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The train crash called ST-Ericsson gets bloodier and weirder. Its latest round of restructuring – the fourth in less than three years – is blamed on “reduced demand for legacy products”.
Since ‘legacy products’ means ‘obsolescent products’ it’s not really surprising there’s less demand for them.
Furthermore ST-Ericsson’s response to this reducing demand for obsolescent products is to close an R&D centre at Basingstoke.
Aren’t R&D centres supposed to make future products?
Apparently not at ST-Ericsson because CEO Gilles Delfassy, tells us that closing the site: “Will not compromise the execution of our new products.”
ST-Ericsson is a sad tale.
In November 2008, the company cut operating expenses by $250 million in an initial round of restructuring.
In April 2009, the company said it would cut 1,200 jobs expected to save $230 million in costs.
In December 2009, the company said a further 600 jobs would be cut with the aim of saving a further $115 million.
Earlier this week it said it would cust another 500 jobs to save $600 million.
In October 2009, the company said it would break even for the year. Last year it said it would break even in Q2 2012.
Now it says it will break later than Q2 2012 but, wisely, doesn’t set a new target.
ST-Ericsson has been sinking like a stone ever since it was formed in 2008 from amalgamating the wireless IC activities of NXP, Ericsson and STMicroelectronics.
ST-Ericsson’s Q1 2011 sales of $444 million were down on Q4 2010 sales of $577 million and on Q1 2010 sales of $606 million. The Q1 2011 loss was $149 million compared to the Q4 2010 loss of $119 million and the Q1 2010 loss of $114 million.
The boss of ST-Ericsson’s parent company, Carlo Bozotti, CEO of STMicroelectronics, might feel a bit of a dickhead for paying $1.5 billion just for the NXP part of the ST-Ericsson melange.
Now he may be regretting it. When reporting STMicroelectronics’ Q1 2011 results, Bozotti said: “Revenue results were below the midpoint of our sequential guidance due to wireless legacy sales falling off at a faster rate than anticipated at ST-Ericsson.”
Legacy management may also have played a part. Delfassy did 28 years at TI.
I can see a rant about quality of delivery from indian site. While the reality is that European companies dump their sh*t on india and ask them to maintain it. ST or ST-E have been no new comers to this idiotic policy.
you have close to 13 research fellows from all EU sites in STE. while the Indian talent is cold shouldered and left to shoulder blames like the one posted above by anon. Not one recognition despite many worthy employees.
decisions are made in EU and oonly announced in India/China. Well I wish the so called STE management all the best and hope they keep shooting themselves in the foot while praising their pals & buddies into promotions.
All the money earned by ST Ericsson is going for a worthy EU cause which is nothing but the European ego cruise.
about basingstoke. it was supposed to be closed long back, it was running because the brit govt gave tax breaks to keep that site alive. Swedes/Frenhch cursed that site as R&D was not good nor their maintenance work.
Fascinating stuff, Martin, that says it all. These guys just don’t seem to get it.
I am so sad about this company which has great potential. But the management problems are extremely deep. I work in an area were an old ST site in India are making deliveries to me before going to customer. The quality has been so extremely low that after more than a year of development with probably 10+ people working with this part the customers has chosen to use our competitors instead.
Now, if we are having trouble with cutbacks and dealing with high end technology then such a failure might happen. But the only customer left that is interested has demanded that we throw out what has been developed in India and use the open source driver which is much more stable, better written and reliable. This driver was written part time by an old developer in here in northern Erurope, he thought it was fun to do it in his own spare time. So we have one guy doing a better job than 10+ people and what is the response from management? Double the work force in India.
It is not anymore about developing the best technology, it is a cock fight between management who cares more about their own position.
I have to add that the Indian guys are actually pretty ok but without management who know anything about a simple development processes they are forced to do ugly hacks instead of proper groundwork.
Anyway, leaving soon. I hope I am wrong about this company but the talent are now not only leaving, they are getting kicked out.
This was an extremely bad merger.
The management does not know jack shit about running a company who’s aim is to develop state-of-the art mobile wireless technology. The only value are some parts of the R&D organisations inside STE, I will not reveal what.
I simply cannot understand why Ericsson and STM allow the shitty top management of STE to continue work like this.
