Troubled device semiconductor company ST-Ericsson unveiled its “new strategic direction,” as it published disappointing figures for the first quarter of 2012.
“The company’s ambition so far to directly develop too broad a portfolio of IP [intellectual property] required for complete platforms has not delivered the results I want to see. By concentrating our efforts on our differentiators and partnering where appropriate, ST-Ericsson can deliver the products our customers want, while ensuring full continuity of our existing roadmap,” Didier Lamouche, its president and CEO, said.
In the period to 31 March 2012, the company reported a loss of US$312 million, compared with a loss of US$178 million in Q1 2011, on sales of US$290 million, down from US$444 million. Lamouche attributed this “substantial” reduction in revenue to falling sales for one of its key customers, the “usual seasonal effect,” and the continued decline in demand for legacy products.
Looking forward, the company said that its “key differentiating offering” will be its solutions integrating modems with application processors. Customers for this include Samsung, which is now using ST-Ericsson silicon in its Galaxy S Advance smartphone, and Sony Ericsson, which is working with ST-Ericsson for its Xperia P, Xperia U, and Xperia Sola devices.
“ST-Ericsson has a unique ability to develop and integrate complete mobile platforms for mainstream smartphones and tablets. This will be our strategic focus moving forward, while continuing to master leading-edge modem IPs. We believe this is the best way to deliver those world-class technologies and services that our customers are expecting in order to shape tomorrow’s mobility and connected world,” Lamouche said.
It noted that the “key building blocks” of these products will be developed either directly or through partnerships and alliances “to limit and optimise the R&D effort.”
In line with this, it said it will work with one of its parents, STMicroelectronics, for the development of future application processors. ST-Ericsson is to transfer its R&D activity and employees in this area to STMicro, and will integrate the resulting products into its product line under licence from its partner.
ST-Ericsson said that the development of the current product generation will continue using a cost-sharing model, “ensuring full continuity of its product roadmap and full service to customers.”
It will continue to develop modem intellectual property, “a key competitive enabler,” sell thin modems and “possibly license modem IP to third parties.”
Also in the pipeline is a consolidation of operations into a “significantly smaller number of sites,” which will be consolidated by technology into “centres of excellence.” It said that larger sites will support a wider portion of the smartphone platform chain, with the intention of optimising time-to-market and delivery efficiency.
Unsurprisingly, cuts are also in the pipeline, as ST-Ericsson looks to lower its breakeven point. The company is planning to shed 1,700 worldwide, although this figure also includes staff transferred to STMicro as part of the joint development deal. ST-Ericsson is anticipating annual savings of US$320 million when compared to its 2011 costs from the restructure, which is anticipated to be complete by the end of 2013.
The company is looking to reduce its SG&A expenses by “about 25 percent” compared to 2011, by “streamlining the general and administrative activities and substantially reducing positions within the top paid management.”