Ericsson to take $1.2B charge in Q4 related to ST-Ericsson venture

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Ericsson (NASDAQ:ERIC) said it will take a $1.2 billion charge in the fourth quarter related to its money-losing chipset joint venture with STMicroelectronics, ST-Ericsson, as it explores future options for the company.

The write-down comes less than two weeks after STMicroelectronics said it will sell off its stake in ST-Ericsson, which STMicro expects to complete during the third quarter of 2013. In a statement Ericsson said the charge is related to writing down its assets to reflect Ericsson's best guess of how much its share of ST-Ericsson is worth as well as additional charges related to strategic options for the joint venture.

Ericsson reiterated its belief that its modem technology, which it originally contributed to the JV, "has a strategic value for the wireless industry." The vendor said it will push ST-Ericsson to release its LTE modems to the market.

However, Ericsson ruled out buying STMicro's share of the venture. The Swedish vendor said it will not speculate on the timing or nature of strategic options for ST-Ericsson. "We will pursue and look into all strategic options we have for the assets," Ericsson CEO Hans Vestberg told Bloomberg Television. "We will not exclude anything but of course our prime focus is to get a good solution and that is not the best solution to shut it down."

Analysts think that ST-Ericsson's modem business might be sold to a competitor. "Two thousand jobs are at risk whatever the scenario," Jerome Ramel, an analyst at Exane BNP Paribas, told Reuters.

In October, Ericsson and STMicro confirmed that they had hired an outside advisor, which reports have identified as the bank JP Morgan, to advise them on possible options for ST-Ericsson, including a sale. In the third quarter ST-Ericsson posted an adjusted operating loss of $148 million on revenue of $359 million.

In April, ST-Ericsson said it would cut 1,700 jobs and transfer the development of its standalone applications processor business to STMicro. ST-Ericsson said at the time it would still focus on chipsets for smartphones and tablets--specifically the integration of baseband and applications processor platforms. The company sells an integrated chipset product called NovaThor.

For more:
- see this release
- see this Bloomberg article
- see this Reuters article

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