The evolution of a company is based on its ability to adapt. Weak species dies, Darwin’s evolutionary theory.
Hence this not applicable in france where the state keeps feeding companies/sites who is under starvation.
Bringing forward products inside STE is secondary. The primary objective is to to keep all small shitty sites alive in france, even though there are not 5 people working there.
I say, put STE out its missery…..
Well Faith, I’m sure there are plenty of people among those 139 research engineers in Basingstoke who’d enjoy working for Fujitsu – if they’re not snapped up by Qualcomm! It’s typical of European management to actively help their competitors.
It is very unfortunate.
I am filling over 30 positions in Cellular with 3 Manager openings.
Faith.harris@us.fujitsu.com
The strategy of STE appears to be to try and stay in business until the new products come online and they make some money. In the mean time the next generation is being sacrified and the company is liable to be right back in the same place again in a few years time..
Thanks, that explains a lot, anonymous, it’s a kind of semi-autonomous adjunct to the French civil service. So although it’s up against Qualcomm, Spreadtrum and MediaTek it can take a relaxed approach to life. A very French concoction.
The french government provides loan to ST/ST-E to help “maintain competitive edge”. wasn’t it about 350 million euros last year? these loans are later written off. What they are really meant for are paying the salaries. Would Swedish/British government do the same? if so, they can also help “maintain” european competitive edge. Eventually, ST-Ericsson is just one way for the French government to keep jobs in France. If you are not french, you should ask yourself why are you an employee or shareholder. It should become fully owned by French government and for french employees only. Can’t you see? TGV and Airbus are so successful!!
Yes [Anonymous] it’s a bit like GloFo – a bunch of guys on their last assignment before the retirement home and, like Glofo, generating zero sense of urgency or energy.
Good point made by several persons above. I will just like to mention points that are not covered:
a) Most of the persons on the top are from TI and part of the old gang. Not used to challenge each other.
b) The issue for the company is execution and not strategy. Strategy is quite well defined and yet none of the top guys or even layer below are known for exception operational track record. Strategy yes!! No one wants to get their hands dirty doing execution and operational stuff..while that is what is needed.
c) In order to bring U8XX platform out….top management did nothing to merge the three companies together.
Result is there for all to see….On top the employee engagement is at worse as well.
When such costly decisions are made and result in such huge mistakes, is someone held responsible for initiating this M&A in the first instance and then handling it so poorly there after. The point is there seems to be no accountability, if it were an American company, then 2 CEOs would probably have lost their jobs by now.
Anonymous, I’m not blaming our French colleagues (or claiming we from Ericsson side are better). I’m blaming the top management (which happen to be mainly French). I’m not convinced a truly objective cut of 500 jobs worldwide would result in zero cuts in France (where most employees are).
Just thought I’d add nothing I said contradicts what Anonymous and others have pointed out – there are deep problems (including Europe R&D being inherently less cost-efficient) and if so many schedules hadn’t been missed they would have been ramping U8500 for a long time – if not at Nokia via Symbian, at least at others via Android.
But that doesn’t change the fact ST-Ericsson was given a very bad hand when the merger was completed.
Hi David, I somehow missed this thread so I’m a bit late but I thought I’d still make one VERY important point: “legacy products” is even worse than you think.
Legacy refers exclusively to products dating from before the merger. That means from before February 2009 – nearly 2.5 years ago! That is the tragedy of ST-Ericsson: their short/mid-term product pipeline was bad at the time of the acquisition and while their long-term pipeline (including the U8500) was better, the wireless industry has very long average lead times and they’ve somehow managed to exceed even those.
The U8500 was said to have more than a dozen design wins at Nokia. While they had multiple U8500 partners on Android, one of their lead partners was Sony Ericsson. At the time of the merger, I believe the target was devices in Q3 2010 (revenue in Q4). Now that has slipped to Q3 2011 and it will be a lot less revenue because of Nokia’s move to Windows Phone.
As for how ST-Ericsson could possibly be cutting jobs further without compromising the execution of their new products: you wrote Ed’s diaries so the answer should be obvious. They nearly certainly cut long-term R&D rather than their short/mid-term one. They might do fine with 28nm, Cortex-A15, and LTE – but beware 20nm, ARMv8, and LTE-Advanced! A sad outcome, but given their financial position, it’s not as if they had any choice.
