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As Reported by Financial Times:

<BLOCKQUOTE>quote:</font><HR>STMicro in chip talks with Motorola
By Paul Betts in Paris
Published: October 15 2002 21:49 | Last Updated: October 15 2002 21:49

STMicroelectronics, Europe's largest semiconductor company, is in talks to buy Motorola's semiconductor operations in a deal that would create the world's second largest chip manufacturer after Intel of the US.

A deal would represent the most dramatic consolidation in the semiconductor industry to date and one of the biggest foreign acquisitions of a US technology company.

ST, part owned by the French and Italian governments, on Tuesday denied it had held merger conversations with Motorola or any other competitor. But senior French and Italian officials said the two companies were discussing a deal that would create a chip business with annual sales of more than $11bn (€11.1bn).

One said a deal could come as early as next year if the talks, backed by both the French and Italian governments, succeeded.

Shares in ST opened down 7.44% at E15.42 on Wednesday.

Motorola, once a leading semiconductor pioneer, is reviewing all its businesses in the wake of the technology downturn. It is also reported to have been in talks with Siemens about swapping its wireless infrastructure business for the German group's mobile handsets operation.

A French government official said a deal with Motorola would crown the career of Pasquale Pistorio, ST's chairman and chief executive, and fulfil a professional dream.Motorola alters second-half hopes
click here

Mr Pistorio worked for Motorola for 17 years, rising to head its international semiconductor division before returning to Europe. He then managed the integration of Italy's SGS group with the French Thomson microelectronics business to form ST.

ST is the world's third-largest chip maker, with annual sales last year of $6.36bn. Motorola's semiconductor operations rank seventh in the world league with annual sales of about $5bn. The new combination would overtake Toshiba of Japan with annual sales of $7.1bn and close the gap with Intel which had sales of $23.5bn last year. ST has sounded out Brussels about potential competition issues.

Mr Pistorio said earlier this year he was considering a big acquisition in the US or Asia as part of a strategy to take advantage of industry consolidation.

A large acquisition there would help ST build a presence in key markets where it has had a relatively low profile. Any acquisition would also have to complement the company's strategic sectors andcreate "value not glamour", he said. Apart from a few smaller deals, ST has relied on internal growth.

Motorola and ST have already forged links this year in a significant research and development partnership which also includes Philips of the Netherlands. The three companies plan to invest initially €1.5bn in the R&D partnership based in France at Crolles, near Grenoble. It will be the first time a US chip maker has decided to move some of its R&D operations to Europe.

The French and Italian governments own about 36 per cent of the shares indirectly through state-controlled companies including the French Areva nuclear group, France Telecom and the Italian Finmeccanica engineering holding company.

Chris Galvin, the Motorola chief executive whose grandfather founded the company, has pushed through aggressive restructuring as the group struggles with the bursting technology bubble. More than 45,000 jobs have been cut and the costs of the restructuring led to a quarterly loss of $2.3bn in July.

Motorola declined to comment.<HR></BLOCKQUOTE>

Interesting no? If the deal is indeed in the works, it could contribute to Apple Switching to IBM for processors. It makes sense for Motorola, as they have been hemmoraging money in this area for some time now.

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