ST-Ericsson (Part 3): Strategy And Outlook

By Guest Author Nalini Kumar Muppala

What is ST-Ericsson’s overall strategy? The final post in the series answers this question, provides some strategy pointers and offers a brief outlook of the JV’s prospects.

Enabling Customers

While the overall handset market shrunk in Q1 and Q2 of this year, the smartphone market grew. Although ST-Ericsson supplies four of the top five handset makers, only Nokia figured among the top five smartphone makers. And even Nokia saw its share shrink. Partly to counter this trend, Nokia recently entered into alliances with Intel and later, Microsoft. As Europe’s flagship wireless semiconductor vendor, ST-Ericsson should cash in on the increased aggression towards Nokia. In this effort it will need to battle Infineon, which enjoys similar geopolitical links with Nokia.

Nomadik SoCs and platforms support Symbian, Linux (Android too), and Windows Mobile. The range of supported operating systems covers product road maps of its rich clientele. The product roadmap promises open OS phones. CEO Alain Dutheil said in July that the JV would ramp up efforts to recruit American manufacturers. Such efforts must be enticing to enlist RIM and Apple, especially given their huge success in smartphones. I am skeptical, given the existing OS diversity and the work it involves to support a new OS. Apple is unlikely to use a ST-Ericsson platform, given its in-house work based on PA semi acquisition.  The JV could still sell these American firms some of its promising parts.

The JV should seek to enable its clientele with competitive solutions and innovative platforms to improve their smartphone offerings.

Conclusion

ST-Ericsson has a broad portfolio to provide complete design platforms, and the customer reach to gain market share. The JV drives home the importance of scale in this business. Its roadmap, among other things, promises 3G entry phones, one-chip connectivity, one-chip ultra low cost, one-chip smartphone solutions. Even if only some of these come to fruition, the JV will benefit from huge tailwinds.
 
ST-Ericsson openly targets the US and China for growth. It has shown progress in China with design wins at China Mobile and Samsung. But growth in the US remains elusive thus far.

The success of this conglomeration is hugely dependent on execution. While most overlaps have been sorted through, the convergence of three different 3G stacks into one 3G roadmap remains. The biggest challenge is to convince customers to move from a solution provided by one of the parents to a streamlined offering. Revenue will likely take a dip while the disparate teams work out the differences and coalesce behind a single design methodology and technology road map.

The lack of ready availability of combo chips for connectivity will hurt the JV in the short term. The huge workforce might be a drag on operating expenses, and the JV might need to work around stringent European labor laws to find a way out. Another workforce-related concern is the high proportion of employees engaged in R&D. Improvement in profitability will come, but not very soon.

This segment is part 3 in the series : ST-Ericsson
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