The good news is that ST-Ericsson’s product pipeline is excellent now: U8500/M5730/CG2900/CW1200 in the short-term, U4500/A9540 in the mid-term, and A9600/M7400 in the long-term. The bad news is there’s no guarantee they’ll execute this time, and even class-leading products might not be enough to save this train crash.
Nice to see a former Ericsson person blaming the French, and when was the last time the former EMS people actually hit a schedule?
The problems at STE are deep. Missed schedules, reliance on a failing customer, completely lack of trust and communication between sites (looking at Sweden and France there), and a Euro centric mentality when the world has moved to smartphones (which are lead by the US). Add to that the stupid layoff rules in Europe that hamper any chance at change and you see the issues.
Not to mention that employees in Europe take 4 weeks off in July or August and STE falls further behind. The competition takes 1-2 weeks off and it is staggered, at STE the Euro sites basically shut down for a month. How can you be competitive when you are closed?
Thanks. Dr Lolo, I think we’re all rather in agreement with you.
I am the author of the french article mentioned by anonymous.
Be very careful with automatic translation for example “s’attendre à bien plus” is translated by “expected much worse” whereas in this context is means “afraid about much worse”.
This new plan is a catastroph at the STE company level. It is showing the incapacity of our management.
But honestly I cannot say very different things than you. In fact, there are really two different words in STE in France corresponding to our legacy companies.
One of them is very arrogant and his management took a lot of stupid and irrational decisions. You to guess which part it is !
(and sorry for my poor english)
Thanks for that, Anonymous, so only 100 STE French staff face voluntary redundancy and the rest of the 500 people being compulsorily terminated come from other countries (139 from the UK). And the STE management is French. There you go – fair play French style.
Coming from the Ericsson side I’m not at all proud of working for ST-Ericsson, here is one of the reasons,
http://tinyurl.com/3woqbhx
France got by far the largest share of ST-Ericsson employees. Does the (French) top management really think the most valuable and efficient talent are there? Not a single one needs to leave in this round of cost savings? Sorry Delfassy, I’m not convinced.
Ah well [Anonymous] a positive sign at last!
“Legacy management may also have played a part.” Cutting 500 jobs to save $600 million when it estimated saving $115 million from 600 jobs in December 2009 suggests its now pruning much higher up the tree, to get rid of the legacy thinking…
Linear Tech did the same thing, Robert, they walked away from the wireless market. Bob Swanson said: “There’s no pot of gold at the end of the wireless rainbow – just a lot of red ink.” How right he was. And the Wall St guys pilloried him and the LTC share price for it – but he’s been shown to have been absolutely right.
Floks
The future of ST-E is NOT so bright. Actually many of Euro companies in wireless industry are facing the same problem, shrinking market in Euro and legacy management. Most of them choose to sell out to US companies to expend off-Euro market and to re-build the old systems. ST-E is a unique case. It is formed by a merge from parts of STM, NXP and Nokia. Apparently, this kind of “global strategy” doesn’t bring ST-E much revenue, but only a legacy product decline. We CANNOT blamed on them since Nokia is also not in a good shape. So, what is happening now is that the management wants ST-E to go out from Euro mainly to the US to embrace the “real new market” (3G smart phone) and close the RD investment on the “legacy products” by closing site in Basinstoke and Austin. This should be a good decision since ST-E’s 2G products is basically out of the market, not comparable with MTK, Speradtrum, MSTAR, etc. OK then the real BIG question is have them put enough resources into their 3G products? Probably not, their 3G products are still in RD phase, and the worse thing is they seems not have the next generation of their high-end 3G products. QCOM’s Snapdragon 82xx is already in shipping and is currently focusing on the RD for the next one. Looking back to ST-E, you see their u85xx is still under “try-run” with several customers (Nokia is not in) and they are hiring a NEW group of people in China and India to handle the RD job for the next product. That means they still need at least one or two years to train these people until they can be productive. We CANNOT blame the management since they have been hiring some more people in India and China to compensate that they are not able to keep the RD team in Euro. Its funny that STM doesn;t end up the mistake they have made but just make more mistakes to cover the one from the beginning.
