Ericsson and Partner Will Scrap Chip Venture in Europe

Ericsson and ST Microelectronics to Dissolve Venture

BERLIN â€" Ericsson and STMicroelectronics announced plans on Monday to dissolve their unprofitable four-year-old Swiss venture, ST-Ericsson, a move that may eliminate 1,600 jobs worldwide.

Hans Vestberg, chief executive at Ericsson, said the introduction of smartphones like the iPhone changed the chip market.

Under the agreement, Ericsson, the market leader in telecommunications network gear, and STMicroelectronics, a chip maker, will take back most of the employees they contributed to ST-Ericsson, a Geneva-based venture created in February 2009 that had produced chips and modems for smartphones.

The decision to unwind ST-Ericsson, which came after the companies had failed to find a buyer for the unit, brings a measure of finality to a costly, unsuccessful effort to build a European semiconductor business to compete with United States and Asian market leaders.

ST-Ericsson tried to commercialize the smartphone chip and software technology developed by its European corporate owners. But the venture stumbled when two of its biggest customers, Nokia and SonyEricsson, had troubles of their own in the smartphone segment, which reduced and eventually eliminated the need for ST-Ericsson parts.

“The main reason this venture was never successful was because it was too dependent on Nokia and SonyEricsson,” said Lena Osterberg, an analyst at Carnegie Investment Bank in Stockholm. “Both handset makers were negatively affected by the market shift to Apple and Samsung, and that had consequences for ST-Ericsson.”

Ericsson’s chief executive, Hans Vestberg, acknowledged Monday that the venture had been hobbled by the difficulties at Nokia and SonyEricsson. The venture had originally been set up to create components for so-called feature phones, handsets that were the forerunner to today’s smartphones. But with the advent of the iPhone and other smartphones, the market for feature phone components basically dried up, Mr. Vestberg said.

“The whole market changed and suddenly the demand for feature phones vanished,” Mr. Vestberg said.

Ericsson, based in Stockholm, said it would re-employ 1,800 of ST-Ericsson’s 4,350 employees, with most workers returning from operations in Sweden, Germany, India and China. STMicroelectronics, which is based in Geneva, said it would assume responsibility for 950 ST-Ericsson employees, most of whom are working in France and Italy.

The 50-50 venture had generated about $2.8 billion in losses for Ericsson alone. In the fourth quarter of last year, ST-Ericsson generated an operating loss of 8.5 billion Swedish kronor, or $1.3 billion, for Ericsson, almost all of which resulted from an 8 billion kronor write-down.

ST-Ericsson said the fate of 1,600 employees not being repatriated by the two parent companies â€" roughly 37 percent of the venture’s work force â€" would depend on the outcome of a global work force review. As part of that review, ST-Ericsson said it was looking for a buyer for its business that develops handset components for Wi-Fi and other short-range connection technologies. That business employs about 200 people.

“ST-Ericsson will carry out restructuring of its current operations, which could impact some 1,600 employees worldwide,” the company said in a statement.

The jobs under review include 500 to 700 in Europe, of which 400 to 600 are in Sweden and 50 to 80 are in Germany, the company said. The rest are spread around the world, including in North America and Asia.

Ericsson said it expected to complete the unwinding of ST-Ericsson by the third quarter.

The Swedish gear maker said it would claim the ST-Ericsson business that makes thin, low-power smartphone modems for fast, Long Term Evolution mobile networks from the venture. STMicroelectronics will reclaim the other remaining ST-Ericsson products, Ericsson said, as well as some assembly and test facilities, which it did not further identify.

Shares of Ericsson were down 1.9 percent, at 83.5 kronor ($13.06), in Stockholm trading, while shares of STMicroelectronics rose 5.2 percent, to 6.19 euros ($8.09), in Paris.

A version of this article appeared in print on March 19, 2013, on page B3 of the New York edition with the headline: Ericsson and Partner Will End a Chip Venture in Europe.