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Commentary: Wireless tie-up pushes IC consolidation

Posted: 25 Aug 2008 ?? ?Print Version ?Bookmark and Share

Keywords:wireless merger? ST-Ericsson JV? mobile wireless market?

The consolidation in the IC industry continues but not in the exact way many might have expected. The planned creation of a joint venture by STMicroelectronics and Ericsson Mobile Platforms (EMP) is another waypoint in this development.

Instead of crashing companies and hostile takeovers, the consolidation in this specific case takes place in a smooth, almost elegant way. NXP moves out of the mobile handset silicon business, Ericsson steps in and joins forces with ST, and united the partners are much stronger than each one as a single company.

The joint venture creates a first-league company strong enough to take on the largest competitors in this segment. Alone, EMP had the lead in technology but lacked the market momentum; with ST the situation was the contrary.

In May, Deutsche Bank market researchers classified mobile communication chip vendors in four categories. Despite its high market share, ST only made it into category four, the worst one, while EMP was classified as a tier one vendor, despite its relatively low market share. Through the planned joint venture, ST's wireless business now has the potential to join the game in the first category.

The move also proves that ST does not only have a long-term strategy but that is also capable of implementing it. The dramaturgy of the mergers first with NXP, then with Ericsson and NXP leaving the scene without damageis an almost admirable piece of secret diplomacy.

In addition, the creation of the still nameless joint venture is the evidence that size still matters in the semiconductor industrycompanies that do not bring enough live weight to the scale are doomed to disappear in the long run. This may not hold true for all markets, but certainly for competitive mass markets such as mobile wireless.

The question is who benefits most from the joint venture. According to what the parent companies say, the move gives ST the chance to expand its market position to future technology generations. EMP in turn gets access to a complete and consistent hardware platform as a basis for future applications and services. While this is a very important position for Ericsson, ST seems to be the main winner in the game.

For ST, much more was at stake than for the relatively small but innovative EMP. Despite the different size of the parent companies and their respective mobile wireless businesses, the power in the joint venture is equally divided. Ericsson's right to appoint the chairman of the board shows how important the Ericsson technology is for the French-Italian chip manufacturer.

- Christoph Hammerschmidt
EE Times Europe

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