STMicroelectronics Buys Nortel Chip Facility
By Cindy Christ

French-Italian semiconductor maker STMicroelectronics said Friday it would acquire Nortel Networks' Ottawa-based chip making operations for $100 million as part of a six-year supply deal with the Canadian telecommunications provider.

After the purchase is completed in mid- to late-2000, ST and Nortel will enter an agreement to supply silicon semiconductor devices and develop new technologies in optical networking and other areas.

ST said the supply deal is worth $2 billion over the first three years of its term.

In addition, the purchase price of the unit is subject to price adjustments and ST achieving performance measures that could result in earn-out payments to Nortel.

Nortel also will license to ST chip making technologies and processes for devices used in voice, video and data networking, carrier networks, broadband access, switching, and enterprise connectivity.

The company said no job losses are expected as a result of the acquisition. About 470 Nortel Networks employees will be offered positions at ST.

"Today's agreement and the ongoing relationship with ST enable Nortel Networks to leverage the capabilities of a world-class external manufacturing supplier," said Barbara Callaghan, Nortel Networks vice president and general manager.

"This provides us with greater ability to focus on our core business of developing quality systems and services for the high performance Internet," she added.

The deal extends an existing relationship between the two companies, which have worked together since 1993, and attempts to ensure Nortel access to a steady supply of crucial components.

In a statement, ST said it would provide "security of supply" to Nortel through 18 manufacturing sites in nine countries.

Telecommunications manufacturers around the world are experiencing overwhelming demand for their products amid the build-out of the Internet and explosive growth in wireless communications.

Recently, a number of telecommunications and electronics makers, including Nortel rivals Lucent (LU) and Motorola (MOT), have posted disappointing financial results due to component shortages.

STMicroelectronics, formerly SGS Thomson Microelectronics, develops and manufactures a range of semiconductor integrated circuits and devices used in telecommunications, computer, industrial automation and control systems and in consumer and automotive products.

Ontario-based Nortel Networks is a leading global supplier of data and telephony network products and services for local and long-distance suppliers, mobile communications companies, cable television, Internet service providers and utilities, and others.

Shares in STMicroelectronics (STM) surged $16.50, or 8.8 percent, to $204.50. Nortel Networks (NT) closed up $7.44, or 6.8 percent, at $116.75.