LONDON – Europe's largest chip company STMicroelectronics NV should persuade Ericsson AB that they sell off their mobile chip joint venture ST-Ericsson, but probably to some aspiring Chinese company. That is likely to produce the quickest and most profitable – or least loss-making – exit for the two parent companies from what has become a failed project.
ST-Ericsson is currently massively loss-making and has built up debts of $800 million with its parent companies over a three year period while losing $2 billion. And things are slated to get worse before they get better.
According to a
Reuters report Didier Lamouche, the CEO brought in to replace Gilles Delfassy late last year, is going to cut hard in a restructuring plan designed to take out cost – and that a trimmed down ST-Ericsson will start to look good for sale – eventually. However, the same report, quoting unnamed sources, said potential buyers in the western hemisphere, the likes of Intel and AMD, may want to wait one or two years to see the beneficial results of Lamouche's cuts.
I don't think ST-Ericsson or ST have that much time. In a note in the most recent financial results ST-Ericsson said "Our shareholders will continue to support funding our transitional financial needs." This of course begs the question of "transition to what?" and "how long will that transition take?"
The fact is that ST-Ericsson is a three-year old joint venture that has acted like a boat-anchor on the progress of STMicroelectronics.
It is true that ST-Ericsson wrapped up a lot of the previous problems of ST, specifically an overdependence on faltering Nokia as a customer, but pushing the problem into a joint-venture along with other European wireless chip business units belonging to NXP and Ericsson, has not helped ST.
Next: ST compared with Infineon, Apple compared with China
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