I’m not sure who I’d blame. The truth is that the wind changed direction and caught lots of CEO’s of guard.
The most significant changes were
1) Huge under-counting of the Chinese white brand sector create an unchallenged market for MTK, Spreadtrum and Mstar At one stage I calculated that official baseband chipset unit TAM was under-counted by over 250M devices.
2) Emergence of Feature phones caused NOK’s intentional 5 level market segmentation to collapse to three levels (Phone-only, Feature-phone, Smart-phone) This development gutted NoK, completely striping the profit from this sector.
3) Emergence of the iphone and resultant development of Android smart-phone sector, what more can I say, STE’s biggest customer let this innovation go unanswered for almost 3 years (in the market) even though rumors had been circulating about the Iphone for about 2 years prior to it’s introduction. Even though NOK dropped the ball STE management should have seen this coming and courted HTC, Samsung or LG. This sort of stuff-up is unforgivable.
In retrospect, what’s surprising is how smart TI turn-out to be for just packing up and walking away from the 2G baseband chipset sector, lots of pundits ripped into TI management, over this decision, but look who’s laughing now?
That’s a very interesting perspective, Bob, and it explains the apparent lack of urgency at both Numonyx and ST-Ericsson. The thought occurred to me that if Numonyx and STE were set up only to avoid redundancy costs then why did STMicro pay $1.5bn for NXP’s wireless business? But it’s possible that ST was under the cosh from Nokia to consolidate its European suppliers and that, knowing the cosh was being applied, Frans van Houten was able to squeeze a high price out of ST. At the time of the NXP-ST deal there was, of course, no indication of the impending collapse of Nokia so, I assume, ST was keen to keep Nokia’s business while protecting itself against a rapidly commoditising wireless IC market. So thanks Bob, that all makes sense to me.
It’s extremely expensive to layoff French and Italian workers. Think >2years salary, etc as opposed to the UK or USA’s 2 weeks severance.
Flash memory was a losing proposition. Bozotti hived it off to save on 4000 Italian redundancies. I suspect he wants STE to IPO or LBO, so that he can repeat the same.
NXP never maid a penny on their RFICs. Ericsson’s modem business was break even at best. ST’s wireless activity only generated significant revenue from Nokia. How else could it have panned out?
Back in the early 0’s, ST bought up Alcatel’s GSM/ADSL group for about $800M with a view to dominating the GSM arena. It failed utterly…
The Numonyx deal saved ST 4000 or so Italian redundancy payments, so a great success, for him. I suspect Bozotti wants STE to go IPO or LBO, so he can save a similar number of much larger French redundancies on his books.
Time for many in the STE management chain to go home.
Sounds about right to me, abdellah
truth is we never liked the english and we got rid of them !!
they made us look bad as they knew what they were doing.
Thanks Robert that’s a great perspective, and a succinct, comprehensive picture of what faces STE. So far as I can see, there just doesn’t seem to be much appreciation at STE, or even at ST, of just how tough a situation they face. The STE situation reminds me of the Numonyx ST-Intel flash joint venture, where ST put elderly management in place who simply didn’t seem to understand what they were up against or what they had to do to make that thing succeed. And, of course, it didn’t. Unless something changes fast at STE, I think the same fate waits for them.
1. Clear lack of Future Vision.
2. All company big guys left the company
3. Very Slow Execution
4. No Proper Planning.
5. Still not able to understand EL*P’s presence in No*k*a.
6. CFO : not followed thumb rule of Economics : Should not put all eggs in One Basket.
7. No Prior experience of Merger & Acquisition ( Big company ).
8. Not able to think What actually they want to achieve.
9. Totally Lost in the world of Semiconductor.
10. Lastly Their parents are not good enough to govern the BABY – “The ST-Ericsson”
Yes … a record truly stuck in the groove … “downsizing for growth”; a bit like “fighting for peace” and “making love for virginity”?
‘Yesterday’s products today’ never was a good business strategy … now we seem hell bent on extrasolating this to “yesterday’s products tomorrow as well”.
This is now a serial European disease, not just a ST-E.
