24 April 2012

Rearranging deckchairs?

Since its formation in 2009 as a joint venture between STMicroelectronics and Ericsson, ST-Ericsson (STE) has been losing money at an alarming rate. Its latest figures, covering the first quarter of 2012, show a net loss of $312million sales of $290m. Attempts to turn things around have failed; in Q1 of 2011, sales were $444m, with a net loss of $178m. The company now has $1billion of debt alongside its sequential losses.

The obligatory reshuffling of management took place earlier in the year and the new ceo has responded by developing a new strategy in which 1000 people will be sacked – including a 'substantial' reduction in senior management positions – and another 700 transferred to parent company STMicroelectronics, which will now undertake application processor development and license this back to STE. STE will now become an integrator and IP developer.
The problem for STE – and for any company which has the misfortune to be in similar straits – is that it can only turn things around by getting ahead of the game; hard enough in any sector, but a big ask in the rapidly moving and price aggressive mobile wireless sector.
Futile tasks are often categorised under the broad heading of 'rearranging the deckchairs on the Titanic' and it's tempting to regard the recent changes at STE as just that. It seems all but inevitable that STE will be 'stripped for parts' at some time in the future.

Graham Pitcher

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