ST, NXP fuse wireless biz into new JV firm

NXP BV and STMicroelectronics NV have agreed to merge their wireless operations to form a joint venture company. ST will own 80 percent of the venture while NXP gets the other 20 percent along with $1.55 billion in cash from ST, including a control premium, to be funded from outstanding cash.

The joint venture, which is set to have all major handset manufacturers as customers, will have greater economies of scale to better meet customer needs in 2G, 2.5G, 3G, multimedia and future wireless technologies, ST said.

The new firm will be created from businesses that together generated $3 billion in revenue in 2007 and will own thousands of communication and multimedia patents. It is set to be one of the top three semiconductor companies in the wireless industry rivaling Texas Instruments Inc. and Qualcomm Inc.

The JV is set to combine design, sales and marketing, and back-end manufacturing assets from both companies and use its parent companies and foundries for wafer fabrication services. It intends to address UMTS, TD-SCDMA, Wi-Fi, Bluetooth, GPS, FM Radio, USB, and UWB standard. The JV will also integrate the Silicon Laboratories' wireless and GloNav's GPS operations recently acquired by NXP.

"The strength of this venture is its excellent relationships with key customers, as well as the complementary IP and product portfolios transferred from ST and NXP that create a rich and broad offering with the capability to deliver leading-edge innovations to the market," Carlo Bozotti, president and CEO of ST, said in a statement. "The JV's strong positioning leads us to expect immediate and future top- and bottom-line synergies for the exciting new enterprise and establishes a powerful foundation to build on its parents' 2G, 2.5G, 3G, multimedia and connectivity efforts. This combination will form the basis of the success of the new venture."

"The wireless semiconductor industry requires huge investments in new technology and innovative product roadmaps. This move will see two strong players propelling themselves into a leadership position," Frans van Houten, president and CEO of NXP, said in the same statement. "By creating this joint venture, we put most of the competitors at a distance. Together we will accelerate innovation which we anticipate will contribute to market share gains and improved financial performance."

Profitable parents
The parent companies contribute businesses generating comparable revenue—each with 2007 operating profit of approximately $100 million.

The new organization is designed to be debt-free, and able to grow its business with the cellular handset manufacturers. The parents have also agreed on a future exit mechanism for NXP's ongoing 20 percent stake, which involves put and call options, exercisable beginning 3 years from the formation of the JV, at a strike price based on actual future financial results, with a 15 percent spread.

The company will be incorporated in the Netherlands and headquartered in Switzerland with approximately 9,000 employees worldwide. These people, almost equally contributed by ST and NXP, will be in position to serve the JV's global customer base. The joint venture is fabless and with a low-capital intensity, while having access to secure leading-edge manufacturing capacity from both parent companies and foundries; and will operate its own very competitive assembly and test facilities in Calamba, Philippines and Muar, Malaysia.

NXP's Calamba site as a whole will be transferred to the JV. In addition, part of ST's back-end operations in Muar will be separated from the parent company's existing facility in the area and transferred to the JV. The new company will also benefit from a dedicated worldwide sales and customer support team.

The JV will be governed by a board of directors, on which both Bozotti and van Houten will participate, looking after the best interest of its customers and the success of the JV. Aiming for a closing in Q3 of this year, the deal is subject to regulatory approvals and labor council consultations.

The parent companies expect over $250 million in annual cost synergies from the JV by 2011.

Bright future
Commenting on the impact to NXP, van Houten said, "This deal transforms the portfolio of NXP and strengthens our cash position. We will continue to pursue building leadership positions through innovation and investment in our remaining focus areas: multimarket semiconductors, automotive, identification and home electronics."

"This transaction strengthens our wireless business and enhances our leadership position in an important market segment we have targeted for expansion and external growth," added Bozotti. "Coupled with our recent deconsolidation of flash memory, it further proves our execution in reshaping ST's product portfolio towards value and leadership. This, together with our recently announced decisions on distribution to shareholders, demonstrates our commitment to improving shareholder value."

According to iSuppli, a market research firm, the global handset market was 1.15 billion units in 2007 and is forecasted to grow at about an 8 percent compound annual growth rate through 2011. The handset semiconductor market represented 14 percent of the global semiconductor TAM in 2007, making up the second largest segment of the industry.

"The wireless semiconductor industry requires consolidation," said Jean-Francois Baril, senior VP of sourcing and procurement with Nokia. "We welcome the emergence of this joint venture creating a strong player serving the top mobile phone manufacturers, understanding the needs of these customers and providing the required speed of innovation."

- Peter Clarke
EE Times Europe