STMicroelectronics and Ericsson will close their loss-making mobile chip joint venture ST-Ericsson by dividing parts of the business between them and shutting the rest with the loss of about 1,600 jobs.
The announcement ends months of speculation about the future of ST-Ericsson, which has been hit by a big drop in orders from top customer Nokia as the phone maker lost market share to Apple and Samsung.
ST-Ericsson has also struggled to compete with more nimble chip makers in Asia, which outsource most production to be able to react quickly to demand changes, as well as the trend among some phone makers like Samsung to make their own chips.
Sweden's Ericsson, which makes telecom network gear, and Franco-Italian chip maker STMicro, had sought a buyer for ST-Ericsson but found no takers. JP Morgan advised the companies on options for ST-Ericsson, which has not made a profit since it was formed in 2008.
"All possible scenarios were considered but the option announced today was always a real possibility," STMicro chief executive Carlo Bozotti told a conference call on Monday.
He added that STMicro had committed to keep making products for ST-Ericsson customers as long as they needed them.
Under the plan, Ericsson will keep around 1,800 employees of ST-Ericsson's total workforce of 4,450 total. Those jobs will mostly be in Sweden, Germany, India and China.
It will also keep a product line of thin 4G "multimode" modem chips, but said it was too early to say when that would break even.
STMicro will keep other existing ST-Ericsson products, as well as certain assembly and test facilities. It will take some 950 employees, mostly in France and Italy.
The rest of ST-Ericsson will be shut down, hitting some 1,600 employees globally. Around 500-700 of those jobs will go in Europe, including 400-600 positions in Sweden and 50-80 in Germany. No factories will be closed, STMicro said.
STMicro said it expected $350 million-$450 million in cash costs from the shutdowns and restructuring, which is lower than the $500 million it predicted at the end-January.
Ericsson said it had made a provision of 3.3 billion Swedish crowns ($515.7 million) in 2012 to pay for the moves.
At 0922 GMT, STMicro shares were up 2.8 percent at 6.05 euros, while Ericsson's were down 1.35 percent to 84.25 Swedish crowns.
Ericsson estimated the LTE chip product line would generate operating losses of approximately 500 million crowns in the fourth quarter of its financial year, largely on research and development costs.
Ericsson Chief Executive Hans Vestberg said it aimed to make the LTE thin multimode chips business a top three global player.
"We obviously have the ambition of making this profitable ... and with a slimmer organisation I believe we have a much greater chance of getting there," said Vesterberg.