NXP, ST combine wireless operations for handset-focused joint venture

As part of the agreement, ST will pay NXP $1.55 billion for an 80% stake in the joint venture.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 4/10/2008

NXP and STMicroelectronics today announced an agreement to combine their respective wireless operations to form a joint-venture company targeting major handset manufacturers.

The combined venture will see the merger of two businesses that together generated $3 billion in revenue in 2007 and own thousands of communication and multimedia patents. According to the partners, “the new company will be a solid top-three industry player and among the few companies with the scale and expertise to pursue the R&D investments necessary to establish itself as a leading player in the wireless and mobile-multimedia market.” Specifically, Netherlands-based NXP and Switzerland-based ST noted the UMTS, WiFi, Bluetooth, GPS, FM radio, USB, and ultrawideband markets as points of focus for the joint venture.

The new, unnamed organization will combine design, sales and marketing, and back-end manufacturing assets from both companies into a worldwide joint venture that will rely on its parent companies and foundries for wafer fabrication services. The venture will also integrate NXP’s recent acquisitions of Silicon Laboratories' wireless business and GloNav's GPS operations.

“The wireless semiconductor industry requires huge investments in new technology and innovative product roadmaps. This move will see two strong players propelling themselves into a leadership position,” Frans van Houten, president and CEO of NXP, said in a joint statement from the two companies. “Together we will accelerate innovation, which we anticipate will contribute to market share gains and improved financial performance.”

As part of the agreement, ST will pay NXP $1.55 billion for an 80% stake in the joint venture. The companies said they have also agreed on a future exit mechanism for NXP's ongoing 20% stake, which involves put and call options, exercisable beginning three years from the formation of the joint venture, at a strike price based on actual future financial results, with a 15% spread.

The new company will be incorporated in the Netherlands and headquartered in Switzerland with approximately 9,000 employees worldwide. The total workforce will be contributed almost equally by NXP and ST.

While the joint venture is planned to be fabless, it will operate its own assembly and test facilities in Calamba, Philippines, and Muar, Malaysia. As such, NXP's Calamba site as a whole will be transferred to the joint venture, and part of ST’s back-end operations in Muar will be separated from the parent company's existing facility in the area and transferred to the joint venture.

The joint venture will be governed by a board of directors on which both ST CEO Carlo Bozotti and van Houten will participate. The deal is expected to close in Q3.

The parent companies said they expect more than $250 million in annual cost synergies from the joint venture by 2011. Today’s agreement follows a separate joint venture launch in March by ST in the memory field. That venture saw it and Intel produce flash company Numonyx.

“This transaction strengthens our wireless business and enhances our leadership position in an important market segment we have targeted for expansion and external growth,” Bozotti said in the statement. “Coupled with our recent deconsolidation of flash memory, it further proves our execution in reshaping ST's product portfolio towards value and leadership. This, together with our recently announced decisions on distribution to shareholders, demonstrates our commitment to improving shareholder value.”

Noting research from iSuppli, the two partners said the global handset market was 1.15 billion units in 2007 and said it is forecasted to grow at about an 8% compound annual growth rate through 2011. The handset semiconductor market represented 14% of the global semiconductor total available market in 2007, making up the second largest segment of the industry, according to the research.

The joint venture saw support from number 1 handset maker Nokia in the NXP-ST announcement this morning.

“The wireless semiconductor industry requires consolidation,” said Jean-Francois Baril, senior VP of sourcing and procurement with Nokia, in the statement. “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.”