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April 23, 2012 8:33 pm
ST-Ericsson, the lossmaking mobile phone chipmaker, is cutting a quarter of its workforce and will transfer a key part of its operations to parent company STMicroelectronics in an effort to accelerate cost cuts following rapidly declining sales to Nokia, its key customer.
ST-Ericsson, a joint venture between Sweden’s Ericsson and Franco-Italia STMicroelectronics, said it would slash 1,700 jobs, or 25 per cent of its workforce, including some senior executives, with the aim of reducing its administrative expenses by a quarter.
It supplies the chips used in older-style feature phones for companies such as Nokia and Ericsson, and racked up nearly $2bn in losses while revenues shrank 70 per cent over the past three years as customers opted for smartphones such as Apple’s iPhone.
ST-Ericsson, which employs 6,500 people, has announced more than 2,300 jobs in several previous rounds of restructuring over the past three years, but needs to speed up cost-cutting efforts further as Nokia sales have fallen faster than expected.
ST-Ericsson had already warned in January that it would see a significant decline in the early months of this year.
Didier Lamouche, who took over as chief executive last November, said the new and existing restructuring measures would save $320m when they were completed by 2013. The restructuring will cost between $130m and $150m.
ST-Ericsson will transfer its research and development, including employees, to STMicro as part of the cost-saving measures.
However, the two companies will collaborate on developing applications processor chips, which run the software and graphics on smartphones and tablets. ST-Ericsson is planning to focus on creating products which combine the wireless connectivity chips, which are its strengths, together with applications processor chips as it seeks to gain a better position in the smartphone market. Nokia, for example, currently sources most of its smartphone chips from Qualcomm.
“ST-Ericsson’s strategic shift is a key step in ensuring that the company can reach sustainable profitability and cash generation,” said Hans Vestberg, chief executive of parent company Ericsson.
Shares in STMicro fell 13.8 per cent to €4.31 on Monday. The shares have lost nearly half of their value over the past year as the losses at ST-Ericsson have weighed on the company. Shares in Ericsson were down 4.42 per cent at Skr61.6.
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