The chief executive of Swedish telecommunications firm Ericcson, Carl-Henric Svanberg, was all smiles on Wednesday, even as he urged restraint when discussing the future benefits of Ericsson's new joint venture with chipmaker STMicroelectronics.

"We have to be humble," Svanberg told Forbes.com, on the sidelines of a press conference to announce the 50-50 partnership. He admitted the joint venture had no impact on earnings at present, and he would not be drawn on its long-term prospects. All he would say was that the deal presented a real opportunity to expand Ericsson's mobile-platform business, which supplies technology to handset-makers, to a point where it becomes significantly profitable.

It will be a tough mountain to climb. Svanberg said that Ericsson's mobile-platform division was currently "break-even," excluding the revenues from its intellectual-property rights, which will not be put into the joint venture with STMicroelectronics. The business has suffered also from its relatively narrow customer base, focusing mainly on Ericsson's struggling handset-making partnership with Sony.

But there is no doubt that Ericsson has got a good deal out of the joint venture, and if anything will help revive its mobile-platform division, this could be it. The Swedish company is paying $1.1 billion in cash for a 50.0% stake in the partnership, with $700.0 million going directly to STMicroelectronics. Considering that STMicro paid more than $2.0 billion to buy Dutch semiconductor-maker NXP's wireless assets, which had been pooled in a joint venture with STMicro's, Ericsson is getting a good price for half of all of the merged assets.

Ericsson will also get access to STMicro-NXP's impressive customer base, from Nokia to Samsung Electronics Ericsson has relied so far on customers like Sony Ericsson, Sharp and LG, which is not so comforting given that Sony Ericsson's profits were almost wiped out last quarter.

"It boils down to a derisking for Ericsson," said Nicolas von Stackelberg, analyst with Oppenheim Research. "It's no secret that things are looking less well for Sony Ericsson when compared to six months ago. For Ericsson Mobile Platforms, this opens up an opportunity."

But in the current environment of a slowing economy, Svanberg is probably right to be cautious; there could be a year or two of pain before the venture starts to prove itself.

Source:forbes.com