ST-Ericsson Announces New Strategic Direction and Partnership
By Tony Rizzo
ST-Ericsson, a key player in mobility, wireless platforms and semiconductors, announced today guidelines for its new strategic direction, the signature of an agreement to transfer to STMicroelectronics its stand-alone application processor activities, and additional measures to accelerate time-to-market and lower breakeven points.
The Company re-affirms its vision to be a leader in smartphone and tablet platforms and unveiled a new strategy based on repositioning the whole business model. The new strategic direction leverages on ST-Ericsson's unique capability to deliver complete system solutions for smartphones and tablets; competitive integrated modem plus application processor solutions (ModAp) will be the key differentiating offering through a combined approach of development and alliances.
"ST-Ericsson's strategic shift is a key step in ensuring that the company can reach sustainable profitability and cash generation. With the focus on smartphones and tablets it will allow device manufacturers to rapidly bring best-of-breed devices to the market," said Hans Vestberg, president and CEO of Ericsson and Chairman of ST-Ericsson Board of Directors.
The key building blocks of the complete system solution - application processors, modems, connectivity as well as power, RF, analog and mixed signal - will be developed either directly or through partnerships and alliances to limit and optimize the R&D effort, while enabling highly compelling solutions for its customers to bring innovative devices to the market in a timely manner. The Company will continue to develop modem IP, a key competitive enabler, sell thin modems and possibly license modem IP to third parties.
As a first step of this new strategy, ST-Ericsson has announced that it will partner with STMicroelectronics in the development of future application processors. The combination of the ST-Ericsson and STMicroelectronics teams will create a world-class organization, having the appropriate size, skills and strength to win in the growing multi-segment application processor market.
Under the terms of the agreement, ST-Ericsson, at closing date, will transfer its application processor R&D activity and employees to STMicroelectronics and will then integrate the application processor in ModAp platforms for smartphones and tablets under a license agreement from ST. In addition to this, the two companies have entered into a commercial agreement to jointly promote and offer stand-alone processors and thin modems, respectively, to a broader range of customers and applications.
The entire ST-Ericsson application processor R&D team will continue, under a transitional cost sharing model, the development of the current product generation, ensuring full continuity of ST-Ericsson's product roadmap and full service to customers.
In addition to this strategy change, the company will focus on improving R&D execution and accelerating time-to-market, while reducing the overall operating expenses. The activities will be consolidated into a significantly smaller number of sites, which will be specialized by technology as "centers of excellence." The larger ones will also integrate a wider portion of the smartphone platform value chain, with a view to optimizing time-to-market and delivery efficiency.
This comprehensive site transformation is aimed at enhancing the effectiveness of operations and will significantly reduce the number of sites. Additionally the Company aims at reducing its SG&A expenses by about 25 percent versus 2011 by streamlining the general and administrative activities and substantially reducing positions within the top paid management.