewithal to become one. Over the next few posts, we will take a look at some recent developments at the company.

Genesis

ST-NXP Wireless came into being on August 2, 2008. Earlier coverage of ST-NXP Wireless in this space can be found in Vijay Nagarajan’s STMicroelectonics (STM) series. On August 20, 2008, ST-NXP Wireless entered into a joint venture (JV) with Ericsson Mobile Platforms (EMP), L.M. Ericsson’s wireless handset operations. Prior to completion of the new JV, STM took complete control of ST-NXP Wireless by exercising its option to buy NXP’s 20% interest in ST-NXP Wireless. As it turned out, STM bought NXP assets and it was not a merger, as it was showcased.

 ST-Ericsson is a 50/50 JV between STM and L.M. Ericsson. It encompasses former wireless handset business units of STM, L.M. Ericsson, NXP, Silicon Labs. ST-Ericsson, which was created in February 2009, is indeed a force to be reckoned with. Its proforma sales of $3.6 billion in 2008 trailed only market leader Qualcomm’s. In 2009, ST-Ericsson is expected to edge past Texas Instruments for the second spot in the cellphone semiconductor market.

The JV supplies four out of the top five handset makers (although most of them have multiple-sourcing strategies). It started with a workforce of about 8,000 of whom more than 85% were engaged in R&D. The JV is Europe’s answer to the likes of Qualcomm, TI, and Broadcom. The extensive IP portfolio, with more than 3,500 patents, is one of the most comprehensive offerings of wireless technologies for use in handsets. Of the major wireless semiconductor vendors, only ST-Ericsson has a play in Near Field Communication (NFC). According to the Geneva, Switzerland-based company, its technologies are present in some form in over 50% of the phones on the market.

 Organization

Given the tough market conditions and the company’s ongoing efforts to exploit synergies and cost savings, it did not shock many that ST-Ericsson reported losses in the first two months of operations as well as in 2Q 2009. It hopes to make a better showing in Q3, which has traditionally been a strong quarter.

Even before creating the the JV with EMP, ST-NXP made progress in cost savings, including closing a plant in Nuremberg and reducing its workforce by 500. ST-NXP expectedthe parent companies to save $250 million annually by 2011 by exploiting synergies. In addition to this, ST-Ericsson announced a major program that amounts to $230 million in annualized savings that it expects to complete by the second quarter of 2010. ST-Ericsson expects to cut its workforce by 1,200 to save on costs.

 Earlier this month, Gilles Delfassy was brought in to replace Alain Dutheil as CEO of ST-Ericsson. Dutheil returned to STM, where he worked prior to heading ST-Ericsson for the past seven months. Delfassy was a senior VP in TI’s Wireless Terminal Business Unit before retiring two years ago. When Delfassy was still at TI, Nokia was one of the US giant’s big customers. It would be interesting to see if Delfassy could help ST-Ericsson grow closer to Nokia.

A plan announced on July 28 reorganizes ST-Ericsson around three divisions: LTE and HSPA-connected devices; 3G-multimedia platforms; 2G, EDGE, TD-SCDMA; and connectivity. R&D will be shared across these groups. While the restructuring along product lines should pay off in the long run, the ongoing churning of executives probably means that the management is still trying to get a sense of this elephant of an organization.

In the next post, we will take a look at company’s portfolio and growth prospects.

This segment is part 1 in the series : ST-Ericsson
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