Merged STM and NXP Wireless Business Could Fly

Posted by: Jennifer L. Schenker on April 11

STMicroelectronics and NXP are merging their wireless semiconductor businesses into a joint venture that could help the two European chipmakers better compete against U.S. players Qualcomm and Texas Instruments in this fast growing segment of the chip industry. ST will own 80% of the combined entity.

The deal makes a lot of sense. Financial analysts say the performance of NXP, a spin-out of Philips that was acquired by private equity firms KKR and Silver Lake 20 months ago, has been well below forecasts, despite early promise. Entering into the joint venture will bring it a cash injection of $1.5 billion from ST.

At the same time, STMicroelectronics’ wireless semiconductor business has been “extremely weak” according to a research note from Dresdner Kleinwort.

NXP brings several strengths to the marriage with ST: A strong baseband design, a growing relationship with Samsung Electronics, and very low-cost technology that it acquired from Silicon Labs, according to Dresdner Kleinwort.

The new organization will start off life without debt, helping it grow its business with all of the handset manufacturers. It will be incorporated in the Netherlands and headquartered in Switzerland.

The venture will leverage foundries and manufacturing capacity from both parent companies and will operate its own assembly and test facilities in Calamba, Philippines and Mura, Malaysia. NXP's Calamba site as a whole will be transferred to the JV and part of ST's back-end opertions in Muar will be separated from the parent company and transferred to the JV.

Both ST CEO Carlo Bozotti and NXP CEP Frans van Houten will serve on the board of the new venture. This is an example of European business being smart. ST itself became a global player by merging then-struggling Italian and French chip businesses. United--and led by good management--the company became a top global player. This new venture has the chance to do the same.