Ericsson and STMicroelectronics have reached agreement on a plan to split up their ST-Ericsson venture, and announced the appointment of ST-Ericsson COO Carlo Ferro as the venture’s CEO from 1 April. The agreed split up will see Ericsson take on the design, development and sales of LTE multimode thin modem products, including 2G, 3G and 4G multimode. ST will take on the other ST-Ericsson products and related businesses, as well as some assembly and test facilities.
The transfer of ownership is expected to be completed during the third quarter, subject to regulatory approval. The remaining parts of ST-Ericsson will be closed down. Ericsson will take on approximately 1,800 employees and contractors, mainly based in Sweden, Germany, India and China. ST will assume about 950 workers, mainly in France and Italy, to support ongoing business and new product developments at ST.
Ferro succeeds Didier Lamouche, who announced his resignation a week earlier. The new ST-Ericsson CEO will work to ensure business continuity and the transition’s effective completion. Ericsson CEO and ST-Ericsson chairman Hans Vestberg said Ericsson continues to believe in the strategic value of thin modems and will create a highly-focused thin modem-only operation. This business is expected to generate SEK 500 million in operating losses in the fourth quarter, mainly due to R&D expenses.
ST said the move will strengthen its capabilities in application processors, RF, analogue, power, software and complex system integration. The agreement is in line with ST’s target of an operating margin of 10 percent or more, and plans to reduce quarterly net operating expenses to between USD 600 million and USD 650 million by the start of 2014. ST expects the agreement to produce USD 350 million to USD 450 million of cash costs.
ST-Ericsson said it was looking at alternatives for its connectivity business, which has around 200 workers worldwide, and that around 1,600 jobs could be cut after most of its workforce is transferred to its parent companies. Of these, 500-700 are in Europe, including 400-600 in Sweden and 50-80 in Germany.
