TI shares fall after Ericsson/STMicro deal

NEW YORK (Reuters) - Shares of Texas Instruments (TXN.N: Quote, Profile, Research, Stock Buzz) fell as much as 2 percent on Wednesday after Ericsson (ERICb.ST: Quote, Profile, Research, Stock Buzz) and STMicroelectronics (STM.PA: Quote, Profile, Research, Stock Buzz) said they had agreed to combine their wireless chip and software businesses.

TI shares were down 12 cents at $24.51 on New York Stock Exchange after falling as low as $24.30 as investors worried that the company, which has been losing market share in the cell phone chip market, would have an even tougher time regaining lost ground after the deal.

The No. 2 mobile phone chip maker behind Qualcomm Inc (QCOM.O: Quote, Profile, Research, Stock Buzz), TI has been losing market share to STMicro at Ericsson, which designs chips but has other companies make them, but it had hoped to recoup losses there as soon as 2009.

But the Ericsson/ STMicro tie-up means that this is now unlikely, Charter Equity Research analyst John Dryden said.

"It's a long-term negative for TI," said Dryden. "The rebound TI was expecting in late 2009 or early 2010 will not occur."

The combination of Ericsson, the world's biggest mobile telecom equipment maker, and STMicro, the third-largest maker of wireless chips globally, would supply four of the world's top five cell phone makers, including market leader Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz), which is TI's biggest customer.

The deal will build on STMicro's recent acquisition of Dutch chipmaker NXP's wireless unit,

The news could also hurt smaller mobile phone chip makers such as Broadcom (BRCM.O: Quote, Profile, Research, Stock Buzz), Marvell Technology Group Ltd (MRVL.O: Quote, Profile, Research, Stock Buzz) and Infineon Technologies AG (IFXGn.DE: Quote, Profile, Research, Stock Buzz).

"For them to get a new contract, you have to go through three solid competitors," said Dryden, referring to Qualcomm, TI and STMicro.

The deal would probably not hurt market leader Qualcomm, which is likely to continue as the main supplier of mobile phone chips to Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz) and LG Electronics Inc (066570.KS: Quote, Profile, Research, Stock Buzz), according to Dryden.

Shares of Broadcom, which also makes chips for an array of consumer electronics devices, were up 40 cents at $27.39 on Nasdaq, where Qualcomm was up 40 cents at $55.19.

(Reporting by Sinead Carew; Editing by Lisa Von Ahn)