UPDATE 3-ST-Ericsson revamp pushes STMicro to mobile arm

Mon Apr 23, 2012 1:10pm EDT

* To cut 1,700 further jobs as eyes $320 mln cost savings

* Some jobs will be transferred to STMicro

* STMicro shares drop 13.8 pct, Ericsson down 4.4 pct

April 23 (Reuters) - Chip maker ST-Ericsson will cut 1,700 jobs and shift a key part of its product to parent STMicro , forcing the French co-owner to focus more on its loss-making and volatile wireless business.

ST-Ericsson said it would partner with STMicro to develop application processors, after failing to cut a deal with one of four other companies.

The long-awaited strategic plan did little to convince investors the troubled joint venture was getting back on track and shares of STMicro accelerated losses after the announcement to close down 13.8 percent.

ST-Ericsson, a 50-50 joint venture of Swedish group Ericsson and French STMicro, is due to report a steep loss for its January-March quarter later on Monday, adding to the $2 billion it has lost in its three years of operation.

Last year alone, ST-Ericsson reported a net loss of $841 million on sales of $1.65 billion

The venture has been hit by problems at its key clients -- revenue from Nokia and Sony Ericsson has shrunk 70 percent -- and it has struggled to compensate for this.

ST-Ericsson said the new and old restructuring measures would bring savings of about $320 million when completed at the end of 2013.

Chief executive Didier Lamouche said: "We need both cost reduction, and also a revenue increase."

Lamouche said 1,700 job cuts would include several hundred of staff which will be transferred to STMicro.

In addition to modems, ST-Ericsson's strength, today's smartphones use application processors that function in the same manner as a central processing unit (CPU) on a computer, running software and graphics.

ST-Ericsson has been seen as a "strategic asset" for potential buyers such as Nvidia, Intel and Texas Instruments, sources familiar with the situation told Reuters last month.

ST-Ericsson will release first-quarter results after markets in the U.S. close.

Shares in Ericsson closed 4.4 percent lower at 61.60 crowns, underperforming a 3.3 percent weaker STOXX 600 European technology index.

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