STMicro to quit ST-Ericsson mobile chip venture

STMicro to quit ST-Ericsson mobile chip venture

PARIS - STMicroelectronics plans to quit its loss-making mobile chip joint venture with Ericsson to focus on profitable businesses like making chips for the consumer electronics and automotive sectors.

The French-Italian group did not specify on Monday how it planned to exit the ST-Ericsson venture, saying only it was already in negotiations on options and that the transition would be completed by the end of the third quarter of 2013.

ST-Ericsson has been unprofitable since it was formed in 2009, and has seen revenues plunge over the past two years due to the decline of its one-time biggest customer Nokia . In April, ST-Ericsson said it would cut 1,700 jobs and transfer some product development to STMicro to cut costs.

Bank of America Merrill Lynch analysts welcomed STMicro's decision, upgrading its shares to a "buy" rating with a price target of 6.25 euros.

"By splitting up the company between its low-capital intensive, high cash flow, solid margin analog activities and its loss making wireless JV, we believe STM would be likely to re-rate," they wrote in a research note.

At 0850 GMT, STMicro shares were up 2.6 per cent to 5.135 euros, building on a near 9 per cent rise this year.

The Bank of America analysts sketched out three scenarios for ST-Ericsson: a sale to a third party, which they deemed "low probability", outright closure involving $1.5 billion of restructuring costs, or a sale of STMicro's stake to Ericsson.

Ericsson declined to comment on its intentions, other than saying it would work with STMicro to find a "suitable strategic solution" for ST-Ericsson and the details would be ironed out in coming negotiations.

STMicro said its new strategy would focus the group on two main areas: its more profitable so-called analogue business that makes chips for motion sensors, power management and the automotive sector, as well as its digital business that makes"embedded processing solutions" for consumer electronics.

The moves will allow the Franco-Italian group to reduce quarterly net operating expenses to around $600-650 million per quarter by early 2014, while operating margins would increase"rapidly" to reach 10 per cent.

"In line with the new financial model, the company expects both product segments to be profitable and generate cash," said STMicro in a statement, adding that the group will have an addressable market of $140 billion in 2013.

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