Sunday, May 25, 2008
[Originally for Sramana Mitra's site]
In the last part of this series, we looked at STM’s strategic initiatives that are aimed at making the company more nimble and profitable. A very important part of this strategy was unveiled last month when the company decided to form a Joint venture with its wireless business and that of NXP. Before moving on to STM’s wireless business and outlook, it is important to understand the dynamics behind this move.
As per the deal, STM will have control on the JV with about 80% stake. The company will pay NXP $1.55bn to close the deal in the third quarter. With revenue totaling about $3bn in 2007, the JV had about 10 percent of the global market, according to iSuppli. Besides, the synergies are expected to save up to $250mn in 2011.
While STM has steadily encroached into TI’s market share by denting its Nokia and EMP 3G accounts, NXP is a 2/2.5G supplier to tier-1 and tier-2 vendors including Samsung. Besides the scale, the JV will have a strong IP position with over 3500 patent families. This, in turn, gives it greater negotiating power in IP cross-licensing discussions further increasing its margins.
Besides establishing a strong R&D team focusing on media convergence and energy management, the JV now has a complete portfolio of connectivity solutions. These technologies – WiFi, Bluetooth, FM and GPS - will be integral to tomorrow’s convergence devices. These connectivity solutions complement the company’s baseband, application processor and RF products, allowing the company to offer them as part of a state-of-the-art single stop mobile platform. For more details on the STM-NXP JV and its effects on the wireless industry, I will direct the interested reader to my articles here and here.
The wireless industry, especially the 3G chip vendor space, will consolidate and the stronger players will pick themselves out of the crowd. The JV is STM’s statement of arrival. Over the last couple of years it has made tremendous strides culminating in design wins from Nokia and Sony Ericsson. The JV will perhaps not make an immediate impact in its product line. It, however, expands its customer base and also positions STM to exploit the convergence market over the next few years.