ST-Ericsson Introduces New Strategic Direction and Cuts 1700 Jobs

ST-Ericsson, which is a joint venture of Swedish group Ericsson and French company STMicroelectronics, has reported a loss of $2 billion in its three years of operation. Thus, the chipmaker is now cutting 1700 jobs, as a part of their new business strategic plan and also ceding application processor business, including employees and R&D to STMicroelectronics.

Last year, ST-Ericsson reported a net loss of $841 million on sales of $1.65 billion and one reason attributed for this is the plummeting revenue of  mobile manufacturers Nokia and Sony Ericsson.

"The company's ambition so far to directly develop too broad a portfolio of [intellectual property] required for complete platforms has not delivered the results I want to see," ST-Ericsson chief executive Didier Lamouche said in a statement.

"The key building blocks of the complete system solution — application processors, modems, connectivity as well as power, RF, analogue and mixed signal — will be developed either directly or through partnerships and alliances to limit and optimize the R&D effort," ST-Ericsson said.

With the drastic cut in jobs and a new business strategy, ST-Ericsson predicts $320m in annual savings, even though the cost of the restructuring is estimated at $130m to $150m.

"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," Lamouche said.

Apart from implementing a new business strategy, the company will also focus its energies on R&D execution and accelerating time-to-market. The company also plans to streamline sites as well and also incorporate a wider portion of the smartphone platform value chain.

"ST-Ericsson's strategic shift is a key step in ensuring that the company can reach sustainable profitability and cash generation. With the focus on ModAps for smartphones and tablets it will allow device manufacturers to rapidly bring best-of-breed devices to the market," said Hans Vestberg, president and CEO of Ericsson and Chairman of ST-Ericsson Board of Directors.

Shares in Ericsson closed 4.4 percent lower at 61.60 crowns, resulting in a 3.3 percent weaker STOXX 600 European technology index.