Ericsson and STMicroelectronics (ST) have agreed to end their loss-making joint venture, ST-Ericsson.
The two companies will split up the various parts of chip manufacturer ST-Ericsson between them, with some 1,600 jobs expected to be lost.
Ericsson will take on the design, development and sales of the LTE multimode thin modem products, including 2G, 3G and 4G multimode. The vendor will take on about 1,800 employees and contractors, mainly in Sweden, Germany, India and China.
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. ST will take about 950 employees, primarily in France and in Italy, to support ongoing business and new products development within ST.
The transfer of the ST-Ericsson units to the parent companies is expected to be completed during the third quarter of 2013, at a cost of about $1 billion to Ericsson and ST.
Carlo Ferro has been appointed president and CEO of ST-Ericsson, effective April 1, 2013, to oversee the business continuity of ST-Ericsson and completion of the split.
Ferro is currently chief operating officer of ST-Ericsson and succeeds Didier Lamouche who will leave the company.
Hans Vestberg, CEO, Ericsson, welcomed the appointment of Carlo Ferro as head of ST, and also stressed that Ericsson was optimistic about the potential of the thin modems business that it will bring back into the Ericsson fold.
“Ericsson continues to believe that the thin modems hold a strategic value to the wireless industry. With this move Ericsson will create a highly focused ‘thin modem only’ operation - an area in which both parents have invested significant amounts to establish industry leading technology and Intellectual Property,” Vestberg said.
“Initial customer contacts give support to the belief that our modems will meet the requirements of the manufacturers in the rapidly growing smartphone and tablet market.”
Ericsson has made provisions of SEK -3.3 billion in 2012 which will cover costs related to the implementation of plan to dismantle ST-Ericsson.
Once the multimode thin modem business has been fully integrated into Ericsson in Q4 the operation will be reported as a standalone segment, Ericsson said. The vendor estimates that the unit will generate operating losses of about SEK 0.5 billion in Q4, 2013, mainly related to R&D expenses.