LONDON — The first reaction was, why stop at joining forces in wireless communications. ST Microelectronics and NXP Semiconductors also share complementary technologies and products that target the automotive market, and others.

And the news that ST and NXP plan to merge their wireless chip operations may yet be the precursor of combining forces in other contained sectors. But during their conference call the heads of the two companies firmly parried all suggestions of such moves, and wanted to focus on the opportunities in wireless.

And there are certainly many.

They are also right in stressing that there is a dire need for further consolidation in the sector, and that a combination of their respective strengths in different RF technologies will help in the ultimate aim of devising really tightly integrated chips for their customers. The roll-call now includes Samsung, the number two in the mobile handsets business, courtesy of NXP's recent deal with the handset maker. Big beast Nokia is already a major ST customer, if not more than a customer, the Finnish group having shifted its semiconductor activities to ST late last year.

The wireless-focused deal should certainly make the individual parts more competitive, a must as average selling prices are feeling the strain, notably in the cellular business. But siphoning off what is for both companies perhaps not quite the crown jewels but certainly very important segments could leave what remains more exposed.

ST's boss Carlo Bozotti made big play of the fact that the deal is about creating scale, and that scale is fundamental. But ST has just parked its non-volatile memories operations, both manufacturing and R&D, in the Numonyx venture with Intel, and is now embarking on another spin-out that will be generating over $3 billion worth of business. That is two large chunks of the business outside of the main holding.

Having said that, a full scale merger would indeed be like tying your feet together, and Bozotti and NXP CEO Frans van Houten are probably right not to take that step, even having digested the suggestion last month by Joseph Borel, a former executive VP at ST, that in combination with the third force in European semiconductors, Infineon Technologies, they combine to form a unified European powerhouse. When we contacted the companies on that proposal, we received luke-warm, if no response for all three.

On the whole, it is difficult to argue against Nokia, who warmly welcomed the joint venture. And if the companies really do double up their R&D investments to $800 million, they will be getting near to what the top two in the sector, Texas Instruments and Qualcomm separately spend on wireless innovation.

Mind you, van Houten and Bozotti also pointed to the parent companies' opportunity for $250 million of annual "synergy savings" by 2011, so the combined 9,000 employees in the JV will be feeling a little less secure today.