In exchange for $1.55 billion, STMicroelectronics will hold an 80 percent stake in the new joint venture, with NXP, an independent company founded by Philips, holding the remaining 20 percent. The deal is expected to close in the third quarter.

The new chipmaker is expected to become "a very strong top-three player" in the global wireless industry due to the strength of "its excellent relationships" with all the world's major handset manufacturers, STMicroelectronics Chief Executive Carlo Bozotti told investors.

Wireless Consolidation

Slated to be incorporated in the Netherlands and headquartered in Switzerland, the yet-to-be-named entity is not expected to have any wafer-fabrication plants. Instead, the joint venture expects to keep capital costs low by relying on its parent companies and independent foundries for wafer fabrication.

The parent companies say they expect the new company to realize more than $250 million in annual cost synergies by 2011. "The joint venture's strong positioning leads us to expect immediate and future top- and bottom-line synergies," Bozotti said.

The new company will also combine key design, sales and marketing, and back-end manufacturing assets from both parents. "It will have the scale in human and financial resources, and intellectual property, to successfully attack and win in all next-generation wireless, multimedia and connectivity technologies," said Bozotti, who is a member of the venture's board of directors.

Bozotti also stressed to investors that STMicroelectronics' deal with NXP is all about "creating scale in a market with too many major players."

Nokia, the world's No. 1 handset maker, also sees merit in the move. "The wireless semiconductor industry requires consolidation," said Nokia Senior Vice President Jean-Francois Baril. "We welcome the emergence of this joint venture creating a strong player serving the top mobile-phone manufacturers, understanding the needs of these customers and providing the required speed of innovation."

An Expanded Focus

Beyond focusing on adding new cellular, multimedia and connectivity capabilities to mobile phones, the new venture intends to develop a wide range of products for Wi-Fi, Bluetooth, FM radio, USB and ultra-wideband wireless applications. In addition, it will integrate Silicon Laboratories' wireless operations and GloNav's GPS business -- both of which were recently acquired by NXP.

According to market research firm iSuppli, the mobile handset market is the second-largest segment of the global chip industry, accounting for 14 percent of semiconductor sales worldwide in 2007. Moreover, the market research firm predicts an 8 percent compound annual growth rate for this particular semiconductor segment through 2011.

"Already today, the new joint venture would be the world's No. 1 supplier for as much as 70 percent of the product families within its perimeter," Bozotti observed.

From NXP's perspective, the spin-off of its wireless business will significantly strengthen its cash position at a critical juncture for the newly independent company, which can no longer look to its former parent, Philips Electronics, for support should global economic conditions further deteriorate.

The deal will also allow NXP to focus on "building leadership positions through innovation and investment in our remaining focus areas: multi-market semiconductors, automotive, identification and home electronics," noted NXP Chief Executive Frans van Houten, who is also a member of the joint venture's board of directors.