STMicroelectronics May Pay $500 Million to Exit Venture

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PARIS -- STMicroelectronics, the biggest European chip maker, may have to spend up to $500 million this year to wind down the mobile chip-making joint venture with Ericsson that has been a ball-and-chain on its results, the company's chief executive said Thursday.

"We're committed to going fast," Carlo Bozotti, the chief executive, said during a briefing in Paris. "It's important for us to move on, to become a leaner company."

Mr. Bozotti also said he had seen "encouraging signs" that the semiconductor market was improving this year after a rocky 2012, but "we'll have to see if that's sustainable."

Shares of STMicroelectronics closed up 3.5 percent in Paris trading. Analysts said positive outlooks issued by STMicroelectronics and the company's German rival, Infineon Technologies, helped lift the stock price.

STMicroelectronics, an Italian-French company with its headquarters in Geneva, and the Swedish mobile networking giant Ericsson bet big on chips to power smartphones. But their joint venture, ST-Ericsson, foundered as big customers like Nokia and BlackBerry were smashed by competition from Apple and Samsung, which rely heavily on chips made by Qualcomm. The venture has lost about $2.8 billion since 2009.

Negotiations to sell or close down the company, which employs more than 5,000 people, will be a delicate matter. Complicating any deal, at a time of economic stagnation and fears for the future of European industry, is the fact that the French and Italian governments own a combined 27.5 percent stake in STMicroelectronics. At any rate, a near-term closure of the company is thought to be unlikely, as ST-Ericsson has long-term supplier contracts it has promised to fulfill.

Mr. Bozotti said STMicroelectronics expected to dispose of its ST-Ericsson stake "during the third quarter of 2013," though he gave no indication of how the company planned to do so. The cost would probably be in the range of $300 million to $500 million, he said, "including around $100 million in the first quarter."

STMicroelectronics is one of the biggest high-technology enterprises in Europe and an industry leader in areas with strong growth prospects, like sensors and microcontrollers. Its chip-making and research and development facilities around Grenoble are at the heart of the innovation cluster that serves as France's answer to Silicon Valley.

Mr. Bozotti spoke after STMicroelectronics announced late Wednesday a $544 million write-down of good will and other intangible assets on its share of ST-Ericsson, a charge that reduced the accounting value of the 50-50 joint venture to "a negligible amount" on its books. The charge led the company's fourth-quarter net loss to balloon to $428 million from an $11 million loss a year earlier.

STMicroelectronics said its full-year 2012 revenue slid nearly 13 percent, to $8.5 billion, largely because sales to Nokia fell. Just four years ago, the Finnish cellphone maker accounted for about a fifth of all its sales; STMicroelectronics did not disclose the current level but acknowledged that it was far lower.

The bottom line was "horrible," Thomas Becker, an electronics sector analyst at Commerzbank, said of the results, "but the underlying numbers were not that bad."

He said that shares of STMicroelectronics and Infineon -- which forecast a rise in second-quarter sales and operating profit on Thursday -- got a lift "because some investors may be hoping to get in on the upswing in the semiconductor cycle."

The company is refocusing its business, Mr. Bozotti said, and expects growth in 2013 to be driven primarily by sales of devices in its imaging, analog and microsensor, and microcontroller businesses. He said STMicroelectronics would cut its quarterly costs to $600 million to $650 million by 2014, from around $900 million currently.

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This article originally appeared in The New York Times.


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