ST, Philips, Motorola to announce R&D alliance

Catherine Bremer and Jana Sanchez

PARIS/AMSTERDAM: Semiconductor giants Motorola, STMicroelectronics and Philips are

planning to pool resources in developing new chips, sources said on Thursday, a move that

will help cut costs as they try and pull out of the industry's worst ever downturn.

French-Italian St., US Motorola and the semiconductor arm of Dutch Philips Electronics

-- world number three, seven and 10, respectively, in the chip industry -- will outline a

research and development alliance at a joint news conference in Paris at 0830 GMT on

Friday, the sources said.

The sources stressed the alliance would be limited to R&D, with Motorola bringing

its expertise to an existing cooperation accord between St. and Philips, and brushed off

speculation of a wider tie-up. St. and Philips confirmed they would meet the press in

Paris, and a source close to St. said the company would announce a major R&D tie-up

with two other companies.

A spokesman for Motorola said the company would be involved in an announcement on

Friday. "We will be at an announcement tomorrow in Paris," spokesman Scott

Stevens said. He declined any further comment. A source involved in the preparations named

Motorola as joining Philips and ST's conference.

Analysts speculated Motorola would join a project unveiled last month between Philips,

St. and Taiwan Semiconductor Manufacturing Co to speed the development of new 90 nanometer

chip technology based at a cutting-edge 300 millimeter wafer plant in the French town of

Crolles.

The project aims to define standards and enhance production and seeks to roll out

sample chips in the second half of 2002. Motorola could bring its expertise in

cutting-edge silicon-on-insulator technology to the venture.

ST, Philips and TSMC stopped short of agreeing to the joint mass production of chips,

however, disappointing analysts who are concerned about the massive investments needed to

push out next-generation chips at a time of sluggish demand.

"ST was hoping for great things from this project so it wouldn't surprise me if

they welcomed another company into the fold. Having the weight of Motorola behind it would

be very good news for the project," said an analyst in Paris.

"We're talking about strategic gains in the future, though, rather than economic

gains today, so the impact on the shares will be limited -- unless they decide to actually

create a new company together," he said.

Slump forces tie-ups



Analysts often point to the potential benefits of a merger between St. -- Europe's No.
1 chipmaker -- and Philips' semiconductors unit, given that consolidation is overdue in an

overcrowded industry behind industry leader Intel.

Pressure mounted last year for chipmakers to link up, as global sales plunged 32 per

cent after rising 37 per cent in 2000. "ST has a lot of partnerships already in

R&D. It's a good way to try and spread the burden to keep operating costs down. A lot

of players are seeking to join forces at the moment," said analyst Emmanuel Matot at

brokerage E.T.C.

ST, which is still in the black as it maintains its track record of outperforming the

market, has forecast weaker sales and margins in the first quarter but expects improving

demand and higher prices to fuel a recovery in the second half.

Loss making Motorola, its wireless technology business also grappling with rockbottom

demand, is banking on a turnaround in the second half, after four consecutive quarters of

losses, and Philips is hoping for a return to profit this year after a mammoth 2.6 billion

euro loss in 2001.

Past press reports have speculated that Motorola might try to join a recent joint

venture between US Advanced Micro Devices and Taiwan's United Microelectronics to build

chips at a new 300mm wafer plant in Singapore.