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ST to buy out NXP stake in ST-NXP Wireless, merge in Ericsson Mobile Platforms
Based on the combined customer agreements, the Ericsson-ST owned fabless joint venture will be a supplier to handset makers Nokia, Samsung, Sony Ericsson, LG, and Sharp. Analysts warn that risks come in the near term on the integration front, as ST has now announced two large wireless acquisitions within the space of a few months and does not have much experience in M&A.
By Suzanne Deffree, Managing Editor, News -- Electronic News, 8/20/2008
STMicroelectronics today announced it will buy out NXP’s 20% share in their just launched ST-NXP Wireless venture and merge in Ericsson Mobile Platforms (EMP), forming a formidable competitor to the wireless industry’s mobile semiconductor kingpins including Texas Instruments and Qualcomm.
The 50/50 Ericsson-ST owned fabless joint venture will employ almost 8,000 people with pro-forma 2007 sales of $3.6 billion and, based on the combined customer agreements, will be a supplier to handset makers Nokia, Samsung, Sony Ericsson, LG, and Sharp. Together, these handset makers accounted for more than 80% of unit shipments in 2007.
“From a technology standpoint, EMP’s leadership in 3G is the key positive for STMicro, which is in the process of developing a full 3/3.5G chipset for Nokia (for 2010/2011 shipments), as it may enable it to move forward its timeline and/or reduce development expense given EMP’s existing investment and products in 3G (and looking forward early development in LTE),” Tim Luke, a semiconductor market analyst at Lehman Brothers, said in a research note this morning. “From a customer perspective, it will improve ST’s position with Sony Ericsson (ST already supplies via EMP), LG, and Sharp (both supplied via EMP), while it continues to be a key supplier to Nokia and Samsung.”
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“We understand the desire of ST to call our 20% stake in order to expand the ST-NXP Wireless joint venture with Ericsson,” Frans van Houten, CEO of NXP, said in a statement from ST today. “We support this next step that Ericsson and ST are taking to create the global leader in wireless semiconductors. To help ensure the success of the joint venture going forward all NXP’s supply and support agreements will continue as planned. The additional proceeds of the 20% stake will enable NXP to further build leadership positions through innovation and investment in NXP's core businesses.”
The Ericsson-ST joint venture will rely on its platform offering, which will include modems, multimedia, and connectivity solutions for 2G/EDGE, 3G, HSPA, and LTE technologies. It will also include all hardware, software, and support to allow handset manufacturers to develop mass-market products.
“By combining the complementary strengths and product offerings of Ericsson and ST in platforms and semiconductors the joint venture is well positioned to become a world leader,” said Carl-Henric Svanberg (pictured, left), president and CEO of Ericsson, in the ST statement. “The industry continues to develop at a swift pace and customers see benefits from our broad offering. This partnership is a perfect fit and secures a complete offering, as well as the necessary scale for technology leadership.”
While crediting the soon-to-be merged company’s portfolio and supplier strengths, Lehman noted in its research note that this is the second large merger for ST in the past four months, one that comes less than three weeks after ST-NXP Wireless began operations on August 2.
“The risks come in the near term on the integration front, with ST now having made/announced two large wireless acquisitions within the space of a few months, this from a company that does not have much experience in M&A [merger and acquisitions] and integration,” Luke cautioned.
Deal details
Broken out, ST reported that its joint venture with Ericsson will be led by a development and marketing company with approximately 7,000 people employed. ST will consolidate that company. A separate platform design company, with approximately 1,000 people employed, will provide platform designs to the development and marketing company. Ericsson will consolidate that company.
Of the near 8,000 people employed, 5,000 will be from ST-NXP Wireless and roughly 3,000 will be from EMP.
The new Geneva, Switzerland-based company will use silicon technologies and manufacturing capabilities from ST and other external providers.
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In addition, ST will designate the CEO and Ericsson will appoint the executive VP to the company.
An integration management team, led by former ST executive Alain Dutheil, has already been selected. That team also includes two executives from NXP, who will be joined at the venture by NXP’s senior VP of global sales, Pascal Langlois, on September 1 when he moves to ST-NXP Wireless as corporate VP of sales and marketing.
The Ericsson-ST joint venture will acquire what ST described as “relevant” assets from its parent companies, after which ST estimated it will have a cash position of about $400 million. Ericsson will contribute $1.1 billion net to the joint venture, out of which $700 million will be paid by the joint venture to ST.*
*Editor's note: This paragraph originally misstated $400 million as $4 million and $700 million as $7 million. The corrections were made on August 27, 2008.
