Ericsson, STMicro merge assets to create chip giant

US chip shop STMicroelectronics is to merge with Ericsson’s Mobile Platforms unit and spin the resulting operation off into a joint venture, the companies said Wednesday.

Acknowledged by analysts as the biggest consolidation in the chipset market so far, the 50/50 joint venture claims to have the industry’s strongest product offering in semiconductors, supplying components to Nokia, Samsung, Sony Ericsson, LG and Sharp.

The move follows STMicroelectronics’ April acquisition of semiconductor firm NXP, and will see STMicro acquire the remaining 20 per cent of the joint venture it had with NXP that it did not already own.

The new operation will be a serious challenger to industry heavyweights Qualcomm, Texas Instruments and Freescale. Malik Saadi, principal analyst with Informa Telecoms & Media, said, “While TI and Freescale continue to loose market share, challengers including STMicroelectronics and NXP continue their cruise in providing innovative designs and technologies that seduce the leading OEMS. This together with EMP’s (Ericsson) know-how in the radio access and its wealth in terms of wireless IPRs could make the group the strongest chipset maker in the mobile phone market ever.

“It’s really good news for the industry,” Saadi said, but potentially bad news for TI. “The biggest chipset manufacturer to suffer from this merger is certainly TI. After losing its privilege as the main chipset supplier to Nokia, TI might also face losing EMP (Ericsson), their second biggest customer, which could seriously affect the blue-chip maker’s revenues. TI will have to look for a chipset partner if they want to survive,” Saadi added.

The fabless joint venture between Ericsson and STMicro will employ almost 8,000 people and has a pro-forma 2007 sales figure of $3.6bn and around $400m in cash. Ericsson will contribute $1.1bn to the JV, out of which $700m will be paid STMicro.

The US firm will contributes its 2G/EDGE platform and 3G offering, including customer relationships with Nokia, Samsung, and Sony Ericsson, while the Swedish vendor will add its 3G and LTE platform technology as well as customer relationships with Sony Ericsson, LG and Sharp to the mix.

Meanwhile, rival chip vendor Freescale, which was spun off from Motorola in 2004, this week joined mobile Linux collective the LiMo Foundation.

“Joining LiMo Foundation is yet another example of our commitment to Open OS platform solutions,” said David Patterson, director of product management for Freescale’s Cellular Products Group. “Freescale’s integration of Open OS solutions like the LiMo Platform, into our cellular platforms, enables OEMs to use fewer resources and reduce their overall handset development time.”