Ericsson ponders future of its semiconductor group
By Bolaji Ojo, EBN
Jan 22, 2001 (8:48 AM)
URL: ebnews.com
Ericsson Microelectronics AB has an image problem, one that company president Bo Andersson is in a hurry to change. At Ericsson LM, its huge Swedish communication-equipment parent, the RF wireless-chip supplier is so small it has been lumped in a business category defined as “others.” The microelectronics company's standing outside Ericsson is no less blurry. Notwithstanding its extensive IP portfolio and strong RF and Bluetooth product lines, its name raises barely a flicker of recognition among analysts, some of whom track 100 or more chip suppliers.
“They've got absolutely no visibility in the marketplace,” said Dan Scovel, an analyst at Needham & Co. Inc., New York.Andersson aims to fix that. Beginning with a reorganization and a name change early last year, Ericsson's management has begun an intense campaign to raise the company's profile and expand its presence in the United States, where it is a minuscule player.
“People don't normally think of Ericsson as [having] a semiconductor operation, but we're one of the top players in niche areas like RF power transistors, RFICs and ASICs, RF synthesizers, and modules for Bluetooth,” Andersson said. “Ericsson has this kind of operation, and it's quite a successful one. This is not well known, and it's something we're trying to bring out to the market.”
The jury is still out on whether Andersson will achieve his objective. His task is complicated by Ericsson Microelectronics' association with its better-known parent, which means it is bound to be seen as a rival by some telecommunication OEMs that could use its services, according to industry analysts.
Despite the constraints imposed by its heritage, creating a buzz for the company in the tightening semiconductor market has become a full-time task for many of the senior staff. In November, Ericsson Microelectronics trotted out its top executives during the biannual Electronica Trade Exhibition in Munich, Germany, to greet visitors and introduce them to the newly reorganized company.
“We're going up in the value chain by seeking recognition for products, services, and applications that we already provide to Ericsson and some external customers,” said Lars Thorsell, marketing director at the company.
Ericsson Microelectronics has set up a network of design centers in Europe and North America and expanded its marketing presence to key markets across the globe, Thorsell said. “We're virtually a much bigger company than if you were to look at our own internal capacity,” Andersson said. “We manufacture even more outside than we do internally at our own fabs, but it's all based on our own IP, our product development, and systems competence.”
pite the efforts of its management, the company may not remain a captive chip supplier for very long if Ericsson decides to adopt the strategy employed by Lucent Technologies and Hewlett-Packard, both of which have spun off their semiconductor businesses to remain competitive.
Though its 1999 revenue of $500 million would make it a midsize chip company, analysts said the amount of investment required to nudge Ericsson Microelectronics up the food chain may be too much for its parent, which had revenue of $24.8 billion in 1999 and is itself in the throes of a reorganization.
“If you're competing for resources within an organization, size matters, and [Ericsson Microelectronics] doesn't seem to have that scale,” Needham's Scovel said. “There's a good argument to make it a separate company and let it swim or die on its own.”
Ericsson's executives did not immediately respond to requests for comments on their long-term plans for the company, while Andersson said Ericsson Microelectronics' competence in the RF and Bluetooth markets makes it a valuable member of the parent company's business units.
Still, with Ericsson's recent announcement that it plans to de-emphasize its role in the wireless-handset market and intensify its focus on infrastructure equipment and its own reorganization, the company may be compelled to sell or spin off Ericsson Microelectronics, other analysts said.
Indeed, Ericsson has been divesting certain units to focus on the high-end telecom-equipment market. In the last year, the company sold its energy systems business to Emerson Electric. A distribution business, which was part of Ericsson Microelectronics, was sold last year to Eurodis, Europe's biggest electronic-component distributor.
“Although they're profitable, we expect Ericsson to divest these activities [telecom, components, cables, and defense electronics] in the near future,” said Kevin Brau, an analyst at Robertson Stephens Inc., in a research report.
Bluetooth, the magical word for wireless connectivity, is shaping up as the instrument that could liberate Ericsson Microelectronics from the fate that's befallen other small Ericsson operations. The company has made Bluetooth the core of its survival strategy.
To complement its expansion into the consumer electronics market, the company spends about 17% of its annual revenue on R&D, a tad above the 16% spent by its parent. In November, Ericsson Microelectronics reaped the fruits of its focus when it teamed with Qualcomm Inc. and Toshiba America Information Systems Inc. to demonstrate a Bluetooth-equipped laptop communicating with a CDMA handset over a Bluetooth dial-up network.
With deals like the one forged with Qualcomm and Toshiba, Ericsson Microelectronics aims to demonstrate to its potential customers that it has the technological know-how and resources to service their component needs, Andersson said.
“Ericsson is our biggest customer, so there is no doubt we would like to keep [them] in a good position,” Andersson said. “But we're expanding the external market and would like our customers to know that we're not a captive supplier totally focused on Ericsson alone.” |
