Ericsson AB said it will record an expense of 8 billion kronor ($1.2 billion) for writing off the value of its wireless-chip alliance with STMicroelectronics NV as it considers options including shutting the venture down.
The non-cash cost will be booked this quarter, Ericsson, the world's largest maker of mobile-phone networks, said today. It won't have tax effects. The Stockholm-based company said it won't buy a full majority of the unit, called ST-Ericsson, after Geneva-based STMicroelectronics said it will exit the venture.
Ericsson, already dealing with sputtering demand for wireless-network gear, was left in charge of the struggling chip venture after STMicroelectronics said it wants out to remove a drag on profitability. Ericsson Chief Executive Officer Hans Vestberg said the company is exploring all options for its half stake, and didn't rule out closing down the unit.
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"Ericsson's announcement sounds like a preparation to shut the venture down," said Lars Soederfjell, an analyst at Aalandsbanken in Stockholm. "Ericsson could also try to find a buyer partially, but it's very difficult to find a buyer for the whole entity."
Ericsson dropped as much as 4 percent and fell 2.9 percent to 64.40 kronor as of 11:57 a.m. Stockholm time. It had lost 5.8 percent this year through yesterday. STMicroelectronics declined 1.1 percent to 5.30 euros in Paris.
"When they say they're exploring strategic options, to me that basically means they're getting rid of things," Soederfjell said. "The fact that the share reaction isn't too negative shows how investors are saying 'oh, finally.'"
ST-Ericsson has about 4,500 employees, with half of them in Sweden and France, according to Ola Rembe, a spokesman for Ericsson. JPMorgan Chase & Co. is advising STMicroelectronics on its strategy.
Ericsson said it continues to believe that the technology it contributed to the chip venture, formed in 2009, has "strategic value" for the wireless industry. Ericsson said its "best estimate" is that it needs to provide 3 billion kronor of additional funding for the venture.
Ericsson and STMicroelectronics together injected $1.8 billion in cash and some wireless technologies into the venture in 2009. The Swedish company said on Dec. 10 that its share of operating losses from ST-Ericsson totaled 9.5 billion kronor as of end of September. ST-Ericsson had $39 million in cash as of Sept. 29 and net debt of $1.35 billion.
The writedown may lead to Ericsson's first quarterly loss since 2003, according to data compiled by Bloomberg. Before today, analysts projected fourth-quarter net income of 2.7 billion kronor, the average of estimates compiled by Bloomberg.
"We will pursue and look into all strategic options we have for the assets," Ericsson's Vestberg said on "The Pulse" on Bloomberg Television today. "We will not exclude anything but of course our prime focus is to get a good solution and that is not the best solution to shut it down."
European semiconductor makers have struggled to cope with the swings in prices and demand. They are losing market share to Asian and U.S. competitors, which have switched to so-called fabless models, dispensing with factories in favor of outsourcing to foundries such as those of Taiwan Semiconductor Manufacturing Co. The model allows chipmakers to adjust designs and production more quickly without the overhead of running their own plants.
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