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NXP, Freescale merger: Tactical, but not strategic

Posted: 04 Mar 2015     Print Version  Bookmark and Share

Keywords:NXP  Freescale  ARM Cortex  MCU  processor 

The planned merger of NXP and Freescale will give birth to a large company, that much is true. However, the new company will not be a substantially different one. At the very least, the combined giant will have the arsenal it needs to ensure its survival in a consolidating chip industry.

Assuming the deal closes as expected before the end of the year, executives are confident they can shave $200 million off annual 2016 costs largely from administrative overlap and expanded buying power. The savings could expand to a maximum $500 million/year at some undetermined point in the future, executives said. However, they are not prepared yet to set any targets for accelerating growth in revenues or profits.

Freescale, NXP to ink mega merger deal
Considered as one of the largest consolidations in the semiconductor industry to date, NXP and Freescale have revealed their plans for a merger. Upon approval, the companies would create a top 10 chip maker and embedded processor giant with more than $10 billion in combined revenues.

As part of the deal, NXP will sell its high-performance RF unit in a nod to its overlap with a stronger unit at Freescale and to avoid regulatory issues. Rick Clemmer, CEO of NXP and planned CEO of the merged company, said he does not anticipate any plant closures.

The guidelines suggest layoffs will be limited, especially among engineering ranks. However, executives have yet to work out many details, including overlap in the two companies' ARM Cortex-M MCUs lines.

The combined company would have more than $10 billion in annual revenues, becoming the world's ninth largest semiconductor company. It would easily surpass rivals ST and Renesas at about $7.3 billion each, however it would still be a notch below Texas Instruments and Toshiba.

Clemmer correctly highlights the merged NXP would be a leader in automotive chips. The sector is growing rapidly as cars become more digital, networked and electrically powered, but it still represents one of the relatively smaller slices of the electronics pie.

NXP predicted to become a leader in automotive chips

NXP predicted to become a leader in automotive chips.

Even with the merger, the new NXP would have only a 13 per cent market share, a shade above the nearest competitors at 11 per cent and nine per cent. "The area of most [product] overlap [in the deal] is likely for automotive MCUs," said Christopher Rommel, analyst for VDC Research Group.

Executives also highlight the company would be a close second, by its own count, in general-purpose MCUs. VDC has a different tally, pegging the new NXP at a 17 per cent share versus 25 per cent for Renesas, the market leader.

However you count it, the MCU space is highly fragmented and hotly competitive. All the players are adopting ARM Cortex-M cores, making differentiation increasingly difficult.

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