Chip vendors NXP and STMicroelectronics have announced a joint venture to deliver cheaper chips for phones.
"The wireless semiconductor industry requires huge investments in new technology and innovative product roadmaps," said Frans van Houten, president and CEO of NXP, in a statement.
The announcement doesn't come as a surprise for Leif-Olof Wallin, research vice president at Gartner. "The chipset vendors have been under an immense price pressure recently," he said. "This is a way to cope."
As mobile phones become more popular in the developing world, new and more advanced phones have to developed at a very low cost.
Last week Nokia announced four phones for developing markets, with features like a megapixel camera and a price tag at US$142 and below. Without cheap components Nokia can't build products like that, according to Wallin.
At the same time, mobile devices are becoming increasingly complex and R&D (research and development) intensive.
Better scale is needed to keep up with demands from future wireless technologies, NXP and STMicroelectronics said in a statement
Competitor Ericsson is also under the same pressure.
"New frequencies are popping up left and right, and supporting them all is difficult, but we have to keep up," said Björn Ekelund, vice president, product management at Ericsson, when it launched a platform for LTE (Long Term Evolution) devices last week.
The joint venture between NXP and STMicroelectronics will build chipsets for a host of wireless technologies, including 3G (third generation), wi-fi, Bluetooth, GPS (Global Positioning System), FM Radio, and UWB (ultra-wideband). It will also integrate the Silicon Laboratories' wireless and GloNav's GPS operations recently acquired by NXP.
STMicroelectronics will be the majority owner, with an 80 percent stake. NXP will receive US$1.55 billion from STMicroelectronics, including a control premium, to be funded from outstanding cash.
It will be incorporated in the Netherlands with headquarters in Switzerland with approximately 9000 employees worldwide.
An exit mechanism for NXP's 20 percent stake has been agreed upon, and can be exercised beginning three years from the joint venture's formation.