LM Ericsson Telephone Company
) recently decided to split their joint venture ST-Ericsson. Both
the companies announced in Dec 2012 that they are assessing the
future of their joint venture.
Both Ericsson and STMicroelectronics have finally come up with
a decision that is profitable as well as strategically sound for
both the companies. Subject to regulatory approvals, the decision
to split the joint venture will be completed by the end of the
third quarter of 2013.
As per the terms of the agreement, Ericsson will take on the
design, development and sales of the LTE multimode thin modem
products, including 2G, 3G and 4G multimode. STMicroelectronics
will be taking over the existing ST-Ericsson products and related
business including certain assemblies and test facilities. After
the spin off, Ericsson will have 1,800 employees and contractors
while STMicroelectronics will have 950 employees.
Ericsson believes that thin modems have a strategic importance
in the wireless industry. By taking over the LTE thin modem
products, Ericsson plans to create an extremely focused "thin
modem only" operation.
Both Ericsson and STMicroelectronics have invested huge amount
to establish industry leading technology and Intellectual
Property. After preliminary customer interaction, management at
Ericsson is confident that thin modems will meet the requirements
of the manufacturers in the fast growing smartphone and tablet
While for STMicroelectronics, the split signifies a major step
ahead in achieving its new financial model target, thereby
allowing STMicroelectronics to strengthen its capabilities to
fuel future growth in specific key product areas.
Furthermore, with the transfer of competencies from
ST-Ericsson, STMicroelectronics will strengthen its skills in the
areas of application processors, RF, analog and power including
software and complex system integration. Apart from this,
ST-Ericsson joint venture portfolio also includes devices that
are a strategic fit for STMicroelectronics focus on the rapidly
growing segments of the wireless semiconductor market.
Overall, the decision to split the joint venture is in
accordance with STMicroelectronics' financial model target, with
an operating margin target of above 10% and with a policy to cut
down the quarterly operating expenses to an average quarterly
rate range of $600 million to $650 million by the beginning of
Ericsson currently has a Zacks Rank #2 (Buy) similar to other
players in the same industry such as
Juniper Networks, Inc
) both having Zacks Rank #2 (Buy).
ERICSSON LM ADR (ERIC): Free Stock Analysis
JUNIPER NETWRKS (JNPR): Free Stock Analysis
QUALCOMM INC (QCOM): Free Stock Analysis
STMICROELECTRON (STM): Free Stock Analysis
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