Ericsson (ERIC) and STMicroelectronics (STM) have completed the split of their joint venture ST-Ericsson. Ericsson and STMicroelectronics had announced in Dec 2012 that they are assessing the future of their joint venture and in Mar 2013 they announced their decision to split, which was considered to be a strategic solution for the joint venture (JV).
According to the terms of the agreement, effective Aug 2, 2013, Ericsson has taken over the design, development and sales of the LTE multimode thin modem products, including 2G, 3G and 4G multimode. STMicroelectronics took over the existing ST-Ericsson products and related business including certain assemblies and test facilities. After the spin off, Ericsson will get 1,800 employees and contractors on board, while STMicroelectronics will have 950 employees.
Ericsson believes that thin modems have a strategic importance in the wireless industry. By taking over the LTE thin modem products, Ericsson plans to create an extremely focused "thin modem only" operation.
Both Ericsson and STMicroelectronics have invested huge amount to establish industry leading technology and Intellectual Property. After preliminary customer interaction, Ericsson’s management is confident that thin modems will meet the requirements of the manufacturers in the fast growing smartphone and tablet markets.
While for STMicroelectronics, the split signifies a major step ahead in achieving its new financial model target, thereby allowing STMicroelectronics to strengthen its capabilities to fuel future growth in specific key product areas.
Furthermore, with the transfer of competencies from ST-Ericsson, STMicroelectronics will strengthen its skills in the areas of application processors, RF, analog and power including software and complex system integration. Apart from this, ST-Ericsson joint venture portfolio also included devices that were a strategic fit for STMicroelectronics’ focus on the rapidly growing segments of the wireless semiconductor market.
Ericsson currently has a Zacks Rank #3 (Hold). Other stocks in the same industry that are worth considering at the moment are Harris Corp. (HRS) and Juniper Networks, Inc. (JNPR). Both carry a Zacks Rank #2 (Buy).
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