Ericsson to take $1.2 billion charge on ST-Ericsson stake

Thu Dec 20, 2012 7:36am EST
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By Simon Johnson and Olof Swahnberg

STOCKHOLM (Reuters) - Ericsson is taking a $1.2 billion charge in a bid to write off its exposure to ST-Ericsson, adding to doubts over the future of the loss-making joint venture after partner STMicroelectronics said it was pulling out.

Ericsson, the world's biggest equipment maker for mobile telecom networks, said on Thursday it would take the 8 billion Swedish crown hit in its fiscal fourth quarter in a move set to plunge it into a net loss for the three month period.

The Swedish group said it would not buy STMicro's 50-percent stake in the mobile chip making venture, confirming its previous indications and leaving the future of the venture's 5,000 employees staff looking uncertain.

Analysts think ST-Ericsson's wireless modem business could be attractive to a competitor like Samsung and that Ericsson could retain its power management solutions business. But the rest of the venture's operations may just be shut down.

"Two thousand jobs are at risk whatever the scenario," said Jerome Ramel, analyst at Exane BNP Paribas. "If they just shut it down, it is even more."

Ericsson has been struggling recently with a slowdown in sales at its core network unit due to competition and a faltering global economy. In October it reported a 42 percent drop in third-quarter core earnings.

Profits have also been squeezed by its loss-making joint-ventures, mobile phone maker Sony Ericsson - which it has sold - and ST-Ericsson, which has not made a profit since it was formed in 2009 as key customer Nokia struggled to compete in smartphones with the likes of Apple and Samsung.

Successive cost-cutting plans, including an April announcement of 1,700 job cuts and the transfer of some product development to STMicro, have failed to staunch its losses.   Continued...

The exterior of Ericsson's headquarters are seen in Stockholm April 30, 2009. REUTERS/Bob Strong