STMicro, NXP merge $3 bln wireless chip operations

By Astrid Wendlandt

PARIS (Reuters) - STMicroelectronics (STM.PA: Quote, Profile, Research, Stock Buzz) and NXP NXP.UL will merge their wireless chip businesses into a $3 billion joint venture controlled by STMicro to better challenge market leaders Qualcomm (QCOM.O: Quote, Profile, Research, Stock Buzz) and Texas Instruments (TXN.N: Quote, Profile, Research, Stock Buzz).

STMicro said it would pay NXP $1.55 billion to own 80 percent of the venture -- a first sign of consolidation that had been expected in order to combat falling prices and spread high industry research and development costs.

"This deal is about creating scale in a market with too many players," STMicro Chief Executive Carlo Bozotti told reporters and analysts on a conference call after the two companies announced the deal on Thursday.

The merger combines the world's third- and fourth-biggest wireless chipmakers, which combined had about 10 percent of the global market in 2007, according to iSuppli. Qualcomm had about 18 percent and Texas Instruments had roughly 16 percent.

STMicro and NXP said they would have 14 percent of the market.

STMicro's New York-traded shares (STM.N: Quote, Profile, Research, Stock Buzz) were down 8 cents $11.15. The Philadelphia Semiconductor Index was up almost 2 percent, Qualcomm was up 2.6 percent, and smaller rival Broadcom (BRCM.O: Quote, Profile, Research, Stock Buzz) was up 3 percent.

Some analysts said STMicro, which makes chips for third-generation phones with high-speed Web links, may have overpaid for the NXP business, which sells chips for second-generation phones with slower Web connections.

"My first-blush reaction is that it looks like a lot of money. But on the flip side, it's a positive that we're consolidating the industry," said American Technology Research analyst Doug Freedman.