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On May 5, 2000, STMicroelectronics agreed to buy Nortel Networks’ semiconductor production operation in Ottawa for a headline price of about $100 million. The asset purchase was part of a wider six-year supply and development relationship: ST committed to supply Nortel with about $2 billion in semiconductors during the first three years. The companies expected the transaction to close in late Q2 or early Q3 2000. (STMicroelectronics, May 5, 2000)
What did STMicroelectronics buy from Nortel?
STMicroelectronics acquired Nortel’s Ottawa semiconductor production operation and relevant technologies. It was an asset purchase, not a purchase of Nortel Networks as a whole. Contemporary transaction coverage put gross proceeds at approximately $100 million, subject to purchase-price adjustments and milestone-based earn-out payments. (STMicroelectronics; contemporary transaction coverage)
The parties announced the agreement on May 5, 2000, and expected to complete it in late in the second quarter or early in the third quarter of that year. (STMicroelectronics, May 5, 2000)
Why did Nortel sell the operation?
Nortel was giving up ownership of semiconductor manufacturing while seeking reliable access to components for its communications products. Under the arrangement, ST could draw on its multiple wafer fabs to provide guaranteed component supply. Contemporary coverage described the shift as a way for Nortel to reduce manufacturing cost and risk and concentrate on systems and services. (The New York Times, May 6, 2000)
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How the wider agreement worked
The purchase was coupled with a six-year strategic relationship, rather than standing alone as a one-time transfer of assets.
| Part of the agreement | What was announced |
|---|---|
| Semiconductor supply | STMicroelectronics would supply Nortel with semiconductors valued at about $2 billion during the first three years of the relationship. (STMicroelectronics) |
| Technology development | The companies would collaborate on new integrated circuits and product maintenance for communications systems, including high-speed optical networks. (STMicroelectronics) |
| Employees | Approximately 470 Nortel employees were expected to receive employment offers from STMicroelectronics; the companies said no job losses were anticipated at announcement. (STMicroelectronics) |
As Aldo Romano, STMicroelectronics’ corporate vice president and general manager of the Telecom, Peripherals and Automotive Group, put it at the time, “This new agreement will cover a variety of application fields, and the field of high speed optical networks.” (STMicroelectronics)
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Why do accounts give both $100 million and $60 million?
The $100 million figure is the headline gross transaction price reported when the agreement was announced. A later STMicroelectronics annual-report record describes the Nortel semiconductor acquisition among 2000 investing activities at approximately $60 million. (STMicroelectronics annual-report record)
These figures use different reporting bases. The announcement’s gross proceeds were subject to purchase-price adjustments and milestone earn-outs, while the annual report’s figure appears in an account of investing activities. The available descriptions do not establish a full reconciliation between them, so the $60 million figure should not be treated as a correction of the $100 million announcement price.
What happened to the Ottawa fab afterward?
In May 2001, STMicroelectronics announced that it would close the Ottawa production wafer fab and transfer production to other ST plants worldwide by December. It said its Ottawa research and development operation would continue. (CBC News, May 2001; EE Times, May 2001)
A follow-up account characterized the 2000 transaction as a transfer of Ottawa operations to ST combined with a joint development agreement and a six-year supply agreement worth up to $2 billion in its first three years. (EE Times) The later closure therefore concerned production at the Ottawa wafer fab; it did not mean ST ended all Ottawa activity, since R&D was to remain.
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