ST-Ericsson said it would cut 1,700 jobs and transfer the development of its standalone applications processor business to one of its parent companies, STMicroelectronics, in a bid to change the strategic direction of the struggling chipset maker.
The changes come after reports emerged last month that ST-Ericsson was headed for a shakeup. ST-Ericsson CEO Didier Lamouche, hired in late November, was tasked with developing a turnaround plan for the loss-making company, a joint venture between STMicroelectronics and Ericsson (NASDAQ:ERIC).
ST-Ericsson said it will still focus on chipsets for smartphones and tablets--specifically the integration of baseband and applications processor platforms. The company already sells an integrated chipset product called NovaThor. The company said it will develop application processors, modems and connectivity products as well as power, RF, analog and mixed signal platforms either directly or through partnerships and alliances to limit and optimize its R&D costs. ST-Ericsson said it will continue to develop modem IP, sell thin modems and possibly license modem IP to third parties.
As a result of the changes, ST-Ericsson will transfer to STMicroelectronics all of its application processor R&D activity and employees. The application processors will then be used in integrated platforms under a license agreement. Additionally, the two companies have entered into a commercial agreement to jointly promote and offer stand-alone processors and thin modems to a broader range of customers.
ST-Ericsson said that, subject to negotiations with work councils and employee representatives, it will cut 1,700 employees worldwide, a figure that includes the employees that would be transferred to STMicroelectronics as part of the partnership. ST-Ericsson said it will focus on improving R&D execution and accelerating time-to-market, while reducing overall operating expenses. As a result, it will consolidate its R&D centers into a significantly smaller number of sites. Overall, ST-Ericsson said it will save $320 million annually from the changes by the end of 2013. Total restructuring costs are estimated to be around $130 to $150 million between now and then.
ST-Ericsson's fortunes have been waning as sales of Nokia's (NYSE:NOK) legacy Symbian smartphones have declined; Nokia has long been the silicon vendor's largest customer. However, ST-Ericsson has said NovaThor will be used by Nokia for upcoming smartphones using Microsoft's (NASDAQ:MSFT) Windows Phone software.
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