Today, Ericsson and ST Micro announced the breakup of the ST-Ericsson JV with ST-Ericsson taking over the 4G LTE multi-mode slim modem product line, while STMicro will oversee the existing products including legacy modem business, RF, Power Management and NovaThor integrated apps processors. Earlier, in April 2012, ST-Ericsson announced the transfer of its stand-alone apps processor R&D activity to ST Microelectronics. In addition, ST-Ericsson will put its connectivity business up for sale, but the company hasn’t identified any potential buyer yet for that business. We note that previously, several big names have left the baseband market including Analog Devices, EMP (Ericsson Mobile Platforms), Freescale, Infineon, NXP, and Texas Instruments among others. The baseband market requires intensive R&D for a company to remain competitive.

ST-Ericsson struggled since its formation in February 2009. The JV hasn’t been able to produce a single profitable quarter during its existence so far. Part of the JV’s struggles can be attributed to duplication among legacy products, transition to a new product roadmap and constant management changes. ST-Ericsson was formed by combining the modem assets of ST Microelectronics, EMP, NXP and T3G (TD-SCDMA consortium). Clearly, the JV struggled to integrate multiple companies and execute on its original plan to become a leading mobile chip company both in Europe and globally.

ST-Ericsson failed to establish itself as a true competitor to market leader Qualcomm over the last four years. ST-Ericsson got stuck in continuous product transitions to fill gaps in its product lines while the market moved on rapidly. The company lost momentum in the TD-SCDMA market and later lost significant revenue opportunities at Nokia. In 2012, ST-Ericsson saw some success with its excellent NovaThor U8500 dual-core chip at Sony and Samsung and the company shipped about 25 million NovaThor chips in 2012. However, this late success couldn’t bring ST-Ericsson to profitability, given its growing debt burden and legacy products. Based on our estimates ST-Ericsson ranked number-five in the baseband market in unit terms in 2012.

The latest breakup announcement jeopardises the relatively successful NovaThor “ModAp” product line of ST-Ericsson. Ericsson said it will solely focus on multi-mode 4G LTE slim modems in future, and will pursue licensing opportunities for its NovaThor baseband-integrated apps processor business.

Ericsson said the company wants to be the number three player in the slim modem market, and the company has given a 18-24 month time frame to achieve that. We think this self-imposed target is really aggressive unless the company has un-announced design-wins with Apple and Samsung. Currently, Qualcomm and Intel are the dominant 3G/4G multi-mode baseband players in the market. Ericsson said its LTE-Advanced slim modem M7450 will ramp in 1H 2014 and the successor product M7500 will ramp in 1H 2015.

To achieve the number three position, Ericsson would have to score iPhone or Galaxy S design-wins as the market for slim modems is relatively limited outside of Apple and Samsung. Based on Strategy Analytics estimates, baseband-integrated applications processors dominated the smartphone modem market with 62 percent unit share in Q3 2012. Ericsson could potentially pursue M2M, USB dongles, tablets and other non-handset markets as an opportunity to expand its slim modem business, but this would put it in direct competition with Intel and many small, innovative LTE baseband suppliers such as Sequans, Altair and GCT Semi.

We were somewhat surprised by the lack of buyers for ST-Ericsson’s modem business given ST-Ericsson’s 4G LTE products, which are production-ready. We have been saying for a while in our baseband tracker reports that the JV's concerning financial performance would eventually make it as a takeover target. We feel that the slim modem business is not a long-term fit for Ericsson. In retrospect, we think that Ericsson and ST Micro’s venture to create a European cellular chip powerhouse was always going to be a challenge, one that ultimately ended in failure, not just because of the difficulty of integrating disparate cultures from different companies, but also because the formation of ST-Ericsson coincided with a drastic decline in the joint-venture’s top customers, Nokia and Sony Ericsson (now Sony).

Sravan Kundojjala

Strategy Analytics Exclusive Presentations at MWC 2013

Strategy Analytics Exclusive Presentations at MWC 2013
	Strategy Analytics is delighted to announce that we will again be hosting our exclusive breakfast presentations at Mobile World Congress (MWC). Our invitation-only breakfast events will provide insights into: 1. Smart Device & Smart Experiences in a Multiscreen World 2. Adjacent Market Opportunities & New Business Models for Service Providers Presentation Date: Tues. 26th & Wed. 27th Feb. 2013 Location: Expo Hotel, Calle Mallorca 1-23, Barcelona (Map) Transportation back to the new Fira will be provided Registration & Breakfast: 8AM Session: 8:30-10AM Each presentation is a unique opportunity to hear an objective market view from some of our senior analysts. Our events are free of charge but as we have limited space we ask you to register in advance using the buttons above and below or by going to our website at: www.strategyanalytics.com/MWC2013.html This year's presentations will be complemented by demonstrations of our Teligen OECD Mobile Price Benchmarking Services, Handset Country Share Tracker, ConsumerMetrix survey database as well as PriceTRAX and SpecTRAX, both before and immediately after the breakfast. Join us for a demonstration at 10am, straight after the breakfast presentations. If you have any questions, please do not hesitate to contact us, otherwise we look forward to seeing you at the MWC in Barcelona! Please remember to indicate on which date you would like to attend. Please also note that copies of our presentation will only be made available to attendees and clients.
Steve Entwistle - Vice President, Strategic Technologies Practice

Multi-core processors are the name of the game in high-end smartphones and tablets in 2011 and are increasingly becoming an essential marketing and technology strategy for every handset vendor and silicon vendor. We estimate multi-core processor penetration in smartphones will rise from 15 percent in 2011 to 45 percent in 2015, and that ARM's Cortex-A9, Cortex-A5 and Cortex-A15 and Intel's x86 architectures will fuel the multi-core processor growth in smartphones over the next few years. 

In 2010, over 45 percent of Android smartphones shipped with a 1GHz or higher processor, hitting the ceiling on what is possible with a single core processor. Adding a second core is the logical next step to boosting the speed without raising the power consumption in handheld devices such as smartphones.

Samsung, Qualcomm, NVIDIA, ST-Ericsson, Texas Instruments, Marvell, Renesas and Broadcom are well positioned to capture share in the smartphone multi-core processor market. Freescale recently announced its i.MX 6 processor family but the company has less visibility when it comes to smartphone design-wins.

Having largely won the single core smartphone apps processor market, baseband-integrated vendors are now faced with a multi-core processor challenge. We believe the smartphone multi-core processor market will be dominated by stand-alone apps processor vendors in 2011. By our estimates, baseband-integrated multi-core apps processor will account for about one third of total smartphone multi-core apps processor shipments in 2011 with the potential for higher share in future.

Sravan Kundojjala