STMicroelectronics Wins as Ericsson Loses in Joint Venture Wind Down

Consumer Electronics

Published: March 18, 2013 11:35 am

STMicroelectronics N.V. (NYSE: STM) is winning while Ericsson (NASDAQ: ERIC) is losing on news that the two companies have agreed to split up their unprofitable joint venture. Some assets will be taken by each company while other assets will be closed or sold.

The press release this morning from STMicroelectronics indicated an agreement on a strategic way forward for this unprofitable joint venture. That path forward is one that appears on the surface to be better for ST than for Ericsson. The plans are as follows:

Ericsson will take on the design, development and sales of the LTE multimode thin modem products, including 2G, 3G and 4G multimode.
ST will take on the existing ST-Ericsson products, other than LTE multimode thin modems, and related business, as well as certain assembly and test facilities.
Starting the shut down of the remaining parts of ST-Ericsson.
Ericsson will assume approximately 1,800 employees and contractors, with the largest concentrations in Sweden, Germany, India and China.
ST will assume approximately 950 employees, primarily in France and in Italy, to support ongoing business and new products development within ST.

After looking through the numbers, the problem is the losses that will absorbed. Ericsson has made provisions of for -3.3 billion Swedish kroner to cover costs related to the implementation of the strategic option. Once the multimode thin modem business has been fully integrated into Ericsson in the fourth quarter, the operation will be reported as a standalone segment, and it will generate operating losses of approximately 500 million Swedish kroner, mostly on R&D expenses.

Ericsson is down 2.8% at $12.90 for its New York ADRs, and STMicroelectronics is seeing a gain of 3.8% to $7.93 for its New York ADRs.

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