STMicrolectronics and NXP Semiconductors have decided to combine their wireless-handset chips businesses in a bid to seal a position among the top three suppliers. ST will take 80 per cent ownership of a joint venture, paying NXP more than $1.5bn to boost its shareholding.

Carlo Bozotti, president and CEO of ST, said the combined operations had total sales of $3bn last year and that the new company would have 14 per cent of the wireless silicon market, placing it behind Qualcomm and TI. “It will be a strong top-three player with relationships with all the major handset makers,” he claimed.

The companies will not combine all of their wireless activities. Bozotti said the deal excludes ST’s imaging and mobile-infrastructure silicon. NXP will hold onto its speakers and amplifiers businesses – the largest single part of the joint venture’s business will focus on cellular baseband chips.

By merging their operations, Bozotti told analysts ST and NXP had achieved a “breakthrough”. The company, he claimed, “will have the scale in human and financial resources and intellectual property” to survive what some believe is a coming shakeout in the sector. Bozotti said the wireless market is the second largest for semiconductors in the world. But he noted: “This is a market with too many players.”

Frans van Houten, president and CEO of NXP, recalled the claim made when NXP was spun out of Royal Philips Electronics: “We talked about the importance of leading industry consolidation. I am very pleased we can create this European powerhouse in communications silicon.”

Francis Sideco, senior analyst for wireless communications at iSuppli, said the scale issue is important in this part of the wireless business. “I have been propagating the view for about a year that the ante is now $1bn. That is just to buy into this market. You need to be on a run rate of $3bn to $4bn a year,” he said, to be able to support the investment needed in wireless silicon.

“There are two aspects to the scale issue,” Sideco added. One is the size of company needed to support research and development: “It is an R&D intensive business.” The second is access to manufacturing capacity. “Both ST and NXP have their own fabs, so they should be able to achieve better margins,” Sideco noted.

Image: Nokia is among the major handset makers that will be one of the customers of the joint venture