Looking at the STE restructuring rationale (ahem!)..and applying a bit of mathematical induction (or poetic license, depending on whether you are left or right brained) …it appears that if they fire all their people, they can save an awful lot! Way to go!
Nopes, to be fair, I agree with previous comments about fat. Every company gathers moss. A bit of (head)rolling can help, but beyond a point, you soon reach that mathematical induction.
That said, the cost-benefit ratio of R&D centers in the (expensive) western world, is, well, debatable in many cases. Past history is unfortunately no indication of future success.
When it comes to R&D, cliched as it might be, lean-and-mean is the mantra. The days of “cathedral R&D” has surely made way to the “bazaar R&D”. You don’t hear many successful companies talking of “being perfect” – most likely things need to be “good enough” and we are ready to go. So it is not quality, but time-to-market that rules. Industry-wide standards are not the norm anymore, instead it is monetization. Maximising value is often less important than minimizing cost. Hot new features are more important than backward compatibility. One can go on and on about this new “value system”..
Frankly, the European R&D industry (in my experience) has failed to grasp this new reality. They may not like the new reality, but they can’t deny it.
STE is caught between a rock and the hard place. Because of their old customer strategy they don’t really have a product to compete with Spreadtrum for the low end phone, or Mediatek and Mstar for the feature phone sector, (these two sectors are still vital to China and India). STE will need to invest heavily in software and FAE’s to address this sector, so it is probably already too late.
For the high end Android smartphone there are new players like Nvidia and Marvell joining Broadcom, Infineon(Intel) and Qualcomm. I mean what does STE really have to offer that compensates for its high cost structure. Because you know that the Android chipset market will not hold at current prices once Mediatek and Mstar have good 3G and 4G smart phone chipsets.
I don’t have STE on my list of 4 long term remaining players (QCOM, MTK, Spreadtrum, BRCM)
For the next 4 (STE, Mstar, NVidia, Marvell) it will be difficult to find smaller customers / applications with sufficient volume to keep the development projects alive. I think Mstar and Nvidia will both do well focusing on these niche customers, but for STE their whole organization is structured towards one customer so they will find the transition very hard.
And than there the Elephant in the room (Intel), I believe they will stay in the sector and continue to distort the market, as only INTC can.
I think you are spot on right about all of that, Austin. The old ST management under Pasquale Pistorio did a heck of a job in getting Nokia sewn up as a customer. I seem to remember that in 2000 Nokia accounted for one eighth of ST’s total sales. But, as you imply, too much security can be a negative and now, with Nokia apparently in terminal decline, ST-E has to come up with a new strategy. Can the current management do that? Well, I haven’t seen any signs of it happening yet. They don’t seem to have any ideas about growing the company – they simply seem to want to cut it down in size until the numbers eventually look good to the financial community. A dynamic management would put its balls on the line in pursuit of a vision and a strategy to grow the company. A stick-in-the-mud management just cuts costs.
Its difficult to see how the products STE is planning to launch will ever meet the market in time. The focus from senior management has always been to change the products to fit with the one key Finnish customer and forget about the rest of the world market. This has left them too closely coupled to the downfall and strategic change of this ‘strategic partner’. Time the STE management wised up and earn their salary.
Indeed Keith, ST-E say about 85% of their people work in R&D and so most of these guys getting fired are research engineers. Qualcomm spent $2.5 billion on R&D last year – more than ST-E’s total annual revenues – and, if Qualcomm is hiring R&D people as fast as ST-E is shedding them, then there’s only one possible result of this ball game.
if we remove all the fat and reduce STE headcount down to 3000 we should be able to execute the current roadmap more efficiently. “look busy do nothing” must end!
if we remove all the fat from STE ; it can be easily shrinked down to 3000 people and execute much better.
And probably even faster now if those highly talented STE folks make the short move from Basingstoke to Qualcomm in Farnborough.
It could be a Freudian slip, Dr Bob, or it’ could be just another Frenchman mangling English, or it could be a Frenchman trying to avoid saying: ‘Qualcomm is executing its product innovation programme faster than us’.
“Will not compromise the execution of our new products.”
Execution is either a bad choice of words or a sign of future intent when you consider it can mean kill ie “kill off our new products”