ST Microelectronics and Ericsson plan to end their loss-making mobile chip joint venture ST-Ericsson, splitting parts of the business between them and closing the rest with job losses estimated at 1600.
The announcement comes following months of speculation about the future of ST-Ericsson, which had been hit by a huge drop in orders from top customer Nokia as the phone maker lost market share to Apple and Samsung.
The company also has to compete with more nimble chip makers in Asia, which outsource most of their production and are therefore able to react quickly to demand changes.
It also has to compete with the trend of in-house chip-making among some phone makers like Samsung.
Sweden's Ericsson, maker of telecom network gear, and Franco-Italian chip maker STMicro, had sought a buyer for ST-Ericsson but failed to find any takers. JP Morgan advised the companies on options for the venture, that had not made a profit since its formation in 2008.
According to ST Micro chief executive Carlo Bozotti who spoke on a conference call yesterday, all possible scenarios were considered but the option announced today was always are real possibility.