STMicro’s tie-up exit to cost up to $500m

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STMicroelectronics shares rose to a 10-month high on Thursday after the Franco-Italian chipmaker outlined its strategy for growth and put a price on its planned exit from a joint venture with Ericsson.

The company has put an estimate of $300m-$500m on costs associated with extracting itself from ST-Ericsson, the joint venture that has racked up more than $2bn in losses since its formation four years ago.

Carlo Bozotti, chief executive, would not reveal how it planned to leave the venture, saying the plan was still to leave by the third quarter but the process was undecided. He said the amount would cover the operation as well as any transition and restructuring costs.

The recent furore over job cuts in France, plus the fact that 27.5 per cent of STMicroelectronics is held by the French and Italian governments, could make it tough to close operations at ST-Ericsson, or for a buyer to restructure it.

STMicroelectronics reported sales of $8.5bn in 2012, down from $9.7bn in 2011. It made an operating loss of $2bn compared with operating profit of $46m the previous year, and it made a loss per share of $1.31.

Shares in the chipmaker rose 3.5 per cent to €6.34, the highest level since March last year, as investors looked to the potential growth ahead.

Outlining his strategy, Mr Bozotti told the Financial Times that the company’s MEMS chip business would benefit from a buoyant market for semiconductors this year.

MEMS, or micro-electro-mechanical systems, are used in movement and direction sensors for mobile phones, automobiles and fitness products such as Nike’s Fuelband.

STMicroelectronics said it had shipped 3bn MEMS sensors. Placed in a line, they would exceed the height of Mount Everest, and accounted for $800m of sales in 2012.

“The market that we serve in 2013 is expected to grow 4.3 per cent, and our ambition is to clearly outperform this market,” Mr Bozotti told the FT. He said smartphones and tablets had driven growth in sales so far, but new markets in automotive and health products would accelerate demand in the coming year.

“Last year was difficult ... Hopefully with the more encouraging signs in terms of bookings we can progress,” he said.

Mr Bozotti said STMicroelectronics, which has in past years suffered from falling sales of the handsets of Nokia, one of its big customers, covered 48 per cent of the MEMS market in smartphones and tablets – more than twice the share of its nearest competitor.

“For us it’s fundamental to maintain the leadership in terms of technologies, and this is about miniaturisation, new functionalities and new applications.”

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