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ST-Ericsson's owners bring in strategy advisor

By Reuters
Stockholm, 10 Oct 2012

ST-Ericsson's owners Ericsson and STMicroelectronics have brought in an advisor on strategy for chip joint venture ST-Ericsson, but analysts said a sale of the loss-making unit would be hard.

ST-Ericsson made an operating loss of $235 million in the second quarter, as it continued to suffer from the collapse in demand for phones from clients Nokia and Sony Ericsson, and a strategic shift to supplying chips for smartphones rather than older feature phones.

For the full-year 2011, the company made a loss of $841 million on sales of $1.65 billion, and it has lost around $2 billion in its three years of operation.

"The two parent companies, together with ST-Ericsson, are currently working with an external advisor in order to ensure the best possible future for ST-Ericsson," the two companies said in a statement.

A sale or break-up of the firm was not mentioned in the release, but Ericsson's head of media relations said all options were being looked at.

Analysts, however, said the business would find few buyers, should either or both parents wish to sell.

"The possibilities for Ericsson are limited except to hold onto its share and try and do the turnaround themselves," said Mirko Maier, analyst at LBBW.

Ericsson and STMicroelectronics said they supported ST-Ericsson in its ongoing cost-cutting programme, which aims to lower the level of sales the company needs to break even.

The comments follow media reports that STM and Ericsson had engaged US investment bank JP Morgan to review all strategic options, including the search for a new partner or the sale of some assets.

Les Echos said one scenario would see the venture sold in blocks related to specific technologies, such as connectivity, power management and software architecture.

Other pieces of the business could be shifted back into the parent companies, the paper said.

No decision has yet been taken, but the companies are aiming to make one between now and the end of the year, according to the paper, which did not cite its sources.

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