NXP and STMicroelectronics create wireless JV

NXP Semiconductors and STMicroelectronics will combine their wireless businesses to compete in a cutthroat environment for chip makers. The two companies said in a statement they would aim to complete the move by the third quarter, subject to regulatory review and “consultations” with labor groups.
STMicroelectronics’ stock was down more than 3% on the news in late morning trading today. Privately held NXP is owned by private equity firms led by Kohlberg Kravis Roberts & Co. and former parent, Philips Electronics, retains a 20% stake.
The companies said that the move would better position the resulting JV to compete in UMTS, TD-SCDMA for China, Bluetooth, Wi-Fi, GPS and other wireless technologies.
The JV will be incorporated in the Netherlands, headquartered in Switzerland and staffed worldwide by 9,000 employees. The companies’ statement said the JV would become “a top three industry player” by size. The two companies combined reported $3 billion in revenue last year and each reported about $100 million each in operating profit.
STMicroelectronics will take an 80% stake and, thus control, in the new venture “to create a clear ownership structure,” the companies said.
Executives from the two firms cited the JV’s complementary handset vendor customers, IP portfolios and the ability to share the cost of research and development.
“This deal is about creating scale in a market with too many players,” Carlo Bozotti, CEO of STMicroelectronics told analysts on a conference call following the announcement yesterday.
“The wireless semiconductor industry requires consolidation,” said Jean-Francois Baril, a Nokia Corp. VP for sourcing and procurement, in the company’s prepared statement. “We welcome the emergence of this joint venture .”
Nokia is the largest handset vendor in the world and, thus, the largest purchaser of wireless semiconductors. When it shifted its chip sources last summer, the fortunes of various semiconductor makers rose or fell with it.
Analysts and the stock market appeared to be digesting the news and assessing whether – and how – the new JV might affect other chip makers in the wireless market. The stocks of both Texas Instruments Inc. and Qualcomm Inc., two market leading mobile chip makers, were down more than 1% in late morning trading.