* Exit expected by Q3 2013
* Aiming for 10 pct operating margins
* Aiming for $600-$650 mln quarterly costs, from $900 mln
* Ericsson declines to comment on its plans
* STMicro shares up 3.5 percent
(Adds analyst comment, options for joint venture)
By Leila Abboud
PARIS, Dec 10 STMicroelectronics plans
to quit its loss-making mobile chip joint venture with Ericsson
in a drive to cut costs and catch-up with larger,
more profitable U.S. rivals.
However, some analysts said on Monday it would not be easy
or cheap for the Franco-Italian group to back out of a venture
which lost $841 million last year and which its Swedish partner
was unlikely to want to take over on its own.
Europe's semiconductor firms are struggling to compete with
bigger U.S. and Asian rivals, which have largely outsourced chip
manufacturing to cope with volatility in demand and prices.
STMicro still makes its own chips, has been losing market
share, and earns lower margins than larger rivals like Texas
Instruments and Qualcomm despite leadership in so-called analog
motion-sensing chips that go in cars or video game consoles.
Its mobile chip joint venture, ST-Ericsson, has had a
particularly tough few years as its once-biggest customer Nokia
has been trounced in the lucrative smartphone market
by the likes of Apple and Google.
Analysts said ST-Ericsson, which has around 5,000 employees,
could be shut down entirely, or parts could be sold to
competitors such as Intel, Broadcom or Samsung, with Ericsson
taking some others and the rest closed.
"I think it is going to be a complex deal including some
reallocation of employees to Ericsson, and the sale of the
wireless modem business to a competitor, and some lay offs,"
said Jerome Ramel, semiconductor industry analyst at Exane BNP
Paribas in London.
However, he added that leaving the business would be good
news for STMicro, even if it can't get any cash.
Ericsson declined to comment on its intentions, other than
saying it would work with STMicro to find a "suitable strategic
solution" for ST-Ericsson and the details would be ironed out in
At 1410 GMT, STMicro shares were up 3.5 percent at 5.175
euros, the biggest rise by a European blue-chip stock.
Ericsson shares were 1.4 percent higher at 65.7 Swedish crowns.
STMicro said its new strategy would focus the group on two
main areas: its more profitable analog business which makes
chips for motion sensors, power management and the automotive
sector, as well as its digital business which makes "embedded
processing solutions" for consumer electronics.
"Our portfolio of products will be much narrower," Chief
Executive Carlo Bozotti said on a conference call. "We want to
be less vulnerable to the cycles of the market."
The moves will allow the group to reduce quarterly net
operating expenses to around $600-650 million per quarter by
early 2014, while operating margins would increase "rapidly" to
reach 10 percent, it said.
Operating costs per quarter are roughly $900 million today,
and it's not clear how much of that is due to ST-Ericsson. The
group's operating margin was 2.4 percent in 2011.
STMicro provided little detail on how it would reduce
operating costs and declined to say whether job cuts were being
studied among its 50,000 strong workforce. With the French and
Italian governments owning a combined 27.5 percent in the
company, job cuts could prove politically touchy.
STMicro said in October it planned to cut costs by $150
million a year by the end of 2013, in a move that could affect
as many as 500 positions. Analysts say it workforce needs to be
more productive for the firm to get close to the profit margins
of U.S. rivals like Texas Instruments and Analog Devices.
For every dollar of sales generated by an employee of
STMicro in 2011, a Texas Instruments employee generated $2.01
and an Analog Devices employee generated $1.65, according to
analysts at Morningstar.
ST-Ericsson has been unprofitable since it was formed in
2009 and successive cost-cutting plans have failed to staunch
its losses, including an April announcement of 1,700 job cuts
and the transfer some product development to STMicro.
Santander investment bank analysts said STMicro's exit could
prove "difficult and costly," predicting that Ericsson would not
want to take full control.
"We believe that the current partners could take some assets
from the JV but they will have to close down the rest of the
company," they wrote.
(Reporting by Gwenaelle Barzic, Simon Johnson, Niklas Pollard;
Editing by Mark Potter)