Ericsson, STMicro hire JP Morgan to advise on options for ST-Ericsson

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Ericsson and STMicroelectronics appointed JP Morgan to advise on the options they have for their loss-making semiconductor venture, ST-Ericsson.

The market read this as the two owners looking to either break up the mobile phone chipmaker or find another partner, according to the Financial Times. Shares in STMicro reacted positively to the news, rallying nearly 3 per cent to €4.44, while shares in Ericsson fell 0.8 per cent.

"The pressure remains on the parents to find other alternatives to stop the bleeding of both cash and losses," Janardan Menon, equity analyst at Liberum Capital, told the FT. "The question is, 'Are they willing to get out of the business altogether?' which would be the best scenario for both parents, and, 'Would there be a buyer?,' which might not be that easy at the end of the day."

The 50-50 joint venture has failed to become profitable since it was formed in 2009, with the losses widening in the second-quarter to $318 million from $221 million a year earlier.

In April, ST-Ericsson announced plans to cut 1,700 jobs and in July it completed the transfer of its application processor R&D team to STMicro as part of a programme to reduce costs. However, the market remains sceptical as to the company's ability to recover.

"ST-Ericsson is too small for its R&D to remain competitive," Hakan Wranne, a Stockholm-based analyst at Swedbank, told Bloomberg. "It's something they should divest. It's hard to find a reason for them to keep the company."

According to Les Echos, JP Morgan was appointed in August by ST-Ericsson to help identify a way forward with the goal of reaching a decision by the end of this year.

However, an analyst contacted by the French newspaper doubted that many buyers would appear if one or both parent companies wanted to sell. "The possibilities are limited," said Mirko Maier, an analyst with Luxemburg-based bank LBBW. "Ericsson might decide to continue with their involvement and try and make the recovery themselves."

In a statement, the two owners said they were working with JP Morgan to ensure the best possible future for ST-Ericsson, adding that they supported ST-Ericsson in its transformation work and remained confident that the company had a strategic position in the industry to enable the device ecosystem.

In a separate announcement, ST-Ericsson said it would transfer its R&D centre in Linköping, Sweden, to Cybercom, an IT consulting firm, as part of its restructuring plan. The agreement will see the transfer of 27 employees across to Cybercom which will continue to develop software test tools for ST-Ericsson until the middle of 2013.

For more:
- see this Ericsson/STMicro statement
- see this separate Ericsson/STMicro statement
- see this Financial Times article (sub. req.)
- see this Bloomberg article
- see this Les Echos article (translated via Google Translate)

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