STMicro Plans to Exit ST-Ericsson as Part of New Strategy

By Sam Schechner

PARIS--STMicroelectronics NV (STM, STM.FR, STM.MI), Europe's largest semiconductor maker by revenue, plans to exit its loss-making cellphone-chip joint venture, as the company reels from the shrinking market for cheaper, low-end phones.

The Geneva-based company said Monday that it is currently in negotiations on "exit options" for its ST-Ericsson joint venture with Ericsson (ERIC), as part of a broader strategic plan that aims to refocus STMicroelectronics on products like motion sensors and chips for cars that it hopes can return the company to profitability.

"The new ST will be more focused, leaner and better positioned to deliver value to our customers and our shareholders," said Carlo Bozotti, STMicro's chief executive, adding that the company is targeting an operating margin of 10%.

STMicroelectronics said it expects to exit ST-Ericsson after a transition period that will end in the third quarter of 2013, but will continue to work with the company, as a supply-chain partner and an intellectual property provider. The company's parents have already hired a bank to look at potential buyers, according to a person involved with the process.

In a separate statement, ST-Ericsson, which began a new round of steep cost-cutting in the spring, said that it is "putting its strategy into effect in a consistent and aggressive manner," adding that it will honor its promises to clients and suppliers.

STMicro, which was formed in the 1987 merger of the French and Italian state-owned chipmakers, has been struggling for the last several years, as the shrinking market for low-end cellphones and the decline of Nokia have dragged heavily on ST-Ericsson, which has never turned a profit.

STMicro's stock closed Friday at $6.48 in New York trading, up 41% from a low in July, but still down a quarter from late March as woes at ST-Ericsson have weighed on profit.

Write to Sam Schechner at [e-mail]

(Stacy Meichtry in Rome contributed to this article.)

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