STEricsson to slash a quarter of workforce after disappointing results

Chip vendor ST-Ericsson has announced it will axe a quarter if its workforce and take a new strategic direction after posting a major drop in revenue and recording a deeper loss in the first quarter of 2012.

The joint venture between STMicroelectronics and Ericsson generated just $290m in net sales in 1Q12, 35 per cent less than the $444m it posted in the same quarter last year. The firm’s net loss for the quarter stood at $312m, which is 75 per cent higher than the loss it made in 1Q11, which totalled $178m.

The firm has now announced new directives to guide its future, which include slashing 1,700 jobs, transferring application processor activities to STMicroelectronics and taking additional measures to accelerate time-to-market.

The company said it foresees a global workforce reduction of 1,700 employees worldwide – its current headcount is approximately 6,700.  It said it expects to see annual savings of around $320m as a result of the restructuring, which will be complete by the end of 2013. However, the costs of the restructuring are estimated to be approximately $130m to $150m, warned STEricsson.

Some of those 1,700 staff will be transferred to STMicroelectronics, as ST-Ericsson aims to take advantage of the firm’s expertise in development of future application processors. ST-Ericsson will transfer its application processor R&D activity and employees to STMicroelectronics. In addition, the two companies have entered into a commercial agreement to jointly promote and offer stand-alone processors and thin modems to a broader range of customers and applications.

The firm said it will also focus on improving R&D execution and accelerating time-to-market, while reducing overall expenses. R&D activities will be consolidated into a smaller number of sites, categorised by technology. With this site transformation, the firm said it aims to enhance the effectiveness of operations. Additionally the company aims to reduce its Selling, General & Administrative Expense (SG&A) expenses by around 25 per cent compared with 2011, by streamlining activities and substantially reducing headcount within its top management tier.