ST-Ericsson announced plans to transfer part of its R&D to shareholder STMicroelectronics and cut around 1,700 jobs in an attempt to stem ongoing losses. STMicro will take over the company's application processor R&D and associated staff. ST-Ericsson will licence the resulting products for its mobile phone and tablet offerings, and the two companies will work together to promote stand-alone processors and thin modems to a broader range of customers and applications. The entire ST-Ericsson application processor R&D team will continue, under a transitional cost-sharing model, the development of the current product generation, after which a royalty scheme will take effect. The transfer should be completed in July.
Going forward, ST-Ericsson will focus on integrated modem plus application processor solutions for smartphones and tablets (ModAp). The key building blocks - application processors, modems, connectivity as well as power, RF, analog and mixed signal - will be developed either directly or through partnerships and alliances to limit and optimize the R&D effort. The company will continue to develop its own modem IP, a key competitive enabler, sell thin modems and possibly license modem IP to third parties.
As part of the new strategy, ST-Ericsson announced plans to reduce its number of R&D sites, grouping more parts of the smartphone value chain at single sites, in order to lower costs and speed time to market. It also will cut the number of highly-paid top management positions and reduce its overall workforce by 1,700 positions, aiming for a 25 percent cut in SG&A costs compared to 2011's level. The new and ongoing restructuring plans are expected to save USD 230 million per year by the end of 2013.
ST-Ericsson's losses have increased in recent quarters, as it's been unable to introduce new products fast enough to make up for revenue lost from Nokia, one of its major customers. Its shareholders, STMicro and Ericsson, agreed last quarter to provide continued funding, and the strategy statement said that Ericsson remains committed to the venture.
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