STMicroelectronics N.V. (NYSE:STM) and Ericsson (NASDAQ:ERIC) (STO:ERIC-A) (STO:ERIC-B) have announced to shut their loss making mobile chip joint venture ST-Ericsson. Both the companies will divide parts of the business between them and close the remaining resulting in 1600 job cuts.
The exit from the firms marks an end to the speculation surrounding the future of ST-Ericsson. The partnership has been troubled over dwindling orders from top costumers like Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), which has been struggling too against Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930). Along with the orders, ST-Ericsson was also not able to compete with other chip makers in Asia. The Asian rivals were quicker to respond to the changes in demand as they outsource most of their production.
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The duo has been looking for the buyer for ST-Ericsson but so far there have been none. ST-Ericsson has not been profitable since it was formed in 2008. The company was the partnership between Sweden’s Ericsson, maker of telecom network gear and Franco-Italian chip maker STMicroelectronics N.V. (NYSE:STM).
“All possible scenarios were considered but the option announced today was always a real possibility,” STMicro chief executive Carlo Bozotti told a conference call. Assuring the customers, CEO added, that the company will keep on making the products for ST-Ericsson customers as long as they needed them.
As per the exit plan, of the total work force of 4450 employees Ericsson (NASDAQ:ERIC) (STO:ERIC-A) (STO:ERIC-B) will retain about 1800 employees with majority of them being in Sweden, Germany, India and China. Ericsson will also retain the product line of thin 4G “multimode” modem chips. On the other hand, STMicroelectronics N.V. (NYSE:STM) will retain the other existing ST-Ericsson products along with a few assembly and test facilities. STMicro will keep 950 employees, mostly in France and Italy. The remaining units will be closed resulting in 1600 job cuts.
According to STMicroelectronics N.V. (NYSE:STM), none of the factories will be closed. Also, the company expects shutdowns and restructuring to cost around $350 million-$450, lower than the $500 million it estimated earlier. Ericsson told it had already made a provision of 3.3 billion Swedish crowns ($515.7 million) in 2012 to pay for the restructuring.
The split up follows an earlier announcement of the resignation of the former ST-Ericsson CEO Didier Lamouche last week. Lamouche will be replaced by current COO Carlo Ferro from April 1st. Ferro won’t be the CEO for long as the companies expect the agreement to be completed by third quarter of the year.