STMicroelectronics plans to quit its loss-making mobile chip joint venture with Ericsson in a drive to cut costs and catch-up with larger, more profitable US rivals.

However, some analysts said yesterday it would not be easy or cheap for the Franco-Italian group to back out of a venture which lost $841 million last year and which its Swedish partner was unlikely to want to take over on its own.

Europe’s semiconductor firms are struggling to compete with bigger US and Asian rivals, which have largely outsourced chip manufacturing to cope with volatility in demand and prices.

STMicro still makes its own chips, has been losing market share, and earns lower margins than larger rivals like Texas Instruments and Qualcomm despite leadership in so-called analog motion-sensing chips that go in cars or video game consoles.

Its mobile chip joint venture, ST-Ericsson, has had a particularly tough few years as its once-biggest customer Nokia has been trounced in the lucrative smartphone market by the likes of Apple and Google.

Analysts said ST-Ericsson, which has about 5,000 employees, could be shut, or parts could be sold to competitors such as Intel, Broadcom or Samsung, with Ericsson taking others and the rest closed.

“I think it is going to be a complex deal including some reallocation of employees to Ericsson, and the sale of the wireless modem business to a competitor, and some lay offs,” said Jerome Ramel, semiconductor industry analyst at Exane BNP Paribas in London.

Ericsson declined to comment on its intentions, other than saying it would work with STMicro to find a “suitable strategic solution” for ST-Ericsson and the details would be ironed out in coming negotiations.

STMicro shares were up 4.4 per cent at €5.22, the biggest rise by a European blue-chip stock. Ericsson shares were 1.7 per cent higher at 65.90 Swedish crowns. – (Reuters)